Pm10 Operations & Supply

PM10 OPERATIONS & SUPPLY CHAIN Propaedeutic Phase, Semester 2. Table of Contents Module 1 - Managing operations to create value ................................................................................2 Module 2 – Managing the supply Chain ..............................................................................................3 Module 3 – Business performance Metrics (KPIs) ................................................................................4 Module 4 - Supply Chain Management Performance Metrics ..............................................................7 Module 5 – Process Analysis: Line Balancing ..................................................................................... 10 Module 6 – Constraints Management ............................................................................................... 14 Module 7 – Lean Thinking ................................................................................................................. 17 Module 8 – Demand Forecasting....................................................................................................... 21 Module 9 – Inventory Management: ABC Analysis ............................................................................ 25 Module 10 – Capacity Management.................................................................................................. 30 Module 11 – Learning Curves ............................................................................................................ 32 Module 1 - Managing operations to create value • Transformation Process Model, Value Chain Model WHAT IS VALUE ? • Capacity of a good, work or service to meet a particular customer want • Customer define Value = What I get / For my money • can come in form of low cost, speed, flexibility and high quality, all at the same time CREATING VALUE will depend on a firm’s ability to transform resources into products & services OPERATIONS MANAGEMENT • set of methods that produce and deliver products and services in pursuit of specific goals • operations determine costs, quality, timing of the value proportion that a company delivers to its customers VALUE PROPOSITION defines resources (inputs) & requirements for the transformation process • companies actually selling “Customer Benefit Package” to retain customers THE IMPORTANCE OF PROCESS THINKING To manage operations effectively, is important to understand a company’s processes in context of its business model and industry Process Any activity or group of activities that takes one or more inputs, transforms them, and provides one or more outputs for its customers THE TRANSFORMATION PROCESS MODEL Inputs Transforming resources (Tools, manpower) Transformation Output Transformed resources (materials, people) MOST OPERATIONS PRODUCE A MIXTURE OF PRODUCTS (TANGIBLES ) AND SERVICES (INTANGIBLES ) Pure products Outputs are exclusively tangible Mixture of p/s - Crude oil production Aluminium melting machine tool production Outputs are a mixture of the Restaurant tangible & intangible Information systems provider Pure services - Management consultancy Outputs are exclusively intangible Psychotherapy clinic APPLYING THE TRANSFORMATION P ROCESS MODEL Transformed resources: Meat, knife Transforming resources: Employee 1. Hot Dog Transformed resources: Food, ingredients Transforming resources: Employee 2. Fontys Transformed resources: students Transforming resources: teachers, staff, technology, books Module 2 – Managing the Supply Chain • Supply-Chain-Operations-Reference Model (SCOR) VALUE CHAIN MODEL Organizations are arrangement of activities Objective of model: Mapping out activities of enterprise to create value & competitive advantage SUPPORT ACTIVITIES Value Chain Analysis for Manufacturing Firms Each primary activity is linked to support activities which help to improve their effectiveness or efficiency Most important source of differentiation advantage P RIMARY ACTIVITIES Directly concerned with creation or delivery of the p/s Goal: create value > cost of conducting that activity, therefore generating a higher profit Example: “Fontys” – Primary Activities Inbound Logistics: Teacher, Student Recruitment, Funds | Operations: Education, Development of Teacher Skills Outbound Logistics: Skilled Students (Degree in the end) | Marketing & Sales: Open days | Service: Job, Relations → Value Chains interact on complex networks referred as Supply Chains Suppliers OEM Customers Materials flow from suppliers Transformation of materials into semiDistribution of products to and their “upstream” customers and their “downstream” finished and finished products through the suppliers at all levels customers at all levels organization’s own production process SUPPLY CHAIN NETWORK Supply Chain network for a homeware company Supply Chain network for a shopping mal SUPPLY CHAIN ARE BORDERLESS THE SCOR MODEL (Supply Chain Operations Reference) A framework for mapping out the process in the supply chain SUPPLY CHAIN MANAGEMENT : The management of up- & downstream relationships with suppliers & customers to deliver superior customer value at lower cost to the supply chain as a whole DISRUPTIONS IN THE SUPPLY CHAIN (e.g. empty supermarket) • Japan 2011 , China 2020 (Coronavirus), Europe 2020 (Brexit), US 2017 (Trump) ENABLERS IN THE SUPPLY CHAIN Drone Logistics, Unmanned Vehicles, ASEAN, Augmented Realty (AR), USMCA, Additive Manufacturing (3D printing) Module 3 – Business performance Metrics (KPIs) • Productivity ratios IMPORTANCE OF MEASURING • Forecast future • See progress and where we stand rn KPI = Key Performance Indicators BUSINESS KPI DASHBOARD → Will I meet my business goals? Using red, yellow and green to communicate whether a metric is good or bad KEY PERFORMANCE INDICATORS are financial & nonfinancial metrics that reflect organization’s key business drivers (KBDs → also known as critical success factors [CSFs] about how to be successful) • Delivering Pizza < 30min TYPES OF KPIS Quantitative Objective & Numerical Examples: • Times • Inventory levels • Rates • Transportation costs • Values • Sales per employee • Amounts • Accidents • Frequencies Qualitative Measure Intangible characteristics • Degree of satisfaction • Likelihood of doing sth. • Perceptions • Desire or need • Level of agreement Examples: • Customer satisfaction • Employee engagement • Motivation A KPI IS MEANINGLESS WITHOUT A GOAL Targets have to be SMART: • Specific: What exactly do you want to achieve? • Measurable: How will you know you have achieve it? • Achievable: is it attainable? • Relevant: Makes sense? • Time bounded: by when? Problem: A deviation (gab) from an expectation WHAT COULD YOU CONCLUDE OUT OF THIS PKI VISUALIZATION ? KPIS CAN HAVE LIMITATIONS • many people’s careers depend on good PKI, therefore it’s tempting to fudge the numbers “CEO of Japan’s Toshiba resigns over doctored