BA 380 Lecture Notes Packet 2008

Lecture Notes to Accompany
Operations Management, 10th Edition Stevenson (McGraw-Hill 2009)
For BA 380: Operations Management
Summer 2010
Prepared by: Rene Leo E. Ordonez, PhD Professor and Chair School of Business Southern Oregon University Ashland, Oregon
Prepared by: Rene Leo E. Ordonez, PhD School of Business, SOU Notes to Accompany Operations Management (Stevenson, 2009)
BA 380: Operations Management
Lecture Notes Page 2
BA 380: OPERATIONS MANAGEMENT
GUIDELINES: read the topics as outlined in the Lecture Notes view the accompanying digitized lectures attempt to work on (solve) the problems presented in the Lecture Notes replicate the computer-assisted solutions to the problems discussed in the digitized lectures as well as those explained during the in-person sessions formulate and bring questions about the readings/problems/concepts and digitized lectures to the in-person sessions, or post them on the Discussion Board (under Communication) in Blackboard visit Blackboard at least three times a week check emails at least once a day post all questions related to the class on the Discussion Board in Blackboard instead of emailing the question to the instructor. Questions, concerns, or comments that are student-specific may be sent via regular email. organize study/help groups
Words to remember: Prioritize, not procrastinate. Spread out the work, not put things off until the last minute
Rene Leo E. Ordonez, PhD Professor and Chair of Business (541) 552-6720 ordonez@sou.edu
Prepared by Rene Leo E. Ordonez, PhD SOU School of Business Notes to Accompany Operations Management, 10th Edition (Stevenson, 2009)
Lecture Outlines and Digitized Lectures for BA 380: Operation Management Rene Leo E. Ordonez, PhD School of Business Southern Oregon University Summer 2010 Edition
Note: The outlines listed below are based on the text Production Operations Management, 108h Edition, by William Stevenson, Irwin-McGraw-Hill. The problems in each section are also taken from the same text. This is a supplement material to the text.
Introduction Productivity, Competitiveness, Strategy Forecasting Reliability Cost Volume Analysis and Capacity Planning Decision Theory Learning Curves Introduction to Quality Control Quality Control Inventory Management Project Management Waiting Lines
Lecture Notes Page Number 2 7 9 27 40 46 52 58 61 74 87 96
Introduction What is Productions and Operations Management? A field of study involving the planning, coordinating, and executing of all activities that create goods or provide services Focus: To explore a variety of decision making tools that operations managers can use in the decision making process. These tools are classified as o Quantitative Queuing techniques Inventory Models Project models (PERT/CPM) Forecasting techniques Statistical models Breakeven analysis o Analysis of trade-offs In inventory management we balance tradeoff between two objectives minimize cost of carrying inventory and maximize customer service level The models in discussed will reflect tradeoffs between cost and benefit
o System approach Emphasizes interrelationships among subsystems Main theme: the whole is greater than the sum of its individual parts From a systems viewpoint, the output and objectives of the organization as a whole takes precedence over those of any on subsystem
o Establishing priorities Recognition of priorities means devoting more attention to what is most important Uses the Pareto phenomenon a relatively few factors are most important dealing with those will have a disproportionately large impact on the results achieved
80/20 rule
o Ethics Operations managers, like all managers have the responsibility to make ethical decisions on: Worker safety, product safety, quality, the environment, the community, hiring and firing workers, workers rights Why study Operations Management (OM)? Operations management activities at the core of all business organizations 35% or more of all jobs are in OM related areas (customer service, quality assurance, production planning and control, scheduling, job design, inventory management, etc. Activities in all other areas of business organizations (finance, accounting, marketing, human resource, etc.) are interrelated with OM POM is all about management all managers need to possess the knowledge and skill in the content areas in OM learn and understand the variety of decision making tools in the decision making process A course that will prepare students in developing business plans (BA 499 Business Planning is the capstone course for ALL business majors)
Three Basic Functions of Business Organizations Finance, Production/operations, Marketing
Marketing Production/ Operations
Finance
The operations function involves the creation of inputs into outputs

