TECHNOLOGICAL UNIVERSITY OF THE PHILIPPINES

Ayala Blvd., Ermita Manila

Compilation of Report in
Production Operation Management

CHAPTER 1

PRODUCTION OPERATIONS MANAGEMENT

1.1) INTRODUCTION TO PRODUCTION OPERATIONS MANAGEMENT AND ITS IMPORTANCE TO
THE ORGANIZATIONS,ECONOMIC AND COMMUNITY
1.2) PROCESS AND STRATEGY IN DESIGNING OPERATING PRODUCTION SYSTEM
1.3) THE SPECIFIC FUNCTIONS/ACTIVITY AND RESPONSIIBLITY OF A PRODUCTION
OPERATIONS MANAGER
1.4) THE HISTORICAL EVOLUTION OF PRODUCTION OPERATIONS MANAGEMENT
1.5) OPERATIONS AND SUPPLY APPROACH TO PRODUCTION OPERATIONS
1.6) PRODUCTION JOB DESIGN AND WORK MESUREMENT

CHAPTER 1.1-1.2
Production-Operations management is an area of management concerned with overseeing, designing, and
controlling the process of production and redesigning business operations in the production of goods or services.
SCOPE OF PRODUCTION AND OPERATION MANAGEMENT
Production and operations management concern with the conversion of inputs into outputs, using physical
resources, so as to provide the desired utilities to the customer while meeting the other organizational objectives of
effectiveness, efficiency and adoptability. It distinguishes itself from other functions such as personnel, marketing,
finance, etc., by its primary concern for conversion by using physical resources. Following are the activities which
are listed under production and operations management functions:
LOCATION OF FACILITIES
Location of facilities for operations is a long-term capacity decision which involves a long term commitment
about the geographically static factors that affect a business organization. It is an important strategic level decisionmaking for an organization.
PLANT LAYOUT AND MATERIAL HANDLING
Plant layout refers to the physical arrangement of facilities. It is the configuration of departments, work
centers and equipment in the conversion process. The overall objective of the plant layout is to design a physical
arrangement that meets the required output quality and quantity most economically.
'Material Handling' refers to the 'moving of materials from the store room to the machine and from one machine to
the next during the process of manufacture'. It is also defined as the 'art and science of moving, packing and storing
of products in any form'.
PRODUCT DESIGN
Product design deals with conversion of ideas into reality. Every business organization have to design,
develop and introduce new products as a survival and growth strategy. Developing the new products and
launching them in the market is the biggest challenge faced by the organizations. The entire process of need
identification to physical manufactures of product involves three functions: marketing, product development,
and manufacturing.
PROCESS DESIGN
Process design is a macroscopic decision-making of an overall process route for converting the raw material
into finished goods. These decisions encompass the selection of a process, choice of technology, process flow
analysis and layout of the facilities.
PRODUCTION PLANNING AND CONTROL
Production planning and control can be defined as the process of planning the production in advance, setting
the exact route of each item, fixing the starting and finishing dates for each item, to give production orders to shops
and to follow up the progress of products according to orders.
QUALITY CONTROL
Quality Control (QC) may be defined as 'a system that is used to maintain a desired level of quality in a
product or service'. It is a systematic control of various factors that affect the quality of the product. Quality control
aims at prevention of defects at the source, relies on effective feedback system and corrective action procedure.
MATERIALS MANAGEMENT
Materials management is that aspect of management function which is primarily concerned with the
acquisition, control and use of materials needed and flow of goods and services connected with the production
process having some predetermined objectives in view. The main objectives of materials management are:
-To minimize material cost.
-To purchase, receive, transport and store materials efficiently and to reduce the related cost.
-To cut down costs through simplification, standardization, value analysis, import substitution, etc.
MAINTENANCE MANAGEMENT
In modern industry, equipment and machinery are a very important part of the total productive effort.
Therefore, their idleness or downtime becomes are very expensive. Hence, it is very important that the plant
machinery should be properly maintained.
The main objectives of maintenance management are:

To achieve minimum breakdown and to keep the plant in good working condition at the lowest possible cost.
To keep the machines and other facilities in such a condition that permits them to be used at their optimal capacity
without interruption
Functional Strategies in Production / Operations
Many writers have stressed the importance of linking manufacturing strategy with corporate level and
business level strategy to ensure consistent decisions. Some researchers have argued that manufacturing is the way to
compete. Others have forecasted increased strategic advantage due to manufacturing strategy in the future.
One of the most widely cited books dealing with the subject of competition through manufacturing strategy is
Restoring Our Competitive Edge, by Hayes and Wheelwright. According to this researchers, two themes should
be used to evaluate the soundness of any functional strategy: consistency (both internal and Aexternal) and
contribution (to competitive advantages).
Production/operations management (POM) involves the process of transforming inputs, such as raw materials and
parts, into outputs.
Roger Schroeder suggests the production/operations management comprises five function or decision areas:
process, capacity, inventory, work force, and quality.
POM operating strategies must be coordinated with marketing/financial, human resource strategies. James Dilworth
outlines several types of strategic decisions that a company might make and considers production/operations
implications of those decisions.
Steven Wheelwright recommends that in designing and operation production-operations management, a company
must explicitly establish the relative priorities it will give to the four performance characteristics: cost efficiency,
quality, dependability, and flexibility.
These performance characteristics can be briefly described as follows:
Cost efficiency
A company that emphasizes cost efficiency will see that its capital, labor, and other operating costs are kept
low relative to those of other, similar companies.
Quality
A company that emphasizes quality will consistently strive to provide a level of quality that is significantly
superior to that of its competitors, even if it has to pay extra to do so.
Dependability
A company that stresses dependability can be relied on to have its goods available for customers or to deliver
its goods or services on schedule, if it is at all possible.
Flexibility
A company that develops flexibility can quickly respond to changes in product design, product mix, or
production volume.
It is important to note that production/operations activities often represent the largest part of an organization's human
and capital assets.

CHAPTER 1.3-1.4
Product Operations Manager
A production manager is involved with the planning, coordination and control of manufacturing processes.
They ensure that goods and services are produced efficiently and that the correct amount is produced at the
right cost and level of quality.
Activity and Responsibility of a Production Operations Manager
Over seeing the production process
Quality Control
Making sure that products are produced on time
Working out the human and material resources needed
ensuring that the production is cost effective
Drafting a timescale for the job
being responsible for the selection and maintenance of equipment
implementing quality-control programmes

 Liaising among different departments, e.g. suppliers, managers

Working with managers to implement the company's policies and goals
Supervising and motivating a team of workers.
Reviewing worker performance.
identifying training needs
Product design and purchasing
Historical Evolution/Development of Product-Operations Management (chapter 1) 1.4
Industrial Revolution- Late 1700s
The Industrial Revolution was the transition to new manufacturing processes in the period from about 1760 to
sometime between 1820 and 1840.
Technological Developments
Textiles Mechanized cotton spinning powered by steam or water greatly increased the output of a worker.
Steam power The efficiency of steam engines increased so that they used between one-fifth and one-tenth
as much fuel.
Iron making The substitution of coke for charcoal greatly lowered the fuel cost for pig iron and wrought
iron production.
Famous inventors in industrial revolution period
Cartwright -invented the power loom which significantly increased the efficiency of textile
production. He also developed a wool combing machine.
Thomas Edison -and his workshop patented 1,093 inventions. Included in this were the phonograph,
the incandescent light bulb, and the motion picture. He was the most famous inventor of his time and
his inventions had a huge impact on America's growth and history.
Tesla- invented many important items including fluorescent lighting.He also is credited with
inventing the radio.
Alexander Graham Bell- invented the telephone in 1876. This invention allowed communication to
extend to individuals. Before the telephone businesses had to rely on the telegraph.

Scientific Management Early 1900s

Scientific Management, also called Taylorism, is a theory
of management that analyzes and synthesizes workflows. Its main objective is improving economic
efficiency, especially labor productivity. It was one of the earliest attempts to apply science to
the engineering ofprocesses and to management.
Its development began in the United States with Frederick Winslow Taylor in the 1880s and '90s
within the manufacturing industries. Its peak of influence came in the 1910s; by the 1920s, it was still
influential but had entered into competition and syncretism with opposing or complementary ideas.

Human Relations Movement -1930s to 1960

Human relations movement refers to the researchers of organizational development who study
the behaviour of people in groups, in particular workplace groups and other related concepts in fields such
as industrial and organizational psychology. It originated in the 1930s' Hawthorne studies, which examined
the effects of social relations, motivationand employee satisfaction on factory productivity.

Management Science -1940s to 1960s

Management science (MS), is the broad interdisciplinary study of problem solving and decision
making in human organizations, with strong links to economics, business,engineering, and other sciences. It

uses various scientific research-based principles, strategies, and analytical methods including mathematical
modeling, statistics and numerical algorithms to improve an organization's ability to enact rational and
meaningful management decisions by arriving at optimal or near optimal solutions to complex decision
problems.

Computer Age -1960s

The Information Age (also known as the Computer Age, Digital Age, or new media Age) is a period
in human historycharacterized by the shift from traditional industry that the Industrial Revolution brought
through industrialization, to an economy based on information computerization.

Environmental issues -1970s

Just-in time-system (JIT) -1980s

Just-in-time (JIT) manufacturing, also known as just-in-time production or the Toyota production
system (TPS), is a methodology aimed primarily at reducing flow times within production as well as response
times from suppliers and to customers. Following its origin and development in Japan, largely in the 1960s
and 1970s and particularly at Toyota, JIT migrated to Western industry in the 1980s, where its features were
put into effect in many manufacturing companiesas is attested to in several books and compendia of case
studies and articles from the 1980s.

Total Quality Management (TQM)-1980s

Total Quality Management (TQM) is a comprehensive and structured approach to
organizational management that seeks to improve the quality of products and services through ongoing
refinements in response to continuous feedback.

Reengineering -1980s
Business process re-engineering is a business management strategy, originally pioneered in the early
1990s, focusing on the analysis and design of workflows and business processes within an organization.

Global Competition -1980s

Global competition is the services or products provided by competing companies that serve
international customers. There are challenges that are faced in competing globally and to be successful
companies have to pay attention to cultural differences.

Electronic commerce -2000s

Electronic commerce, commonly written ase-commerce, is the trading or facilitation of trading in
products or services using computer networks, such as the Internet

CHAPTER 1.5-1.6
OPERATIONAL APPROACH
An organized enterprise does not have to exist in a vacuum. It is dependent on its external environment
INPUT
Something that is put in.
Human Resource
Equipments
Raw Materials
Maintenance

Financial
Quality Department
Parts
Technology Process
Skills

TRANSFORMATION PROCESS
Elements should be considered during the transformation process.
1. Communication System
Communication is essential during the process to all phases of managerial functions.
FUNCTIONS: It integrates the managerial functions
To link the external environment with the enterprise where many of the claimants are.
2. External Variables
Effective managers will regularly scan the external variables. While it is true that managers may have little no power
to change the external environment, they have no alternative but to respond it.
OUTPUT
Something that is produced.
Goal Integration
Products
Services
Profits
Satisfaction
SUPPLY APPROACH
Supply Chain Management
It is the management of the flow of goods and services. It includes the movement and storage of raw materials, workin-process inventory and finished goods from point of origin to point of consumption.
FUNCTION: To meet or exceed the required or demanded customer service level in targeted markets and to
optimize total supply chain invested and cost.
JOB DESIGN
It is the function of specifying the work activities of an individual or group in an organizational setting.
JOB DESIGN DECISION
What
When
Where
Who
Why
How
PHYSICAL CONSIDERATIONS IN JOB DESIGN

WORK PHYSIOLOGY

 Sets work rest cycles according to energy

expended in various parts of the job.
The harder the work, the more the need
for rest periods.
Term used to describe the study of physical arrangement of the work space together with tools used to perform a
task
WORK MEASUREMENT
It is a process of analyzing jobs for the purpose of setting time standards.
WHY USE IT?
Schedule work and allocate capacity
Motivate and measure work performance
Evaluate Performance
VARIOUS TECHNIQUES OF WORK MEASUREMENT
Time Study Is a work measurement technique for recording the times and rates of working for the elements of a
specified job carried out under specified conditions.
WORK SAMPLING is use as inference to make statements about work activity based on sample of activity
Basic Compensation System
Straight Salary
Piece Rate
Commissions

CHAPTER 2
PRODUCTIVITY-COMPETITIVENESS AND
STRATEGY
2.1) STRATEGIC CAPACITY AND PROCESS ANALYSIS MANAGEMENT
2.2) AN INTRODUCTION TO PRODUCTIVITY
2.3) THE MANUFUCTURING PROCESS ITS PRODUCTIVITY MEASUREMENTS
AND VARIABLES
2.4) ORGANIZATIONAL ETHICS AND SOCIAL RESPONSIBILITY TO ITS EMPLOYEES AND
COMMUNITY

2.5) THE IMPORTANCE OF GANTT CHART IN PRODUCTION-OPERATIONS AND ITS FUNCTIONS

2.6) THE IMPORTANCE OF GENERATING NEW PRODUCTS THRU INNOVATIONS OR INVENTIONS
2.7) THE PRODUCT DESIGN PROCESS

CHAPTER 2.1-2.2

Strategic Capacity and

Process Analysis Management
Capacity refers to the systems potential for producing goods.
Capacity planning involves long-term and short-term considerations
Long-term considerations relate to all levels of capacity.
Short-term considerations relate to variations in capacity requirements due to seasonal, random, and irregular
fluctuations in demand.
Common strategies include:
a)

Leading Capacity is where capacity is increased to meet expected demands.

b) Following Capacity is where companies wait for demand increases before expanding capabilities.
c)

Tracking Capacity which adds incremental capacity over time to meet demand.

The two most useful functions of capacity are

Design Capacity which refers to the maximum designed service capacity or output rate.

Effective Capacity is the design capacity minus the personal and other allowances.
These two functions of capacity can used to find the efficiency and utilization. These are calculated by the formulas
below:
Efficiency = Actual Output/ Effective Capacity x 100%
Utilization = Actual Output/ Design Capacity x 100%
Importance of Strategic Capacity
It helps determine the limit of output and provide a major insight to determining operation cost.
To find a medium between long term supply and capabilities of an organization.

Determinants of Effective Capacity

Facilities the size and provisions for expansion are key in the design of facilities. Other facilities include locational
factors (transportation costs, distance to the market, labor supply, energy sources).
Product and Service Factors the more uniform the output the more opportunities there are for standardization of

methods and materials. This leads to greater capacity.

Process Factors
quantity capability is an important determinant of capacity, so is output quality. If quality does not meet the
standards then output rate decreases.
Human Factors
T asks that are needed in certain jobs, the array of activities involved and training, skill and experience required to
perform a job.
Policy Factors
management policy can affect capacity by allowing or nt allowing capacity options such as overtime or 2nd
or 3rd shifts.
Operational Factors
inventory stocking decisions, late deliveries, purchasing requirements, acceptability of purchased materials
and parts and quality inspection and control procedures.
Supply Chain Factors
what impact will the changes have on supplies warehousing, transportation and distribution.
External Factors
minimum quality and performance standards can restrict managements options for increasing and using
capacity.

Processes can have a significant impact on the performance of a business, and process can improve a firms
competitiveness.
The first step to improving a process is to analyze it.
Process generally involves the following tasks:
1.

Define the process boundaries that mark the entry points of the process inputs and exit points of the process
outputs.

2.

Construct a process flow diagram that illustrates the various process activities and their interrelationships.

3.

Identify the bottleneck, that is, the step having the lowest capacity.

4.

Evaluate further limitations in order to quantify the impact of the bottleneck.

Use the analysis to make the operating decisions and to improve the process.

Process Flow Diagram

Inverted triangles represent storage (inventory).

Rectangles represent tasks.
Circles represent storage of information.
Arrows represents flow.
Task drawn one after the other in series are performed sequentially. Tasks drawn in parallel are performed
simultaneously.
Process Performance Measures
Process capacities the maximum output rate.
Capacity utilization is the percentage of process capacity that actually is being used.
Throughput rate (a.k.a flow rate) is average rate which units flow past a specific point in the process.
Flow time (a.k.a throughput time or lead time) average time that a unit requires to flow three the process from entry
point to the exit point.
Cycle time is the time between successive units as they are output from the process.
Process time is the average time the unit is worked.
Idle time is the time when no activity is being performed.
Work-in-process is the amount of inventory in the process.
Set up time is the time required to prepare the equipment to perform an activity on a batch of units.
Direct labor content is the amount of labor (in units of time) actually contained in the product.
Direct labor utilization is the fraction of labor capacity that actually is utilized as a direct labor.

Process improvement
1.Reduce work-in-process inventory.
2.Add additional resources to increase capacity of the bottleneck.
3.Improve the efficiency of the bottleneck activity
4.Move work away from bottleneck resources as possible.
5.Minimize non-value adding activities.
6.Redesign the product for better manufacturability.
7.Flexibility can be improved by outsourcing certain activities.