books that inflated profits at the Japanese technology manufacturer by 152 billion yen over several years. Various parts of the company’s sprawling business were struggling financially, but top managers set unrealistic earnings targets” • Might not measure what is relevant to the business http://www.apics.org/apics-for-business/benchmarking/scormark-process/scor-metrics P RODUCTIVITY → BEING EFFICIENT The transformation model Single-factor productivity: A productivity score that measures output levels relative to single input Labor Productivity = 𝐎𝐮𝐭𝐩𝐮𝐭 𝐈𝐧𝐩𝐮𝐭 = 𝐔𝐧𝐢𝐭 𝐒𝐚𝐥𝐞𝐬 𝐄𝐦𝐩𝐥𝐨𝐲𝐦𝐞𝐧𝐭 𝐡𝐫𝐬 Multifactor productivity: productivity score measuring output levels relative to more than 1 input Machine productivity = 𝐆𝐨𝐨𝐝𝐬 𝐨𝐫 𝐬𝐞𝐫𝐯𝐢𝐜𝐞𝐬 𝐩𝐫𝐨𝐝𝐮𝐜𝐞𝐝 𝐄𝐯𝐞𝐫𝐲𝐭𝐡𝐢𝐧𝐠 𝐮𝐬𝐞𝐝 𝐭𝐨 𝐩𝐫𝐨𝐝𝐮𝐜𝐞 𝐭𝐡𝐞𝐦 Example 1.1 3 employees process 600 insurance policies in a week. They work 8 hours per day, 5 days per week. Policies processed 600 policies Labor productivity = = = 5 policies/ hour Employees hours (3 employees) (40 hours/employee) Example 1.2 A tam of worker makes 400 units of a product, which is sold in the market for $10 each. The accounting department reports that for this job the actual costs are $400 for labor, $1000 for material, and $300 for overhead. Value of output Multifactor productivity = Labor cost + Materials cost + Overhead cost (400 units) ($10/unit) $4000 = = = 2.35 $400 + $1000 + $300 $1700 Example 1.3 Natalie Attire makes fashionable garments. During a particular week employees worked 360 hours to produce a batch of 132 garments, of which 52 were “seconds” (meaning that the were flawed). Second are sold for $90 each at Attire’s Factory Outlet Store. The remaining 80 garments are sold to retail distribution at $200 each. What is the labor productivity ratio of this manufacturing process? 1. Value of output = (52 defective  90/defective) + (80 garments  200/garment) = $20,680 2. Labor hours of input = 360 hours 3. Labor productivity = Output Input = $20,680 = $57.44 in sales per hour 360 hours Application 1.1 Factory unit sales Employment (hrs) Sales of manufactured products ($) Total manufacturing cost of sales ($) This Year 2,762,103 112,000 $49,363 $39,000 Last Year 2,475,738 113,000 $40,831 $33,000 Year Before Last 2,175,447 115,000 — — What can we conclude based on productivity ? 1. Calculate the year-to-date labor productivity: This year Last year Year before last factory unit sales employment 2,175,447 = 18.91/hr 115,000 2,762,103 = 24.66/hr 112,000 2,475,738 = 21.91/hr 113,000 2. Calculate the multifactor productivity: This year sales of mfg products total mfg cost $49,363 $39,000 Last year = 1.27 $40,831 = 1.24 $33,000 Module 4 - Supply Chain Management Performance Metrics Reliability → BEING PREDICTABLE THE PERFECT-ORDER FULFILLMENT (POF): 1. The right product 2. delivered at the right time 3. in the right quantity 4. in the right condition 5. for the right cost Assume you own a Pizzeria. Last month, 75% of your orders where delivered On-Time and 98% of your orders were delivered In-Full (complete) What is your POF? (also referred as OTIF) POF = On-Time * In-Full = 75% * 98% = 73% Responsiveness → BEING FAST ORDER-FULFILLMENT CYCLE TIME (OFCT ): Period between customer places an order and order is received • Grocery store → OFCT = 0 (Zero) | Amazon.com → OFCT = ? • What’s the OFCT for order 50 (10:00:00) if the customer received it at 10:04:50? → 4:50 min Agility → BEING FLEXIBLE SC ADAPTABILITY METRICS : often based on estimate rather than hard data 1. Upside SC flexibility: days to respond to unexpected 15% demand increase (e.g. Promotion) 2. Upside SC adaptability: Amount of Capacity you could add in 30 days 3. Downside SC adaptability: Amount of drop in orders you could absorb without significant financial effect 4. Overall value at risk: Amount of money you would lose if a major disruption occurred (eg. Fukushima catastrophe) Asset management Efficiency → MAXIMIZING ASSETS UTILIZATION CASH-TO-CASH CYCLE TIME (C2C) = Receivable days + Inventory days – Payable days • The shorter the less working capital you need + the more efficient the supply chain is • Payment dates for suppliers & payment by customers are determined by agreement Examples C2C Example 1 Receivables You give 30 days of credit to C2C Example 2 C2C Example 3 your customers (Receivables) You give 30 days of credit to your customers (Receivables) You request your customers to pay you when you take their orders Your suppliers give you 30 days of credit (Payables) You maintain inventory to cover 15 days of demand Your suppliers require you to pay immediately when placing an order You maintain inventory to cover 15 days of demand Your suppliers give you 30 days to pay them C2C cycle C2C = 30 + 15 – 30 = 15 days C2C = 30 + 15 – 0 = 45 days Working Capital Because your payable and receivable days are the same, you only need enough Working Capital to pay for your average inventory level You need enough Working Capital to cover your average inventory plus your sales for 30 days Payables Inventory days You don’t maintain inventory at all, because you wait to buy materials until you receive an order for your customer C2C = 0 + 0 – 30 = – 30 days You don’t need Working Capital at all, because you are getting paid before you have to give any money to your suppliers. You can stockpile cash from your customers in the bank and make interests on it for 30 days before paying your customers ➔ Reducing Working Capital is useful, but the final business goal is profit INVENTORY RATIOS • One way to achieve high efficiency is by maintaining the right amount of inventory • Too much inventory takes up valuable resources and cash that cannot be used for other purposes • Too little might not be enough to meet customer demand ASSETS COMMITTED TO INVENTORY Investment in inventory = $11.4 billion Total assets = $44.4 billion Percent invested in inventory = (11.4/44.4) x 100 = 25.7% HOW IT’S USED Step 1. Find: the amount of inventory and total assets listed in the assets section of the balance sheet Step 2. Calculate: Divide de amount of inventory by the amount of total assets Step 3. Benchmark: Compare your inventory-to-total-assets ratio with those of your competitors and industry average Step 4. Deviations? If you ratio differs significantly, evaluate how feasible it is to adjust your inventory level Step 5. Review: historical data to identify any trends INVENTORY TURNOVER Where, Inventory investment is the average aggregate inventory value: WEEKS OF SUPPLY Example 1 Calculate Inventory turnover and WOS Net revenue Cost of goods sold Inventory: Raw material inventory Work-in-process inventory Finished goods inventory Example 2 Total inventory investment $32.5 $14.2 Inventory turnover = 14.2 / 1.69 = 8.4 Average weekly COGS = $14.2 (COGS) / 52 (weeks per year) = $ 0.273 $0.74 $0.11 $0.84 Weeks of supply = 1.69 / 0.273 = 6.19 weeks $1.69 The Eagle Machine Company wants to analyze its current status. → COGS = $10 MIO , INVENTORY INVESTMENT = $2 MIO The best inventory turnover in the company’s industry is six turns per year. If the company has 52 business weeks per year. 1) How many weeks of supply (WOS) were held in inventory? 