Inputs Land Labor Capital Information
Transformation/ conversion process
Outputs Goods and Services
Feedback Feedback Control Feedback
Examples of Types of Operations Type of Operation Goods producing Examples Farming, mining, construction, manufacturing, power generation
Storage/transportation Warehousing, trucking, mail service, moving, taxis, buses, hotel, airlines Exchange Retailing, wholesaling, banking, renting or leasing, library loans Films, radio and TV, plays, concerts, recording Newspapers, radio and TV newscast, telephone, satellite
Entertainment Communication
Illustrations of the Transformation Process Food Processing Inputs Raw vegetables Metal sheets Water Energy Labor Building Equipment Hospital Inputs Doctors, nurses Hospitals Medical supplies Equipment Laboratories Processing Cleaning Making cans Cutting Cooking Packing Labeling Output Canned vegetables
Processing Examination Surgery Monitoring Medication Therapy
Output Healthy patients
Examples of inputs, transformation, and outputs Inputs Land Human Physical Intellectual Raw materials Energy Water Chemical Metals Wood Equipment Machines Computers Trucks Tools Facilities Hospitals Factories Offices Retail stores Other Information Time Transformation Processes Cutting, drilling Transporting Teaching Farming Mixing Packing Canning Consulting Copying, faxing Output Goods Houses Autos Clothing Computers Machines TVs Food products Textbooks Magazines Shoes Electronic items Services Health care Entertainment Car repair Delivery Gift wrapping Legal Banking Communication
Production Good versus Service Operations Characteristics Output Customer contact Uniformity of input Labor content Uniformity of output Measurement of productivity Opportunity to correct quality problems before delivery to customer Goods Tangible Low High Low High Easy High Services Intangible High Low High Low Difficult Low
Productivity, Competitiveness and Strategy Productivity an index that measures outputs (goods or services) relative to the input
Productivi ty = Output Input
Some Examples of Different Types of Productivity Measures
Partial measures
Output Labor
Output Machine
Output Capital
Output Energy
Multifactor measures
Output Labor + Machine
Output Labor + Capital + Energy
Total Measures
Goods or Service Produced All inputs used to produce them
Factors that Affect Productivity Methods Capital Quality Technology Management
Strategy Has a long term impact on the nature and characteristics of the organization Affects the ability of an organization to compete, or in the case of a nonprofit organization, the ability to serve its intended purpose The nature of an organizations strategy depends on its mission Mission The basis of the organization the reason for its existence Mission statement Answers the question, What business are we in? Serves to guide formulation of strategies for the organization as well as the decision making at all levels Without it an organization is likely to achieve its true potential because there is little direction for formulating strategies Strategies and Tactics Strategies are plans for achieving goals Strategies provide focus Tactics are the methods and actions to accomplish strategies The how to part of the process
Strategy Formulation the formulation of an effective strategy must take into account: 1) distinctive competencies of the organization this can be accomplished by doing a SWOT (strengths, weaknesses, opportunities, and threats) analysis price, quality, time, flexibility, service, location 2) scan the environment the considering of events and trends that present either threat or opportunities
External factors: economic condition, political condition, legal environment, technology, competition, markets Internal factors: Human resources, facilities and equipment, financial resources, customers, products and services, technology, suppliers
Forecasting Why forecast? Features Common to all Forecasts Conditions in the past will continue in the future Rarely perfect Forecasts for groups tend to be more accurate than forecasts for individuals Forecast accuracy declines as time horizon increases
Elements of a Good Forecast Timely Accurate Reliable (should work consistently) Forecast expressed in meaningful units Communicated in writing Simple to understand and use
Steps in Forecasting Process Determine purpose of the forecast Establish a time horizon Select forecasting technique Gather and analyze the appropriate data Prepare the forecast Monitor the forecast
Types of Forecasts Qualitative o Judgment and opinion o Sales force o Consumer surveys o Delphi technique Quantitative o Regression and Correlation (associative) o Time series
Forecasts Based on Time Series Data What is Time Series? Components (behavior) of Time Series data o Trend o Cycle o Seasonal o Irregular o Random variations
Nave Methods Nave Forecast uses a single previous value of a time series as the basis of a forecast.
Ft = Yt 1
Techniques for Averaging What is the purpose of averaging? Common Averaging Techniques o Moving Averages o Exponential smoothing Moving Average
Ft =
A
i =1
Exponential Smoothing
Ft = Ft 1 +( At 1 Ft 1 )
Techniques for Trend Linear Trend Equation
yt = a + bt
where : t = specified number of time periods from t = 0 yt = forecast for time period t a = value of yt at t b = slope of the line
Curvilinear Trend Equation
yt = a + bt + ct 2
where : t = specified number of time periods from t = 0 yt = forecast for time period t a = value of yt at t b = slope of the line
Techniques for Seasonality What is seasonality? What are seasonal relatives or indexes? How seasonal indexes are used: o Deseasonalizing data o Seasonalizing data How indexes are computed (see Example 7 on page 109)
Accuracy and Control of Forecasts Measures of Accuracy o Mean Absolute Deviation (MAD) o Mean Squared Error (MSE) o Mean Absolute Percentage Error (MAPE) Forecast Control Measure o Tracking Signal Mean Absolute Deviation (MAD)
MD A
c A tual
F re a o c st n
Mean Squared Error (or Deviation) (MSE)
M SE =
( Actual
Forecast n 1
)2
Mean Square Percentage Error (MAPE)
Actual
MAPE =
Forecast
Actual n
X 100
Tracking Signal
Tracking Signal =
( Actual Forecast )
MAD
Problems: 2 Plot, Linear, MA, exponential Smoothing 5 Applying a linear trend to forecast 15 Computing seasonal relatives 17 Using indexes to deseasonalize values 26 Using MAD, MSE to measure forecast accuracy
Problem 2 (118) National Mixer Inc., sells can openers. Monthly sales for a seven-month period were as follows: Month Feb March April May June July August Sales (000 units) 19 18 15 20 18 22 20
(a) Plot the monthly data on a sheet of graph paper. (b) Forecast September sales volume using each of the following: (1) A linear trend equation (2) A five-month moving average (3) Exponential smoothing with a smoothing constant equal to 0.20, assuming March forecast of 19(000) (4) The Nave Approach (5) A weighted average using 0.60 for August, 0.30 for July, and 0.10 for June (c) Which method seems least appropriate? Why?
(d) What does use of the term sales rather than demand presume?
BA 380: Operations Management EXCEL SOLUTION Plot of the monthly data Click INSERT tab, click LINE option
Right Click on the time series data on the graph Select Add Trendline
BA 380: Operations Management (1) Five-month moving average
(2) Exponential Smoothing with a smoothing constant of 0.20, assuming March forecast of 19(000) Enter the smoothing factor in D1 Enter 19 in D5 as forecast for March Create the exponential smoothing formula in D6, then copy it onto D7 to D11
(3) The Nave Approach
(4) A weighted average using 0.60 for August, 0.30 for July, and 0.10 for June
Problem 5 (118) A cosmetics manufacturers marketing department has developed a linear trend equation that can be used to predict annual sales of its popular Hand & Foot Cream. Ft =80 + 15 t where: Ft = Annual sales (000 bottles) t0 = 1990
(a) Are the annual sales increasing or decreasing? By how much?
(b) Predict annual sales for the year 2010 using the equation
Problem 15 (120) Obtain estimates of daily relatives for the number of customers at a restaurant for the evening meal, given the following data. (Hint: Use a seven-day moving average) Day 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Number Served 80 75 78 95 130 136 40 82 77 80 94 125 135 42 Day 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Number Served 84 77 83 96 135 140 37 87 82 98 103 144 144 48
BA 380: Operations Management Excel Solution
Type a 7-day average formula in E6 ( =average(C3:c9) ) In F6, type the formula =C6/E6 Copy the formulas in E6 and F6 onto cells E7 to E27 Compute the average ratio for Day 1 (see formula in E12) Copy and paste the formula in E12 onto E13 to E18 to complete the indexes for Days 2 to 7
Problem 17 (121) Using indexes to deseasonalize values New car sales for a dealer in Cook County, Illinois, for the past year are shown in the following table, along with monthly (seasonal) relatives, which are supplied to the dealer by the regional distributor. Month Jan Feb Mar April May Jun Units Sold 640 648 630 761 735 850 Index 0.80 0.80 0.70 0.94 0.89 1.00 Month Jul Aug Sept Oct Nov Dec Units Sold 765 805 840 828 840 800 Index 0.90 1.15 1.20 1.20 1.25 1.25
(a) Plot the data. Does there seem to be a trend? (b) Deseasonalize car sales (c) Plot the deseasonalized data on the same graph as the original data. Comment on the two graphs.
(a) Plot of original data (seasonalized car sales)
(b) Deseasonalized Car Sales
Create formula in F6 (see circled formula), then copy onto F7 to F17
(c) Graph of seasonalized car sales versus deseasonalized car sales
Problem 22 (123) Using MAD, MSE, and MAPE to measure forecast accuracy Two different forecasting techniques (F1 and F2) were used to forecast demand for cases of bottled water. Actual demand and the two sets of forecasts are as follows: Period 1 2 3 4 5 6 7 8 Demand 68 75 70 74 69 72 80 78 Predicted Demand F1 F2 66 66 68 68 72 70 71 72 72 74 70 76 71 78 74 80
(a) Compute MAD for each set of forecasts. Given your results, which forecast appears to be the most accurate? Explain.
(b) Compute MSE for each set of forecasts. Given your results, which forecast appears to be the most accurate? Explain.
(c) In practice, either MAD or MSE would be employed to compute forecast errors. What factors might lead you to choose one rather than the other?
(d) Compute MAPE for each data set. Which forecast appears to be more accurate?
=ABS(c8-d8)
=(c8-d8)^2
=ABS(c8-d8)/c8
=AVERAGE(M8:M15) =SUM(J8:J15)/(COUNT(J8:J15)-1) =AVERAGE(G8:G15)
Reliability What is reliability? Measures the ability of a product, part, or system to perform its intended function under a prescribed set of conditions Failure situation in which the item does not perform as intended Reliabilities always specified with respect to certain conditions a.k.a. normal operating conditions e.g. temp, humidity, maintenance
How can reliability be improved? By improving the following: Design Production techniques Testing Using backups Preventive maintenance procedures Education System design
Quantifying Reliability: Using Probability as a Measure (1) (2) The probability that a product or system will function when activated a point in time The probability that the product or system will function for a given length of time -- product life used for warranty determination
Product Reliability at a Point in Time Considers the reliability of the components/parts of a product or system
Product Reliability over time Focuses on the length of service of the product (mean time between failures) Failure rate is a function of time and can follow an exponential distribution (see page 159) Or, can follow the Normal Distribution
Reliability over Time -- Exponential Distribution
f(T) Reliability = e-T/MTBF
1 e-T/MTBF
0 2 4 6 8 10 12 14 16
Time
Values of e-T/MTBF
T/MTBF 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00 1.10 1.20 1.30 1.40 1.50 1.60 1.70 1.80 1.90 2.00 2.10 2.20 2.30 2.40 2.50
e-T/MTBF 0.9048 0.8187 0.7408 0.6703 0.6065 0.5488 0.4966 0.4493 0.4066 0.3679 0.3329 0.3012 0.2725 0.2466 0.2231 0.2019 0.1827 0.1653 0.1496 0.1353 0.1225 0.1108 0.1003 0.0907 0.0821