Introduction to Productivity
Productivity represents the relationships between inputs and outputs in the production process.
Productivity helps define both the scope raising living standards and the competitiveness of an economy.

CHAPTER 2.3
Manufacturing is the production of merchandise for use or sale using labour and machines, tools, chemical and
biological processing, or formulation.
Productivity a measurement of how well an industry or business are using their resources.
Operations management is an area of management concerned with overseeing, designing, and controlling the
process of production and redesigning business operations in the production of goods or services.
Productivity Measurement
Recall that operations management is responsible for managing the transformation of numerous inputs into a range
of outputs, such as goods or services. But how do we know whether this transformation process is efficient? A
measure of how efficiently inputs are converted into outputs is called productivity. Productivity measures how well
resources are used. It is computed as a ratio of outputs (goods and services) to inputs (labor and materials). The more
productive a company is, the better it uses its resources. The equation is as follows:
Productivity = output/input
It is often much more useful to measure the productivity of one variable at a time. This allows us to evaluate how
efficiently various resources are being used. The interpretation of productivity is not as easy as you might think.
Productivity is a relative measure that should be tracked over time. This allows us to benchmark against ourselves,
our competitors, and our industry.
Another criterion for evaluating productivity and setting standards for performance is considering the companys
strategy for competing in the marketplace. This is called a competitive priority, and it defines how a company
competes. A company that competes based on speed would probably measure productivity in units produced over
time. However, a company that competes based on cost might measure productivity in terms of costs of inputs such
as labor, materials, and overhead. On the other hand, a company that competes on quality may measure productivity
based on the number of errors made. The important thing is that the productivity measure selected provides
information on how the company is doing relative to the competitive priority it defines as most important.

Variables
Technology. A frequently stated objective of measuring productivity growth is to trace technical change. Technology
has been described as the currently known ways of converting resources into outputs desired by the economy and
appears either in its disembodied form (such as new blueprints, scientific results, new organizational techniques) or
embodied in new products (advances in the design and quality of new vintages of capital goods and intermediate
inputs). In spite of the frequent explicit or implicit association of productivity measures with technical change, the

link is not straightforward.

Efficiency. The quest for identifying changes in efficiency is conceptually different from identifying technical
change. Full efficiency in an engineering sense means that a production process has achieved the maximum amount
of output that is physically achievable with current technology, and given a fixed amount of inputs. Technical
efficiency gains are thus a movement towards best practice , or the elimination of technical and organizational
inefficiencies.
Real cost savings. A pragmatic way to describe the essence of measured productivity change.
Although it is conceptually possible to isolate different types of efficiency changes, technical change and economies
of scale, this remains a difficult task in practice. Productivity is typically measured residually and this residual
captures not only the above-mentioned factors, but also changes in capacity utilization, learning-by-doing and
measurement errors of all kinds.
Living standards. Measurement of productivity is a key element towards assessing standards of living. A simple
example is per capita income, probably the most common measure of living standards: income per person in an
economy varies directly with one measure of labor productivity, value added per hour worked. In this sense,
measuring labor productivity helps to better understand the development of living standards.
CHAPTER 2.4
Organizational ethics is the ethics of an organization, and it is how an organization responds to an internal or
external stimulus. Organizational ethics is interdependent with the organizational culture. (which includes corporate
governance and corporate ethics). Organizational ethics express the values of an organization to its employees and/or
other entities irrespective of governmental and/or regulatory laws.
Examples of Organizational Ethics
Communication
Your staff can benefit from detailed information about how your organizational ethics apply to various forms
of communication. Employees communicate face to face, on the phone, via email and text messages and through
transmission of many types of files. They maintain contacts with fellow employees, customers, suppliers and other
stakeholders. You might create standards for professional communication and prohibit employees from sending
messages that will intimidate or harm another person or group. Look at how information travels through your
business, especially in decision-making processes and strategic communications.
Conflicts of Interest
Employees need your guidance on how their jobs could create a conflict of interest. For example, if your
business fulfills a contract with a government agency, you could be subject to certain legal requirements for yourself
and your staff. If you examine the different types of business relationships that your business has, you can make a list
of potential conflicts of interest. You can ensure your code of ethics and training materials cover these scenarios.
Modeling Ethics
Entrepreneurs might find the leadership they provide is more important than their business code of ethics.
Ethical guidelines are general reminders for employees to follow. Employees can learn a lot by observing how you
interact with customers and suppliers, picking up important clues about how to behave in these situations. If you
aren't modeling your code of ethics, then employees would be justified in thinking they don't have to follow it.
Employee Buy-In
A code of ethics can be more effective if employees view it as something they're proud to follow. They can
help you decide what professional standards should be included in a new code of ethics. Your ethical standards
should fit your respective industry. Just like members of a professional association ascribe to a shared code of ethics,
employees can enjoy the social status that results from following a code of ethics and building a reputation for good
business practices in the local community. Have employees vote on the final version of the company code of ethics,

ensuring you have majority support.

Social responsibility
is an ethical framework which suggests that an entity, be it an organization or individual, has an obligation to
act for the benefit of society at large. Social responsibility is a duty every individual has to perform so as to
maintain a balance between the economy and the ecosystems.
Is a form of self-regulation that businesses adopt as a part of their corporate conscience and citizenship. Often
referred to as corporate social responsibility or CSR, this policy spurs businesses to develop means to monitor the
publics social perception of them as a responsible business. The business goal of social responsibility is to
encourage the companys actions toward the positive impact of consumer, community and employee responsibility.

Example of Social Responsibility

Voluntary Hazard Elimination
Companies involved with social responsibility often take action to voluntarily eliminate production practices
that could cause harm for the public, regardless of whether they are required by law. For example, a business could
institute a hazard control program that includes steps to protect the public from exposure to hazardous substances
through education and awareness. A plant that uses chemicals could implement a safety inspection checklist to guide
staff in best practices when handling potentially dangerous substances and materials. A business that makes
excessive noise and vibration could analyze the effects its work has on the environment by surveying local residents.
The information received could be used to adjust activities and develop soundproofing to lessen public exposure to
noise pollution.
Community Development
Companies, businesses and corporations concerned with social responsibility align with appropriate
institutions to create a better environment to live and work. For example, a corporation or business may set up a
foundation to assist in learning or education for the public. This action will be viewed as an asset to all of the
communities that it serves, while developing a positive public profile.
Philanthropy
Businesses involved in philanthropy make monetary contributions that provide aid to local charitable,
educational and health-related organizations to assist under-served or impoverished communities. This action can
assist people in acquiring marketable skills to reduce poverty, provide education and help the environment. For
example, the Bill and Melinda Gates Foundation focuses on global initiatives for education, agriculture and health
issues, donating computers to schools and funding work on vaccines to prevent polio and HIV/AIDS.

Creating Shared Value

Corporate responsibility interests are often referred to as creating shared value or CSV, which is based upon
the connection between corporate success and social well-being. Since a business needs a productive workforce to
function, health and education are key components to that equation. Profitable and successful businesses must thrive
so that society may develop and survive. An example of how CSV works could be a company-sponsored contest
involving a project to improve the management and access of water used by a farming community, to foster public
health.
Social Education and Awareness

Companies that engage in socially responsible investing use positioning to exert pressure on businesses to
adopt socially responsible behavior themselves. To do this, they use media and Internet distribution to expose the
potentially harmful activities of organizations. This creates an educational dialogue for the public by developing
social community awareness. This kind of collective activism can be affective in reaching social education and
awareness goals. Integrating a social awareness strategy into the business model can also aid companies in
monitoring active compliance with ethical business standards and applicable laws.

CHAPTER 2.5-2.6
Gantt chart
A Gantt chart, commonly used in project management, is one of the most popular and useful ways of showing
activities (tasks or events) displayed against time. On the left of the chart is a list of the activities and along the top is
a suitable time scale. Each activity is represented by a bar; the position and length of the bar reflects the start date,
duration and end date of the activity. This allows you to see at a glance:

What the various activities are

When each activity begins and ends
How long each activity is scheduled to last
Where activities overlap with other activities, and by how much
The start and end date of the whole project

To summarize, a Gantt chart shows you what has to be done (the activities) and when (the schedule).

A Simple Gantt chart

Gantt Chart History
The first Gantt chart was devised in the mid 1890s by Karol Adamiecki, a Polish engineer who ran a steelworks in
southern Poland and had become interested in management ideas and techniques. Some 15 years after Adamiecki ,
Henry Gantt, an American engineer and management consultant, devised his own version of the chart and it was this
that became widely known and popular in western countries. Consequently it was Henry Gantt whose name was to
become associated with charts of this type.

Karol Adamiecki

Henry Gantt

Originally Gantt charts were prepared laboriously by hand; each time a project changed it was necessary to amend or
redraw the chart and this limited their usefulness, continual change being a feature of most projects. Nowadays,
however, with the advent of computers and project management software, Gantt charts can be created, updated and
printed easily.
Today, Gantt charts are most commonly used for tracking project schedules. For this it is useful to be able to show
additional information about the various tasks or phases of the project, for example how the tasks relate to each
other, how far each task has progressed, what resources are being used for each task and so on.
Gantt Chart Importance
While there are a number of reasons to use Gantt charts below are five key reasons they are often advantageous:

Avoid Completion Confusion: Gantt charts were created to keep users on track, providing a visual timeline
for starting and finishing specific tasks. By providing a visual overview of milestones and other key dates, these
charts are thought to offer a more understandable and memorable method of maintaining timescale-based tasks and
deliverables whether tracked on a daily, weekly, monthly or yearly basis. Below diagram shows the power of
visualization found in Gantt charts. In a glance you can see that the interviews are done, there 50% more to do in
training etc.

Keep everyone on the Same Page: Where there is a visual framework for the work to be done, there are
fewer chances for misunderstanding, especially when it comes to highly complex tasks. Using Gantt charts allow
all types of stakeholders to have the same information, set mutually understood expectations, and conduct their
efforts according to the desired protocol.

Understand Task Relationships: These charts can make clear how various tasks are interrelated and perhaps
rely on the completion of another to meet specific objectives. These task relationships revolve around
understanding the timing of each task, which then impacts other tasks listed. This can better assure the optimum
work flow, maximized productivity and overall project success.

Effectively Allocate Resources: By being able to look ahead on the Gantt chart, users can clearly discern
where resources need to be anticipated, allocated or shared to maximize the use of those resources. The more
closely the chart is followed, the better chance there is of keeping project costs within budget while also better
assuring on-time completion.

Get a Handle on the Future: While it is often easy to get caught up in day-to-day tasks as detailed on a
chart, Gantt chart advantages include helping decision-makers look farther ahead to ensure each given project is
working toward the achievement the organizations long-term strategic objectives.
PRODUCT GENERATING THROUGH
INNOVATIONS AND INVENTIONS
Introduction
Every business needs to innovate to stay ahead of the competition. No business can continue to offer the same

unchanged product; otherwise sales would decrease and profits reduced. In this article we will explore some of the
reasons why lack of products development can affect sales and profit.

Consumer "Needs and Wants" Change

Consumer "needs and wants" continuously change. Firms should respond to these changes through their products
and services. Otherwise consumers will switch to competitor products that satisfy their "needs and wants". For
example consumers are becoming more health conscious, this is forcing companies to introduce low sugar, salt and
fat products. Coca-Cola Zero which contains no sugar is a classic example of new product development even though
Coca-Cola's existing product range already contained diet coke. Both diet coke and Coca-Cola Zero contain no sugar
but they taste different.
Product Reaches the End of Its Product Life Cycle
The product maybe at the end of its Product Life Cycle, so the company may introduce new and improved updated
versions. Microsoft has done this by moving from the Xbox to the Xbox 360 and now Xbox 360 limited editions
allow Microsoft to refresh the product through small changes.
Product Is At the Maturity Stage of Its Product Life Cycle
The product might be at the maturity stage of its Product Life Cycle and need modifications to stimulate an increase
in sales. Nintendo have replaced its DSi console with the 3DS console which contains additional features such as an
extra camera so that you can film in 3D, a 3D screen which doesn't require glasses, a joystick and motion sensors.
Environmental Changes
There may be environmental changes which the company wants to capitalize on. Music companies are now selling
more music via internet downloads than through traditional retail shops. Record companies were pushed into selling
music through the internet following the success of the internet site Napster, which offered illegal music downloads.
In April 2006 the song "Crazy" by Gnarls Barkley made history by becoming the first song to achieve the number
one spot in the UK charts through music download sales only. In March 2011 Mercury Records stopped releasing
singles on CD as by then 99% of single sales were through downloads.
Competitors
Competitors may force change. This is very apparent in the technology market, where new products are constantly
being introduced to a target market that welcomes change and innovation. Technology consumers are not afraid to try
new products; in fact they often want the latest gadget to show to friends and colleagues. If a product is successful
then competitors will attempt to develop similar products.
All Products Experiencing Problems
If all of your products are experiencing poor sales or suffering from a negative reputation it is time to change your
product offering.

Summary
New product development is an essential activity for all businesses. It helps you stay ahead of the competition. If you
do not develop new products someone else will and steal all of your customers. The numbers of businesses that have
gone into administration during the current world recession demonstrate the importance of change management.

CHAPTER 2.7
The Product Design Process
Product Design - Product design as a verb is the process of creating a new product to be sold by a business
to its customers. It is essentially the efficient and effective generation and development of ideas through
a process that leads to new products.
What needs to be consider by the product designer?
* Manufacture The process of making products. A product designer must consider if their product can be
made with their facilities. Is it made from raw materials by hand or by machinery?
* Sales Are we producing a product that the consumers want? Is it demandable in the market? If no, of
course you must change your product as soon as possible.
* Purchasing Are the parts specified in stock, or do we have to order them? You must know the supplies of
your product.
* Cost Is the design going to cost too much to make? You must consider the cost of your product if its
going to be expensive when you design it.
* Transport Is the product the right size for the method of transporting? A product designer must consider if
their product can be move/transfer from one place to another.
* Disposal How will the product be disposed at the end of its life?

Steps in Product Designing:

1. Assessing the problem - This is where you will identify the problem within the market and then come up
with ideas or solutions to rectify the problem. This idea could sprout from a gap in the market, or a
product that doesnt function as well as it should.
2. Research - This involves researching in depth to see if there are other similar products on the market, this
ensures that no product is replicated. Which means research can also identify problems with current
products that are similar and work to improve it.

CHAPTER 3
FORECASTING PRODUCTION DEMAND
3.1) WHAT IS DEMAND MANAGEMENT ITS RELEVANT TO PRODUCTION DEMAND
3.2) TYPES OF FORECASTING USE (MATERIALS,PARTS AND RAW MATERIALS)
3.3) PLANNING, FORECASTING AND REPLENISHMENT OF MATERIALS AT THE WAREHOUSE
3.4) STRATEGIC IMPORTANCE OF FORECASTING IN (MATERIALS AND HUMAN RESOURCES)
3.5) MONITORING AND CONTROLING FORECASTING
3.6) SUPPLY CHAIN DESIGN STRATEGY
3.7) UNDERSTANDING AND MEASURING SUPPLY CHAIN IMPORTANCE

CHAPTER 3.1-3.2
Demand Management - It is all about making choices. It is a planning methodology used to forecast (predict), plan
for and manage the demand for products and services. Prioritizing demand when supply is lacking and planning on
using resources for profitable business results. Demand Management is also the process of ensuring that the market
demand and the companys capabilities are in synchronization, it recognizes all demands for products and services to
support the marketplace and doing what is required to help make the demand happen.
Demand - Demand is a buyer's willingness and ability to pay a price for a specific quantity of a good or service.
Demand refers to how much of a product or service is desired by buyers at various prices.
Factors affecting demand:
1. Competitors Action The act of other companies to counter your product.
2. Product Quality The quality of a product or service refers to the perception of the degree to which the product
or service meets the customers expectations.
3. Product Design The process of creating a new product to be sold by a business to its customers.
4. Customers Profit Refers to the customers ability to buy the product.
5. Reputation for Service The reputation for service is important that customers should trust on the product that
they are about to buy.
6. Time of the Year The product should be in the right time and in the right place.
Questions in Demand Management
1. What should be produced? In demand management you should know that kind of product should be
produced. It should be what the consumers needs and wants.
2. Where should it be placed? You should know where to produce the product. It have to be at a place where
customers would surely buy it.
3. When should it be produced? In releasing a product time is important, making sure that the product is on the
right time/season would help in demand management.
4. How much should be produced? The number of product to be produced is considered to avoid excess
products.
Why is planning and forecast important? Demand Management is based on a forecast and planning because a
manufacturing manager cannot be held responsible for not getting a forecast right. It is a concept that integrates
project proposals, portfolio analysis, and project management through workflows.
Four phases of Demand Management
1. Create Process in which ideas is proposed and initially reviewed, then a request is passed.
2. Select Where the request is reviewed and a portfolio selection is made, then an idea is selected.
3. Plan - Captures the business justification for initiating a task or project, again the idea is reviewed and approval
will be given then is off to the last stage.

