Operations and Supply Chain Management
MGMT 3306
Lecture 02
Instructor: Dr. Yan Qin
Outline
Project Management
What is Project Management?
Three types of projects
Work Breakdown Structure (WBS)
Project Management Techniques: PERT and CPM
Cost-Time Trade-Offs and Project Crashing
A Critique of PERT and CPM
2
Project Management
A project is a series of related jobs usually directed toward some major output and requiring a significant period of time to perform.
Project Management is the planning, scheduling, and controlling of resources to meet the technical, cost, and time constraints of the project.
3
Examples of Projects
Building Construction
Research Project
Three Phases of Project Management
The management of projects involves three phases:
Planning - goal setting, defining the project, team organization
Scheduling - relates people, money, and supplies to specific activities and activities to each other
Controlling - monitors resources, costs, quality, and budgets; revises plans and shifts resources to meet time and cost demands
Project Planning
Figure 3.1
Before Start of project During
project Timeline project
Project Scheduling
Figure 3.1
Before Start of project During
project Timeline project
Project Controlling
Figure 3.1
Before Start of project During
project Timeline project
Project Planning, Scheduling, and Controlling
Figure 3.1
Before Start of project During
project Timeline project
Project Organizations
There are three types of project based on the organizational structures used to tie the project to the parent firm:
Pure project: A self-contained team works full time on a project;
Functional project: A project housed within a functional division.
Matrix project: A project that uses people from different functional areas.
The project manager decides what tasks to complete and when;
The functional managers control which people and technologies to be used in the project.
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Example of Matrix Project
Marketing Operations Engineering Finance
Project 1
Project 2
Project 3
Project 4
Work Breakdown Structure (WBS)
Work Breakdown Structure (WBS): defines the hierarchy of project tasks, subtasks, and work packages
Program
Project 1
Project 2
Task 1.1
Subtask 1.1.1
Work Package 1.1.1.1
Level
1
2
3
4
Task 1.2
Subtask 1.1.2
Work Package 1.1.1.2
Task is a further subdivision of a project, usually shorter than several months.
Work package is a group of activities combined to be assignable to a single organizational unit, usually an individual.
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Example: WBS – Large Optical Scanner Design
13
Purposes of Project Scheduling
Shows the relationship of each activity to others and to the whole project
Identifies the precedence relationships among activities
Encourages the setting of realistic time and cost estimates for each activity
Helps make better use of people, money, and material resources by identifying critical bottlenecks in the project
Project Management Techniques
Gantt chart
Critical Path Method (CPM)
Program Evaluation and Review Technique (PERT)
Gantt Chart
Charts are useful because their visual presentation is easily understood.
Gantt chart: a bar chart showing both the amount of time involved and the sequence in which activities can be performed
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PERT and CPM
Both PERT and CPM are network techniques developed in 1950’s, which consider the inter-dependency among project activities.
CPM by DuPont for chemical plants (1957): A project management technique that uses only one time factor per activity. (Activity times are assumed to be certain.)
PERT by Booz, Allen & Hamilton with the U.S. Navy, for Polaris missile (1958): A technique that uses three time estimates for each activity. (Activities times are assumed to be uncertain.)
Questions PERT and CPM can answer
When will the entire project be completed?
What are the critical activities or tasks in the project?
Which are the noncritical activities?
What is the probability the project will be completed by a specific date?
Is the project on schedule, behind schedule, or ahead of schedule?
Is the money spent equal to, less than, or greater than the budget?
If the project must be finished in a shorter time, what is the way to accomplish this at least cost?
PERT and CPM: 6 Steps
Both PERT and CPM follow six basic steps:
Define the project and prepare the work breakdown structure
Develop relationships among the activities - decide which activities must precede and which must follow others
Draw the network connecting all of the activities
Assign time and/or cost estimates to each activity
Compute the longest time path through the network – this is called the critical path
Use the network to help plan, schedule, monitor, and control the project
Step 3: Draw a project network
A project network is a diagram of all the activities and the precedence relationships between the activities in a project.
There are two approaches for drawing a project network:
Activity-on-Node (AON): A network diagram in which nodes represent activities.
Activity-on-Arrow (AOA): A network diagram in which arrows represent activities.
AON Vs. AOA
Activity on Activity Activity on
Node (AON) Meaning Arrow (AOA)
A comes before B, which comes before C.