T/MTBF 2.60 2.70 2.80 2.90 3.00 3.10 3.20 3.30 3.40 3.50 3.60 3.70 3.80 3.90 4.00 4.10 4.20 4.30 4.40 4.50 4.60 4.70 4.80 4.90 5.00
e-T/MTBF 0.0743 0.0672 0.0608 0.0550 0.0498 0.0450 0.0408 0.0369 0.0334 0.0302 0.0273 0.0247 0.0224 0.0202 0.0183 0.0166 0.0150 0.0136 0.0123 0.0111 0.0101 0.0091 0.0082 0.0074 0.0067
T/MTBF 5.10 5.20 5.30 5.40 5.50 5.60 5.70 5.80 5.90 6.00 6.10 6.20 6.30 6.40 6.50 6.60 6.70 6.80 6.90 7.00 7.10 7.20 7.30 7.40 7.50
e-T/MTBF 0.0061 0.0055 0.0050 0.0045 0.0041 0.0037 0.0033 0.0030 0.0027 0.0025 0.0022 0.0020 0.0018 0.0017 0.0015 0.0014 0.0012 0.0011 0.0010 0.0009 0.0008 0.0007 0.0007 0.0006 0.0006
Reliability over Time -- Normal Distribution
z=
T MeanWearou tTime S tan dardDeviat ionofW earo utTime
Reliability = P(Z > z)
STANDARD NORMAL DISTRIBUTION z 0 0.01 0.02 0.03 0.0 0.0000 0.0040 0.0080 0.0120 0.1 0.0398 0.0438 0.0478 0.0517 0.2 0.0793 0.0832 0.0871 0.0910 0.3 0.1179 0.1217 0.1255 0.1293 0.4 0.1554 0.1591 0.1628 0.1664 0.5 0.1915 0.1950 0.1985 0.2019 0.6 0.2257 0.2291 0.2324 0.2357 0.7 0.2580 0.2611 0.2642 0.2673 0.8 0.2881 0.2910 0.2939 0.2967 0.9 0.3159 0.3186 0.3212 0.3238 1.0 0.3413 0.3438 0.3461 0.3485 1.1 0.3643 0.3665 0.3686 0.3708 1.2 0.3849 0.3869 0.3888 0.3907 1.3 0.4032 0.4049 0.4066 0.4082 1.4 0.4192 0.4207 0.4222 0.4236 1.5 0.4332 0.4345 0.4357 0.4370 1.6 0.4452 0.4463 0.4474 0.4484 1.7 0.4554 0.4564 0.4573 0.4582 1.8 0.4641 0.4649 0.4656 0.4664 1.9 0.4713 0.4719 0.4726 0.4732 2.0 0.4772 0.4778 0.4783 0.4788 2.1 0.4821 0.4826 0.4830 0.4834 2.2 0.4861 0.4864 0.4868 0.4871 2.3 0.4893 0.4896 0.4898 0.4901 2.4 0.4918 0.4920 0.4922 0.4925 2.5 0.4938 0.4940 0.4941 0.4943 2.6 0.4953 0.4955 0.4956 0.4957 2.7 0.4965 0.4966 0.4967 0.4968 2.8 0.4974 0.4975 0.4976 0.4977 2.9 0.4981 0.4982 0.4982 0.4983 3.0 0.4987 0.4987 0.4987 0.4988
0.04 0.0160 0.0557 0.0948 0.1331 0.1700 0.2054 0.2389 0.2704 0.2995 0.3264 0.3508 0.3729 0.3925 0.4099 0.4251 0.4382 0.4495 0.4591 0.4671 0.4738 0.4793 0.4838 0.4875 0.4904 0.4927 0.4945 0.4959 0.4969 0.4977 0.4984 0.4988
0.05 0.0199 0.0596 0.0987 0.1368 0.1736 0.2088 0.2422 0.2734 0.3023 0.3289 0.3531 0.3749 0.3944 0.4115 0.4265 0.4394 0.4505 0.4599 0.4678 0.4744 0.4798 0.4842 0.4878 0.4906 0.4929 0.4946 0.4960 0.4970 0.4978 0.4984 0.4989
0.06 0.0239 0.0636 0.1026 0.1406 0.1772 0.2123 0.2454 0.2764 0.3051 0.3315 0.3554 0.3770 0.3962 0.4131 0.4279 0.4406 0.4515 0.4608 0.4686 0.4750 0.4803 0.4846 0.4881 0.4909 0.4931 0.4948 0.4961 0.4971 0.4979 0.4985 0.4989
0.07 0.0279 0.0675 0.1064 0.1443 0.1808 0.2157 0.2486 0.2794 0.3078 0.3340 0.3577 0.3790 0.3980 0.4147 0.4292 0.4418 0.4525 0.4616 0.4693 0.4756 0.4808 0.4850 0.4884 0.4911 0.4932 0.4949 0.4962 0.4972 0.4979 0.4985 0.4989
0.08 0.0319 0.0714 0.1103 0.1480 0.1844 0.2190 0.2517 0.2823 0.3106 0.3365 0.3599 0.3810 0.3997 0.4162 0.4306 0.4429 0.4535 0.4625 0.4699 0.4761 0.4812 0.4854 0.4887 0.4913 0.4934 0.4951 0.4963 0.4973 0.4980 0.4986 0.4990
0.09 0.0359 0.0753 0.1141 0.1517 0.1879 0.2224 0.2549 0.2852 0.3133 0.3389 0.3621 0.3830 0.4015 0.4177 0.4319 0.4441 0.4545 0.4633 0.4706 0.4767 0.4817 0.4857 0.4890 0.4916 0.4936 0.4952 0.4964 0.4974 0.4981 0.4986 0.4990
Availability Measures the fraction of time a piece of equipment is expected to be operational Availability ranges between 0 and 1
Availabili ty = MTBF MTBF + MTR
where : MTBF - mean time between failures MTR - mean time to repair
Problems: 1 system reliability 2 system reliability 4 reliability and cost 7 comparing reliabilities of 2 systems 12 product life exponential distribution 17 product life normal distribution 18 product life normal distribution
Problem 1 (p180) Consider the following system:
.90
.90
Determine the probability that the system will operate under each of these conditions: (a) The system as shown
(b) Each component has a backup with a probability of 0.90 and a switch that is 100 percent reliable.
(c) Backups with 0.90 reliability and a switch that is 99 percent reliable
Problem 2 (180) A product is composed of four parts. In order for the product to function properly in a given situation, each of the parts must function. Two of the parts each have a 0.96 probability of functioning, and two each have a probability of 0.99. What is the overall probability that the product will function properly?
Problem 4 (p180) A product engineer has developed the following equation for the cost of a system component: C=(10P)2, where C is the cost in dollars and P is the probability that the component will operate as expected. The system is composed of two identical components, both of which must operate for the system to operate. The engineer can spend $173 for the two components. To the nearest two decimal places, what is the largest component reliability that can be purchased?
Problem 7 (180) A production line has three machines A, B, and C, with reliabilities of .99, .96, and .93, respectively. The machines are arranged so that if one breaks down, the others must shut down. Engineers are weighing two alternative designs for increasing the line's reliability. Plan 1 involves adding an identical backup line, and Plan 2 involves providing backup for each machine. In either case, three machines (A B, and C) would be used with reliabilities equal to the original three. (a) Which plan will provide the higher reliability?
(b) Explain why the two alternatives are not the same.
(c) hat other factors might enter into the decision of which plan to adopt?
Problem 12 (181) An electronic chess game has a useful life that is exponentially distributed with a mean of 30 months. Determine each of the following: (a) The probability that any given unit will operate for at least: (1) 39 months (2) 48 months (3) 60 months
(b) The probability that any given unit will fail sooner than: (1) 33 months (2) 15 months (3) 6 months
(c) The length of service time after which the percentage of failed units will approximately equal: (1) 50 percent (2) 85 percent (3) 95 percent (4) 99 percent
Problem 17 (181) A television manufacturer has determined that its 19-inch color TV picture tubes have a mean service life that can be modeled by a Normal distribution with a mean of six years and a standard deviation of one-half year. (a) What probability can you assign to service lives of at least (1) Five years? (2) Six years? (3) Seven and one-half years?
(b) If the manufacturer offers service contracts of four years on these picture tubes, what percentage can be expected to fail from wear-out during the service period?
Problem 18 (182) Refer to problem 17 above. What service period would achieve an expected wear-out rate of: (a) 2 percent?
(b)
5 percent?
STRATEGIC CAPACITY PLANNING FOR PRODUCTS AND SERVICES Cost Volume Analysis (CVA) What is it? Focus: relationships between COST, REVENUE, and VOLUME of output Purpose: to estimate income of an organization under different operating conditions Usefulness: as a tool for comparing capacity alternatives
What does CVA require? CVA requires the identification of two kinds of costs - Fixed and Variable Fixed cost cost that does not change when output level is changed (within a relevant range) Variable cost cost that changes when the output level changes Mixed cost items that contain both fixed and variable
Breakeven Analysis What is it? A tool used to determine profit level (or for determining breakeven point) for certain output level Important Equations TR = R x Q TC = FC + vcQ P = TR TC P = R x Q - (FC + vcQ) P = Q (R VC) FC Q = (P + FC)/(R VC) QBEP = FC/(R VC)
Where: TR total revenue TC total cost vc variable cost per unit Q units produced and sold P total profit R revenue per unit FC total fixed cost
Problem 3 (p 211) A producer of pottery is considering the addition of a new plant to absorb the backlog of demand that now exists. The primary location being considered will have fixed costs of $9,200 per month and variable costs of $0.70 per unit produced. Each item is sold to retailers at a price that averages $0.90. a. What volume per month is required in order to breakeven?
b.
What profit would be realized on a monthly volume of 61,000 units? 87,000 units?
c.
What volume is needed to provide a profit of $16,000 per month?
d.
What volume is needed to provide a revenue of $23,000 per month?
e.
Plot the total cost and total revenue lines.
Problem 4 (p 211) A small firm intends to increase the capacity of a bottleneck operation by adding a new machine. Two alternatives, A and B, have been identified, and the associated costs and revenues have been estimated. Annual fixed costs would be $40,000 for A and $30,000 for B; variable costs per unit would be $10 for A and $12 for B; and revenue per unit would be $15 for A and $16 for B. (Note: this is somewhat different from the problem found in the textbook). a. Determine each alternatives break-even point in units
b. At what volume of output would the two alternatives yield the same profits?
c.
If the expected annual demand is 12,000 units, which alternative would yield the higher profits?
$60,000
$50,000
$40,000
$30,000
Total Cost Line Total Revenue Line
$20,000
$10,000
$0 10000 20000 30000 40000 50000 60000 70000
Problem 8 (p 211) A manager is trying to purchase a certain part or to have it produced internally. Internal production could use either of two processes. One would entail a variable cost of $17 per unit and an annual fixed cost of $200,000; the other would entail a variable cost of $14 per unit and an annual fixed cost of $240,000. Three vendors are willing to provide the part. Vendor A has a price of $20 per unit for any volume up to 30,000 units. Vendor B has a price of $22 per unit for demand 1,000 units or less, and $18 per unit for larger quantities. Vendor C offers a price of $20 per unit for the first 1,000 units and $19 for additional units. (d) If the manager anticipates an annual volume of 10,000 units, which alternative would be best from a cost standpoint? For 20,000 units, which alternative would be best?
(e) Determine the range of quantity for which each alternative is best. Are there any alternatives that are never best? Which?
Errata: B1 in the formulas above should be B2
Decision Theory The Decision Process Specify objectives and criteria for making decisions Develop alternatives Analyze and compare alternatives Select the best alternative Implement the chosen alternative Monitor the results to ensure that desired results are achieved
Causes of Poor Decisions Mistakes in the decision process Bounded rationality Suboptimization
Decision Environments Certainty Risk Uncertainty
Decision Theory represents a general approach to decision making and suitable for a wide range of operations management decision (e.g. capacity planning, product and service design, equipment selection, and location planning) Decision Theory is suitable for decisions characterized by: 1) a set of future conditions exists that will have a bearing on the result of the decision 2) a list of alternatives for the managers to choose from 3) a known payoff for each alternative under each possible future condition To use this approach (Decision Theory), the manager must: 1) 2) 3) 4) 5) identify the future conditions develop a list of possible alternatives determine/estimate the payoff associated with each alternative if possible, estimate the likelihood of each possible future condition evaluate alternatives according to some decision criterion
Evaluation of Alternatives Depends on the Degree of Certainty Associated with the Future Condition 1) Decision Making Under Certainty (known future conditions) 2) Decision Making Under Uncertainty (no info on how likely future conditions will be) a. Maximin b. Maximax c. Laplace d. Minimax Regret 3) Decision Making Under Risk (the likelihood of each future outcome is known) a. Expected Monetary Value criterion (EMV) b. Expected Value of Perfect Information (EVPI) Decision Trees Sensitivity Analysis Problems: 1 DM under uncertainty 2 DM under risk, EVPI, decision tree 3 Sensitivity analysis 4 DM under risk, EVPI, and decision tree