4. Manage The last stage wherein delivering the project would made and implemented.
Benefits of Demand Management
-

Control over product availability

Smoother product introductions
Improved ability to respond to change
Ability to deliver products/services

CHAPTER 3.3-3.4
Demand Forecasting
What is Forecasting?
In Operations Management, demand forecasting is defined as the business process that attempts to estimate
sales and the use of products so that they can be purchased, stocked, or manufactured in appropriate
quantities in advance to support the firms value adding activities. (Ross, 1995).
Note that no forecasting process can consistently provide perfect forecasts. Any forecast that perfectly
estimates subsequent events should raise cause for alarm. (Makridakis, 1989).
There are two main approaches in forecasting. One approach is quantitative forecasting which relies on past
variables and data. The other is qualitative forecasting which is more about opinions, fundamental analysis, and
intuitions.
Qualitative Techniques
Qualitative techniques are subjective or judgmental and based on estimates and opinions (Chase, 2005). These
forecasts reflect peoples judgments or opinions and suggest likely conditions, such as peoples opinion about
whether it will rain today. These forecasts are preferred when there is a desire to engage individuals within the
organization with a key business process
Grass-Roots Forecasting seeks input from people at the level of the organization that gives them the best
contact with the event under study (Chase, 2005). This technique may consist of conducting a marketing
study of sales representatives for their readings on current market conditions. The potential fault with this tool
is that it is subject to the short-term perspectives of the sources. The source of the data may be unduly
influenced by recent events. For example, a sales person who has had a good day may provide an overlyoptimistic forecast for the future that does not accurately represent market conditions on the whole.

Historical Analogy: Forecasting based on historical analogy explores the possibility that past events can
provide insights into the prediction of future related events. This method ties what is currently being
forecasted to a similar item (Chase, 2005). For example, utilizing the sales pattern of black and white
television sets to forecast color television sales. Economists relay on this type of forecasting model to
forecast business cycles and related developments. This method could prove inaccurate if the forces that
drove past events are no longer present.

Market Research Forecasting: This forecasting method collects data in a variety of ways such as surveys,
interviews and focus groups to evaluate the purchase patterns and attitudes of current and potential buyers of
a good or service. Designers of goods and services use this method to understand their current customers and
the buyers they would like to serve.

Dlephi Method: The Delphi method compiles forecasts through sequential, independent responses by a group
of experts to a series of questionnaires. The forecaster compiles and analyses the respondents input and
develops a new questionnaire for the same group of experts. This sequence works towards consensus that
reflects input from all of the experts while preventing any one individual from dominating the process
(Chase, 2005).

Quantitative Techniques
Quantitative forecasting techniques transform input in the form of numerical data into forecasts using methods in one
of three categories. Each category of quantitative forecasting methods assumes that past events provide an excellent
basis for enhancing the understanding of likely future outcomes.

Time Series Analysis: Time series analysis is based on the premise that data relating to past demand or
performance can be used to predict future demand. Examples of this method include:

a. Simple moving average, where a time period containing a number of data points if averaged by dividing the
sum of the point values by the number of points.
b. Regression analysis, where the average relationship between a dependent variable, sales for example, and one
or more dependent variables, price or advertising for example, is estimated by fitting a straight line to past data to
relate the data value to time.
c. Trend projections, a forecasting technique that relies primarily on historical time series data to predict the
future. This method involves fitting a mathematical trend line to the data points and then projecting it into the
future.
Causal Studies: Causal studies look for causal relationships between leading variables and forecasted
variables. This method tries to understand the system underlying and surrounding the item being forecast
such as the effect of advertising, quality and competition on sales (Chase, 2005).
Mathematical or Simulation models: Simulation models are what-if models that attempt to simulate the
effects of alternative management policies and assumptions about the firms external environment. They try
to represent past behavior in a valid mathematical relationship and then alter that data to project future events.
Most financial models are simulation models. These models are effective in performing a variety of what-if
analyses that assist management in determining the best course of action for the company.
Planning, Forecasting and Replenishment
Collaborative Planning, Forecasting and Replenishment (CFPR) is a business model that takes a holistic approach to
supply chain management and combines the intelligence of multiple trading partners in planning and fulfilling
customer demand by using common metrics, language and firm agreements to improve efficiency for all participants.
CFPR links sales and marketing best practices category management, supply chain planning and execution
processes to increase availability while reducing inventory, merchandizing, transportation and logistics costs.
The CPFR Model
The CPFR model provides a basic framework for the flow of information, goods and services.
The center of the model is represented as the customer, followed by middle ring of the retailer (buyer) and the
outside ring the manufacturer (seller).
The consumer drives demand for goods and services while the retailer is the provider of these goods and
services. The manufacturer supplies the retail channels/stores with the products as demand for products is
pulled through the supply chain by the end user, i.e. consumer.
The diagram below shows the relationships of the three main players along with the four phases:

Strategy & Planning: establishes the ground rules for the collaborative relationship such as business goals, scope of
collaboration, assignment of roles, responsibilities, checkpoints and escalation procedures.
Demand & Supply Management: consists of sales forecasting, order planning/forecasting, inventory positions, and
transit lead times.
Execution: consists of Order Generation, i.e. transitions forecasts to firm demand, and order fulfillment, i.e. the
process of producing, shipping and delivering and stocking products for consumer purchase.
Analysis: tasks include Exception management and Performance assessment. Exception management is actively
monitoring planning and operations for out of bound conditions, while performance assessment is evaluating the
achievement of business goals to uncover trends or develop alternative strategies.
Challenges in CPFR

CPFR may be a simple concept however turning it into practice is a difficult task. Since it involves collaboration
with several trading partners, cultural challenges with each organization are realized and requires an across the board
buy-in. A change in business processes is required, along with an inward focus to develop a broad multi-enterprise
view. Several challenges faced by organizations implementing CPFR are:
Selection of CPFR partners trading partners who wish to collaborate with each other need to assess the
potential relationship according to anticipated, realistic benefits, pertinent to common business goals, organizations
and cultural issues.
Senior Management Buy In senior management must sponsor each of the trading partners and get
involvement from necessary resources, e.g. Human resources, technical infrastructure, time and project budget etc.
Confidentiality Sharing sensitive data reinforces the need to define rules around confidentiality.
Cultural Change Internal and external collaboration requires a mindset of change and capable to be
flexible in adapting a collaborative approach.
Benefits of CPFR
The key benefits of CFPR falls within five major categories:

Improved customer service trough better forecasting techniques More reliable forecasting allows a
more effective way to anticipate consumer demand across the entire supply chain and therefore allow the
business to plan production capacity accordingly. Risks for stock-outs is reduced which improves customer
fulfillment orders which thereby increases revenue, delivery and improved customer service.

Lower Inventories for higher profits accurate predictions of demand as mentioned before will reduce
stock-outs and provide a more efficient understanding of production needs. Safety stock inventory for over
production would be reduced which decreases carrying costs, storage space and potential

spoilage/obsolescence. Additionally, there is improved material flow and release of working capital that can
be used in other areas of the production instead of being tied up in inventory.

Improved ROI on Technology investment effective CPFR technology solutions benefit both
manufacturers and retailers from reduced overhead costs because several inefficiencies are eliminated, i.e.,
antiquated manual processes, custom integrations of different partner IT systems and information searching
of multiple sources/systems.

Improved relationships between trading partners develop when collaboration takes place. Trading
partners gain a better understanding of respective businesses by regularly exchanging information and
establishing direct communication on channels and create a win-win situation.

Cost reduction will occur when production schedule and agreed forecasts are aligned. Costs are reduced by
decreasing set-up times, effort duplication and variations. There is also efficient production capacity
utilization since planning information is more reliable.

CHAPTER 3.5

Forecasting - Say something in future

Prediction of Something
Process of predicting a future event
Forecasting Time Horizons
- Short-range Forecasts
Up to 1 year generally less than 3 months
-Medium-range Forecasts
3 months to 3 years
- Long-range Forecasts
3 years and above
Forecasting in Human Resource
Human resources forecasting involves projecting labor needs and the effects theyll have on a business. An HR
department forecasts both short- and long-term staffing needs based on projected sales, office growth, attrition and
other factors that affect a companys need for labor. In addition to forecasting the number and type of workers youll
need, HR planning includes analyzing the various costs and administrative work that go along with adding workers
or downsizing.
Or Simply,
P- Projecting of Sales, Office Growth, Attrition
A- Analyzing various costs for personnel
D- Determining the future demand
E- Estimating future labor availabilities
Human Resource Forecasting a Strategic Human Resource Planning
Steps:
- Setting the strategic direction
- Designing the Human Resource Management System
- Planning the total workforce
- Generating the required human resources

- Investing in human resource development and performance

- Assessing and sustaining organizational competence and performance
1. Setting the strategic direction
This process focuses on aligning human resource policies to support the accomplishment of the Companys
mission, vision, goals and strategies. The business goals sit at the heart of any HR strategy and in order to align
business and HR you need to answer one key question, Can your organization's internal capability deliver the
organization's business goals?
Many organizations cite their people as their primary source of competitive advantage. Successful companies
continuously identify and adopt innovative human resource management policies and practices to sustain that
advantage. More importantly, they structure work and design training, performance management, pay, and reward
policies to help members of the organization succeed in achieving desired organizational outcomes. In other words,
they integrate and align HRM policies and practices to reinforce employee behaviors that can best realize the leaders
strategic intent. In the most successful companies, the set of policies and practices that collectively make up a
companys HRM system is the critical management tool for communicating and reinforcing the leaders strategic
intent.
2. Designing the Human Resource Management System
This stage focuses on the selection, design and alignment of HRM plans, policies and practices. Various options
may be open to the organization such as drawing on industry best practices.
Emerging HRM policies and practices range from outsourcing certain non-core functions, adopting flexible
work practices (telework, work from home) and the increased use of information technology. Not every industry
trend may be appropriate for a specific organization. In addition, it is essential that a cost-benefit analysis of
implementing new HRM policies and practices be undertaken. For example, the costs (monetary and in allocation of
resources) of implementing a new job grading system may outweigh the benefit of such an undertaking. There may
be more cost-effective alternatives available to the organization at this point in time.
Particular HRM policies and practices may be necessary to support strategic organisational objectives, such as
improving the retention of women in the organisation or promoting diversity, especially the representation of
designated groups amongst senior management.
A good approach in selecting the appropriate HRM policies, procedures and practices is to identify the appropriate
HRM practices which support the organisations strategic intent as it relates to recruitment, training, career planning
and reward management.
3. Planning the total workforce
Determining future business requirements, especially those relating to manpower requirements, represents one
of the most challenging tasks facing human resource practitioners.
The development of a workforce plan is a critical component of any human resource strategy and one of the
expected outcomes of human resource practitioners activities. Despite this, manpower or workforce planning, as well
as succession planning, has only recently enjoyed a resurgence in popularity. To some extent this has been prompted
by the need to develop employment equity and workplace skills plans and set numerical employment equity targets.
The failure of many organizations to develop and implement workforce planning is rather indicative of the lack of
strategic planning itself.
Workforce planning is a systematic process of identifying the workforce competencies required to meet the
companys strategic goals and for developing the strategies to meet these requirements. It is a methodical process
that provides managers with a framework for making human resource decisions based on the organizations mission,
strategic plan, budgetary resources, and a set of desired workforce competencies. Workforce planning is a systematic
process that is integrated, methodical, and ongoing. It identifies the human capital required to meet organizational
goals, which consists of determining the number and skills of the workers required and where and when they will be
needed. Finally workforce planning entails developing the strategies to meet these requirements, which involves
identifying actions that must be taken to attract (and retain) the number and types of workers the organization needs.
A workforce plan can be as simple or as complex as the organizational requires. Workforce planning can be
conducted for a department, division or for the organization as a whole. Whatever the level or approach being
adopted, it must nevertheless be integrated with broad-based management strategies.
In addition to workforce planning, ensure that organizational structure and jobs ensure the efficient delivery of
services and effective management of the organization as a whole.

4. Generating the required human resources

This process focuses on recruiting, hiring, classifying, training and assigning employees based on the strategic
imperatives of the organization's workforce plan.
A comprehensive workplace skills plan will identify appropriate training priorities based on the organizations
workforce needs now and in the future. New recruitment practices may need to be adopted to increase the
representation of designated groups, or securing essential skills in the organization. A comprehensive learnership
strategy may assist in developing future workforce needs, identified either in terms of the organizations workforce
plan or required in terms of industry black economic empowerment charters.
5. Investing in human resource development and performance
Traditional approaches to career planning, performance appraisals, reward management and employee
development must be re-appraised in light of the vision, characteristics and mission outcomes as reflected in the
HRM plans, policies, and practices.
Development responses will aim to increase business skills, the application of business skills (sometimes called
competencies) and the behavioral elements all of which contribute to an organization's effective performance. In
many ways, the Skills Development legislation have required organizations to re-engineer their developmental
methods and practices. New concepts such as lifelong learning and recognizing prior learning should form an
integral component of the process of investing in employees.
Clearly, where a workforce planning exercise reveals that there is little projected growth in the workforce or that
promotional or career development opportunities are limited, strategies aimed at employee retention will be very
different from organizations which are experiencing considerable growth and expansion.
Investment initiatives for the individual, team and organization are all geared to achieve high levels of organizational
performance. It is important that at an individual level, particularly for senior staff, that they feel their development
needs are agreed and that they are provided with the skills to do their jobs. At a team level, it defines the individuals
ability to work flexibly with others and align individual and team skills and activities to business goals all of which
ensures that the organization is equipped to achieve its goals.
Reward strategies aim to align the performance of the organization with the way it rewards its people, providing the
necessary incentives and motivation to staff. Its components can be a combination of base pay, bonuses, profit
sharing, share options, and a range of appropriate benefits, usually based on market or competitor norms and the
organization's ability to pay.
6. Assessing and sustaining organizational competence and performance
Finally, few organizations effectively measure how well their different inputs affect performance. In particular,
no measures may be in place for quantifying the contribution people make to organizational outcomes or, more
important, for estimating how changes in policies and practices, systems, or processes will affect that contribution.
Implementing clear quantifiable measures, identifying milestones in the achievement of specific organizational
goals, and using concepts such as a balanced scorecard will articulate the results of the HR Strategic Plan in
measurable terms. Regular evaluation of the plan will also assist in fine-tuning the HR strategic plan itself.

Monitoring and Controlling Forecast

Forecast Control
There are several ways to monitor forecast error over time to make sure that the forecast is performing
correctly--that is, the forecast is in control. Forecasts can go "out of control" and start providing inaccurate forecasts
for several reasons, including a change in trend, the unanticipated appearance of a cycle, or an irregular variation
such as unseasonable weather, a promotional campaign, new competition, or a political event that distracts
consumers.
A tracking signal indicates if the forecast is consistently biased high or low. It is computed by dividing the
cumulative error by MAD, according to the formula

The tracking signal is recomputed each period, with updated, "running" values of cumulative error and MAD.
The movement of the tracking signal is compared to control limits; as long as the tracking signal is within these
limits, the forecast is in control.
Forecast errors are typically normally distributed, which results in the following relationship between MAD and the
standard deviation of the distribution of error, a:

This enables us to establish statistical control limits for the tracking signal that corresponds to the more familiar
normal distribution. For example, statistical control limits of 3 standard deviations, corresponding to 99.7 percent
of the errors, would translate to 3.75 MADs; that is, 3a 0.8 = 3.75 MADs. Control limits of 2 to 5 MADs are
used most frequently.
SOLUTION:
To use the tracking signal, we must recomputed MAD each period as the cumulative error is computed.
Using MAD = 3.00, the tracking signal for period 2 is
The remaining tracking signal values are shown in the following table:

The tracking signal values in the table above move outside 3 MAD control limits (i.e., 3.00) in period
5 and continue increasing. This suggests that the forecast is not performing accurately or, more precisely, is
consistently biased low (i.e., actual demand consistently exceeds the forecast). This is illustrated in the following
graph. Notice that the tracking signal moves beyond the upper limit of 3 following period 5 and continues to rise. For
the sake of comparison, the tracking signal for the linear trend line forecast computed in Example 10.5 is also plotted
on this graph. Notice that it remains within the limits (touching the upper limit in period 3), indicating a lack of
consistent bias.