2) What was the inventory turnover? 3) Based on the results of question 2, what should the company do? 1) WOS = $2 million / ($10 million / 52 weeks) = 10.4 weeks 2) Inventory turns = $10 million / $2 million = 5 turns/year 3) 5 turns/year VS 6 turns/year → WHAT TO DO? ➔ The average aggregate inventory value of $2 million translates into 10.4 weeks of supply and 5 turns per year. QUESTION: WHY DECREASING WEEKS OF SUPPLY OR INCREASING INVENTORY TURNS ? ➔ Decreasing weeks of supply or increasing inventory turns reduces the working capital needed to finance inventories Example 3 A recent accounting statement showed total inventories (raw materials + WIP + finished goods) to be $6,821,000. This year’s “cost of goods sold” is $19.2 million. The company operates 52 weeks per year. 1) How many weeks of supply are being held? 2) What is the inventory turnover? → WOS = $6,821,000 / ($19,200,000 / 52 weeks) = 18.5 weeks → Inventory turns = $19,200,000 / $6,821,000 = 2.8 turns Example 4 A firm’s cost of goods sold last year was $3,410,000, and the firm operates 52 weeks per year. It carries seven items in inventory: three raw materials, two work-in-process items, and two finished goods. The following table contains last year’s average inventory level for each item, along with its value. 1) What is the average aggregate inventory value? 2) How many weeks of supply does the firm maintain? 3) What was the inventory turnover last year? 1) Part Number Average Level 1 2 3 4 5 6 7 Unit Value 15,000 $ 3.00  2,500 5.00  3,000 1.00  5,000 14.00  4,000 18.00  2,000 48.00  1,000 62.00  Average aggregate inventory value Total Value = = = = = = = = $ 45,000 12,500 3,000 70,000 72,000 96,000 62,000 $ 360,500 Category Raw materials Work-in-process Finished goods Part Number Average Level Unit Value 1 2 3 4 5 6 7 15,000 2,500 3,000 5,000 4,000 2,000 1,000 $ 3.00 5.00 1.00 14.00 18.00 48.00 62.00 2) Average weekly COGS = $3,410,000/52 weeks = $65,577/ week WOS = $360,500 / $65,577 = 5.5 weeks 3) Inventory turnover = $3,410,000 / $360,500 = 9.5 turns PROCESS OPTIONS IN MANUFACTURING Module 5 – Process Analysis: Line Balancing 1) PROJECT PROCESSES • • • • One-off (unique), complex, large scale, high work content ‘products’ Specially made, every one customized Define start and finish: time, quality & cost objectives Many different skills have to be coordinated (solve, present problems, upload material to the internet) 2) JOBBING • • Very small quantities: ‘one-offs’, or only a few required Specially made. High variety, low repetition. ‘Strangers’ every one customized Skill requirements are usually very broad Skilled jobber, or teams, complete whole product • • 3) BATCH PROCESSES • • Higher volumes & lower variety than for jobbing Standard products, repeating demand → but can make specials Specialized, narrower skills Set-ups (changeovers) at each stage of production • • 4) LINE PROCESSES • • • • Higher volumes than batch Standard, repeat products Low and/or narrow skills No set-ups, or almost instantaneous ones • • Example: Ford Motor Company produced “ABoomer an Hour” at Willow Run Plan during WWII for USAF using mass production methods. No disruptions to the process People might find the work dull and monotonous 5) C ONTINUOUS PROCESSES • • • • Extremely high volumes and low variety: often single product → continuous instead of discrete Highly capital-intensive and automated Few changeovers required Difficult and expensive to start and stop the process: 24 hours non-stop LINE PROCESSES Process: a series of actions or steps taken in order to achieve a particular end How would you analyze the performance for this particular line-process? C YCLE TIME = WHAT WE CAN RUN Process cycle time: the average time between the products coming of the line. • Measured as time per unit (time/unit) What would be the Process Cycle Time? WIP: WORK-IN-PROCESS When the inflow rate exceed the outflow rate, the number of flow units inside of the process, increases and creates WIP (Inventory) • Unstable environment • Represent with the symbol: TAKT-TIME = WHAT WE SHOULD RUN The rhythm your production need to run in order to follow the demand ➔ The “heartbeat” of your production LEAD TIME • • • The total time spent by a flow unit within the process boundaries Also knows as Throughout Time Measures in Time units (e.g. seconds, minutes, hours…) Example: Average time a customer spends in a bank Customer arrives → Waiting → Service begins → Processing → Service ends PRODUCT LAYOUT BY LINE BALANCING METHOD Line balancing refers to activity of attempting to equalize the load on each station or part of a line layout or mass process Unbalanced Balanced LINE BALANCING -STEPS: 1) 2) 3) 4) Calculating the required cycle time (takt-time) Calculating the number of stages Producing a precedence diagram Finally allocating activities to the stages LINE BALANCING -EXAMPLE 1 Consider Karlstad Kakes, a manufacturer of specialty cakes, which has recently obtained contract to supply a major supermarket chain with a specialty cake in the shape of a space rocket. It has been decider that the volumes required by the supermarket warrant a special production line to perform the finishing, decorating and packing of the cake. This line would have to carry out the elements shown in table 1, which also shows the precedence diagram for the total job. The initial order from the supermarket is for 5000 cake a week and the number of hours worked by the factory is 40 per week. Design a layout that fulfills these requirements. Step 1) Calculate the Takt-Time (the required cycle time) Takt Time = Net time available to work/ Customer demand in that time = 40hrs x 60mins/ 5000 cakes = 0.48 mins/cake Step 2) Calculating the rewuired number of stages Required no. of stages = total work content/ Takt-Time Total work content: total quantity of work involved in producing the product given + measure in time = 1.68 mins (total work content)/ 0.48 (required cycle time) = 3.5 stages = 4 stages Note: This is the theoretical minimum number of stages, perhaps not feasible in reality! Step 3) Produce a precedence diagram (let us assume that is a consecutive step-by-step process) Step 4) Allocate activities to the stages: The general approach is to allocate elements from the precedence diagram to the first stage, starting from the left, until the work allocated to the stage is as close to, but less than, the cycle time (in this example, 0.48 mins) Should activity f be part of Stage 3 or Stage 4? PROPORTION OF IDLE TIME PER CYCLE LOSS Which senarios looks better? ALLOCATION OF ELEMENTS AND BALANCING EXAMPLE 2 A loan application process involves 8 separate tasks. Task A takes 10 minutes and does not required any other of the tasks to be performed before it can be started. Similarly, Task B can be started without any other task being completed and takes 8 minutes. Task C takes 16 minutes and cannot be performed until Task A has been done. Task D cannot be done until both A and B have been performed and takes 8 minutes. Task E requires tasks C and D to be finished and takes 8 minutes. After Task E has been performed, Tasks F and G, taking respectively 5 and 17 minutes, can be performed. Finally (but only after Tasks F and G have been performed), Task H can be performed and takes 11 minutes. Your tasks: 1. Devise a precedence diagram for this process 2. Assuming a takt-time of 18 minutes, determine how many people will be required to perform the task, and if they are arranged in a “product” layout, how the tasks will be allocated to each person. 