(a)
A
B
C
B
A
C
A and B must both be completed before C can start.
(b)
A
C
C
B
A
B
B and C cannot begin until A is completed.
(c)
B
A
C
A
B
C
AON Vs. AOA
Activity on Activity Activity on
Node (AON) Meaning Arrow (AOA)
C and D cannot begin until both A and B are completed.
(d)
A
B
C
D
B
A
C
D
C cannot begin until both A and B are completed; D cannot begin until B is completed. A dummy activity is introduced in AOA.
(e)
C
A
B
D
Dummy activity
A
B
C
D
AON Vs. AOA
Activity on Activity Activity on
Node (AON) Meaning Arrow (AOA)
B and C cannot begin until A is completed. D cannot begin until both B and C are completed. A dummy activity is again introduced in AOA.
(f)
A
C
D
B
A
B
C
D
Dummy activity
AON Vs. AOA
The AOA approach sometimes needs the addition of a dummy activity, represented by a dashed line, to clarify relationships.
A dummy activity consumes no time or resources, but is required in AOA when
A network has two activities with identical starting or ending events; or
Two or more activities follow some, but not all, “preceding” activities.
We will focus on AON in this class.
AON Example: Milwaukee Paper
| Activity | Description | Immediate Predecessors |
| A | Build internal components | — |
| B | Modify roof and floor | — |
| C | Construct collection stack | A |
| D | Pour concrete and install frame | A, B |
| E | Build high-temperature burner | C |
| F | Install pollution control system | C |
| G | Install air pollution device | D, E |
| H | Inspect and test | F, G |
Table 3.1
Given the following activities and precedence relationships in a project, draw an AON network representing the project.
AON Example: Project Network
A
Start
B
Start Activity
Activity A
(Build Internal Components)
Activity B
(Modify Roof and Floor)
We add a dummy activity called “Start” to serve as the unique starting activity of the project since we have more than one original starting activity (A and B) in this example.
AON Example: Project Network
C
D
A
Start
B
Activity A Precedes Activity C
Activities A and B Precede Activity D
We now add activity C and activity D to the network. Node C represents activity C and Node D represents activity D.
Note that arrows indicate precedence relationships between different activities in AON.
AON Example: Project Network
G
E
F
H
C
A
Start
D
B
Arrows Show Precedence Relationships
We will now look at Step 4
Both PERT and CPM follow six basic steps:
Define the project and prepare the work breakdown structure
Develop relationships among the activities - decide which activities must precede and which must follow others
Draw the network connecting all of the activities
Assign time and/or cost estimates to each activity
Compute the longest time path through the network – this is called the critical path
Use the network to help plan, schedule, monitor, and control the project
Step 4: Determine project schedule
To determine project schedule, we calculate two distinct starting and ending times for each activity.
Earliest start (ES): earliest time at which an activity can start, assuming all predecessors have been completed.
Earliest finish (EF): earliest time at which an activity can be finished
Latest start (LS): latest time at which an activity can start so as to not delay the completion time of the entire project
Latest finish (LF): latest time by which an activity has to be finished so as to not delay the completion time of the entire project
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A node symbol with times
A
Activity Name or Symbol
Earliest Start
ES
Earliest Finish
EF
Latest Start
LS
Latest Finish
LF
Activity Duration
2
Forward Pass
ES and EF are determined using Forward Pass.
In the forward pass, we begin with the starting node and work forward.
Earliest Start Time Rule:
If an activity has only a single immediate predecessor, its ES equals the EF of the predecessor
If an activity has multiple immediate predecessors, its ES is the maximum of all the EF values of its predecessors
ES = Max {EF of all immediate predecessors}
Forward Pass
Earliest Finish Time Rule:
The earliest finish time (EF) of an activity is the sum of its earliest start time (ES) and its activity time
Start
0
0
ES
0
EF = ES + Activity time
Take the Start node in the previous Milwaukee problem for example:
Forward Pass
Here are the ES and EF of Node A in the previous Milwaukee example:
Start
0
0
0
A
2
2
EF of A = ES of A + 2
0
ES of A
Forward Pass
E
4
F
3
G
5
H
2
4
8
13
15
4
8
13
7
D
4
3
7
C
2
2
4
B
3
0
3
Start
0
0
0
A
2
2
0
Here are the ESs and EFs of all the activities in the previous Milwaukee example:
Backward Pass
In backward pass, we begin with the last event and work backwards.