Another method for monitoring forecast error is statistical control charts. For example, 3s control limits would
reflect 99.7 percent of the forecast errors (assuming they are normally distributed). The sample standard
deviation, s, is computed as

This formula without the square root is known as the mean squared error (MSE), and it is sometimes used as a
measure of forecast error. It reacts to forecast error much like MAD does.
Using the same example for the exponential smoothing forecast (a = 0.30) for PM Computer Services, the standard
deviation is computed as

Using
this value of s we can compute statistical control limits for forecast errors for
our exponential smoothing forecast (a = 0.30) example for PM Computer Services. Plus or minus 3s control limits,
reflecting 99.7 percent of the forecast errors, gives 3(6.12), or 18.39. Although it can be observed from the table in
Example 10.8 that all the error values are within the control limits, we can still detect that most of the errors are
positive, indicating a low bias in the forecast estimates. This is illustrated in a graph of the control chart in with the
errors plotted on it.
CHAPTER 3.6-3.7
Supply Chain Design Strategy
Supply Chain
Sequence of process involved in production and distribution of a product.
#Goals
Cost Reduction
Increase customer services
Increase sales
Ford Explorer - Firestone tire recall situation
failure to provide an adequate product. the fewer Explorers that are sold, the fewer parts they can sell to Ford.
Firestone recommended a higher tire pressure but, to get a softer ride, Ford recommended a lower pressure.
Starting a chain
Selecting products and services that needs a lot of improvement
Get the best combination of members, functions, and responsibilities to meet customer requirements.

Value Added
Each chain member must help to bring unique value to the chain.
Communication Within the Supply Chain
what, when, where, how, who, must be planned in detail.

Assess the chain

Current state of your supply chain
Strategies -Practices -Resources and capabilities
Understanding and measuring SC performance
know if the supply chain is performing as expected
determine where improvements or changes may be needed.

Total cost
Cycle time
Reliability

CHAPTER 4
DESIGNING OF PRODUCTION OPERATIONS
4.1) HOW PRODUCT THRU PRODUCTION PROCESS ARE MADE?
4.2) PRODUCTION PROCESS CAPABILITY ITS BASIS
4.3) THE PRODUCT DEVELOPMENT CYCLE (PROPOSAL,ANALYSIS OF QUALITY,PHOTO TYPE
VALUE ANALYSIS AND MANUFUCTURIBILITY)
4.4) PRODUCTION SYSTEMS AND ITS PRODUCT EXPECTED LIFE CYCLE
4.5) DEFINING A PRODUCT/PARTS AND ITS BASIS ;(MAKE OR BY DECISION MAKING)
4.6) PRODUCTION/MANUFUCTURING PROCESS FLOW; ITS BASIC OPERATIONS
4.7) BASIC OF MANUFUCTURING BUILDING BLOCKS (TIME COMPONENTS, FINDING
BOTTLENECKS AND SAVING TIME)

CHAPTER 4.1-4.2
The Production Process
Production is a process of combining various material inputs and immaterial inputs (plans, know-how) in order to
make something for consumption (the output). It is the act of creating output, a good or service which has value and
contributes to the utility of individuals.
Imagine that you're a small business owner that started a successful bakery several years ago. You specialize in
making muffins. A buddy from college has approached you about partnering up to bring your muffins to the national
market. It sounds like a great opportunity, and you and your friend form a new company. You obtain financing to
build an industrial bakery to mass-produce your muffins. However, before you complete construction, you need to
figure out what production process you will use to make the muffins.
A production process is the method you'll use to turn inputs into muffins to sell. Inputs include raw materials, such
as flour, sugar, oil, yeast, fruits and other ingredients you use for making muffins. Inputs also include the work you
and your employees put into making the muffins. The production process is the manner in which you organize your
muffin making activities. You have more than one production process from which to choose.
TYPES OF PRODUCTION PROCESS:
1. Mass Production
Mass production is the production of large amounts of standardized products, including and especially on assembly
lines. This is a type of flow production where all production activities flow smoothly in one direction throughout the
factory.
One option is to use mass production to produce your muffins. Mass production allows you to make massive
amounts of muffins in a very efficient manner utilizing machinery, assembly lines and specialized labor. Each
employee will be assigned a specialized task.
You'll have employees that are responsible for putting the ingredients into industrial mixers and employees
responsible for monitoring the baking process. You'll also have employees who monitor the quality of the muffins as
they leave the ovens and employees who package the muffins. Other employees will transport the packaged muffins
to your shipping department for distribution to your retailers.
2. Batch Production
Batch production is a technique used in manufacturing, in which the object in question is created stage by stage over
a series of workstations, and different batches of products are made. In Batch Production, you focus on producing a
set quantity of one product at a time - called a batch.
Since you are operating a bakery, the batch production process looks appealing. In batch production, you focus on
producing a set quantity of one product at a time - called a batch. You can produce a batch of blueberry muffins
followed by a batch of apple cinnamon muffins. You can then produce your chocolate chip and bran muffins. If you
use batch production, it will be easier to keep your baking process running smooth because you won't have to worry
about changing ingredients as much.
3. Job Production
Job production, sometimes called jobbing or one-off production, involves producing custom work, such as a one-off
product for a specific customer or a small batch of work in quantities usually less than those of mass-market
products.
You also looked into job production as a method of production, but it didn't seem to be a good fit. Job production is
all about a variety of products but at a low volume of production. The same tools and similar resources are used, but
the products are diverse. For example, a wedding cake company might have a team of bakers working in an
assembly line. However, unlike your muffins, each cake will be different in some way. Some cakes will have two
tiers and some will have three or more. Some cakes will be chocolate, some white and some marble.
Each cake will be decorated in different ways as well. So, while each baker on the line will have the same job, the
details of that job changes from cake to cake. Unlike making bran muffins, each wedding cake is a separate 'job' unto
itself. If you were starting a custom wedding cake business, the job production process might take the cake, but
you're mass-producing muffins.
4. Flexible Manufacturing System
(FMS) is a manufacturing system in which there is some amount of flexibility that allows the system to react in case
of changes, whether predicted or unpredicted.
Functions and processes for identifying and planning for demand, materials, product production and release in which
there is some flexibility in how the system reacts to changes. (Business Dictionary)

You've looked into purchasing a flexible manufacturing system, but don't have the cash to do it right now. A flexible
manufacturing system would allow you to almost completely automate your muffin manufacturing. Flexible
manufacturing systems usually increase productivity and reduce costs in the long run. It also leaves the boring part of
the job to the machines.
5. Just-In-Time Production
An inventory strategy companies employ to increase efficiency and decrease waste by receiving goods only as they
are needed in the production process, thereby reducing inventory costs. This method requires that producers are able
to accurately forecast demand.
You pride yourself on your organic muffins. Since you want to keep the same level of quality when you go national,
you are looking into just-in-time production. When using just-in-time production, you will not need to keep much
inventory of muffins beyond what has been ordered by your retailers. This not only keeps your muffins fresh, but
your business partner happy because it also means you won't have a bunch of cash tied up in flour, yeast and
blueberries until you need them.
Production Process Capability
Process capability is the repeatability and consistency of a manufacturing process relative to the customer
requirements in terms of specification limits of a product parameter. This measure is used to objectively measure the
degree to which your process is or is not meeting the requirements.
Capability indices have been developed to graphically portray that measure. Capability indices let you place the
distribution of your process in relation to the product specification limits. Capability indices should be used to
determine whether the process, given its natural variation, is capable of meeting established specifications. It is also a
measure of the manufacturability of the product with the given processes.
Capability indices can be used to compare the product/process matches and identify the poorest match (lowest
capability). The poorest matches then can be targeted on a priority basis for improvement.
If we sample a group of items periodically from a production run and measure the desired specification parameter,
we will get subgroup sample distributions that can be compared to that parameter's specification limits.

CHAPTER 4.3-4.4
Product Development Cycle
System of
defined
steps
and tasks such
as strategy, organization, concept generation, marketing
plan creation, evaluation, and commercialization of a new product.
Stages of Production Development Cycle:
1. Idea Generation
2. Idea Screening
3. Concept Development & Testing
4. Business Analysis
5. Product Development
6. Test Marketing
7. Commercialization
8. Launch
Production Process
Consists of activities that are required in transforming an input set (human resources, raw materials, energy,
money, information, etc.) to valuable outputs with the help of processors.
Production Systems
The methods, procedure or arrangement which includes all functions required to accumulate (gather) the
inputs, process or reprocess the inputs, and deliver the marketable output (goods).
Components of the Production System:
1. Input
2. Conversion
3. Output
Types of Production System:
1. Intermittent Production System - Intermittent means something that starts (initiates) and stops (halts) at
irregular (unfixed) intervals (time gaps).

Types of Intermittent Production System:

2. Continuous Production System - In the

continuous production system, goods are
produced constantly as per demand
forecast. Goods are produced on a large
scale for stocking and selling. They are not
produced on customer's orders.

Types of Continuous Production System:

CHAPTER 4.5-4.6
Defining a Product/ Parts and its Basis
Product - is any good, service, or ideas that can be offered in a market to satisfy any want or need.
Goods - are a physical product capable of being delivered to a purchaser and involve the transfer of ownership from
seller to customer.
Service - is a non-material action resulting in a measurable change of state for the purchaser caused by the provider.
Ideas/Intellectual Property - are any creation of the intellect that has commercial value, but is sold or traded only as
an idea, and not as a resulting service or good.
2 Types of Product Classification:
1. Tangible - a physical item that can be perceived by the sense of touch.
2. Intangible - goods that does not have a physical nature, as opposed to a physical good (an object).
Make-or-Buy Decision Making
The act of choosing between manufacturing a product in-house or purchasing it from an external supplier. In a
make-or-buy decision, the two most important factors to consider are cost and availability of production capacity. An
enterprise may decide to purchase the product rather than producing it, if is cheaper to buy than make or if it does not
have sufficient production capacity to produce it in-house. With the phenomenal surge in global outsourcing over the
past decades, the make-or-buy decision is one that managers have to grapple with very frequently.
Economic Analysis of Production Development
It is a crucial part, if not the most important part of the report for determining the final
recommendations to the sponsor, and the plan for their implementation. This is because the sponsoring
companies, in the broadest sense, are investment firms whose goal is to maximize profits for the company
owners and shareholders.
Cash Inflows - revenue from the product sale
Cash Outflows one-time development costs, production costs, marketing costs, etc.
Sensitivity Analysis - is a technique used to determine how different values of an independent variable will impact a
particular dependent variable under a given set of assumptions.
Net Present Value - A measure of the degree to which the inflows are greater than the outflows is the NPV of the
project.

INFLUENCE ON THE QUALITATIVE FACTORS ON THE PROJECT SUCCESS

There are other factors that influence the success of a product which are difficult to quantify.
Interaction between the Market and the Project
Competitors- provide product in direct competition
Customers- income, expectation and taste may change
Interaction between the Project and the Macro Environment
Major economic shifts- material prices, labor cost or changes in foreign exchange rate.
Social trends- increase in environmental awareness
Government regulations- new regulation can destroy, or spawn new industries.

CHAPTER 4.7-4.8
Basic of Manufacturing Building Blocks
Time Components
It is important to know how many hours needed to make the certain product from the first step up to the last.
Finding Bottlenecks

It is one process in a chain of processes, such that its limited capacity reduces the capacity of the whole chain.

1. Accumulation- when input comes in faster than the speed of the process, accumulation starts to occur.
2. Throughput- since the production line is directly linked to the output of the machines, it allows for the identifying
of the main bottleneck in the manufacturing process. Full
3. Capacity- by using the utilization on percentage of each production unit, it is possible to determine the machine
which uses the highest percentage of its capacity.
4. Wait Times - in the case where several production units are already running at full capacity, tracking the
downtime of machines will allow you to identify which machine is being bottlenecked. Fishbone diagram- is a
graphical means for finding possible problems in a chain of processes.
Saving Time
Outdated techniques and machinery are less efficient.

CHAPTER 5
QUALITY MANAGEMENT AND ISO

5.1) INTRODUCTION AND FUNCTIONS OF QUALITY

5.2) QUALITY SPECIFFICATIONS AND QUALITY COST
5.3) IMPLIFICATIONS OF QUALITY AND COST TO PRODUCTION OPERATIONS
5.4) HISTORY AND EVOLUTIONS OF QUALITY MANAGEMENT (ISO 9000 14000
&1800)
5.5) THE QUALITY GURUS (DEMING, JURAN AND CROSBY) AND THEIR
CONTRIBUTION TO QUALITY
5.6) TOTAL QUALITY MANAGEMENT AND ITS INSIGHTS
5.7) EMPLOYEE, EMPOWERMENT, BENCHMARKING AND JUST IN TIME ITS
RELEVANT TO PRODUCTION OPERATIONS MANAGEMENT
5.8) THE FOUNDATION OF MADERN QUALITY
5.9) EXTERNAL BENCHMARKING FOR QUALITY

What is Quality?
Quality according to some Quality Gurus:
1.
Edward Deming- Quality is uniformity and dependability.
2.
Joseph Juran- Quality is fitness for use.
3.
Philip Crosby - Quality means conformance to requirements.
Quality according to International Standard Organization:
The totality of features and characteristics of a product or service that bears on its ability to meet a stated or
implied need.
Background about ISO:
ISO is an independent, non-governmental international organization with
a membership of 162 national standards bodies. Through its members, it
brings together experts to share knowledge and develop voluntary,
consensus-based, market relevant International Standards that support
innovation and provide solutions to global challenges
Quality on its broader meaning:
Quality refers to the ability of a product or service to consistently meet or exceed customer requirements or
expectations.
Different customers will have different requirements, so a working definition of Quality is customerdependent.
THE DIMENSIONS OF QUALITY
PRODUCT QUALITY is often judge with 8 dimensions
1
Performance
5
Reliability
2
Aesthetics
6
Durability
3
Special features
7
Perceived quality
4
Conformance
8
Serviceability
9
10 SERVICE QUALITY- is often judge with 7 dimensions
1
Convenience
4
Time
2
Reliability
5
Assurance
3
Responsiveness
6
Courtesy

7
8
9

Manufacturers use two techniques in achieving a high quality products & services
1.

QUALITY ASSURANCE
QA is a set of activities for ensuring quality in the processes by which products
are developed.
QA aims to prevent defects with a focus on the process used to make the product.
It is a proactive quality process.
The goal of QA is to improve development and test processes so that defects do
not arise when the product is being developed.
10
1.
QUALITY CONTROL
QC is a set of activities for ensuring quality in products. The activities focus on
identifying defects in the actual products produced.
QC aims to identify (and correct) defects in the finished product. Quality control,
therefore, is a reactive process.
The goal of QC is to identify defects after a product is developed and before it's
released.
11
12
QA vs. QC : Whats the difference?
13

14

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1
2

HOW TO DEVELOP A QUALITY

SPECIFICATION

QUALITY

SPECIFICATION
DESIGN QUALITY- Intention of designers to include or exclude features in a product or service.
CONFORMANCE QUALITY- Degree to which goods or services conform to the intent of the designers
29

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32
33
1
34
2
36
3
38
4
40
41
42

COST OF QUALITY / QUALITY COST

Appraisal costs
- Cost related to activities designed to ensure quality
35
Ex: Inspection equipment, testing, labs costs
Prevention costs
-Cost related to reducing the potential for quality problems
37
Ex: cost incurred Training, monitoring, data collection, and analysis & design costs
Internal failure costs
- Cost related to defective products during production process
39
Ex: Rework cost, problem-solving, material & product losses etc.
External failure costs
-Cost related to defective products after delivery to customer.
Ex: Returned goods, reworking costs, warranty costs, discounts, liability claims etc.

43
44

CHAPTER 5.3-5.4

45
1

46
1

47
1

Walter Shewhart developed the methods for statistical analysis and control
of quality.

W. Edwards Deming taught methods for statistical analysis and control of

quality to Japanese engineers and executives.
Joseph M. Juran taught the concepts of controlling quality and managerial
breakthrough.
Armand V. Feigenbaums book Total Quality Control, a forerunner for the
present understanding of TQM, was published.
Philip B. Crosbys promotion of zero defects paved the way for quality
improvement in many companies.

48
1

49
T

50
51
52

53
54
55
56

Some of the first seeds of quality management were planted as the

principles of scientific management swept through U.S. industry.
Businesses clearly separated the processes of planning and carrying out
the plan, and union opposition arose as workers were deprived of a voice in
the conditions and functions of their work.
The Hawthorne experiments in the late 1920s showed how worker
productivity could be impacted by participation.

The Japanese named their approach to total quality companywide quality

control.
Kaoru Ishikawas synthesis of the philosophy contributed to Japans
ascendancy as a quality leader.
TQM is the name for the philosophy of a broad and systemic approach to
managing organizational quality.
Quality standards such as the ISO 9000 series and quality award programs
such as the Deming Prize and the Malcolm Baldrige National Quality
Award specify principles and processes that comprise TQM.