3. Calculate the balancing loss for this layout. HOMEWORK EXERCISE The operations in a product layout are shown in the following table of precedence: The line works and 8 hour day, during which the planned output is 48 units. Design a balanced layout for the process by determining: 1. Takt-Time 2. Theoretical minimum number of stations 3. Create a precedence diagram and allocate tasks to the stations 1. Required cycle time = time available/ number of units to be made = 480mins/ 48units = 10 minutes/ unit 2. Theoretical min. no. of stations = total time for a unit/ cycle time = 76/ 10 = 7.6 3. Create precedence diagram + allocate tasks to stations: = 76 mins Utilization of the process = time used in a day/ number of stations x time on each = 76 x 480 / 9 x 480 = 84.4 % Module 6 – Constraints Management C ONSTRAINT : Any factor that limits the performance of a system and restricts its output BOTTLENECK: a restriction of flow • capacity constraint resource (CCR) whose available capacity limits the organization’s ability to meet the product volume, product mix, or demand fluctuations required by the marketplace BOTTLENECK ANALYSIS → Where is the bottleneck located? System Throughput Rate is determined by the “bottleneck” THE THEORY OF CONSTRAINTS (TOC): a systematic management approach that focuses on actively managing those constraints that impede a firm’s progress toward its goal . • • • TOC: Is a problem-solving methodology that focuses on the weakest link in a chain of processes The constraint is the slowest process Flow rate through the system cannot increase unless the rate at the constraint increases 1. Identify the System Bottleneck(s): Find the process that limits the effectiveness of the system. 2. Exploit the Bottleneck(s): Improve the rate of the constraining process (e.g. increase capacity) 3. Subordinate All Other Decisions to Step 2: Adjust the rates of the other processes in the chain to match that of the constraining process 4. Elevate the Bottleneck(s): If the system rate needs further improvement, the constraining process may require extensive revision (or elevation), e.g. investment in add.new equipment/ technology 5. Repeat: If these steps have improved the process to the point where it is no longer the constraint, the system rate can be further improved by repeating these steps with a new constraint KEY PRINCIPLES OF THE TOC 1. The focus should be on balancing flow, not on balancing capacity. 2. Maximizing the output and efficiency of every resource may not maximize the throughput of the entire system. 3. An hour lost at a bottleneck or constrained resource is an hour lost for the whole system. • An hour saved at a nonbottleneck resource does not make the system more productive. 4. Inventory is needed only in front of bottlenecks and in front of assembly and shipping points. 5. Work should be released into the system only as frequently as needed by the bottlenecks. • Bottleneck flows = market demand 6. Activating a nonbottleneck resource is not the same as utilizing a bottleneck resource. • It doesn’t increase throughput or promote better performance. 7. Every capital investment must be viewed from the perspective of the global impact on overall throughput, inventory, and operating expense. IDENTIFYING THE BOTTLENECK - EXAMPLE Managers at the First Community Bank are attempting to shorten the time it takes customers with approved loan applications to get their paperwork processed. 1. Which single step is the bottleneck? 2. What’s the Lead Time for a customer’s loan to flow the complete system? 3. What is the max. number of approved loans this system can process in a 5-hour work day? 1. Bottleneck is Step 2 → has the highest time per loan processed 2. Lead time (throughput time): 15 +20 + max(15,12) + 10 = 60 mins. 3. Capacity = 3 customers’ loans per hour ➔ because the bottleneck step 2 can process only 1 customer every 20 minutes (60/3) In a 5-hour work day: 3 loans/hr x 5 hrs = 15 hrs EXAMPLE 2: BARBARA’S BOUTIQUE Two types of customers enter Barbara’s Boutique shop for customized dress alterations. After T1, Type A customers proceed to step T2 and then to any of the three workstations at T3, followed by steps T4 and T7. After step T1, Type B customers proceed to step T5 and then steps T6 and T7. The numbers in the parentheses are the minutes it takes that activity to process a customer. 1. What is the capacity per hour of Type A customers? 2. If 30 percent of the customers are Type A customers and 70 percent are Type B customers, what is the average capacity? 3. When would Type A customers experience waiting lines (WIP), assuming there are no Type B customers in the shop? Where (in which steps) would Type B customers have to wait, assuming no Type A customers? 1. For Type A customers • Step T2 can process (60/13) = 4.62 customers per hour • Step T3 has three work stations and a capacity of (60/14) + (60/10) + (60/11) = 15.74 customer per hour • Step T4 can process (60/18) = 3.33 customers per hour • The bottleneck for type A customers is T4 2. For Type B customers • T6 is the bottleneck for Type B customers. • The capacity for Type B customers is (60/22) = 2.73 customers per hour The average capacity is 0.3(3.33) + 0.7(2.73) = 2.9 customers per hour. 3. Type A customers would wait before steps T2 and T4 because the activities immediately preceding them have a higher rate of output Type B customers would wait before steps T5 and T6 for the same reason. This assumes there are always new customers entering the shop. EXAMPLE 3: THE C AR WASH Bill’s car wash offers 2 types of washes: Standard and Deluxe. Both types are first processed through steps A1 and A2. The standard wash then goes through steps A3 and A4 while the Deluxe is processed through steps A5, A6 and A7. Both offerings finish at the drying station A8. The number of parentheses indicate the minutes it takes for that activity. 1. Which step is the bottleneck for the standard and deluxe car wash process? 