Problem 1 (229) A small building contractor has recently experienced two successive years in which work opportunities exceeded the firms capacity. The contractor must now make a decision on capacity for next year. Estimated profits under each of the two possible states of nature are as shown in the table below. Which alternative should be selected if the decision criterion is: (a) Maximax? (b) Maximin? (c) Laplace? (d) Minimax Regret? Next Years Demand Alternative Do Nothing Expand Subcontract (Profit in $thousands) Low $50 20 40 High $60 80 70
Problem 2 (229) Refer to Problem 1. Suppose after a certain amount of discussion, the contractor is able to subjectively assess the probabilities of low and high demand: P(low) = .3 and P(high) = .7 (a) Determine the expected profit of each alternative. Which alternative is best? Why? (b) Analyze the problem using a decision tree. Show the expected profit of each alternative on the tree. (c) Compute the expected value of perfect information. How could the contractor use this knowledge?
Problem 3 (229) Refer to Problems 1 and 2. Construct a graph that will enable you to perform sensitivity analysis on the problem. Over what range of P(high) would the alternative of doing nothing be best? Expand? Subcontract?
Problem 4 (229) A firm that plans to expand its product line must decide whether to build a small or large facility to produce the new products. If it builds a small facility and demand is low, the net present value after deducting for building costs will be $400,000. If demand is high, the firm can either maintain the small facility or expand it. Expansion would have a net present value of $450,000, and maintaining the small facility would have a net present value of $50,000. If the large facility is built and demand is high, the estimated net present value is $800,000. If demand turns out to be low, the net present value will be -$10,000. The probability that demand will be high is estimated to be 0.60, and the probability of low demand is estimated to be 0.40 (a) Analyze using a tree diagram (b) Compute the EVPI. How could this information be used? (c) Determine over which each alternative would be best in terms of the value of (demand low)
Learning Curves What is it? An integral part in corporate strategy, such as decisions concerning pricing, capital investment, and operating costs based on experience curves Individual learning the improvement that results when people repeat a process and gain skill or efficiency from the experience Usefulness: component) as a tool for estimating operating costs (particularly the labor Manpower planning and scheduling Negotiated purchasing Pricing new products Budgeting, purchasing, and inventory planning Capacity planning
A graph displaying the relationship between unit production time and the cumulative number of units produced (or repetition)
1.2
Learning Curve
1 99% 0.8 Time Per Unit
0.6 90% 0.4
0.2
80% 70%
0 73 1 9 17 25 33 41 49 57 65 105 113 121 129 137 Num ber of Repetitions 145 81 89 97
Learning Curve Theory Assumptions: (1) The amount of time required to complete a given task or unit of a product will be less each time the task is undertaken (2) The unit time will decrease at a decreasing rate (3) The reduction in time will follow a predictable pattern that is, every doubling of repetitions results in a constant percentage decrease in time per repetition
Important: Learning curves are referred to in terms of the complements of their improvement rates. A 100% curve would mean NO improvement at all
Relevant Equations: (a) For computing the unit time requirement for the nth unit
Tn = T1 n b where : Tn = time for the nth unit T1 = time for the first unit n = nth unit b = ln learning ratio/ ln 2
(b)
For computing the cumulative time requirement for n units Use the Multipliers on Table below
LEARNING CURVE COEFFICIENTS 70% Unit Number 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Unit Time 1.000 0.700 0.568 0.490 0.437 0.398 0.367 0.343 0.323 0.306 0.291 0.278 0.267 0.257 0.248 0.240 0.233 0.226 0.220 0.214 0.209 0.204 0.199 0.195 0.191 0.187 0.183 0.180 0.177 0.174 Total Time 1 1.700 2.268 2.758 3.195 3.593 3.960 4.303 4.626 4.932 5.223 5.501 5.769 6.026 6.274 6.514 6.747 6.973 7.192 7.407 7.615 7.819 8.018 8.213 8.404 8.591 8.774 8.954 9.131 9.305 Unit Time 1 0.750 0.634 0.563 0.513 0.475 0.446 0.422 0.402 0.385 0.370 0.357 0.345 0.334 0.325 0.316 0.309 0.301 0.295 0.288 0.283 0.277 0.272 0.267 0.263 0.259 0.255 0.251 0.247 0.244 75% Total Time 1 1.750 2.384 2.946 3.459 3.934 4.380 4.802 5.204 5.589 5.958 6.315 6.660 6.994 7.319 7.635 7.944 8.245 8.540 8.828 9.111 9.388 9.660 9.928 10.191 10.449 10.704 10.955 11.202 11.446 Unit Time 1 0.800 0.702 0.640 0.596 0.562 0.534 0.512 0.493 0.477 0.462 0.449 0.438 0.428 0.418 0.410 0.402 0.394 0.388 0.381 0.375 0.370 0.364 0.359 0.355 0.350 0.346 0.342 0.338 0.335 80% Total Time 1 1.800 2.502 3.142 3.738 4.299 4.834 5.346 5.839 6.315 6.777 7.227 7.665 8.092 8.511 8.920 9.322 9.716 10.104 10.485 10.860 11.230 11.594 11.954 12.309 12.659 13.005 13.347 13.685 14.020 Unit Time 1 0.850 0.773 0.723 0.686 0.657 0.634 0.614 0.597 0.583 0.570 0.558 0.548 0.539 0.530 0.522 0.515 0.508 0.501 0.495 0.490 0.484 0.479 0.475 0.470 0.466 0.462 0.458 0.454 0.450 85% Total Time 1 1.850 2.623 3.345 4.031 4.688 5.322 5.936 6.533 7.116 7.686 8.244 8.792 9.331 9.861 10.383 10.898 11.405 11.907 12.402 12.892 13.376 13.856 14.331 14.801 15.267 15.728 16.186 16.640 17.091 Unit Time 1 0.900 0.846 0.810 0.783 0.762 0.744 0.729 0.716 0.705 0.695 0.685 0.677 0.670 0.663 0.656 0.650 0.644 0.639 0.634 0.630 0.625 0.621 0.617 0.613 0.609 0.606 0.603 0.599 0.596 90% Total Time 1 1.900 2.746 3.556 4.339 5.101 5.845 6.574 7.290 7.994 8.689 9.374 10.052 10.721 11.384 12.040 12.690 13.334 13.974 14.608 15.237 15.862 16.483 17.100 17.713 18.323 18.929 19.531 20.131 20.727
Problem 1 (365) An aircraft company has an order to refurbish the interiors of 18 jet aircraft. The work has a learning curve percentage of 80. On the basis of experience with similar jobs, the industrial engineering department estimates that the first plane will require about 300 hours to refurbish. Estimate the amount of time needed to complete: (a) The fifth plane
(b) The first five planes
(c) All 18 planes
Problem 3 (365) A small contractor intends to bid on a job installing 30 in-ground swimming pools. Because this will be a new line of work for the contractor, he believes there will be a learning effect for the job. After reviewing time records from a similar type of activity, the contractor is convinced that an 85 percent curve is appropriate. He estimates that the first pool will take his crew 8 days to install. How many days should the contractor budget for? (a) The first 10 pools?
(b) The second 10 pools?
(c) The final 10 pools?
Problem 5 (366) A manager wants to determine an appropriate learning percentage for a certain activity. Toward that end, times have been recorded for completion of each of the first six repetitions. They are: Repetition 1 2 3 4 5 6 Time (minutes) 46 39 35 33 32 30
Introduction to Quality What is QUALITY? Broadly defined -- quality refers to the ability of a product or service to consistently meet or exceed customer expectation The Dimensions of Quality 1) 2) 3) 4) 5) 6) Performance - refers to the main characteristics of the product or service (use) Special features - refers to the extra characteristics Conformance - refers to how well a product or service corresponds to a customer's expectations Reliability - consistency of performance without breakdown Durability - refers to the useful life of the product or service Service after sale - handling of complaints, or checking on customer satisfaction 7) Aesthetics - pleasing to look at 8) Safety - safe when use as directed
The determinants of quality (degree to which a product or service successfully satisfies its intended purpose) are: 1) Design - the starting point for the level of quality eventually achieved 2) How well it conforms to design - the degree to which goods and services conform to the intent of the designer 3) Ease of use - instruction on how to use the product must be easy to understand, injuries caused to consumer can end up in litigation 4) Service after delivery - technical support/contact from the service provider Some of the consequences of poor quality Loss of business Liability Productivity Costs 1. Internal failure costs - failures discovered during production 2. External failure costs - failures discovered after delivery to customer 3. Appraisal costs - cost of activities designed to ensure quality or to uncover defects 4. Prevention costs - cost of preventing defects from occurring
Difference between modern quality management and the formerly traditional approach Quality Control by prevention vs. Quality Control by detection Quality Gurus: 1. Deming - a statistics professor at NYU in the 40s, and is credited for Japan's focus in quality and productivity Known for his 14-point prescription for achieving quality in an organization (see page 426 for list) Four key elements in Deming's 14 points i. appreciation for system ii. a theory of variation iii. a theory of knowledge iv. psychology
2. Juran - like Deming also taught Japanese manufacturers how to improve quality Views quality as fitness-for-use
Believes that 80% of quality defects are management controllable Describes Quality management as trilogy consisting of (1) quality planning, (2) quality control (3) quality improvement Quality planning is necessary to establish processes that are capable of meeting quality standards 2. Quality control is necessary to know when corrective action is needed 3. Quality improvement will help find better ways of doing things
1.
Key element of Juran's philosophy is the commitment of management to continual improvement 3. Crosby - developed the concept of zero defects and popularized the phrase "do it right the first time" Like Deming and Juran, he believes management's role in achieving quality Believes in the concept "quality is free"
4. Ishikawa - Key contributions include the development of the cause-and-effect diagram (a.k.a the fishbone diagram) 5. Taguchi - best known for the Taguchi loss function - a formula for determining the cost of poor quality The idea is that deviation of a part from a standard causes a loss His method is credited with helping Ford Motor Company to reduce its warranty losses
Quality Control Purpose of QC To assure that the process is performing in an acceptable manner Done through monitoring the process via inspection
Quality Assurance Relies on inspection Inspection after production (acceptance sampling) Inspection during production (statistical process control, or SPC)
Basic Issues in Inspection: 1) How much and how often to inspect 2) At what points in the process to inspect 3) Whether to inspect in a centralized or on-site location 4) Whether to inspect attributes (counting something) or variables (measure something) Where to inspect: Raw materials and purchased parts Finished products Before a costly operation Before an irreversible process Before covering a process
Key Concepts: Variation is the enemy of quality Every process exhibits some form of variation The degree of this variation is a measure of the capability of the process Process variation can be classified as: o common cause variation - inherent in system o special cause variation - presence is detected using SPC
Control Charts Key tool for monitoring and controlling processes. A control chart is a timeordered plot of sample statistics Purpose: used for detecting presence of special cause variation. Components of a Control Chart (1) Upper Control Limit (2) Middle Value (3) Lower Control Limit
Possible Errors in SPC Type I error Type II error Managerial Considerations Concerning Control Charts 1. At what points in the process to use control charts 2. What size samples to take 3. What type of control chart
Four Common Types of Charts A. Control charts for Variables
(1) Mean chart (a.k.a x-bar chart) - used to monitor the average of the process UCL = x + z ( / n) LCL = x z ( / n )
UCL = x + A2 R LCL = x A2 R
where : x grand mean z confidence level
population standard deviation n sample size