The History and Evolution of Quality Management

The history of quality management can be traced all the way back to The Middle Ages. Work
completed by journeymen and apprentices were evaluated and inspected by the skilled worker to
ensure that quality standards were met in all aspects of the finished product, ensuring satisfaction of
the buyer. And while the history of quality management has gone through a number of changes since
that time, the end goal is still the same.
It was during the 1920s when quality management systems, as we know them today, started to
surface. While the focus of quality management was still on the end product, it was the first time that
statistical theory was applied to product quality control.
Product quality control was determined through inspections. This involved measuring, examining and
testing the products, processes and services against specific requirements to ensure that each element
adhered to set standards and guidelines.
This algorithm worked for quite some time. Over time, however, businesses began to grow and
expand. More and more products were manufactured throughout the day.
Companies started to experience difficulties in following through with quality control standards. It
became evident that there was a great need for change and development.
Change and development were brought forth during the 1940s by industry leaders and experts like

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69
70
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72
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76

Deming, Dodge, Juran and Roming. This would be the beginning of Total Quality Management as we
know it today.
Inspections were now carried out by production personnel. They were responsible for inspections
during specific production intervals. This would change the focus from simply inspecting the end
product to actually preventing end product problems through early detection on the production line.
It was also during the 1940s that Japan caught wind of Total Quality Management. At that time,
Japanese products were considered poor quality imitations. Hearing about the success of quality
management in the west, Japan employed the assistance of quality management experts like Deming
and Juran. Little did the Western culture know at that time, Japan would soon push the envelope and
set new standards in TQM.
During the first international quality management conference in 1969, Feigenbaum would first use the
phrase Total Quality Management. Feigenbaum, however, would not meet the depth of understanding
of the term that Japanese attendee and speaker, Ishikawa would. Ishikawa would indicate during the
conference that TQM should apply to all employees within the organization from the workers to the
head management.
The Western culture would soon catch up, however. By the 1980s, the Western culture would take
notice of Japans success and start to set and adhere to higher Total Quality Management guidelines.
At this time, however, it was unclear as to what exactly TQM involved.
The U.S. Government would soon be responsible for making those guidelines and standards clear
with their development of the Malcolm Baldrige Award; an award that could be won by businesses
that exhibited quality management excellence. Other countries, like Europe, would follow in the
United States footsteps and develop similar awards.
Today, companies all over the globe compete for the hundreds of Excellence Awards now given. The
purpose of quality management, however, still remains the same as it has, all through history to
ensure that customers receive an excellent, quality product.
3 Types of Costs Associated With Quality:
1. Appraisal Costs
2. Prevention Costs
3. Failure Costs
-Internal Failure Costs
-External Failure Costs

The 4 Determinants of Quality:

1. Quality of Design
2. Quality of Conformance
3. Ease of Use
4. Services Offered After Delivery
CHAPTER 5.7-5.8
Employee empowerment, bench marking and just in time it's relevant to Production Operations
Management
77
Employee Empowerment
Getting employees involved in product and process improvements
85% of quality problems are due to process and material techniques
Build communication networks that include employees
Develop open, supportive supervisors
78
Benchmarking - selecting best practices to use as a standard for performance
Determine what to benchmark
Form a benchmark team
Identify benchmarking partners
Collect and analyze benchmarking information
Take action to match or exceed the benchmark
79
Just-in-Time (JIT)
JIT cuts the cost of quality

JIT improves quality

Better quality means less inventory and better, easier-to-employ JIT system
Pull system of production scheduling including supply management
Production only when signaled
80
The History of Modern Quality
81
The birth of modern quality can arguably be pinpointed to the mid-1920s. Walter A. Shewhart, a
statistician at Western Electric, began to focus on controlling processes, making quality relevant not
only for finished products, but for the processes that created those products.
82
The 4 Giants of Modern Quality:
83
1. Walter A. Shewhart
84
2. Joseph M. Juran
85
3. W. Edwards Deming
86
4. Philip B. Crosby
87
88
CHAPTER 5.5-5.6
89
Quality Gurus & their Contribution
90
91
William Edwards Deming
Deming's 14 points for management
PDCA Cycle (The Deming Wheel)
Deming's seven deadly diseases of management
92
Demings 14 points for management
1. Create Constancy of purpose:
2. Adopt the new philosophy:
3. Cease dependence on mass inspection:
4. End lowest tender contracts:
5. Improve every process
6. Institute training on the job:
7. Institute leadership of people:
8. Drive out fear:
9. Break down barriers:
10. Eliminate exhortations:
11. Eliminate arbitrary numerical targets:
12. Permit pride of workmanship:
13. Encourage education:
14. Top management commitment and action:
93

PDCA Cycle

An iterative four-step management method used in business for the control and continuous improvement of
processes and products.
94

Do

Act
Check

95

Pl
an

96
97
Dr. Joseph M. Juran
Developed the quality trilogy
Jurans 10 steps to Quality Improvements
98
99
100
The Quality Trilogy
Is an improvement cycle that is meant to reduce the cost of poor quality by planning quality into the
product/process.
101

Quality control

Quality Improvement

Quality planning

1.
2.
3.
4.

102
103
Philip B. Crosby
known for the concepts of Quality is Free and Zero Defects
4 Absolutes of Quality of MAnagement
Crosbys 14 Steps of Quality Improvement
104
4 Absolutes of Quality Management
Quality is defined as conformance to requirements, not as 'goodness' or 'elegance'.
The system for causing quality is prevention, not appraisal.
The performance standard must be Zero Defects, not "that's close enough".
The measurement of quality is the Price of Nonconformance, not indices.
105
106
Crosbys Zero Defects
Zero Defects philosophy believes in total perfection or to do the job right the first timee
Errors or defects are caused by two factors:
Lack of knowledge
Lack of attention
107
108
Armand V. Feigenbaum
Developed the idea of total quality control based on three steps to quality consisting of quality leadership,
modern quality technology, and an organizational commitment to quality.
109
Total Quality Control
An effective system for integrating the quality development, quality maintenance, and quality improvement
efforts of the various groups in an organization so as to enable production and service at the most economical
levels which allow full customer satisfactione
110

1.
2.
3.
4.
5.
6.
7.

111
Dr. Kaoru Ishikawa
Developed the Ishikawa diagram, also known as the fishbone or cause-effect diagram.
112
113
114
Fishbone Diagram
Is a visualization tool for categorizing the potential causes of a problem in order to identify its root causes.
115
116
Dr. Eliyahu M. Goldratt
Developed the Theory of Constraints which focuses on a single element in a process chain as having the
greatest leverage for improvement
117
Theory of Constraints
Is a methodology for identifying the most important limiting factor (i.e. constraint) that stands in the way of
achieving a goal and then systematically improving that constraint until it is no longer the limiting factor.
118
119
Taiichi Ohno
He developed the seven wastes (Muda), which are used in lean to describe non-value-added activity. He
developed various manufacturing improvements with Shigeo Shingo that evolved into the Toyota Production
System.
120
7 Wastes (Muda)
Overproduction
Inventory
Transportation
Motion
Waiting
Defects
Over processing
121
122
123
Total Quality Management
TQM is an approach to improving the effectiveness and flexibilities of business as a whole. It is essentially a
way of organizing and involving the whole organization, every department, every activity and every single
person at every level. TQM ensures that the management adopts a strategic overview of the quality and
focuses on prevention rather than inspection.
124
Objectives of TQM
Meeting the customers requirements is the primary objective and the key to organizational survival and
growth.
The second objective of TQM is continuous improvement of quality. The management should stimulate the
employees in becoming increasingly competent and creative.
Third, TQM aims at developing the relationship of openness and trust among the employees at all levels in
the organization.
125
Elements of TQM
Be customer focused
Do it right the first time
Constantly improve
Quality is an attitude
Telling staff what is going on
Educate and train people
Measure the work.
Top management must be involved
Make it a good place to work
Introduce team work
Organize by process, not by function
126

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128
129
130

CHAPTER 5.9
External Benchmarking for Quality
Benchmarking does not give the impression of being a revolutionary quality improvement method
to learn from listening to others experiences has always been natural. What makes benchmarking
worth trying is the systematic learning and the focus on actual and concrete improvements as a direct
result of the comparisons. It is always easier to change ones organization if one has come to realize
that the new procedures have been used successfully in other organizations. Stressing the importance
of a quality system gets considerably more reliable when it gets obvious that improvement models can
be fun and form the basis for a continuous quality program.
Distinguishing Among Quality Processes
131
In the literature related to quality in higher education, three terms commonly appear: benchmarking,
quality assurance, and quality improvement.
Benchmarking is a term that is now widely used within the quality arena. Benchmarking involves comparing
a set of products or services against the best that can be found within the relevant industry sector.
Quality Assurance is a process oriented to guaranteeing that the quality of a product or a service meets some
predetermined standard. Quality assurance makes no assumptions about the quality of competing products or
services. In practice, however, quality assurance standards would be expected to reflect norms for the relevant
industry.
Quality Improvement is concerned with raising the quality of a product or service. The type of comparison
that is made when engaged in quality improvement is between the current standard of a product or service
and the standard being aimed for. Quality improvement is concerned with comparing the quality of what is
about to be produced with the quality of what has been produced in the past. Quality improvement is
therefore primarily concerned with self rather than with others.
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145 CHAPTER 6
146 LOGISTICS AND FACILITY LOCATIONS
147

6.1) DECISIONS RELATED TO LOGISTICS

148

6.2) ISSUES IN PLANT/FACILITY LOCATIONS

149

6.3) THE BASIS OF OUTSOURCING

150

6.4) THE SERVICE SUPPLY CHAIN ITS METHODOLOGY

151

6.5) LOACATING SERVICE FACILITY

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161

CHAPTER 6.1-6.2

162
163

Plant Location
Introduction:

164

Plant location means deciding a suitable location, area or place where the plant will start functioning.
It refers to the area where the plant will operate to produce goods or services.
165
The location of plant can have a crucial effect on the profitability of a project, & the scope for future
expansion. Need for plant location arises when:
A new plant is to be established.
A new branch or branches are to be opened for increasing the volume of production or distribution or both.
The tendency of shifting the market, depletion of raw materials, changes in transportation facilities, new
processes requiring a different location are observed in the factory.
166
167
168

1
2
3

The ideal factory location can be choosen in the following 3 stages:

Selection of the Region: Comparative advantages are analyzed from various options of natural
regions & political boundaries in particular country.
Availability of Raw Materials
Nearness to fuel & power: It is a decisive factor in plant location. It is necessary to ensure that the
phases, voltage, special discounts allowed are suitable to factory.
Transport: Getting raw materials to place of manufacture, Transporting finished goods to place.
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170
171

Selection of the Locality: Urban, Rural & Suburban areas are various alternatives in selection of
locality.
1. Labour: The need of management is to face less strikes or lockouts & to achieve lower labour cost per unit of
production. According to requirement of labour, factory may be located as follows:
Semi-skilled/ Unskilled Rural areas.
Skilled Urban areas.
2. Supplementary & Complementary factories - Helps to increase the variety of materials that suppliers
offers.Improves the labour market for employer & employee.
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179
Selection of the Site: The type of development of land, cost of leveling etc, plant expansions & other
infrastructure facilities like transport, banking, power, communication, postal facilities etc. are
considered.
180
181
Selection of Exact Plant Site
182 1.Price of land
2) Type of soil
3) Waste disposal
4) Expansion potential
5) Availability of commercial services
6) Communication
7) Availability of amenities
183
General Location Factors
1 Controllable Factors
Proximity to Markets.
Supply of Materials.
Transportation Facilities.
Infrastructure Availability.

Uncontrollable Factors
Government Policy.
Climate Condition.
Community and Labour attitudes.
Uncontrollable Factors

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190
CHAPTER 6.3
191
192
The basis of Outsourcing
193
194
Business process outsourcing (BPO) is a subset of outsourcing that involves the contracting of the
operations and responsibilities of a specific business process to a third-party service provider. Originally, this was
associated with manufacturing firms, such as Coca Cola that outsourced large segments of its supply chain
195
196

BPO is typically categorized into back office outsourcing, which includes internal business
functions such as human resources or finance and accounting, andfront office outsourcing, which
includes customer-related services such as contact centre services.

197

BPO that is contracted outside a company's country is called offshore outsourcing. BPO that is
contracted to a company's neighbouring (or nearby) country is called nearshore outsourcing.

198

Often the business processes are information technology-based, and are referred to as ITES-BPO,
where ITES stands for Information Technology Enabled Service

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203
204
205
206

CHAPTER6.4-6.5
207
208
209
210
211

212

THE SERVICE SUPPLY CHAIN ITS METHODOLOGY

SCM Processes
Supply chain activities aren't the responsibility of one person or one company. Multiple people need
to be actively involved in a number of different processes to make it work.
It's kind of like baseball. While all the participants are called baseball players, they don't do whatever
they want. Each person has a role pitcher, catcher, shortstop, etc. and must perform well at their
assigned duties fielding, throwing, and/or hitting for the team to be successful.
Of course, these players need to work well together. A hit-and-run play will only be successful if the
base runner gets the signal and takes off running, while the batter makes solid contact with the ball.
The team also needs a manager to develop a game plan, put people in the right positions, and monitor
success.
Winning the SCM game requires supply chain professionals to play similar roles. Each supply chain

player must understand his or her role, develop winning strategies, and collaborate with their supply
chain teammates. By doing so, the SCM team can flawlessly execute the following processes:
Planning the plan process seeks to create effective long- and short-range supply chain strategies. From the
design of the supply chain network to the prediction of customer demand, supply chain leaders need to
develop integrated supply chain strategies.

Procurement the buy process focuses on the purchase of required raw materials, components, and goods.
As a consumer, you're pretty familiar with buying stuff!

Production the make process involves the manufacture, conversion, or assembly of materials into finished
goods or parts for other products. Supply chain managers provide production support and ensure that key
materials are available when needed.

Distribution the move process manages the logistical flow of goods across the supply chain. Transportation
companies, third party logistics firms, and others ensure that goods are flowing quickly and safely toward the
point of demand.

Customer Interface the demand process revolves around all the issues that are related to planning
customer interactions, satisfying their needs, and fulfilling orders perfectly.
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214
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216
217
218
219

A.
1.
2.
3.
4.
5.

LOCATING SERVICE FACILITY

The Nature of Location Decisions
Location decisions for many types of business are made infrequently, but they tend to have a
significant impact on the organization. In this section we look at the importance of location decisions,
the usual objectives managers have when making location choices, and some of the options that are
available to them.

220
221
222
Strategic Importance of Location Decisions
Location decisions are closely tied to an organizations strategies.
Location choices can impact capacity & flexibility
Location decisions entail a long-term commitment
Location decisions often have an impact on investment requirements, operating costs and revenues, and
operations.
Location decisions is their strategic importance to supply chains

223
224
B. Objectives of Location Decisions
Most organizations do not set out with the intention of identifying the one best locations; rather, they
hope to find a number of acceptable locations from which to choose.
225
226
C. Supply Chain Considerations
Supply chain management must address supply chain configurations, This includes determining the
number and location of suppliers, production facilities, warehouses, and distribution centers.
227
228
D. Location Options
229
Managers of existing companies generally consider four options in location planning.

1.
2.
3.
4.