Latest Finish Time Rule:
If an activity is an immediate predecessor for just a single activity, its LF equals the LS of the activity that immediately follows it
If an activity is an immediate predecessor to more than one activity, its LF is the minimum of all LS values of all activities that immediately follow it
LF = Min {LS of all immediate following activities}
Backward Pass
Latest Start Time Rule:
The latest start time (LS) of an activity is the difference of its latest finish time (LF) and its activity time
LS = LF – Activity time
Milwaukee Example: LS/LF
E
4
F
3
G
5
H
2
4
8
13
15
4
8
13
7
D
4
3
7
C
2
2
4
B
3
0
3
Start
0
0
0
A
2
2
0
LF = EF of Project
15
13
LS = LF – Activity time
We start from the ending node and work backward.
Milwaukee Example: LS/LF
E
4
F
3
G
5
H
2
4
8
13
15
4
8
13
7
13
15
D
4
3
7
C
2
2
4
B
3
0
3
Start
0
0
0
A
2
2
0
LF = Min(LS of following activity)
10
13
LF of Node F = LS of Node H since Node H is the only node following Node F.
Milwaukee Example: LS/LF
E
4
F
3
G
5
H
2
4
8
13
15
4
8
13
7
13
15
10
13
8
13
4
8
D
4
3
7
C
2
2
4
B
3
0
3
Start
0
0
0
A
2
2
0
LF = Min(4, 10)
4
2
There are two nodes, Node E and Node F, following Node C.
Milwaukee Example: LS/LF
E
4
F
3
G
5
H
2
4
8
13
15
4
8
13
7
13
15
10
13
8
13
4
8
D
4
3
7
C
2
2
4
B
3
0
3
Start
0
0
0
A
2
2
0
4
2
8
4
2
0
4
1
0
0
Project network with all the ES/EF and LS/LF.
We will now look at Step 5
Both PERT and CPM follow six basic steps:
Define the project and prepare the work breakdown structure
Develop relationships among the activities - decide which activities must precede and which must follow others
Draw the network connecting all of the activities
Assign time and/or cost estimates to each activity
Compute the longest time path through the network – this is called the critical path
Use the network to help plan, schedule, monitor, and control the project
Step 5: Determine Critical Path
The critical path is the longest path through the network.
The critical path is the shortest time in which the project can be completed.
Any delay in critical path activities delays the project.
Critical path activities have no slack time.
So in order to find the critical path(s), we need to first calculate the slack times of each activity and identify the activities with zero slack time.
Notes – Critical path and ES EL
Any sequence of activities between a project’s start and finish is a path.
The critical path is just the path that takes the longest time to complete.
There can be more than one critical paths.
An activity can be started at ES, LS, or any time between ES and LS.
Notes – Slack times
Activity slack is the maximum length of time an activity can be delayed without delaying the entire project.
Activities on the critical path have zero slack.
Activity slack can be calculated in two ways:
Slack = LS – ES OR
Slack = LF – EF
Example: Milwaukee
We have calculated the ES/EF, LS/LF times for the activities in the Milwaukee example. Now we would like to determine the critical path of the project.
Earliest Earliest Latest Latest On Start Finish Start Finish Slack Critical Activity ES EF LS LF LS – ES Path?
A 0 2 0 2 0 Yes
B 0 3 1 4 1 No
C 2 4 2 4 0 Yes
D 3 7 4 8 1 No
E 4 8 4 8 0 Yes
F 4 7 10 13 6 No
G 8 13 8 13 0 Yes
H 13 15 13 15 0 Yes
Example: Milwaukee
E
4
F
3
G
5
H
2
4
8
13
15
4
8
13
7
13
15
10
13
8
13
4
8
D
4
3
7
C
2
2
4
B
3
0
3
Start
0
0
0
A
2
2
0
4
2
8
4
2
0
4
1
0
0
The path formed by blue arrows is the critical path.
Example: Start from Step 3
Consider the following consulting project:
Identify the critical path in the project and determine the duration of the critical path and slack times for all activities.
Detailed solution is given in the document titled “In-class examples” posted under this week’s learning module.
Activity
Designation
Immed. Pred.