R average range A2 value from table given a sample size (2) Range chart (a.k.a. R-chart) - used to monitor the variability of the process UCL = D4 R LCL = D3 R
B. Control charts for Attributes (1) p-chart (proportion chart) - used to monitor the proportion of defectives
UCL = p + z LCL = p z
p (1 p) n p (1 p ) n
where : p average proportion z confidence level
(2) c-chart (used when the goal is to control the number of defects per unit UCL = c + z c LCL = c z c
where : c average number of defects z confidence level
Charts Illustrating a Process Not in Control
Table for A2, D3 and D4
Factor for R Chart Number of Observation s in Subgroup n 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Factor for xbar Chart A2 1.88 1.02 0.73 0.58 0.48 0.42 0.37 0.34 0.31 0.29 0.27 0.25 0.24 0.22 0.21 0.20 0.19 0.19 0.18 Lower Contro l Limit D3 0.00 0.00 0.00 0.00 0.00 0.08 0.14 0.18 0.22 0.26 0.28 0.31 0.33 0.35 0.36 0.38 0.39 0.40 0.41 Upper Contro l Limit D4 3.27 2.57 2.28 2.11 2.00 1.92 1.86 1.82 1.78 1.74 1.72 1.69 1.67 1.65 1.64 1.62 1.61 1.60 1.59
Problems 4 Control charts for Variables Mean and Range charts 6 Control chart for Attributes p-chart 7 Control chart for Attributes c-chart 8 How many to produce given a certain production survival rate
Problem 10.4 (p. 492) Computer upgrades have a nominal time of 80 minutes. Samples of 5 observations each have been taken, and the results are listed below. Determine the upper and lower control limits for mean and range charts, and decide if the process is in control. SAMPLE 3 4 79.8 78.9 79.4 79.4 80.4 79.7 80.3 79.4 80.8 80.6
1 79.2 78.8 80.0 78.4 81.0
2 80.5 78.7 81.0 80.4 80.1
5 80.5 79.6 80.4 80.8 78.8
6 79.7 80.6 80.5 80.0 81.1
UCL = x + A2 R LCL = x A2 R
UCL = D4 R LCL = D3 R
Problem 10.6 (493) A medical facility does MRIs for sports injuries. Occasionally a test yields inconclusive results and must be repeated. Using the following sample data and n=200, determine the upper and lower control limits for the fraction of retests using two-sigma limits. Is the process in control? If not eliminate any values that are outside the limits and compute the revised limits. SAMPLE 6 7 8 1 2 0
1 Number of defectives 1
2 2
3 2
4 0
5 2
9 2
10 7
11 3
12 2
13 1
UCL = p + z LCL = p z
p (1 p) n p (1 p ) n
PROBLEM NO. 10 7 (493) The postmaster of a small western city receives a certain number of complaints each day about mail delivery. Assume that the distribution of daily complaints is Poisson. Construct a control chart with three sigma limits using the following data. Is the process in control? SAMPLE 7 8 5 12
1 Number of complaints 4
2 10
3 14
4 8
5 9
6 6
9 13
10 7
11 6
12 4
13 2
14 10
Problem 18 (495) A production process consists of a three-step operation. The scrap rate is 10 percent for the first step and 6 percent for the other two steps. (a) If the desired daily output is 450 units, how many units must be started to allow for loss due to scrap?
(b) If the scrap rate for each step would be cut in half, how many units would this save in terms of the scrap allowance?
(c ) If the scrap represents a cost of $10 per unit, how much is it costing the company per day for the original scrap rate?
INVENTORY MANAGEMENT
Importance of Inventory Management -- Good inventory management is essential to the successful operation for most organizations because of: 1. The amount of money invested in inventory represents, and 2. The impact that inventories have on daily operations of an organization Definitions: Inventory a stock or store of goods Independent vs. Dependent demand items Independent demand items are the finished goods or other end items that are sold to someone Dependent demand items are typically subassemblies or component parts that will be used in the production of a final or finished product Our focus: inventory management of finished goods, raw materials, purchased parts, and retail items Functions of Inventories 1. 2. 3. 4. 5. 6. 7. To meet anticipated demand To smooth production requirements To decouple components of the production To protect against stockouts To take advantage of order cycles To hedge against price increases, or to take advantage of quantity discounts To permit operations (work in process)
Objectives of Inventory Control 1. Maximize level of customer service 2. Minimize costs (carrying costs and ordering costs)
Requirements for Effective Inventory Management (1) A system to keep track of the inventory periodic, perpetual, two-bin, and universal product code (UPC) (2) A reliable forecast of demand (3) Knowledge of lead times and lead time variability -lead time time between submitting a purchase order and receiving it -lead time variability reliability of the supplier (4) Estimates of inventory holding costs, ordering costs, and shortage costs Holding cost Ordering cost Stockout cost (5) A classification system for inventory items ABC approach classifies inventory according to some measure of importance ($ value) where A very important, C least important
Formula for EOQ with Non-instantaneous Replenishment