To expand an existing facility

To add new locations while retaining existing ones
To shut down at one location and move to another
Organizations have the option of doing nothing

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234
235
236
237
238
239
240
241
242
243
244

GLOBAL LOCATIONS
There are a number of factors that have made globalization attractive and feasible for business
organizations. The facilitating factors are:
1. Trade Agreements Barriers to international trade such as tariffs and quotas have been reduced or
eliminated with trade agreements.
2. Technology Technology advances in communication and information sharing have been very helpful.
These include faxing capability, e-mail, cell phones, teleconferencing, and the internet.
A. BENEFITS
1. Markets Companies often seek opportunities for expanding markets for their gods and services, as well
as better serving existing customers by being more attuned to local needs and having a quicker response
time when problems occur.
2. Cost Saving Among the areas for potential cost saving are transportation costs, labor costs, raw
material costs, and taxes.
3. Legal & Regulatory There may be more favourable liability and labor laws, and less restrictive
environmental and other regulations.
4. Financial Companies can avoid the impact of currency changes that can occur when goods are
produced in one country and sold in other countries.
245
246
B. DISADVANATGES
1. Transportation Costs High transportation costs can occur due to poor infrastructure or having to ship
over great distances, and the resulting costs can offset saving in labor and material costs.
2. Security Costs Increased security risks and theft can increase cost. Also, security at international
borders can slow shipment to other countries.
3. Unskilled Labor Low labor skills may negatively impact quality and productivity, and the work ethic
may differ from that in the home country. Additional employee training may be required.
4. Import Restrictions Some countries place restrictions on the importation of manufactured goods, so
having local suppliers avoids those issues.
5. Criticisms Critics may argue that costs saving are being generated through unfair practices such as
using sweatshops, in which employees are paid low wages and made to work in poor conditions; using
child labor; and operating in countries that have less stringent environmental changes.
247
248
249
C. RISKS
1. Political Political instability and political unrest can create risks for personnel safety and the safety of

2.
3.
4.
5.
250

assets.
Terrorism Terrorism continues to be a threat in many parts of the world, putting personnel and assets at
risk and decreasing the willingness of domestic personnel to travel to or work in certain areas.
Economic Economic instability might create inflation or deflation, either of which can negatively
impact profitability.
Legal Laws and regulations may change, reducing or eliminating what may have been key benefits.
Ethical Corruption and bribery, common in some countries, may be illegal in a companys home
country.
6.Cultural Cultural differences may be more real than apparenT

251
D. MANAGING GLOBAL OPERATIONS
252
Although global operations offer many benefits, these operations often create new issues for
management to deal with.
253

254CHAPTER 7
255 JOB DESIGN AND WORK MANAGEMENT
256
257 7.1) THE HUMAN RESOURCE STRATEGY AND COMPETITIVENESS
258
259 7.2) CONSTRAINTS ON HUMAN RESOURCE MANAGEMENT (LABOR & WORK SCHEDULES
260
261 7.3) JOB CLASSIFICATIONS AND WORK DEFINITIONS
262
263 7.4) ERGONOMICS AND WORK ENVIRONMENT ITS PURPOSE,METHODS
264 ANALYSIS AND LABOR STANDARDS

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266
267
268
269
270
271
272
273
274

CHAPTER 7.1-7.2

HR strategies need to simultaneously focus on building skills, motivation and behavior for a
successful business strategy.
- Patrick M. Wright
275
Human Resource Management
The process of hiring and developing employees so that they become more valuable to the organization.
Human Resource Management includes conducting job analyses, planning personnel needs, recruiting

the right people for the job, orienting and training, managing wages
and salaries, providing benefits and incentives, evaluating performance, resolving disputes, and
communicating with all employees at all levels.
276
TWO SIDES OF HR MANAGEMENT
277
Operational HR Management
These include vital tasks such as recruitment, interviewing and hiring, and risk management. Operational HR
management may use and maintain computerized HR information systems, and may also oversee your
payroll department.
278
Strategic HR Management
Strategic HR management requires that HR professionals consider the overall picture of your businesss
growth, implementing ways to make a direct contribution to your long-term goals. Strategic HR is integral to
the future planning of your business as it relates to employees.
279
Human Resource Strategy
The objective of a human resource strategy is to manage labor and design jobs so people are effectively and
efficiently utilized.
280
1. People should be effectively utilized within the constraints of other operations management
decisions
281
2. People should have a reasonable quality of work life in an atmosphere of mutual commitment and
trust
282
283
In developing any corporate strategy the approach is to begin by addressing Five key HR
strategic questions:
Where are we now?
Where do we want to be?
How do we get there?
What people programs and initiatives must be designed and implemented to attract, develop and retain staff
to compete effectively?
What kinds of people do you need to manage and run your business to meet your strategic business
objectives?

284
Two Basic Types Of HR Strategies
285
Overarching Strategies
Describe the general intentions of the organization about how people should be managed and developed and
what steps should be taken to ensure that the organization can attract and retain the people it needs and ensure
so far as possible that employees are committed, motivated and engaged.
286
Specific HR strategies
Set out what the organization intends to do in are as such:
287 Talent management how the organization intends to win the war for talent.
288 Continuous Improvement providing for focused and continuous incrementalinnovation sustained
over a period of time.
289 Knowledge Management creating, acquiring, capturing, sharing and using knowledge to enhance
learning and performance.
290 Resourcing attracting and retaining high-quality people.
291 Learning and Developing providing an environment in which employees are encouraged to learn
and develop.
292 Reward defining what the organization wants to do in the longer term to develop and implement
reward policies, practices and processes that will further the achievement of its business goals and meet the
needs of its stakeholders.
293 Employee Relations defining the intentions of the organization about what needs to be done and what
needs to be changed in the ways in which the organization manages its relationships with employees and

their trade unions.

294
295
296
297
298
299
Four (4) Constraints in Human Resource Strategy
300 Labour Planning
1. Chase Demand Exactly.
Following demands exactly has the advantage of keeping direct labour costs tied closely to production but
incurs other costs. Here the firm maintains fluctuating work force following demand. According to
Dervitsiotion (1981) the extra costs that would be incurred include:
301 a. Hiring and termination costs
302 b. Unemployment insurance costs and
c. Perhaps, a labour wage premium to entice personnel to accept unstable employment. Such a policy tends to
treat labour as a variable cost.
2. Hold Employment Constant
-

Has the advantage of maintaining a trained work force and keeping the hiring termination and unemployment
costs to the barest minimum. The demerit is that employees may not be utilized fully when the demand is
low, and the firm finds meeting demand difficult when demand is high. Such a policy tends to treat labour as
a fixed cost.

Maintains trained workforce

Minimizes hiring, termination, and unemployment costs
Employees may be underutilized during slack periods
Labor is treated as a fixed cost
303
304
Job Design
Specifies the tasks that constitute a job for an individual or a group. A job consists of a variety of tasks; a task
consists of a number of elements; and an element consists of micro-motions. Job design will be examined
from the perspective of four components:
Job specialization and environment
Psychological components
Ergonomics and work methods and
Motivation and incentive system

305 Labour Standard

Labour standards help us specify the labour required for given levels of production once jobs have been
defined.
306
307
We establish labour standards via:
308
Historical data
Work sampling
Method time measurement and;
Stopwatch standards
309 Work Schedules
is the period of time that an individual spends at paid occupational labor. Unpaid labors such as personal
housework or caring for children/pets are not considered part of the working week.
310
311
Standard work schedule - refers to the legislation to limit the working hours per day, per week, per
month or per year. If an employee needs to work overtime, the employer will need to pay overtime

payments to employees as required in the law.

312
313
314
315

Flexible work Week - is an alternative to the traditional 9 to 5, 40-hour work week. It allows
employees to vary their arrival and/or departure times. Under some policies, employees must work a
prescribed number of hours a pay period and be present during a daily "core time."
Flex-time allows employees, within limits, to determine their own schedules. A flextime policy
might allow an employee (with proper notification) to be at work at 8.00a. m. plus or minus two
hours.

316
317
318
319
320
321
322
323
324
325
326
327 Scenarios in Applying Flext-Time:
328
329
330

Scenario 1 Staggered hours within a fixed schedule

Start and end times differ from the typical 8:30 a.m. - 5 p.m. schedule, but the schedule each day
and the days of the week are constant.
Normal Schedule: Monday - Friday from 8:30 a.m. to 5 p.m.
Flextime Schedule: Monday - Friday from 11 a.m. to 7:30 p.m.
331
Scenario 2 Variable day schedule
332
Hours worked vary by day.
Normal Schedule: Monday - Friday from 8:30 a.m. to 5 p.m.
Flextime Schedule: Monday and Wednesday 8:30 a.m. to 7 p.m.; Tuesday and Thursday 8:30 a.m. to 5
p.m.; Friday 8:30 a.m. to 1 p.m.
333
Scenario 3 Mid-day Flextime
334
A longer mid-day break (allows for a mid-day workout for example) is managed by starting work
earlier or staying later.
Normal Schedule: Monday - Friday from 8:30 a.m. to 5 p.m. with an inclusive 30-minute unpaid lunch
break
Flextime Schedule: Monday - Friday from 8 a.m. to 7 p.m. with a mid-day break from noon to 3 p.m.
335
Scenario 4 Short-term Flextime
336
A Flextime schedule is implemented for a finite period of time (e.g., Summer Flex).
Normal Schedule: Monday - Friday from 8:30 a.m. to 5 p.m.
Flextime Schedule: From June 1 to August 31, Tuesday - Saturday from 8:30 a.m. to 5 p.m.
337
338
339
340
341
342

Part-Time - Not meeting the requirements or standards of being full-time. Participating in something
part-time typically means spending a fraction of time compared to a full-time counterpart.
Full-Time- A full-time employee has ongoing employment and works, on average, around 38 hours
each week. The actual hours of work for an employee in a particular job or industry are agreed
between the employer and the employee and/or set by an award or registered agreement.

343 CHAPTER 7.3-7.4

344
345
346
347
348

349
350
351
352
353

354
355
356
357

358
359
360
361

362
363
364
365
366
367

368
369
370

Job Design & Job Description and

Ergonomics & Work Environment
An operations manager is a senior role which involves overseeing the production of goods and/or
provision of services. Its an operations manager's job to make sure an organisation is running as well
as it possibly can, with a smooth efficient service that meets the expectations and needs of customers
and clients.
JOB ANALYSIS is the systematic process of collecting information that identifies similarities and
differences in the work.
JOB DESIGN
is work arrangement (or rearrangement) aimed at reducing or
overcoming job dissatisfaction and employee alienation arising from repetitive and mechanistic tasks.
Through job design, organizations try to raise productivity levels by offering non-monetary
rewards such as greater satisfaction from a sense of personal achievement in meeting the increased
challenge and responsibility of one's work. Job enlargement, job enrichment, job rotation, and job
simplification are the various techniques used in a job design exercise.
JOB DESCRIPTION is a list that a person might use for general tasks, or functions, and
responsibilities of a position. It may often include to whom the position reports, specifications such as
the qualifications or skills needed by the person in the job, and a salary range.
ERGONOMICS is the science of designing the workplace, keeping in mind the capabilities and
limitations of the worker. Poor worksite design leads to fatigued, frustrated and hurting workers. This
rarely leads to the most productive worker. More likely, it leads to a painful and costly injury, lower
productivity and poor product quality.
BENEFITS/PURPOSE:
1. Ergonomics reduces costs.
By systematically reducing ergonomic risk factors, you can prevent costly MSDs (musculoskeletal
disorders). With approximately $1 out of every $3 in workers compensation costs attributed to MSDs,
this represents an opportunity for significant cost savings. Also, dont forget that indirect costs can be
up to twenty times the direct cost of an injury.
2. Ergonomics improves productivity.
The best ergonomic solutions will often improve productivity. By designing a job to allow for good
posture, less exertion, fewer motions and better heights and reaches, the workstation becomes more
efficient.
3. Ergonomics improves quality.
Poor ergonomics leads to frustrated and fatigued workers that dont do their best work. When the job
task is too physically taxing on the worker, they may not perform their job like they were trained. For
example, an employee might not fasten a screw tight enough due to a high force requirement which
could create a product quality issue.
4. Ergonomics improves employee engagement.
Employees notice when the company is putting forth their best efforts to ensure their health and
safety. If an employee does not experience fatigue and discomfort during their workday, it can reduce

371
372
373
374

375
376
377
378
379
380
381
382
383
384
385
386
387
388
389

turnover, decrease absenteeism, improve morale and increase employee involvement.

Ergonomics creates a better safety culture.
Ergonomics shows your companys commitment to safety and health as a core value. The cumulative
effect of the previous four benefits of ergonomics is a stronger safety culture for your company.
Healthy employees are your most valuable asset; creating and fostering the safety & health culture at
your company will lead to better human performance for your organization.

PROCESS/METHODS ANALYSIS:
A proactive ergonomics process identifies ergonomic risk factors and then reduces them through
engineering and administrative controls before an injury occurs.
Step1:
Prioritize
Jobs
for
Ergonomic
Analysis
This prioritized list should be developed by the ergonomics team based on an initial facility tour,
review of MSD history and data collected by employee surveys.
Step2:
Conduct
Ergonomic
Analysis
This analysis will objectively measure risk for each job in the workplace and help you develop an
ergonomic opportunity list.
Step3:
Develop
an
Ergonomic
Opportunity
List
Developing an ergonomic opportunity list allows you to prioritize company resources in order to
effectively and efficiently reduce risk by putting the appropriate controls in place.
Step4:
Determine
Best
Solution
with
Team
Approach
A multi-disciplinary team should be involved in determining the best controls for implementation.
Step5:
Obtain
Final
Approval
and
Implement
Solution
If the improvement requires a significant capital expenditure, cost-justify the solution to gain
approval.

390
391 Step6:
Evaluate
the
Ergonomic
Improvement
for
Effectiveness
Once improvements are in place, close the loop on the project by evaluating the ergonomic improvement and
measuring its effectivenes

392
393

394
395
396
397
398 CHAPTER 8
399
OUTSOURCING AS SUPPLY -CHAIN
MANAGEMENT STRATEGY
400
401 8.1) WHAT IS OUTSOURCING, ITS STRATEGIC PLAN AND CORE COMPETENCE
402
403 8.2) THE RISK OF OUTSOURCING
404
405 8.3) EVALUATING OUTSOURCING RISK AND HOW TO CONTROL IT
406
407 8.4) SOME ETHICAL ISSUES IN OUTSOURCING
408
409 8.5) THE ECONOMICS TO SUPPLY CHAIN MANAGEMENT
410
411 8.6) THE ECONOMICS TO SUPPLY CHAIN MANAGEMENT
412
413
414
415
416
417

418
419
420
421
422
423
424
425
426
427
428
429
430
431
432
433
434
435
436
437 CHAPTER 8.1-8.2
438
439
Outsourcing the contracting or subcontracting of noncore activities to free up cash, personnel, time,
and facilities for activities in which a company holds competitive advantage. Companies having
strengths in other areas may contract out data processing, legal, manufacturing, marketing, payroll
accounting, or other aspects of their businesses to concentrate on what they do best and thus reduce
average unit cost. Outsourcing is often an integral part of downsizing or reengineering. Also called
contracting out.
440
441
442
443
444
445
OUTSOURCING STRATEGIC PLAN
446
447
1.STRATEGIC EVALUATION
448
449 The first step is to understand strategic importance (value) of the activity or system
2. FINANCIAL EVALUATION
450
451 Outsourcing decisions are required to make short and long term finacial sense
452
3. SUPPLIER SELECTION AND CONTRACT DEVELOPMENT
453 -Supplier profile
Key management contracts, a company overview
SWOT ANALYSIS
Information on current contracts, owners of the relationship within the firm, and an oragnizational chart
Functional evaluation of the content

456

454
455
CORE COMPETENCE
The collective learning in an organization
Unique combinations of thought, focus and implementation methodologies
Achieved over the long term

457

458
RISK OF OUTSOURCING
Breaches in intellectual property
Provider shirking
Opportunistic renegotiation

459
460
461
462
463
464
CHAPTER8.3-8.4
465
466
467
468
What is Outsourcing?
Outsourcing refers to the transfer of a business activity or function from a client/customer to a local or foreign
third party service provider.
Outsourcing is an allocation of specific business processes to a specialist external service provider.
469
470
471
472
473
Examples of commonly outsourced activities include:
IT Services
Logistics and Distribution Services
Sales and Marketing Services
Procurement Services
Customer Call Center Services
Finance and Accounting Services
474
475
476
477
478
ADVANTAGES OF OUTSOURCING:
Cost Advantage - The most obvious and visible benefit relates to the cost savings that outsourcing brings
about. You can get your job done at a lower cost and at better quality as well. Also the quality of the
services provided is high thereby ensuring that low-cost does not mean low-quality.
479
480
Increased Efficiency- When you outsource your business, they bring years of experience in business
practices and expertise in delivering complex outsourcing projects. Thus, they can do the job better with
their knowledge and understanding of the domain. This leads to an increase in productivity and efficiency
in the process thereby contributing to the bottom-line of your company.
481
482
Focus on Core Areas- Outsourcing your business processes would free your energies and enable you to
focus on building your brand, invest in research and development and move on to providing higher value
added services.
483
484

Save on Infrastructure and Technology- Outsourcing eliminates the need for investment in infrastructure
as the outsourcing partner takes the responsibility of the business processes and hence develops
infrastructure for the same.
Access to Skilled Resources- You no longer need to invest in recruiting and training expensive resources
for your business. Providers take care of the resourcing needs with their pool of highly skilled resources.
The resources employed are well educated in the respective business areas and are experienced in handling
the business needs of companies that want to outsource.
485
486
Time Zone Advantage- Apart from the cost advantage, the other much touted benefit has to do with the
time zone differential between your country and the location you are outsourcing to. Get your job done
while you are closed for the day and wake up to your service being delivered the next morning. This
unique advantage gives you the benefit of round-the-clock business operations
487
488
Faster and Better Services- Make your service offerings better with high quality deliverables and
decrease the lead time it takes for your product to reach the marketplace. Thus you would be faster in
getting your ideas converted into products and better at delivering the value-added proposition.
489
490
491
DISADVANTAGES OF OUTSOURCING:
Loss of Managerial Control- Whether you sign a contract to have another company perform the function of an
entire department or single task, you are turning the management and control of that function over to another
company. True, you will have a contract, but the managerial control will belong to another company. Your
outsourcing company will not be driven by the same standards and mission that drives your company. They will
be driven to make a profit from the services that they are providing to you and other businesses like yours.
492
493
Hidden Cost- You will sign a contract with the outsourcing company that will cover the details of the service
that they will be providing. Anything not covered in the contract will be the basis for you to pay additional
charges. Additionally, you will experience legal fees to retain a lawyer to review the contacts you will sign.
Remember, this is the outsourcing company's business. They have done this before and they are the ones that
write the contract. Therefore, you will be at a disadvantage when negotiations start.
494
495
Threat to Security and Confidentiality- The life-blood of any business is the information that keeps it running.
If you have payroll, medical records or any other confidential information that will be transmitted to the
outsourcing company, there is a risk that the confidentiality may be compromised. If the outsourced
function involves sharing proprietary company data or knowledge, this must be taken into account. Evaluate the
outsourcing company carefully to make sure your data is protected and the contract has a penalty clause if an
incident occurs.
496
497
Quality Problems- The outsourcing company will be motivated by profit. Since the contract will fix the price,
the only way for them to increase profit will be to decrease expenses. As long as they meet the conditions of the
contract, you will pay. In addition, you will lose the ability to rapidly respond to changes in the business
environment. The contract will be very specific and you will pay extra for changes.
498
499
Tied to the Financial Well-Being of another Company- Since you will be turning over part of the operations of
your business to another company, you will now be tied to the financial well-being of that company. It wouldn't
be the first time that an outsourcing company could go bankrupt and leave you holding-the-bag.