Time (Weeks)
Assess customer's needs
A
None
2
Write and submit proposal
B
A
1
Obtain approval
C
B
1
Develop service vision and goals
D
C
2
Train employees
E
C
5
Quality improvement pilot groups
F
D, E
5
Write assessment report
G
F
1
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Variability in Activity Times
CPM assumes we know a fixed time estimate for each activity and there is no variability in activity times
PERT uses a probability distribution, Beta distribution, for activity times to allow for variability
Statistical analysis requires three reasonable estimates of activity times
Optimistic time (a)
Most likely time (m)
Pessimistic time (b)
Beta Distribution
The mean of the beta distribution can be estimated by
The variance of the beta distribution for each activity is
We use Beta Distribution to calculate the mean and variance of the completion time of each activity.
Example: Mean and Variance
Suppose that the project team has arrived at the following time estimates for activity B (site selection and survey) of the St. John’s Hospital project:
a = 7 weeks, m = 8 weeks, and b = 15 weeks
Calculate the expected time and variance for activity B.
Note that the expected time does not equal the most likely time. These will only be the same only when the most likely time is equidistant from the optimistic and pessimistic times.
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Example: Solution
Expected completion time of the activity
Variance
= 1.78
Determine probabilities of project completion times
According to the Central Limit theorem, the expected completion of the whole project
, which is the mean of the normal distribution.
Assume that the activities times are independent, the variance of the completion time of the whole project
Determine probabilities of project completion times
Let D denote the expected project completion time, 6 weeks for example.
Using z-transformation,
z is the # of standard deviations to the left or right of zero in the standard normal distribution.
Using the z value, we then find the corresponding probability in Appendix I of the textbook. That probability is the probability of the project being completed in D amount of time.
Example: Determine Probability
Questions: What is the probability of completing the project in 35 weeks? Detailed solution is available in the doc “In-class Examples”.
Outline
Project Management
What is Project Management?
Three types of projects
Work Breakdown Structure (WBS)
Project Management Techniques: PERT and CPM
Cost-Time Trade-Offs and Project Crashing
A Critique of PERT and CPM
56
Project Crashing
Basic assumption: There is a relationship between activity completion time and project cost.
Time cost models: Determine the optimum point in time-cost tradeoffs
Activity direct costs: costs associated with expediting activities.
Project indirect costs: costs associated with sustaining the project.
Procedure for Project Crashing
Prepare a network diagram for the project
Determine the cost per unit of time to expedite each activity
Find out the critical path
Repeatedly shorten the critical path by crashing the least expensive activity based on the costs to crash per period.
Stop until it is not profitable to crash.
Finding the minimum cost schedule
Crash only activities that are critical.
Crash from least expensive to most expensive.
Each activity can be crashed until
it reaches it’s maximum time reduction
it causes another path to also become critical
it is more expensive to crash than not to crash
Continue until no more activities should be crashed.
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Example: Cost to crash per period
Please calculate the cost to crash per period for each of the following activities.
Detailed solution available in the document “In-class examples”.
Example: Project crash
This project, under normal conditions takes 20 days. Suppose each day the project runs incurs an indirect project cost of $1400 (overhead). What activities should be crashed if any?
Detailed solution available in the document “In-class examples”.
Advantages of PERM/CRM
Especially useful when scheduling and controlling large projects
Straightforward concept and not mathematically complex
Graphical networks help highlight relationships among project activities
Critical path and slack time analyses help pinpoint activities that need to be closely watched
Project documentation and graphics point out who is responsible for various activities
Applicable to a wide variety of projects
Useful in monitoring not only schedules but costs as well
Disadvantages of PERM/CRM
Project activities have to be clearly defined, independent, and stable in their relationships
Precedence relationships must be specified and networked together
Time estimates tend to be subjective and are subject to fudging by managers
There is an inherent danger of too much emphasis being placed on the longest, or critical, path
Operations and Supply Chain Management
MGMT 3306
Lecture 01
Instructor: Dr. Yan Qin
Outline – Week 1
Course overview
Topics to be covered
Assessment items
Operations and Supply Chain Management (O&SCM)
What is OSCM
Services Vs. Goods
Efficiency Vs. Effectiveness
Productivity Measurement
Operations Strategies
Topics to cover in this course
Global Operations Strategy
Project Management
Quality Management
Statistical Process Control
Demand Management and Forecasting
Inventory Management
Location Strategy
Decision Making Tools
3
Grading scale
Your letter grade is determined using the grade distribution that follows. You can calculate your percentage grade at any time in the semester by dividing the points you have accrued by the total points available up to that point. This percentage is then matched to a letter grade.