Qo = 2 DS H p p u
where: D annual demand S setup cost H Holding (carrying cost) per unit p production or delivery rate d usage rate C. Quantity Discounts Model 1. Compute the common EOQ 2. Only one of the unit prices will have the EOQ in its feasible range. Identify the range that: If the feasible EOQ is on the lowest price range, that is the optimal order quantity If the feasible EOQ is in any other range, compute the total cost for the EOQ and for the price breaks of all lower unit costs. Compare the total costs EOQ is the one that yields the lowest total cost.
When to Order (reorder points - ROPs) Models Objective: minimize the risk (probability) of stockouts 4 Determinants of the ROP 1. rate of demand 2. lead time 3. extent of demand and/or lead time variability 4. degree of stockout risk acceptable to management Basic Formula for Computing ROP
RP O = p td Eee xc d ad e n m dr g un i la ed tm i e + ft S ey a sok tc
A.
Constant demand and constant lead time

RP O = d L T o smy r i p l dT L
B.
Variability is present in demand during lead time

RP O =L dT +zL dT
use this formula if an estimate of expected demand during lead time and its standard deviation are available
RP O
=d L +z T
L T d
use this formula when data on lead time and demand are not readily available
Shortages and Service Levels The ROP computation does not reveal the expected amount of shortage for a given lead time service level Information on expected number of shortage per cycle, or per year can be determined using the following: A. Expected number of units short per cycle, E(n)
E ( n) = E ( z ) dLT where : E (n) - expected number of units short per cycle E ( z ) - standardiz ed number of units short using Table 12.3 (p. 569)
dLT - standard deviation of lead time demand
B.
Expected number of units short per year, E(N)
E ( N ) = E ( n)
D Q
C.
Annual Service Level
AnnualServ iceLevel = 1
E ( z )dLT E ( n) =1 Q Q
Service Level for Single-period Model Used to handle ordering of perishables (fresh fruits, vegetables, seafood, flowers), and Items that have a limited useful life (newspaper, magazines) Analysis focuses on two costs: shortage and excess
SL = Cs C s + Ce
where : C s shortage cost per unit C e excess cost per unit
Problems: 2 ABC Inventory Classification 3 Basic EOQ 4 Basic EOQ 11 EOQ with Non-instantaneous Delivery 13 EOQ with Discount 28 EOQ, ROP, Shortages 33 EOQ for multiple products
Problem 2(594) The following classification table contains figures on the monthly volume and unit costs for a random sample of 16 units from a list of 2,000 inventory items at a health care facility. Item K34 K35 K36 M10 M20 Z45 F14 F95 F99 D45 D48 D52 D57 N08 P05 P09 Unit Cost 10 25 36 16 20 80 20 30 20 10 12 15 40 30 16 10 Usage 200 600 150 25 80 200 300 800 60 550 90 110 120 40 500 30
Problem 11 (586) A company is about to begin production of a new product. The manager of the department that will produce one of the components for the product wants to know how often the machine used to produce the item will be available for other work. The machine will produce the item at a rate of 200 units per day. Eighty units will be used daily in assembling the final product . Assembly will take place 5 days a week, 50 weeks per year. The manager estimates that it will take almost a full day to get the machine ready for production run, at a cost of $60. Inventory holding costs will be $2 per unit per year. (a) What run quantity should be used to minimize total annual cost?
(b) What is the length of a production run in days?
During production, at what rate will inventory build up?
(d) If the manager wants to run another job between runs of this item, and needs a minimum of 10 days per cycle for the other work, will there be enough time?
Problem 13 (596) A mail-order house uses 18,000 boxes a year. Carrying costs are 60 cents per year per box, and ordering costs are $96. The following price schedule applies. Determine: (Note: some info on this problem are different from the problem solved in the digitized lecture) Number of Boxes 1000 to 1999 2000 to 4999 5000 to 9999 10000 or more Price per Box $ 1.25 $ 1.20 $ 1.15 $ 1.10
(a) The optimal order quantity (b) The number of orders per year.
Problem 28 (598) A regional supermarket is open 360 days per year. Daily use of cash register tape averages 10 rolls. Usage appears normally distributed with a standard deviation of 2 rolls per day. The cost of ordering tape is $1, and carrying costs are $0.40 per roll. a year. Lead time is three days. (a) What is the EOQ?
(b) What ROP will provide a lead time service level of 96%?
What is the expected number of units short per cycle with 96%? Per year?
(d) What is the annual service level?