500
501
Bad Publicity- The word "outsourcing" brings to mind different things to different people. If you live in a
community that has an outsourcing company and they employ your friends and neighbors, outsourcing is good. If
your friends and neighbors lost their jobs because they were shipped across the state, across the country or across
the world, outsourcing will bring bad publicity. If you outsource part of your operations, morale may suffer in the
remaining work force.
502
503 CHAPTER 8.5-8.6
504
505
506
Some Ethical Issues in Outsourcing
507
WHAT IS OUTSOURCING?
Outsourcing is the practice of handing over control of public service for-profit corporations.
Ethical issues in Outsourcing
508
509
510
Quality of Service
is the idea that transmission rates, error rates, and other characteristics can be measured, improved, and, to
some extent, guaranteed in advance
In the early days, outsourcing was seen as a cost-saving measure, with an expectation of low-quality output.
Outsourcing relationships now define quality as one the main deliverables, among others.
511
512
513
Security Concerns:
It refers to all the measures that are taken to protect a place, or to ensure that only people with permission
enter it or leave it.
Security and privacy of data are valid concerns, but are often misused by those who warn against
outsourcing. Data security measures need to be put in place.
514
515
516
Environmental Issues:
Known process (such as resource consumption) that has negative effects on the sustainability of the
environmental quality.
Companies are concerned that vendor companies may practice environmentally damaging processes.
517
518
519
Cultural differences
Cultural differences between the West and Asian countries are huge, and are often a cause for worry in an
outsourcing relationship.

520 CHAPTER 9
521
522 MAINTENANCE AND PRODUCTION
RELIABILITY DECISIONS
523
524 9.1) THE IMPORTANCE OF PRODUCTION AND MAINTENANCE RELIABILITY
525
526 9.2) DIFFERENT MAINTENANCE PRACTICES AND APPLICATION (PREVENTIVE,
527 REGULAR AND EMERGENCY MAINTENCE AND ITS APPLICATIONS
528
529 9.3) MAINTENANCE PROCESS CAPABILITY ENHANCEMENT (ITS ABILITY TO REDUCE DOWN
TIME)
530
531 9.4) MANUFUCTURING EXECUTION SYSTEMS
532
533 9.5) ANALYSIS OF BOTTLENECKS AND CAPACITYCONSTRAINED

534
535
536
537
538
539
540
541
542
543
544
545
546
547
548
549

550
551

552 CHAPTER 9.1-9.2

553
Production Management: Maintenance and Reliability
554
Strategic Importance of Maintenance and Reliability
555
Failure has far reaching effects on a firms
Operation
Reputation
Profitability
Dissatisfied customers
Idle employees
Profits becoming losses
Reduced value of investment in plant and equipment
556
557
558
Maintenance and Reliability
The objective of maintenance and reliability is to maintain the capability of the system while controlling costs
Maintenance is all activities involved in keeping a systems equipment in working order
Reliability is the probability that a machine will function properly for a specified time
559
560
561
Important Tactics
Reliability
1. Improving individual components
2. Providing redundancy
Maintenance
1. Implementing or improving preventive maintenance
2. Increasing repair capability or speed
562
Maintenance
Two types of maintenance
Preventive maintenance routine inspection and servicing to keep facilities in good repair
Breakdown maintenance emergency or priority repairs on failed equipment
563
564
565
Implementing Preventive Maintenance
Need to know when a system requires service or is likely to fail
High initial failure rates are known as infant mortality
Once a product settles in, MTBF generally follows a normal distribution
Good reporting and record keeping can aid the decision on when preventive maintenance should be
performed
566
567
568
Maintenance Costs
The traditional view attempted to balance preventive and breakdown maintenance costs
Typically this approach failed to consider the true total cost of breakdowns
Inventory
Employee morale
Schedule unreliability
569
570
571
Increasing Repair Capabilities
1. Well-trained personnel

2. Adequate resources
3. Ability to establish repair plan and priorities
4. Ability and authority to do material planning
5. Ability to identify the cause of breakdowns
572 Ability to design ways to extend MTBF.
573
574
575 CHAPTER 9.3-9.4
576
577
578
9.3 MAINTENANCE PROCESS CAPABILITY MANAGEMENT
579
580
Capability enhancement through the insertion of technology, either for the purposes of upgrade or
update, falls within capability management.
581
Capability enhancement occurs in response to an influencer. An influencer may be either an internal
or external factor which must be taken into account if a given platform or system is to deliver the
effect required. Influencers are generally considered at a strategic level and may comprise threats,
opportunities, environmental factors and/or internal policy changes.
582
Technology management (Shanks, 2008) is key to the successful implementation of capability
management since it involves developing an awareness of available and upcoming technologies, and
can thus inform the decision making process of the critical technologies available to meet a noted
capability requirement.
583
584
Specific areas which should be addressed in order to implement an effective capability-based planning
approach cover:
Requirements management.
Integration on two levels; technologies into systems and systems into platforms.
Robust decision processes for determining potential solutions to the capability requirements identified.
585
586

Capability management employs a top-down approach to its delivery. Key to the integrated approach
towards capability enhancement and maintenance is a rigorous planning and requirements
specification phase. The underlying integrated decision process is discussed in Section 3 under the
proposal of a Maintenance Dashboard framework.

587
588
589
590
591
592

MAINTENANCE
The role of maintenance has changed from simply being a repair solution to having an intrinsic role in
through life management. The viewpoint of examining maintenance within through life management
there are a number issues which require consideration:
Adaptation to changes in platform capability requirements during the life cycle.
Adaptation to platform changes due to technology insertion and capability enhancement techniques.
Integration of past and future maintenance information.
593
594
595
596
597
598

9.4 MANUFACTURING EXECUTON SYSTEMS

Manufacturing execution systems (MES) are computerized systems used in manufacturing, to track
and document the transformation of raw materials to finished goods. MES work in real time to enable
the control of multiple elements of the production process (e.g. inputs, personnel, machines and

599
600
601
602
603
604

1.
2.
3.
4.
5.

support services).
MES may operate across multiple function areas, for example: management of product definitions
across the product life-cycle, resource scheduling, order execution and dispatch, production analysis
BENEFITS OF MES

"Manufacturing Execution Systems [help] create flawless manufacturing processes and provide realtime feedback of requirement changes," and provide information at a single source Other benefits
from successful MES implementation might include:

Reduced waste, re-work and scrap, including quicker setup times

More accurate capture of cost-information (e.g. labor, scrap, downtime, and tooling)
Increased uptime
Incorporate Paperless Workflow Activities
Reduced inventory, through the eradication of just-in-case inventory
605
606
607
FUNCTIONAL AREAS OF MES
608

Over the years, international standards and models have refined the scope of such systems in terms of
activities. These typically include:

609

Management of product definitions. This may include storage, version control and exchange with other
systems of master data like product production rules, bill of material, bill of resources, process set points and
recipe data all focused on defining how to make a product. Management of product definitions can be part
of Product lifecycle management.
Management of resources. This may include registration, exchange and analysis of resource information,
aiming to prepare and execute production orders with resources of the right capabilities and availability.
Scheduling (production processes). These activities determine the production schedule as a collection of work
orders to meet the production requirements, typically received from Enterprise resource planning or
specialized Advanced planning and scheduling systems, making optimal use of local resources.
Dispatching production orders. Depending on the type of production processes this may include further
distribution of batches, runs and work orders, issuing these to work centers and adjustment to unanticipated
conditions.
Execution of production orders. Although actual execution is done by Process control systems, an MES may
perform checks on resources and inform other systems about the progress of production processes.
Collection of production data. This includes collection, storage and exchange of process data, equipment
status, material lot information and production logs in either a data historian or relational database.
Production performance analysis. Create useful information out of the raw collected data about the current
status of production, like Work In Progress (WIP) overviews, and the production performance of the past period
like the Overall Equipment Effectiveness or any other Performance indicator.
Production Track & Trace. Registration and retrieval of related information in order to present a complete
history of lots, orders or equipment (particularly important in health related productions, e.g.pharmaceuticals).

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ANALYSIS OF BOTTLENECKS AND ITS CAPACITY CONSTRAINED

BOTTLENECK
In production and project management, a bottleneck is one process in a chain of processes, such that
its limited capacity reduces the capacity of the whole chain. The result of having a bottleneck are
stalls in production, supply overstock, pressure from customers and low employee morale. There are
both short and long-term bottlenecks. Short-term bottlenecks are temporary and are not normally a
significant problem. An example of a short-term bottleneck would be a skilled employee taking a few
days off. Long-term bottlenecks occur all the time and can cumulatively significantly slow down
production. An example of a long-term bottleneck is when a machine is not efficient enough and as a
result has a long queue.
How to Manage Bottlenecks in Operations Management
If, as an operations manager, youre lucky enough to be in a situation where demand for your product
or service exceeds your ability to make the products or deliver the service, then you want to find ways
to increase your production so you can sell more. Effective management of your bottleneck, or
constraint resources that limit a processs output is a key to productivity and profitability.
Increase process capacity
Increasing capacity of an overall process relies on increasing the capacity of the bottleneck. The
systems capacity cant exceed the capacity of the bottleneck, so increasing the capacity of OP4 is the
priority. If improvement resources are limited, focus on OP4 first.
As you improve any bottleneck resource, you may move the bottleneck to another resource. It is vital
that you continually monitor the effects of your process changes to identify when the bottleneck does
indeed change. After it does, you want to change your focus to the new bottleneck.
Here are some ways for you to increase capacity at the bottleneck:

632
Add resources at the bottleneck operation. You can increase the number of resources that are performing
the operation without adding head count if you can assign an employee from another operation to help
perform the bottleneck operation during unutilized time.
Always have a part for the bottleneck to process. Be sure to monitor the WIP in front of the bottleneck and
that it always has a part to process. This involves managing the resources feeding the bottleneck to ensure
that nothing is slowing them down, such as equipment failures. If scheduling overtime, you must also make
sure that the bottleneck has enough parts to process during the overtime period.

633

Assure that the bottleneck works only on quality parts. Dont waste the bottlenecks time on bad parts. If
you need quality checks in the process, place them before the bottleneck operation. This increases the thru put
of the process.
Examine your production schedule. If a process is used to make several different products that use varying
amounts of the bottlenecks time, then an analysis of the production schedule can create a product mix that
minimizes overall demand on the bottleneck.
Increase the time the operation is working. Keep the bottleneck resource working. Always have someone
assigned to the operation, including during scheduled breaks and lunch periods, and use overtime if
necessary. Though doing so wont technically reduce the cycle time, it will allow the bottleneck to produce
when other operations are idle. The more time the bottleneck works, the more parts the system produces.
Minimize downtime. Avoid scheduled and unscheduled downtime. If the bottleneck equipment suffers a
breakdown during scheduled operations, dispatch repair personnel immediately to get the bottleneck up and
running. This may involve keeping replacement parts on hand and performing preventive maintenance on
equipment. In addition, do what you can to reduce changeover times from one product to the next, because
this time takes away from actual production time.

Perform process improvement on the bottleneck resource. A good place to start is to document everything
the resource does. Then eliminate all non-value-added activities and look for ways to reduce the time it takes
to do value-added activities by getting rid of all the waste in the operation. This results in a shorter cycle
time. Process improvement is almost always focused on eliminating waste.
Reassign some of the bottlenecks work. If possible, break the operation down into smaller activities and
reassign some to other resources. Doing so results in a shorter cycle time and increased capacity.

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651

652CHAPTER 10
653PROJECT MANAGEMENT
654
655 10.1) INTRODUCTION TO PROJECT MANAGEMENT AND ITS IMPORTANCE IN PRODUCTION
OPERATION
656
657 10.2) TRENDS IN PROJECT MANAGEMENT INCLUDING THE THREE GOALS OF A PROJECT
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659 10.3) BEHAVIORAL ASPECTS OF PROJECT MANAGEMENT
660
661 10.4) THE PROJECT LIFE CYCLE AND ITS PROCESS
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663 10.5) PLANNNING AND SCHEDULING OF PRODUCTION WORKS USING GANTT CHART
664
665 10.6) CONTROLING PROJECT UNCERTAINTY-THE MANAGEMENT RISK (CONSIDERING
UNCERTAINTY AND POSSIBLE DISSASTER
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667 10.7) THE PROJECTS RESPONSIBILITY TO THE PROJECT
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CHAPTER 10.1
670
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672 INTRODUCTION TO PROJECT MANAGEMENT AND ITS IMPORTANCE IN PRODUCTION
OPERATIONS
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675 PROJECT MANAGEMENT
Project management is the process of organizing the way that changes are implemented efficiently within an
organization.
Project management includes developing a project plan, which includes defining and confirming the project
goals and objectives, identifying tasks and how goals will be achieved, quantifying the resources needed, and
determining budgets and timelines for completion.
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677 WHY PROJECT MANAGEMENT IS DIFFERENT TO OPERATIONS MANAGEMENT:
678
679 OPERATIONS MANAGEMENT
is an ongoing organizational function that performs activities to produce products or supply services. For
instance, production operations, manufacturing, IT service management, and accounting operations.
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682 PROJECT MANAGEMENT
In contrast, projects are temporary and help the business to meet organizational goals and to respond quickly
and easily to the external environment. Organizations use projects to change operations, products and
services to meet business need, gain competitive advantage and respond to new markets
683

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CHAPTER 10.2-10.3
686

1
1

Trends in Project Management

Behavioural Aspects in Project

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What is Project Management?
It is a team-based approach for managing projects.
Is the application of knowledge, skills, tools, and techniques to project activities to meet the project
requirements.
689
3 Goals of a Project:
Complete the Project on time or earlier
Do not exceed the budget
Meet the specifications to the satisfaction of the customer
690
TRENDS ON PROJECT MANAGEMENT:
Geographically Dispersed Project Teams
More and more project teams are working across different geographies to reduce costs and raise
efficiency. This trends brings its challenges when it comes to meeting across different time zones.
Agile Project Management
It is an exciting new approach to Project Management. It is gaining transaction and has benefits for
many projects. Agile benefits customers by giving them visibility of the product and service early in
the build phase.
Virtual Learning
There are more and more podcast and virtual Project management training courses online- with good

reason.
Better collaboration in the cloud
As technology advances, better ways of collaborating are emerging. They offer many things in project
teams.
691
Compressed Project Management Life Cycle
This has place a demand on project managers and project teams to compress the management life
cycle to deliver more quickly.

1
2
3

692
BEHAIOURAL ASPECTS OF PROJECT MANAGEMENT
693
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695
What are the key metrics?
Time
Cost
Performance Objectives

1
2
3
4

696
What are the key success factors?
A respected and capable project manager
Enough time to plan
Carefully tracking and control
Good communication

1
2

697
What are the major administrative issues?
Executive Responsibilities
Organizational Alternatives

1
2
3
4

698
What are the main tools?
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700
Work breakdown Structure- an initial planning tool that is needed to develop a list of activities, activities
sequences and realistic budget.
Network Diagram- A big picture visual aid that is used to estimate project duration, identify activities that
are critical for timely project completion. , identify areas slack time exists, and develop activities schedules.
GANTT Charts- A visual aid used to plan and monitor individual activities.
Risk Management- Analyses of potential failures of problems, assessment of their likelihood and
consequences, and contingency plans.
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Key Decisions in Project Management:
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Deciding Which Projects to Implement
This involves determining the criteria that will be used to decide which projects to purpose. Typical
factors include budget, availability of appropriate knowledge and skill personnel, and cost-benefit
considerations.