2. What is the capacity (measured as customers served per hour) to process standard and deluxe customers? Assume that no customers are waiting at step A1, A2, or A8. 3. If 60% of the customers are standard and 40% are deluxe, what is the average capacity of the car wash in customers per hour? 4. Where would you expect Standard and deluxe wash customers to experience waiting lines, assuming that new customers are always entering the shop? 1. Bottleneck: Standard wash: = Step A4 Deluxe wash = Step A6 2. Capacity to process standard customers: 60/ 15 (step A4) = 4 customers per hour Capacity to process deluxe customers: 60/ 20 (Step A6) = 3 customers per hour 3. Average capacity = 0.6(4) + 0.4(3) = 3.6 customers per hour 4. Standard customers would wait before steps A1, A2, A4 and A4 because the activities that immediately precede them have a higher rate of output (i.e. smaller processing time). Deluxe customer would have to wait in front of steps A1, A2 and A6 for the same reasons. Module 7 – Lean Thinking IF INVENTORY DOESN’T GET USED IT BECOMES A WASTE ! (JIT) A JUST-IN-TIME SYSTEM WHAT’S JIT? AND RELATION WITH LEAN • • • Just in Time (JIT) method = material arrives/ get produced just on (in) time when its needed Also known as the Toyota Production System (TPS) or “Lean” Lean is about improving flow & speed, reducing complexity and waste (muda) o Combination of problem-solving methods & tools now popular beyond manufacturing (e.g. restaurants, hospitals, offices) LEAN ENVIRONMENT EXAMPLES : The system visually communicates to the worker, here, what is missing! There are lean methodologies that help creating and maintaining such clean working areas. !Lean is providing advantages! THE PERSPECTIVE OF LEAN: every job can be analyzed from 3 views: • • • Value activities = what customer is willing to pay for (e.g. good quality products or services) Non-value activities (pure waste): have to be illiminated right away ➢ Waiting, Motion, Reworking, … (7 types of waste) Non-value but required: Customer won’t pay, but it must be done ➢ Administrative task triggered by policies ➢ Removing parts from a pallet ➢ Cleaning tools ➢ Inspecting quality (dealing with many meetings, e-mails, etc) 7 TYPES OF MUDA (JAPANESE : “WASTEFULNESS”) • • • • • • • Movement/Motion: Unnecessary movement of people within a process Waiting: people or parts that wait for a work cycle to be complete Inventory: Raw Material, WIP or finished goods which is not having value added to it Overproduction: Producing, faster or in greater quantities than the customer demands Overprocessing: Processing beyond the standard required by the customer Transportation: unnecessary movement of things (parts, documents…) between processes Defects: not right at first time APPLYING LEAN THINKING AROUND US MEASURING PROCESS CYCLE EFFICIENCY (PCE) AT A HAIR SALOON Is quite common that only a small proportion of many processes (manufacturing & service) is actually Value We can identify, remove or reduce Waste by analyzing a process stream → Value Stream Mapping VALUE STREAM MAPPING = data rich, visual presentation of process regarding information, material and time flow VSM SYMBOLS THE VSM AS A METHOD FOR IMPROVEMENT : it involves the participation of those that run the process that is analyzed, it’s a hands-on process VSM METRICS 1. Takt Time = Daily Availability / Daily Demand 2. Cycle Time (C/T) 3. Setup Time (S/T) also known as Chang Over (C/O) 4. Per Unit Processing Time = Cycle Time + Setup Time 5. Total Lead Time = Total Processing Times + Total Inventory Times 6. Uptime: time a machine has been working and available (or the opposite: Downtime) EXERCISE : Jensen Bearings, Inc makes 2 types of retainers: “S” and “L” which follow the same process steps → Same VSM! Both products are packaged and shipped in returnable trays with 40 retainers in each tray. (40 units per batch!) 1. Create a VSM for Jensen Bearings 2. What’s the takt time? 3. What’s the total process lead time? 4. What’s the system capacity? (units/day) 1. VSM 3) Information Flow 1) Material Flow 2) Time Flow 3. Takt Time = Daily availability / daily demand Daily demand: [(1,000 + 2,200) pieces/week] / 5 days = 640 pieces/ days Daily availability: (7 hours/days) x (3,600 seconds per hour) = 25,200 sec/day Takt Time: 25,200 / 640 = 39.375 sec/piece 4. Total process lead time = Inventory time + Processing time Inventory time = Inventory/Daily Demand ➢ WIP between Press & Pierce/Form = 2,250 / 640 = 3.5 days ➢ WIP between Pierce/Form & Finish/Grind = 3,350 / 640 = 5.2 days ➢ WIP between Finish/Grind & Shipping = 1,475 / 640 = 2.3 days ➢ Raw Material Time = 5 days Total inventory time = 3.5 + 5.2 + 2.3 + 5 = 16 days Total Processing Time = Sum of the Cycle Times = 12 + 34 + 35 = 81 sec Total Process Lead Time = 16 days + 81 sec = 16 days 5. SYSTEM CAPACITY : max output that can be obtained through a certain machine or production line Bottleneck principle: slowest workstation, defines the system’s capacity Bottleneck = Capacity at Pierce & Form ➔ Capacity = Daily availability / per unit processing time = 25,200 (sec/day) / 38.5 (sec/unit) = 654 units/day IS THAT ENOUGH TO REACH OUR DAILY DEMAND? → YES THE SYSTEM CAN FULFILL THE DEMAND What is needed What we can do Takt Time = daily availability /daily demand = 39.375 sec/piece 654 units/day Only have to produce 3,200 units/week! 3,270 units/week HOMEWORK: Gilman Inc. makes vending machines. The operations data is on the following slides. a. What is the cell’s current inventory level? b. What is the takt time? c. What is the lead time at each cell? d. What is the total processing time? e. What is the capacity? Solution: a. Current inventory level = 600 + 800 + 400 + 600 = 2400 units b. Takt time = Daily availability / daily demand • Daily availability = 2 x [(8hrs/day x 60min) – 45min] = 2 x 435 min = 870 min/day Takt Time = 870 / 200 = 4.35 min/unit c. Production Lead Time = Inventory/daily demand • Raw material time = 600/200 = 3 days • WIP between cut and grind = 800/200 = 4 days • WIP between grind and bend = 400/200 = 2 days • Finished goods time after bend = 600/200 = 3 days Total production lead time = 3 + 4 + 2 + 3 = 12 days d. Total Processing Time = sum of cycle times = 160 + 120 + 240 = 520 sec e. Capacity = Daily availability / per unit processing time • Per Unit Processing Time = cycle time + setup time Capacity at Cut Capacity at Grind Capacity at Bend Cycle Time = 160 sec Setup time = (3min x 60 sec)/ 20 units per batch = 9 sec Per Unit processing time = 160 + 9 = 169 sec Cycle Time = 120 sec Setup time = (1min x 60sec)/ 20 units per batch = 3 sec Per Unit processing time = 120 + 3 = 123 sec Cycle Time = 240 sec Setup time = 0 sec Per Unit Processing time = 240 sec Bottleneck = Capacity at Bending ➔ Capacity = Daily availability / per unit processing time = 870 (min/day) / (240sec/ 60sec) = 870 / 4 = 217,5 units/ day Module 8 – Demand Forecasting FORECAST = prediction of future events used for planning purposes → might (will) have errors 1. Economic forecast → usually very wrong a. Address business cycle, inflation rate, money supply, housing starts, etc. 2. Technological forecast a. Predict rate of technological progress, impacts development of new products 3. Demand forecasts a. Predict sales of existing products and services FORECASTING AS A BUSINESS PROCESS SELECTING THE MORE SUITABLE FORECASTING MODEL Finance, human resources, marketing, operations, and supply chain managers need forecasts to plan: output levels, purchases of services and materials, workforce hiring, inventories, and long-term capacity planning 1. The amount & type of available data a. Some methods require more data than others b. Do we have historical data, sales from the past? 2. Degree of accuracy required a. Increasing accuracy means more data 3. Length of forecast horizon a. Different models for 3 moth vs. 10 years 4. Presence of data patterns a. Lagging will occur when a forecasting model meant for a level pattern is applied with a trend DEMAND PATTERNS / TIME SERIES COMPONENTS WHEN TO USE THEM ? Quantitative Methods • Short-term periods of time (e.g. days, months, 1 year) • Used when situation is stable & historical data exists • Involves mathematical techniques • Assume that what has occurred in the past will continue to occur in the future Very stable, predictable type of demand Qualitative Methods • Long-term periods of time (e.g. years) • Used when situation is vague and little data exist (new products or technology) → hard to predict, means it… … Involves intuition & experience (e.g. forecasting sales on internet) “guessing” SEASONAL PATTERNS WHICH DEMAND PATTERNS COULD THESE HAVE ? Horizontal Trend Cyclical Seasonal NAÏVE FORECAST • Assumes demand in next period is the same as demand in most recent period, e.g., if January sales were 68, then February sales will be 68 • Sometimes cost effective and efficient • Can be good starting point • Can also be good benchmark when using more sophisticated models 3-MONTH SIMPLE MOVING AVERAGE Smoothing effect TIME SERIES MODELS • • • SIMPLE MOVING AVERAGE Uses average demand for a fixed sequence of periods Suited for stable demand with no pronounced behavioral patterns, e.g. little or no trend Smoothing parameter: n → the higher the smoother! 5-MONTH SIMPLE MOVING AVERAGE WEIGHTED MOVING AVERAGE • Weights are assigned to most recent data • Used when some trend might be present → older data usually less important • Weights based on experience and intuition • Adjusts moving average method to more closely reflect data fluctuations • Goal: minimize errors through the periods of time EXPONENTIAL SMOOTHING October September August α Comparison α = 0.30 looks more smooth Example (α = 0.30 and α = 0.50) Selection of α LINEAR TREND LINE CAUSAL MODEL • Fitting a trend line to historical data points to project into the medium to long range • Linear trends can be found using the least squares technique which minimizes the sum of the squared errors (deviations) LEAST SQUARES EXAMPLE (1/3) LEAST SQUARES EXAMPLE (3/3) LEAST SQUARES EXAMPLE (2/3) MULTIPLICATIVE SEASONAL MODEL MEASURES OF FORECAST ERROR SEASONAL INDEX EXAMPLE : What’s the seasonal forecast if the expected annual demand for 2020 = 1.200 units? FORECAST ACCURACY : MEAN ABSOLUTE DEVIATION (MAD) STEP 1: Find average historical demand for each season STEP 2: Compute the average demand over all seasons STEP 3: Compute a seasonal index for each season STEP 4: Estimate next year’s total demand Forecast for 2020 Expected annual demand = 1,200 units Jan ’20 = (1,200/ 12(months)) x 0.957 = 96 Feb ’20 = (1,200/12) x 0.851 = 85 etc. we underestimated the demand by almost 5 units MODULE HIGHLIGHTS • THE BASIC PRINCIPLES OF FORECASTING : 1. 2. 3. • THE FORECASTING PROCESS INVOLVES 5 STEPS: 1. 2. 3. 4. 5. • Forecasts are rarely perfect Forecasts are more accurate for groups than individual items (aggregation) Forecasts are more accurate in the shorter term than longer time horizons Decide what to forecast Evaluate and analyze appropriate data Select and test models Generate forecast Monitor accuracy FORECASTING METHODS CAN BE CLASSIFIED INTO TWO GROUPS : o o • • • Qualitative methods are based on the subjective opinion of the forecaster Quantitative methods are based on mathematical modeling TIME SERIES MODELS are based on the assumption that all information needed is contained in the time series of data. C AUSAL MODELS assume that the variable being forecast is related to other variables in the environment. There are FOUR FACTORS TO CONSIDER WHEN SELECTING A MODEL : amount and type of data available, degree of accuracy required, length of forecast horizon, and patterns present in the data. EXERCISE FORECASTING (1/2) EXERCISE FORECASTING (2/2) Module 9 – Inventory Management: ABC Analysis 20% of the passengers, bring the 80% of the revenues 20% of your items, hold 80% of total stock value 80% of your revenues, come from 20% of your customers 80% of your revenues, come from 20% of your products 80% of the work, id one by 20% of the people INVENTORY AND SUPPLY CHAINS Inventory: A stock of items held to meet future demand → a buffer INVENTORY BUFFERING FLUCTUATIONS INVENTORY TYPES INVENTORY MANAGEMENT: planning & controlling of inventories in order to meet the competitive priorities of the organization TYPES OF INVENTORY MANAGEMENT SYSTEMS BASIC QUESTIONS FOR STOCK CONTROL 1. What items should be stocked? 2. How much should be ordered? 3. When should an order be placed? CATEGORIZING INVENTORY BY STOCK -VALUE ABC Analysis • Based on “Pareto” concept (80/20 rule) & total usage in $ of each item (SKU) • Purpose is to set priorities on effort used to manage different items, i.e. to allocate scarce management resources like employees 'time STOCK KEEPING UNIT (SKU) • A “stock-keeping unit” (SKU) is a single item or asset stored at a particular location • Each item is identified by a unique (SKU) CLASSIFICATION OF THE ABC ITEMS A items • The 20% or so of high-value items which account for around 80% of the total stock value. • High-quality and/or strong selling materials • Must be managed in a particularly careful and intensive way by applying − precise order date calculation; − small on-call quantities; − precise stock management and monitoring; − precise determination of the backup stock; B items • The next 30% or so of medium value items which account for around 10% of the total stock value. • Average materials with average sales • Here, a comparatively differentiated method in procurement marketing and procurement logistics, for instance as regards the demand intensity, the amount of the backup stock, etc., seems practical. C items • The remaining 50% or so of low-value items which account for around the last 10% of the total stock value. • Low-quality and/or weak selling materials must be treated in accordance with the principle of work simplification and expense reduction. • Due to the high number, but low values, the focus of rationalization is on reducing order costs, in particular through − simplified order processing; − simplified stock monitoring − Eprocurement. EXERCISE - SOLVED P ROBLEM ABC Booker’s Book Bindery divides SKUs into three classes, according to their dollar usage. Calculate the usage values of the following SKUs and determine which is most likely to be classified as class A. P ROCEDURE WHEN APPLYING ABC ANALYSIS: 1. Initially, on the basis of the consumption data of the past, the period consumption of all goods is established in quantity units. 