A 90% or higher
B 80 to 89%
C 70 to 79%
D 60 to 69%
F Less than 60%
Course Assessment
Grade breakdown
Class Participation 10%
Individual Assignments 20%
Two Exams 70%
* Please refer to the tentative class schedule for the post and due dates of each individual assignments.
Class participation
Class discussion will be held on the Forum (used to be called Discussion Board in Vista 8) in the Learn 9 system. A set of 2-4 new questions will be posted each week with their end dates stated. For each set of questions, you are expected to answer at least one of the initial questions and reply to at least one of your classmates responses for full credit.
Detailed netiquette rules you are expected to follow are available on the Discussion Forum of Week 1.
Assignments and Exams
Individual Assignments
There are 4 individual assignments in total. Each assignment consists of problem-solving questions and essay questions about the topics covered in class. Each assignment accounts for 5% of the final grade.
Two Exams
There will be two non-cumulative exams in total. Each accounts for 35% of the final grade. The exams will be individual, timed, and open-book/notes. Only multiple-choice questions will be given on the exams.
Contact information
Course Website: https://www.uhv.edu/elearning/login.aspx
Email: [email protected] or via “Messages” function in Learn 9
My Office: Room 338, Brazos Hall, UHSSL
Office Hours: 4:00 pm – 5:00 pm on Tuesdays or by appointment (You can either drop by my office in Brazos Hall or meet me online at: https:// meetonline.uhv.edu/su15oscm /)
Office Phone number: 832-842-2958
For technical questions about Learn 9, please email our online support technicians at [email protected] .
What is OSCM
Operations include all the activities that relate to the creation of good and services through the transformation of inputs to outputs.
Operations Management (OM) refers to the management of Operations activities to ensure the efficient utilization of all kinds of resources in meeting customer expectations.
Supply Chain Management (SCM) deals with the management of materials, information, and financial flows in a network consisting of suppliers, manufacturers, distributors, and customers.
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Example: OSCM Activities in a Commercial Bank
Commercial Bank
Operations:
Teller scheduling
Check Clearing
Collection
Transaction Processing
Facility Layout/design
Vault Operations
Maintenance
Security
Finance:
Investment
Securities
Real estate
Marketing:
Loans
Commercial
Industrial
Financial
Personal
Mortgage
Accounting
Auditing
Trust Department
10
Example: OSCM Activities in a Manufacturing Organization
Manufacturing
Operations:
Facilities
Construction; Maintenance
Production and Inventory Control
Quality assurance and control
Supply Chain Management
Product Design
Industrial Engineering
Efficient use of machine, space
Process analysis
Finance:
Disbursements/credits
Accounts receivable
Accounts payable
Funds Management
Capital requirements
Stock issue
Bond issue and recall
Marketing:
Sales promotion
Advertising
Sales
Market research
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OM’s Transformation Role
12
Inputs are transformed into Goods and Services via OSCM activities.
Differences between Services and Goods
| Attributes of Goods | Attributes of Services |
| Tangible product | Intangible product |
| Product can be resold. | Reselling a service is unusual. |
| Product can be inventoried. | Many services cannot be inventoried. |
| Some aspects of quality are measurable. | Many aspects of quality are difficult to measure. |
| Selling is distinct from production. | Selling is often a part of the service. |
| Product is transportable. | Provider, not product, is often transportable. |
| Site of facility is important for cost. | Site of facility is important for customer contact. |
| Often easy to automate. | Service is often difficult to automate. |
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Goods – Services Continuum
In reality, almost all services and goods are a mixture of a service and a tangible product.
14
“We need to have things done efficiently and effectively!” said your supervisor one day. But what does this mean?
Efficient Vs. Effective Operations
Efficiency: Doing something at the lowest possible cost.
Effectiveness: Doing the right things to create the most value for the company.