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708
2
709

Selecting the Project Manager

A Project Manager is a professional in the field of project management and is the central person in the
project.

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3

Selecting the Project Team

The team can greatly influence the ultimate success or failure of a project. Important considerations
include not only a persons knowledge and skill base, but also how well the person with others,
enthusiasm for the project, other projects that the person is involved in, and how likely those other
projects might be to interface with work on his project.

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712
4

Planning and Designing the Project

Project planning and design require decisions on project performance goals, a timetable for a project
completion, the scope of a project, what works to be done and how it will be done.

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714
5

Managing and Controlling Project Resources

This involves managing personnel, equipment and the budget establishing appropriate metrics for
evaluating the project; monitoring progress; and taking corrective action when needed.

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6

Deciding If and When a Project Should Be Terminated

Important considerations here are the likelihood of success, termination costs, and whether resources
could be better used elsewhere.

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719
The Project Manager
720
The Project manager is responsible for effectively managing each of the following:
Work
Human Resources
Communications
Quality
Time
Costs

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724

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732
733
734
735

Project Champions
These are the people, usually within the company, who promote and support the project. They can be
instrumental in facilitating the work of the project manager by talking up the project to other
managers who might be asked to share resources with the project team as well as employees who
might be asked to work on parts of the project.
The Project Management Triangle
Cost

Schedule

Quality

736 Performance Objectives

737

738 CHAPTER 10.4-10.5

739
740
What is Project Life Cycle?
It refers to a series of activities which are necessary to fulfill project goals or objectives.
741
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Project life cycle consists of four phases.
1. Definition
Concept at which point the organization recognizes the need for a project or respond to a request for a
proposal from a potential customer or client.
Feasibility analysis which examine the expected costs, benefits, and risks of undertaking the project.
2. Planning
which spells out the details of the work and provides estimate of the necessary human resources, time and
cost.
3. Execution
during which project itself is done. This phases often accounts for the majority of time and resources
consumed by a project.
4. Termination
during which closure is achieved. Termination can involve reassigning personnel and dealing with any
leftover materials.
743
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745
Planning and Scheduling Work Production Using Gantt Chart
746
GANTT chart
is a popular tool for planning and scheduling simple projects.

1.

2.

3.

4.

747
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Example of Gantt Charts Created with Scheduling Work Production
749
Basic Gantt Chart
750
This is a Basic Gantt chart example. It shows tasks in a Security and Access Control project.
751
752
Multiple Milestones Gantt Chart
753
A milestone chart depicts key events along a timescale. A milestone chart Gantt is usually used for top
level reporting so management does not become bogged down in the minutia of the project or
projects.
754
755
Daily and Hourly Gantt Chart
756
This example is a typical Gantt chart format. It shows how the Gantt chart format can be applied to a
one-day time frame. In this case, the Gantt chart format is used to display schedules for college
courses.
757
758
Stoplight Gantt Chart
759
Stoplights are often used as a quick way to display project status, especially for executives who may
want to quickly glance at a project schedule to see how the project is doing.
760

761
5. Earned Value Gantt Chart
762
Is used in scheduling performance and cost performance to answer question what did we get for the
money we spent.
763
764
765 CHAPTER 10.6-10.7
766
767
768
769

CONFRONTING PROJECT UNCERTAINTY

The Management Risk : Considering Uncertainty and possible disasters
Enterprise risk management starts with Identify risk . . . and manage it according to the companys
risk appetite, Patterson writes. The process he wisely recommends is:
Identify risk events
Assess the probability of each event
Make a cost-benefit analysis of response alternatives
Choose a response
Re-assess probability and impact with company response
On-going monitoring of risk events
770
Business response to risky events can be categorized as avoidance (dont do the act which brings forth
the risk), reduction (reduce the probability of the event or the damage of the event), sharing (spread
the risk, such as through insurance), and acceptance (live with it).

1.
2.
3.
4.
5.
6.

771

Management Excellence and Risk Management The following figure summarizes each process and
the roles they play.

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778
-

The Project Managers Responsibility to the Projects

Acquiring Resources, Leadership and Making Trade-Offs,
Negotiations, Conflict Resolution And Persuasion
Acquiring Resources Organizations acquire resources from various sources. Acquire can mean buy,
rent or even be lent resources. The resources being acquired include:
The materials that your team uses.
The premises you occupy.
The equipment that your team uses.
The people in your team.
779
Leadership and making trade-offs
780
Leadership.--- The project leader works with the team and key stakeholders to set the key
781

Goals and major objectives.

expected to maintain focus and provide clear direction to both team members and with respect to external
influencers,

to be the champion for the project

to be clear about the programs priority in the portfolio,

to support team member personal development

782

A good leader actively solicits input from team members and key stake holders. The good PL also
recognizes and acknowledges the contributions of team members.

783

784
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786
787
788
789

Making wise trade-offs is one of the most important and difficult challenges in decision making.
The more alternatives youre considering and the more objectives youre pursuing, the more tradeoffs youll need to make. The sheer volume of trade-offs, though, is not what makes decision making
so hard. Its the fact that each objective has its own basis of comparison.

How do you make trade-offs when comparing such widely disparate things? In the past, decision
makers have relied mostly on instinct, common sense, and guesswork. Theyve lacked a clear,
rational, and easy-to-use trade-off methodology. Once you have made such value judgments, you can
make sense of the variety of different measurement systems. You have a solid, consistent basis for
making sensible trade-offs.

790
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792
Negotiations
- Negotiation is an invaluable skill for project practitioners. Not only do you negotiate agreements with
vendors and contractors, but you must effectively negotiate with stakeholders, customers and team
members throughout the life of a project.
- Negotiating for resources, scope modifications, design changes, extra funding and a host of other issues
are part and parcel of the project managers normal routine.
- To advance in the corporate world, management demands excellent negotiation skills. Improving your
understanding of the negotiation process is essential to career advancement and superior performance.
793
794
Tips on Conflict Resolution/Persuasion
Dont try to find out who started it. Instead, work together.
Attack problems, not people
Listen to the other person, try to understand his concern without judging
Start with I not You
Be respectful
Avoid name calling or inflammatory words
When you state the problem, follow up with a positive, constructive suggestion
795
796
-

797
Acceptable Ways to Resolve Conflicts
negotiating
compromising
taking turns
explaining
listening
apologizing
mediating
invoking chance
establishing guidelines
adopting team approach
using humor

798
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802

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826

827 CHAPTER 11
828
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833
834
835
836
837
838
839

SUPPLEMENT

11.1) FINANCIAL ANALYSIS ITS CONCEPTS AND DEFINITION (METHODS OF

BUDGETING AND COST ESTIMATE)
11.2) METHODS OF EVALUATING AMONG INVESTMENTS PROPOSAL
11.3) OPERATIONS TECHNOLOGY ITS FUNCTIONALITY
11.4) EVALUATION OF TECHNOLOGY INVESTMENTS
11.5) BENEFITS OF TECHNOLOGY INVESTMENTS

840

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842
843
844
845
846
847

CHAPTER 11.1-11.2
FINANCIAL ANALYSIS (ITS CONCEPT AND DEFINITION )
Financial Analysis
Financial analysis is an aspect of the overall business finance function that involves examining
historical data to gain information about the current and future financial health of a company.

848
849
Concepts of Financial Analysis
850
1. Assessment of Past Performance investors or creditors are interested in the trend of past sales, cost of
good sold, operating expense, net income, cash flow and return on investment.
2. Assessment of current position it show the current position of the firm in terms of the business firm and
the different liabilities due against the enterprise.
3.

Prediction of profitability and growth prospects it helps in assessing and predicting the earning
prospects and growth rates in earning which are used by investors while comparing investment alternatives
and other users in judging earning potential of business enterprise.

4.

Prediction of bankruptcy and failure is an important tool in assessing and predicting bankruptcy and
profitability of business failure.

5. Assessment of Operational efficiency helps to assess the operational efficiency of management of a

company.
851
852
853
854

855
856
857
858

859
860
861

862

METHODS OF EVALUATING AMONG INVESTMENT PROPOSALS

1. Payback period
The payback (or payout) period is one of the most popular and widely recognized traditional methods
of evaluating investment proposals, it is defined as the number of years required to recover the
original cash outlay invested in a project, if the project generates constant annual cash inflows, the
payback period can be computed dividing cash outlay by the annual cash inflow.

2. Accounting Rate of Return method

The Accounting rate of return (ARR) method uses accounting information, as revealed by financial
statements, to measure the profit abilities of the investment proposals. The accounting rate of return is
found out by dividing the average income after taxes by the average investment.

3. Net present value method

The net present value (NPV) method is a process of calculating the present value of cash flows
(inflows and outflows) of an investment proposal, using the cost of capital as the appropriate
discounting rate, and finding out the net profit value, by subtracting the present value of cash outflows
from the present value of cash inflows.

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4. Internal Rate of Return Method

The internal rate of return (IRR) equates the present value cash inflows with the present value of cash
outflows of an investment

867

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5. Profitability index
It is the ratio of the present value of future cash benefits, at the required rate of return to the initial cash
outflow of the investment

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886

CHAPTER 11.2-11.3
OPERATIONS TECHNOLOGY, ITS FUNCTIONALITY
What is Technology?
Harvey defined technology as the mechanisms or processes by which an organization turns out
its products or service. But it can also be defined, specifically to manufacturing, as distinct from
administrative or distributive, processes employed by manufacturing firms to convert inputs into
outputs.
Technology enables processes, and changing technology enables changes in processes. The
development of large databases and personal computing enabled massive process reengineering since
the 1990s, starting from back office operations (e.g., order-to-cash processes). The development of the
internet, mobile computing, and social networks is fundamentally changing the way many business
processes operate, especially in information-intensive services (e.g., healthcare, banking, education,
consulting). Therefore, technology is an integral part of operations management.
There is a discussion going on in your offices, plants and factories. The discussion is often quiet but

888

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890
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893

sometimes results in crossed arms and stare downs between your technology teams because one
team just doesnt get it when it comes to understanding the other teams technology issues.
887
Arent all computer and processing systems the same?
The answer is absolutely not! with emphasis added by both sides of the argument. As noted by Tim
Conway, technical director, Industrial Control Systems (ICS) Security for the SANS Institute, When
you take people with an IT background and bring them into an industrial control system environment
(also known as an Operations Technology (OT) environment) theres a lack of understanding from
operations why theyre there and there is a lack of understanding of the specific controls environment
needs from IT.
We Know What IT is; what is OT?

As a CEO, CIO or CISO even a CFO you have a pretty good sense of what Information
Technology (IT) includes. IT (information technology) is a term that encompasses all forms of
technology used to create, store, exchange, and use information in its various forms (business data,
voice conversations, still images, motion pictures, multimedia presentations, and other forms,
including those not yet conceived).
894
Essentially IT is key to the business of the business it keeps the information flowing, email running,
and databases populated. But, what is OT or Operations Technology?
895
OT is a term of art that has recently surfaced for the hardware and software that keeps your power
plants running, manages factory process lines, and essentially works together to achieve an industrial
objective such as manufacturing, transportation of matter, generation of energy, etc. According to
Gartner, OT is hardware and software that detect or cause a change through the direct monitoring
and/or control of physical devices, processes and events in the enterprise.
896
To help you better understand the differences, take a look at your staff who manage the IT and OT
systems.
Essentially the IT staff are your employees who normally work for the Chief Information Officer and include
managers and employees working on the enterprise side of the business. They normally work on Microsoft
Windows workstations and servers, email systems, and Enterprise Resource Planning (ERP) systems such as
SAP
The OT staff includes those employees who normally work under the Operations or Manufacturing
management team and who are focused on such equipment as Programmable Logical Controllers (PLCs);
pressure, temperature and level sensors; valve and motor controllers; Zebra Printers for pallet labeling,
and so forth.
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What are the Differences between IT and OT?

900

901

899
The table of these comparisons should show you that there is a profound difference between IT and
OT and these differences raise issues regarding operating practices, software patching, system
upgrades, and even troubleshooting and repair of systems and components. For instance, think about
the monthly Patch Tuesday from Microsoft. Patching IT systems is fairly straightforward and
essentially has become a habit for the IT staff and even the employees. On the other hand, the OT
staff needs to store patches until the next available plant/factory outage when the patches can be
installed on the affected systems. A simple patch and reboot is out of the question when it comes to
production concerns. Making this even more challenging, the next plant/factory outage may not occur
for another eight to 16 months! A lot can happen in the world of cyber security during that time.
Nowadays, a lot of businesses have used and integrated to their systems both the IT and OT. The
examples are Amazon and Sugar Bowl Bakery. (Videos are to be played in the presentation)
902

904

903
Using OT is very beneficial to the business, especially if you are planning to expand your business.
The Bagel Store for example, had closed their branch in Brooklyn New York City for renovations
because they werent able to meet the high demand for their Rainbow Bagels.

905
906
Innovation in operations equipment and process technology can be used strategically as a powerful
competitive weapon. It can bring to bear many other strategic factors:
achieving low costs
superior quality,
shorter delivery cycles,
lower inventories,
lower investment in equipment,
shorter new product development cycles,
new production economics
907
CHAPTER 11.4 EVALUATION OF TECHNOLOGY INVESTMENTS
908
What is Technology Evaluation?
909
Technology Evaluation, is a set of principles, methods and techniques/tools for effective assessing the
potential value of a technology and its contribution to companys competitiveness and profitability.
910
Technology Evaluation is one of the most significant techniques in innovation function, such as
technology transfer and it is best utilized in screening new ideas, assessing innovative or not
innovative technologies. In other words, its a powerful technique for an organization in examine new
ideas, identifying and analyze causes or potential change, develop and plan possible solutions and
finally select and implement the proposal technology.
911
The evaluation of a proposed technology must be very careful, considering and identifying all the
factors that will affect the whole organization. These main factors are:
Expected financial benefits,
competitiveness,
added value in its products and
The impact upon the business as a whole.
912
Four main types of technology evaluation discourse are distinguished:

913
914
915
916
917

Steps in acquiring information about technology or technologies:

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o
o
o
o

Step 1: Work Team Establishment for a Preliminary Assessment.

Step 2: Selection or Rejection of the proposed technology, on the basis of the pre-evaluation
920 made in step1.
Step 3: Identification of Areas where Additional Information is required.
Step 4: Comparison of New Information arising from step 3 with that used in the initial
923 decision (step1).
Step 5: Assessment of possible Conflicts.
Step 6: Decision to Terminate or to Proceed, repeating steps 3-5.
Step 7: Detailed Evaluation considering:
Corporate objectives, strategy, policies and values
Marketing
Financial criteria
Production & Manufacturing criteria.

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BENEFITS:
Enables the enterprises to take into mind all the factors related with the proposed new technology.
932
The organization will be able to identify improvement opportunities, innovation perspectives in
products, processes and services.
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CHAPTER 11.5
947
The Benefits of Technology Investments
948
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What is investment?
Investment can be defined as putting in money, effort, time, etc. into something to make a profit out of it or to
get some advantage.
951
What is Technology?
Technology can be defined as the study and knowledge of the practical, especially industrial use of scientific
discoveries or advancement.
952

Technology, Investment & Business

953
954

In todays global market no industry or business can survive without having latest technology.
Technology is the tool through which a business is going to grow Investment is required to buy the
technology.

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Why should one invest in technology?
Information systems can provide competitive advantage to the firm.
A consistently strong IT based infrastructure can, over the longer term, play an important strategic roll in the
life of the firm.
Information systems are essential for very existence of the firm.
Survival of the firm even at a mediocre level demands investment in IT.
Government regulations may require these survival investments.

960

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967
The good R.O.I. can be reflected through various factors:
Cost saving:

968 The foremost impact will be felt through the cost reduction of the products of the firm.
Improved productivity:

969 The productivity of the employees will increase dramatically and enhance their efficiency.
Improved Quality:

970 There will be appreciable improvement is the quality of the products, thus the products will have
decisive edge over other such products available in the market.
Able to provide better customer services:
971 Presently having been equipped with better technology than earlier, the firm is in a position to render
much better services to the customers.
972
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974
2 Types of Benefits
Tangible Benefits
Tangible benefits are those benefits which can be seen clearly and physically felt.
Intangible Benefits
Intangible benefits are those benefits which cannot be seen and have no physical existence but the
effects of these benefits can be realized qualitatively.
975

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Tangible
Benefits

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979

1) Cost
Savings
2)
Increased
Productiv
ity
3) Low
operation
al costs
4)
Reductio
n in work
force
5) Lower
computer
expenses

984

980

981
982

983

985
986
987
988
989

990
991

Intangibl
e
Benefits
1)
Improved
resource
control &
utilizatio
n
2)
Improved
planning
3)
Increased
flexibility
4) Timely
informati
on
5) More
informati
on
6)
Increased
learning