2. Then, these quantity units are multiplied with their prices in order to determine the value consumption of the individual goods type. 3. Then every goods type is classified in accordance with this value consumption. 4. Finally, the accumulated consumption values and percentages of the type- and value- related consumption are calculated and the goods classified by the value based consumption in A, B and C categories. ABC CURVES FOR VARIOUS INDUSTRIES EXERCISE: Calculate the usage values of the following inventory items and determine which is most likely to be classified as an A item: SKU# 1 2 3 4 5 6 7 8 Qty Used/year 1,2 120 100 44 900 350 70 200 value $0.01 $0.03 $0.45 $1.00 $4.50 $0.90 $0.30 $1.50 EOQ – ECONOMIC ORDER Q UANTITY 1) What is EOQ? The quantity (Q) of materials we should order from our suppliers which minimizes total costs 2) Which are the costs 1. Ordering costs (S) playing a role of EOQ? 2. Holding costs (H) 3) How is EOQ calculated? THE TOTAL INVENTORY RELATED COSTS HE SIMPLE STOCK -CONTROL MODEL REFERENCES TOTAL ANNUAL CYCLE -INVENTORY COSTS COMPARE LARGE INFREQUENT ORDERS WITH SMALL INVENTORY HOLDING COSTS FREQUENT ONES TO MEET THE SAME DEMAND REFERENCES EOQ: THE LOT SIZE Q, THAT MINIMIZES TOTAL ANNUAL COSTS Holding and Ordering are inversely related costs EOQ ASSUMPTIONS 1. Demand rate is constant and known with certainty. 2. No constraints are placed on the size of each lot. 3. The only two relevant costs are the inventory holding cost and the fixed cost per lot for ordering or setup. 4. Decisions for one item can be made independently of decisions for other items. 5. The lead time is constant and known with certainty. DERIVING EOQ We use derivatives in order to find the minimum point of the total cost curve (where the slope = 0) EXERCISE EOQ Determine the optimal number of needles to order: • Annual average demand = 1,000 units • Ordering cost (S) = $10 units • Holing cost (H) = $0.50 unit/year Determine the total cost for the EOQ: EXERCISE 9.2 • A museum of natural history opened a gift shop which operates 52 weeks per year. • Top-selling SKU is a bird feeder. • Sales are 18 units per week, the supplier charges $60 per unit. • Ordering cost is $45. • Annual holding cost is 25% of a feeder’s value. • Management chose a 390-unit lot size. 1. What is the annual cycle-inventory cost of the current policy of using a 390-unit lot size? 2. Would a lot size of 468 be better? 3. Calculate the EOQ and its total annual cycle-inventory cost. How frequently will orders be placed if the EOQ is used? 1. 2. 3. Reorder Points Reorder Point Curve REORDER POINT EXAMPLE 9.1 Suppose that you are reviewing the inventory policies on an $80 item stocked at a hardware store. The current policy is to replenish inventory by ordering in lots of 360 units. Additional information is: D = 60 units per week, or 3,120 units per year S = $30 per order H = 25% of selling price, or $20 per unit per year 1. What is the EOQ? REORDER POINT EXAMPLE 2. What is the total annual cost of the current policy (Q = 360), and how does it compare with the cost with using the EOQ? 3. What is the time between orders (TBO) for the current policy and the EOQ policy, expressed in weeks? SENSITIVITY ANALYSIS OF THE EOQ STOCK STRATEGIES IN STORAGE INVENTORY REDUCTION TACTICS FOR CYCLE INVENTORY HOMEWORK INVENTORY MANAGEMENT EOQ Model / Reorder Model: Amin’s machine shop uses 2,500 brackets during the course of the year. These brackets are purchased from a supplier 90 miles away. The following information is known about the brackets: Annual demand: Holding cost per bracket per year: Order cost per order: Lead time: Working days per year: a) b) c) d) e) f) How much is the EOQ? Given the EOQ, what is the average inventory? What is the annual inventory holding cost? Given the EOQ, how many orders have to be made each year? What is the annual order cost? Given the EOQ, what is the total annual cost of managing the inventory? What is the time between orders? What is the reorder point (ROP)? a) EOQ = √ 𝟐𝑫𝑺 𝑯 =√ 2(2500)(18.75) 1.50 = 250 𝑸 250 𝟐 2 b) Average cycle inventory = = 𝑫 c) 𝑶𝒅𝒆𝒓𝒔 𝒑𝒆𝒓 𝒚𝒆𝒂𝒓 = 𝑸 = d) 𝑻𝑪 = 𝑸 𝟐 ∗ (𝑯) + e) 𝑻𝑩𝑶𝑬𝑶𝑸 = = = = f) 2,500 units $1.50 $18.75 2 days 250 days ̅*L ROP = 𝒅 𝑬𝑶𝑸 𝑫 𝑬𝑶𝑸 𝑫 𝑸 = 𝑫 𝑬𝑶𝑸 𝑫 𝑬𝑶𝑸 𝑫 → 2,500 250 = 125 ; = 10 Annual holding cost = 𝑄 2 ∗ (𝐻) = 125 × 1.50 = 187.5 𝑫 ; 𝐀𝐧𝐧𝐮𝐚𝐥 𝐨𝐫𝐝𝐞𝐫𝐢𝐧𝐠 𝐜𝐨𝐬𝐭𝐬 = 𝑸 ∗ (𝑺) = 10 ∗ $18.75 = $187.5 ∗ (𝑺) = $187.5 + $187.5 = $375 250 2,500 = 0.1 𝑦𝑒𝑎𝑟 250 (12 𝑚𝑜𝑛𝑡ℎ𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟 ) = ∗ 12 = 1.2 𝑚𝑜𝑛𝑡ℎ𝑠 2,500 250 (52 𝑤𝑒𝑒𝑘𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟) = ∗ 52 = 5.2 𝑤𝑒𝑒𝑘𝑠 2,500 250 (365 𝑑𝑎𝑦𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟) = ∗ 365 = 36.5 𝑑𝑎𝑦𝑠 2,500 ̅= 𝒅 𝒅𝒆𝒎𝒂𝒏𝒅 𝒘𝒐𝒓𝒌𝒊𝒏𝒈 𝒅𝒂𝒚𝒔 𝒑𝒆𝒓 𝒚𝒆𝒂𝒓 ROP = 10 units per day * 2 days = 20 units = 2,500 𝑢𝑛𝑖𝑡𝑠 250 𝑑𝑎𝑦𝑠 = 10 𝑢𝑛𝑖𝑡𝑠 𝑝𝑒𝑟 𝑑𝑎𝑦 Module 10 – Capacity Management CAPACITY : max. rate of output of a process or a system MEASURING CAPACITY : in addition to produce (Output measure), Capacity can also be measured in the number of units a facility can hold, receive, store ALTERNATIVES FOR MEASURING CAPACITY CAPACITY MANAGEMENT The function of planning, establishing, measuring, monitoring, and adjusting levels of capacity so that sufficient capacity is available to permit execution of the manufacturing schedules (APICS). LONG-TERM STRATEGIES FOR RECONCILING CAPACITY AND DEMAND Level Capacity: maintain a steady rate of regular-time output while meet variations in demand by combination of options Backorder: customer order that cannot be currently filled or shipped (requested for when it becomes available) • customers not pleased with delay but prepared to “wait” sometime Backlogs: accumulation of customer orders that have been promised for delivery at some future date Positive: Stability for Employees; (A) Capacity > Demand → Surplus | (B) Demand > Capacity → Shortage ➢ If A > B → use surplus to fulfill shortage (but high inventory costs, inv. can become obsolete) ➢ If A < B → outsource production to a third party or chase demand Chase Demand: match production rate to order rate (used mostly for operations which can’t store their output) Trade-offs: Hire (possible lack of availability of qualified work force) and Layoff workers (emotional stress) Overtime/slack time (overtime is expensive + lead