Now you know that 4 situations can happen to you:
Efficient but Ineffective
Inefficient but Effective
Efficient and Effective
Inefficient and Ineffective
Efficient Vs. Effective Operations
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The 10 major OM decisions
| Ten Decision Areas | Sample Issues |
| Design of goods and services | What good or service should we offer? |
| Managing quality | How do we define the quality? |
| Process and capacity | What process and what capacity will these products require? |
| Location strategy | Where should we put the facilities? |
| Layout strategy | How should we arrange the facilities? |
| Human resources and job design | How do we provide a reasonable work environment? |
| Supply chain management | Should we make or buy this component? |
| Inventory, material requirements planning, and JIT | How much inventory of item should we have? When do we reorder? |
| Intermediate and short-term scheduling | Are we better off keeping people on the payroll during slowdowns? |
| Maintenance | Who is responsible for maintenance? |
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Productivity Measures
Productivity is a measure of efficiency.
It shows how well a country, industry, or business unit is using its resources (or factors of production).
Formula:
Productivity = outputs / inputs
Three types of productivity measures
There are three types of productivity measures:
Partial: Exactly one input is considered in measuring productivity
Multifactor: More than one input but not all inputs are included when measuring productivity.
Total: All the inputs are included when measuring productivity.
Note that when one than one input is used to calculate productivity, the inputs should be measured by the same unit. (More details will be provided in the following.)
Example: Partial measures
According to the 2006 edition of the Harbour Report on North American auto-factory productivity
GM : 33.19 labor hrs to build 1 vehicle
Honda: 41 minutes less than GM
Nissan: 500 autos with 14,230 labor hrs
Question 1: If GM’s labor productivity in year 2007 was .029 vehicles/ hr, what was GM’s change in labor productivity?
Question 2: How many hours did it take to build a vehicle at GM in year 2007?
Labor, capital, materials, energy…
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Example: Question 1
Answer:
GM’s labor productivity in year 2006 = output / input
= 1/ 33.19
= 0.03 vehicles/hr
GM’s labor productivity in year 2007 = 0.029 (given)
Change in labor productivity = 0.029 -0.03
= - 0.001
Example: Question 2
Answer:
GM’s labor productivity in year 2007 = 0.029 vehicle/hr (given)
The number of labor hours it took to produce a vehicle in year 2007 =
Example: Multi-factor measures
Suppose an automaker shows the following results:
Output : 500,000 vehicles
Labor = 29.4 hrs/ vehicle at $47/hr
O/H Charge = $327 per Labor hour
Material Cost = $6.5 Billion
Please calculate the multifactor productivity for labor and material together.
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Example: Solution - 1
Using the formula for productivity,
Multifactor productivity for labor and material
= Output / (Labor cost + Material cost)
(1) Note that in this case we should use labor cost, instead of labor hour, since materials are measured by dollar. Inputs should be measured by the same unit.
(2) The unit of Output can be different from the unit of Input. For example, the output in this example is the number of vehicles produced and the input is the total amount of money put in labor and material.
Example: Solution - 2
The total material cost is $6.5 billion as given.
We now need to calculate the total labor cost:
Labor = 29.4 hrs per vehicle at $47/hour (given)
Labor cost per vehicle = 29.4 hrs/vehicle * $47/hr
= $1384.8 per vehicle
Output = 500,000 vehicles
Therefore, the total labor cost incurred to produce the 500,000 vehicles = $1384.8 per vehicle * 500,000 vehicles
= $ 0.6909 billion
Example: Solution - 3
Multifactor productivity for labor and material
= Output / (Labor cost + material cost)
= 500,000 vehicles / ($0.6909 billion + $6.5 billion)
= 500,000 vehicles / $7.1909 billion
= 0.000695 vehicle per dollar
Example: Total productivity
Company A received the data below for its rodent cage production unit. Please find the total productivity.
| Output | Input | |
| 50,000 cages Sales price: $3.50 per unit | Production time | 620 labor hours |
| Wages | $7.50 per hour | |
| Raw material cost | $30,000 | |
| Component cost | $15,350 |
Example: Solution
The output here can be either the total number of cages or the total revenue.
Suppose we use total revenue as output in this case.
Then, Total Productivity
= Output / Sum of Inputs (in $)
= Revenue / (labor cost + raw material cost + cost of components)
= (50,000 * $3.5 per unit) / (620* $7.5 per hr + $30,000 + $15,350)
= 3.5
Reasons to Globalize
Reasons why domestic business operations decided to change to some form of international operations:
Reduce costs (labor, taxes, tariffs, and etc.)
Improve supply chain
Provide better goods and services
Understand markets
Learn to improve operations
Attract and retain global talent
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Reasons to Globalize
Reduce costs: Foreign locations with lower wage rates can lower direct and indirect costs.