Problem 33 (590) Given the following list of items, Estimated Annual Demand D 20000 60200 9800 16300 6250 4500 21000 45000 800 26100
Item H4-010 H5-201 P6-400 P6-401 P7-100 P9-103 TS-300 TS-400 TS-041 V1-001
Ordering Cost S 50 60 80 50 50 50 40 40 40 25
Holding Cost (%) 20% 20% 30% 30% 30% 40% 25% 25% 25% 35%
Unit Price P 2.5 4 28.5 12 9 22 45 40 20 40
(a) Classify the items as A, B, and C
(b) Determine the EOQ for each item.
Project Management What is a project? Unique, one-time operations designed to accomplish a set of objectives in a limited time frame Examples: construction of new buildings, installing a new computer network system, launching a space shuttle, producing a movie, etc Once underway, projects must be monitored to contain cost and meet timelines This chapter is devoted to a description of graphical and computational methods that are used for planning and scheduling projects
Key Decisions in Project Management Deciding which projects to implement Selecting the project manager Selecting the project team Planning and deciding the project Managing and controlling project resources Deciding if and when a project should be terminated
Planning and Scheduling With Gantt Charts Gantt chart - a popular tool for planning and scheduling simple projects Used to monitor progress over time by comparing planned progress to actual progress
Planning with PERT/CPM PERT (program evaluation review technique) and CPM (critical path method) are two of the most widely used techniques for planning and coordinating large-scale projects By using PERT/CPM, managers are able to obtain: (a) A graphical display of project activities (b) An estimate of how long the project will take (c) An indication of which activities are most critical to timely project completion (d) An indication of how long an activity can be delayed without lengthening the project Network Diagram a.k.a. precedence diagram is a chart used in PERT that depicts major project activities and their sequential relationships o Activity on Node (AON) o Activity on Arrow (AOA)
Path a sequence of activities that leads from the starting node to the finishing nodes Critical path the path with the longest time Critical activities activities that are on the critical path. They have zero slack Network conventions
a b c
a c b
b a c
Deterministic vs Probabilistic Time Estimates Deterministic times if time estimates can be made with a high degree of confidence that actual time will not differ significantly Probabilistic times must include an indication of the extent of probable variation te = t0 + 4tm + t p 6 (t p to ) 2 36
2 =
A Computing Algorithm ES earliest time activity can start EF earliest time an activity can finish LS latest time an activity can start LF latest time an activity can finish
F=
E t S
E S
+
E t F E S
S=L
F -t
L S t L F L S
L E
S S t
L E
F F
L E
S S
BA 380: Operations Management Problem 1 (see page 802)
Problem 3 (Not in text) The information below pertains to a project that is about to commence. As the project manager, which activities would you be concerned with in terms of timely project completion? Explain.
Immediate
Estimated Activity a b c d e f g h i j k Precedes B C,D E End End G,H I J End K End
Estimated Time (days) 15 12 6 5 3 8 8 9 7 14 6
Activity Precedecessor Time (days) a -15 b A 12 c B 6 d B 5 e C 3 f -8 g F 8 h F 9 i G 7 j H 14 k J 6 End D,E,I,K
Problem 7 (819) Three recent college graduates have formed a partnership and have opened an advertising firm. The first project consists of activities in the following table. Immediate Predecessor --A -C D F B H E,G,I
Activity A B C D E F G H I End
to 5 8 6 9 5 5 2 4 5
tm 6 8 8 12 6 6 3 4 7
tp 7 11 11 15 9 7 7 5 8
(a) Draw the precedence diagram
(b) What is the probability that the project can be completed in 24 days or less? In 21 days or less?
Problem 11(820) The following precedence diagram reflects three time estimates for each activity. Determine:
9 - 1 (e)
3
0 - 1
1 1 - 1 ( b ) 8 - 8 ( a ) - 8
2
2 - 1 5 - 6 (c )
3 - 7
4
1 4 - 1 (f)
8 - 2
8 - 1 ( i ) 6
0 - 1
5 - 7 - 1 (k )
1 3 - 1 (g)
3 - 1
3 1
3 -15 0 . 5 -1 ( j)
.5
6 - 6 - 6 (m )
1 0
1 1 - 1 ( d )
2 - 1
5
7 - 1 0 - 1 ( h )
1 0 - 1 ( l)
1 - 1
(a) The expected completion time for each path and its variance
(b) The probability that the project will require more than 49 weeks.
(c) The probability that the project can be completed in 46 weeks or less.
Queuing What is queuing theory? The mathematical approach to the analysis of lines Useful in planning and analysis of service capacity Goal of queuing -- minimize total cost - costs associated with customers waiting in line for service and those associated with capacity
System Characteristics 1) Population source o Infinite source o Finite source 1) Number of servers (channels) o Single o Multiple 2) Arrival and service patterns o Probability distribution (exponential, Poisson, etc) 3) Queue discipline (order of service) o First-come-first-served
u r
a r i a t i o
n s
u e u e
y s t
S i n g l e s i n g l e
c h a n n e l , p h a s e
S m
in g l e c u l t i p le
h a n n e l , p h a s e
M u l t i p l e c h a n n e l, s i n g l e p h a s e
M m
u l t i p l e u l t i p l e
c h a n n e l , p h a s e
Queuing Models: Infinite Sources Assumptions: o Poisson arrival rate o System operates under steady state (average arrival and service rates are stable) Important note: The arrival () and service rates () must be in the same units Four Basic Models 5) Single channel, exponential service time 6) Single channel, constant service time 7) Multiple channel, exponential service time 8) Multiple priority service, exponential service time Finite Source (4) Appropriate for cases in which the calling population is limited to a relatively small number of potential calls (5) Example -- one person may be responsible for handling breakdown on 15 machines (6) The mathematics of finite-source model can be complex, analysts often use finite queuing tables in conjunction with simple formulas to analyze these systems
Important Note: To solve queuing problems use the Excel templates that accompany the text
Five Typical Measures of System Performance Operations Managers Look at 1) 2) 3) 4) 5) Average number of customers waiting (in line or in system) Average time customers wait (in line or system) System utilization (percentage of capacity used) Implied cost of given level of capacity and its related waiting line The probability that an arrival will have to wait for service Infinite-source Symbols
Customer arrival rate Service rate LQ The average number of customer waiting for service
LS The average number of customers in the system
The system utilizatio n Wq The average time customers wait in line

Ws The average time customers spend in the system
Service time P0 The probabilit y of zero units in the system Pn The probabilit y of n units in the system M The nunber of servers (channels) Lmax The maximum expected number waiting in line
Problem 1 (861) Repair calls are handled by one repairman at a photocopy shop. Repair time, including travel time, is exponentially distributed, with a mean of two hours per call. Requests for copier repairs come in at a mean rate of three per 8-hour day (assume Poisson). Determine: (a) The average number of customers awaiting repairs. (b) System utilization (c) The amount of time during an 8-hour day that the repairman is not out on call (d) The probability of two or more customers in the system.
Excel Solution
Problem 2 (861) A vending machine dispenses hot chocolate or coffee. Service time is 30 seconds per cup and is constant. Customers arrive at a mean rate of 80 per hour, and this rate is Poisson distributed. Determine: (a) The average number of customer waiting in line (b) The average time customers spend in the system (c) The average number in the system
Excel Solution
Problem 4 (844) A small town with one hospital has two ambulances to supply ambulance service. Requests for ambulances during non-holiday weekends average 0.45 per hour and tend to be Poisson distributed. Travel and assistance time averages one hour per call and follows an exponential distribution. Find: (a) System utilization (b) The average number of customers waiting (c) The average time customers wait for an ambulance (d) The probability that both ambulances will be busy when a call comes in
BA 380: Operations Management Problem 10 (845)
Two operators handle adjustments for a group of 10 machines. Adjustment time is exponentially distributed and has a mean of 14 minutes per machine. The machines operate for an average of 86 minutes between adjustments. While running, each machine can turn out 50 pieces per hour. Find: (a) The probability that a machine will have to wait for an adjustment (b) The average number of machines waiting for adjustment (c) The average number of machines being serviced (d) The expected hourly output of each machine, taking adjustments into account (e) Machine downtime represents a cost of $70 per hour; operator cost (including salary and fringe benefits) is $15 per hour. What is the optimum number of operators? Excel Solution

BA 380 Lecture Notes Packet 2008

Încărcat de

Informații document

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

BA 380 Lecture Notes Packet 2008

Încărcat de

Drepturi de autor:

Formate disponibile

Lecture Notes to Accompany

Operations Management, 10th Edition Stevenson (McGraw-Hill 2009)

For BA 380: Operations Management

BA 380: Operations Management

Lecture Notes Page 2

BA 380: OPERATIONS MANAGEMENT

Lecture Notes Page Number 2 7 9 27 40 46 52 58 61 74 87 96

BA 380: Operations Management

Lecture Notes Page 2

BA 380: Operations Management

Lecture Notes Page 3

BA 380: Operations Management

Lecture Notes Page 4

Three Basic Functions of Business Organizations Finance, Production/operations, Marketing

Marketing Production/ Operations

The operations function involves the creation of inputs into outputs

Transformation/ conversion process

Outputs Goods and Services

Feedback Feedback Control Feedback

BA 380: Operations Management

Lecture Notes Page 5

Processing Examination Surgery Monitoring Medication Therapy

Output Healthy patients

BA 380: Operations Management

Lecture Notes Page 6

BA 380: Operations Management

Lecture Notes Page 7

Some Examples of Different Types of Productivity Measures

Output Labor + Machine

Output Labor + Capital + Energy

Goods or Service Produced All inputs used to produce them

Factors that Affect Productivity Methods Capital Quality Technology Management

BA 380: Operations Management

Lecture Notes Page 8

BA 380: Operations Management

Lecture Notes Page 9

BA 380: Operations Management

Lecture Notes Page 10

BA 380: Operations Management

Lecture Notes Page 11

Techniques for Trend Linear Trend Equation

Curvilinear Trend Equation

BA 380: Operations Management

Lecture Notes Page 12

Mean Squared Error (or Deviation) (MSE)

Mean Square Percentage Error (MAPE)

BA 380: Operations Management

Lecture Notes Page 13

BA 380: Operations Management

Lecture Notes Page 14

Lecture Notes Page 15

BA 380: Operations Management

Lecture Notes Page 16

BA 380: Operations Management (1) Five-month moving average

Lecture Notes Page 17

BA 380: Operations Management

Lecture Notes Page 18

(3) The Nave Approach

BA 380: Operations Management

Lecture Notes Page 19

(a) Are the annual sales increasing or decreasing? By how much?

BA 380: Operations Management

Lecture Notes Page 20

BA 380: Operations Management Excel Solution