Maquiladoras: Mexican factories located along the U.S.-Mexico border that receive preferential tariff treatment.
World Trade Organization (WTO)
North American Free Trade Agreement (NAFTA)
APEC, SEATO, MERCOSUR, CAFTA
European Union (EU)
31
Reasons to Globalize
Improve the Supply Chain: Locating facilities closer to unique resources, such as Athletic shoe production to China and Perfume manufacturing in France
Provide Better Goods and Services: Some characteristics of goods and services can be subjective and difficult to measure. A local presence permits firms to
Have a better understanding of local goods and service requirements ,and
Reduce response time to meet customers’ changing requirements.
Reasons to Globalize
Learn to improve operations: Remain open to the free flow of ideas
General Motors partnered with a Japanese auto manufacturer to learn new approaches to production and inventory control
Equipment and layout have been improved using Scandinavian ergonomic competence
Attract and Retain Global Talent
Example: Global Strategies
Benetton – moves inventory to stores around the world faster than its competition by building flexibility into design, production, and distribution
Volvo – considered a Swedish company but until controlled by an American company, Ford, and later on acquired by Geely, a Chinese automaker.
Example: Global Strategies
Sony – purchases components from suppliers in Thailand, Malaysia, and around the world
Boeing – sales and production are worldwide
Haier – A Chinese company, produces compact refrigerators (it has one-third of the US market) and wine cabinets (it has half of the US market) in South Carolina
Concerns when going international
Cultures can be quite different
Attitudes can be quite different towards:
Punctuality
Lunch breaks
Environment
Intellectual property
Thievery
Bribery
Child labor
Concerns when going international
Companies want to consider:
National literacy rate
Rate of innovation
Rate of technology change
Number of skilled workers
Political stability
Product liability laws
Export restrictions
Variations in language
Work ethic
Tax rates
Inflation
Availability of raw materials
Interest rates
Population
Number of miles of highway
Phone system
37
Developing Missions and Strategies
Mission statements tell an organization where it is going
The Strategy tells the organization how to get there
Mission
where are you going?
Organization’s purpose for being
Answers ‘What do we provide society?’
Provides boundaries and focus
Examples of Mission:
Merck: Provide society with superior products and services—innovations and solutions that improve the quality of life and satisfy customer needs—to provide employees with meaningful work and advancement opportunities and investors with a superior rate of return.
Hard Rock Café: To spread the spirit of Rock ’n’ Roll by delivering an exceptional entertainment and dining experience. We are committed to being an important, contributing member of our community and offering the Hard Rock family a fun, healthy, and nurturing work environment while ensuring our long-term success.
Labor, capital, materials, energy…
40
Factors Affecting Mission
Benefit to Society
Mission
Philosophy and Values
Profitability and Growth
Environment
Customers
Public Image
Strategy
Action plan to achieve mission
Functional areas have strategies
Strategies exploit opportunities and strengths, neutralize threats, and avoid weaknesses
Strategies for Competitive Advantage
Competitive advantage implies the creation of a system that has a unique advantage over competitors.
Each of the following strategies provides an opportunity for operations managers to achieve competitive advantage:
Competing on Differentiation: Better or at least different
Competing on Cost: Cheaper
Competing on Response: Rapid Response
43
Competing on Differentiation
Uniqueness can go beyond both the physical characteristics and service attributes to encompass everything that impacts customer’s perception of value.
Examples of businesses competing on differentiation:
Safeskin gloves – leading edge products
Walt Disney Magic Kingdom – experience differentiation
Hard Rock Cafe – dining experience
Competing on Cost
Provide the maximum value as perceived by customer. Does not imply low quality.
Examples of businesses competing on cost:
Southwest Airlines – secondary airports, no frills service, efficient utilization of equipment
Wal-Mart – small overhead, shrinkage, distribution costs
Franz Colruyt – no bags, low light, no music, doors on freezers
Competing on Response
Response is often considered as flexible response, but it also refers to reliable and quick response.
Flexibility is matching market changes in design innovation and volumes. (ex: A way of life at Hewlett-Packard)
Reliability is meeting schedules (ex: German machine industry)
Timeliness is quickness in design, production, and delivery (ex: Johnson Electric, Pizza Hut, Motorola)
Strategy Development Process
Determine the Corporate Mission
State the reason for the firm’s existence and identify the value it wishes to create.
Form a Strategy
Build a competitive advantage, such as low price, design, or volume flexibility, quality, quick delivery, dependability, after-sale service, broad product lines.
Analyze the Environment
Identify the strengths, weaknesses, opportunities, and threats. Understand the environment, customers, industry, and competitors.
Figure 2.6
Implement Strategy
The operations manager’s job is a three-step process:
Support a Core Competence and implement strategy by identifying and executing the Key Success Factors in the Functional Areas.
Build and staff the organization
Integrate OM with other strategy
KSFs and Core Competencies
A successful strategy requires determining the firm’s Key success factors (KSFs) and core competencies.
KSFs are those activities that are necessary for a firm to survive in its industry and achieve its goals.
KSFs are often necessary, but not sufficient for competitive advantage.
Core competencies are the set of unique skills, talents, and capabilities that a firm does a world-class standard.
Core competencies allow a firm to set itself apart and develop a competitive advantage.
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Assignment 1 (Due at 11:59 pm June 16 CST)
Instructions:
1. Please answer the assignment questions in this docx file and save once you’re satisfied. Assignment 1 covers the lectures slides for Week 1 and Week 2.
2. There are three assignment problems. Please follow the instructions given at the end of each question if any.
3. To submit your assignment, go to “Assignments” on the left panel of the course homepage. Then
1) Click on the bold link “Assignment 1” to open;
2) Go down to Section 2 “Assignment Materials” on the webpage you’re directed to;
3) Click the button “Browse My Computer” in Section 2 and upload your document;
4) Scroll down to the bottom of the webpage and click the grey button “Submit” in Section 3 “Submit” to complete the submission.
4. To resubmit your assignment, simply click to open “Assignment 1” again and click the grey button “Start New Submission” on the upper right corner of the “Review Submission History” webpage you’re directed to. You can make as many submissions as you like before the due time. Only the last submission will be graded.
Assignment Problems (120 points in total):
1. Upton Manufacturing makes 2,000 tires per day with the following resources:
|
Resources |
|
|
Labor |
400 hours per day @ $20 per hour |
|
Raw Materials |
20,000 pounds per day @ $2 per pound |
|
Energy |
$10,000 per day |
|
Capital |
$8,000 per day |
(a) What is the capital productivity? Please provide the formula for calculating productivity, at least one step of calculation, and the correct answer for full credit. (6 points)
(b) What is the total productivity in this problem? Please provide the formula for calculating productivity, at least one step of calculation, and the correct answer for full credit. (6 points)
2. Suppose a project consists of the following activities.
|
Activity |
Immediate Predecessors |
Time (Days) |
|
A |
None |
5 |
|
B |
None |
8 |
|
C |
A |
4 |
|
D |
B, C |
6 |
|
E |
B, C |
4 |
|
F |
D |
6 |
|
G |
E, F |
4 |
(a) Draw the activity-on-node (AON) project network based on the table above. Only nodes and directed arrows are required in the network for full credit. (10 points)
(b) List all the paths in the network and calculate the completion time of each path for full credit. (10 points)
(c) What is the project completion time? Please give the reason for full credit. (4 points)
3. The following represents a project that should be scheduled using PERT.
|
Activity |
Immediate Predecessor(s) |
Times (Days) |
||
|
|
|
a |
m |
b |
|
A |
None |
1 |
3 |
5 |
|
B |
None |
1 |
2 |
3 |
|
C |
A |
1 |
2 |
3 |
|
D |
A |
2 |
3 |
4 |
|
E |
B |
3 |
4 |
11 |
|
F |
C, D |
3 |
4 |
5 |
|
G |
D, E |
1 |
4 |
6 |
|
H |
F, G |
2 |
4 |
5 |
(a) Draw the AON project network. Only nodes and directed arrows are required in the network for full credit. (10 points)
(b) Calculate the expected activity time for each activity. (16 points)
(c) Calculate the variance of the activity time for each activity. (16 points)
(d) List all paths and calculate their expected completion time. (24 points)
(e) What is the critical path? (4 points)
(f) What is the expected project completion time? Please give the reason. (4 points)
(g) What is the variance of the project completion time? Please provide at least one step of calculation and the correct answer for full credit. (4 points)
(h) What is the probability of completing this project within 16 days? Please provide the formula for calculating the z value, at least one step of calculation, and the correct probability for full credit. (6 points)
3
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