to low quality & is prone to accidents) ➔ How too use slack time constructively? Training Subcontracting (risk of low quality + reveal technological secrets) Demand Management: process of changing demand patterns using 1 or more demand options • Pricing: price reduction leads to higher demand • Promotion: 2 x 1 , free delivery, free after sale service (hotels pay for flights) • Back order management: sell now, deliver later including discounts or complimentary gift • New demand: finding alternative uses for the product Conclusion: Capacity measured as rate or units hold, managed by long-term strategic alternatives, depends on industry SHORT-TERM THEORETICAL PERFORMANCE (THEORETICAL CAPACITY CAN ’T ALWAYS BE ACHIEVED IN PRACTICE ) CAPACITY , UTILIZATION AND EFFICIENCY MEASURES OF CAPACITY & UTILIZATION 1) Design capacity: Max. theoretical output 2) Utilization: A measure of how intensively a resource is being used 3) Efficiency: A measure of how closely predetermined standards are achieved 4) Effective capacity: is the capacity a firm expects to achieve given current operating constraints EFFICIENCY , UTILIZATION - EXAMPLE Suppose the photographic paper manufacturer has a coating line with a design capacity of 200 square meters per minute, and the line is operated on a 24- hour day, 7 days per week (168 hours per week) basis. SOLUTION We need to differentiate between the reasonably unavoidable, planned occurrences from those that are unplanned and avoidable. Unavoidable, planned occurrences = 59 hrs Design capacity is 200 * 60 * 24 * 7 = 2.016 million square meters per week. The records for a week’s production show the following lost production time: ”planned loss” During this week the actual output was only 582,000 square meters. What are the Utilization and Efficiency rates? “avoidable loss” YOUR CLASSROOM CAPACITY UTILIZATION 1. 2. 3. Avoidable and unplanned = 58 hrs • Design capacity = 168 hours per week • Effective capacity = 168 – 59 = 109 hrs • Actual output = 168 – 59 – 58 = 51 hrs • Utilization = 𝑑𝑒𝑠𝑖𝑔𝑛 𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦 = 168 ℎ𝑟𝑠 = 30% • Efficiency = 𝑒𝑓𝑓𝑒𝑐𝑡𝑖𝑣𝑒 𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦 = 109 ℎ𝑟𝑠 = 47% 𝑎𝑐𝑡𝑢𝑎𝑙 𝑜𝑢𝑡𝑝𝑢𝑡 𝑎𝑐𝑡𝑢𝑎𝑙 𝑜𝑢𝑡𝑝𝑢𝑡 51 ℎ𝑟𝑠 51 ℎ𝑟𝑠 Good or bad results? What is your judgment? ➔ Always need a benchmark or target to compare it with! What is the design capacity for this classroom? → number of seats that are available in the classroom What is the Utilization at this moment? → % of those who are actual occupied vs. total number of seats What’s its Efficiency level? (predetermined standard?) → single group 25max. H OW TO CALCULATE OEE OEE combines factors of time, speed and quality and their losses OEE = a * p * q OVERALL EQUIPMENT EFFECTIVENESS (%) • Part of Total Productive Maintenance (TPM) → part of Lean Manufacturing • Tool to improve efficiency of equipment by looking for 1. 2. 3. The time: availability (a) = total operating time/ loading time ➔ [is it operating or not?] The speed: performance rate (p) = net o. t. / total o. t. ➔ [How fast is it running?] The quality: product/ service (q) = valuable o. t. / net o. t. ➔ [How many products were not defect?] OEE EXAMPLE In a 7-day period, the department programs a particular machine to work for 150 hours – its loading time. Changeovers and set-ups take an average of 10 hrs and breakdown failures average 5 hrs every 7 days. The time when the machine cannot work is 5 hours on average and during the period when the machine is running, it averages 90% of its rated speed. 3% of the parts processed are defective in some way. opportunities for improvement. • Measures something similar to the Utilization of a Machine. • The higher the OEE, the higher the Output of parts from a Machine • OEE is recommended to be used for bottlenecks (process that slows down the entire system) and production Lines • OEE principles can be used on people, in this case tool is renamed as OPE (Overall People Effectiveness) OEE – THE SIX BIG LOSSES What is the Overall Equipment Effectiveness (OEE)? SOLUTION Maximum time available = 7 * 24 hrs = 168 hrs Loading time= 150 hrs Availability losses = 10 hrs (set-ups) + 5 hrs = 15 hrs Total operating time = 150 hrs – 15 hrs = 135 hrs ➔ a = 135/ 150 = 90% Speed losses = 5 hrs (idling) + ((135 -5) * 0.1) = 18hrs Net operating time = 135 – 18 = 117 hrs ➔ p = 117 / 135 = 86.67% Quality losses = 117 hrs * 0.03 = 3.51hrs Valuable operating time = 117 – 3.51 = 113.49 hrs ➔ q = 113.5/117 = 97% OEE = a*p*q = 75.6 % IS A HIGH OEE GOOD ? Western business mantra says “only a running machine is a good machine” Lean Manufacturing has a different philosophy: “Produce only what is needed, when it is needed and in the amount needed” (Taiichi Ohno, Father of the Toyota Production System) A high OEE without corresponding customer demand would lead to over production. Module 11 – Learning Curves “DIFFICULTY CURVES” IN GAMING: Why do games get increasingly difficult as we play? → because our gained-experience is considered in its design LEARNING CURVE : line that displays relationship betw. total direct labor per unit and cumulative quantity of p/s produced LEARNING CURVES ASSUMPTIONS: • Direct labor required to produce n + 1 unit always less than for the nth unit. • Direct labor requirements will decrease at declining rate as cumulative production increases • The reduction in time will follow an exponential curve. • High volume, highly standardized activities ARITHMETIC APPROACH: each time product quantity doubles, the resources (labor hrs/costs) required to produce the product will reduce by a determined % that resources needed by the prior quantity ➢ If a curve slope is a 90%, and it takes 100h for the first unit, then it will take 90 for the second, 81 for the fourth and so on EXAMPLE 1 A manufacturer of diesel locomotives needs 50,000hrs to produce the first unit. Based on past experience with similar products, you know that the rate of learning is 80%. a. Use the logarithmic model to estimate the direct labor required for the 40th locomotive: 𝑙𝑜𝑔 0.8 𝑇40 = 50,000 ∗ (40 𝑙𝑜𝑔 2 ) = 50,000 ∗ 40−0.322 = 50,000 (0.30488) = 𝟏𝟓, 𝟐𝟒𝟒 𝒉𝒓𝒔 b. Draw a learning curve for this situation: First point at (1, 50000) EXAMPLE 2 The first unit of anew product if expected to take 1000hrs to complete. If the rate of learning is 80%, how much time should the 50th unit take? Given: 𝑻𝟏 = 𝟏, 𝟎𝟎𝟎 𝑵 = 𝟓𝟎 𝒓 = 𝟎. 𝟖 𝑻 𝑵 = 𝑻 𝟏 𝑵𝒃 log (0.8) 𝑻𝟓𝟎 = 1000(50 log (2) ) = 1000 (50)−0.322 = 1000(0.283827) = 𝟐𝟖𝟑. 𝟖 𝒉𝒓𝒔 → The 50th unit will take 283.8 hours Second unit’s labor time is 80% of the first, so multiply 50,000(0.8) = 40,000hrs. → Plot 2. Point at (2, 40000) 4th is 80% of the second, multiply 40,000(0.8) = 32,000hrs → Plot the point (4, 32000) COEFFICIENT E XAMPLE 1) First boat required 125,000 hrs; Labor cost = $40/h; Learning factor = 85% 𝑻𝟒 = ? → 𝑻𝑵 = 𝑻𝟏 𝑪 𝑻𝟒 = 125,000 ℎ𝑟𝑠 ∗ 0.723 𝑢𝑛𝑖𝑡 𝑡𝑖𝑚𝑒 (𝑡𝑎𝑏𝑙𝑒 ) = 90,375 𝑓𝑜𝑟 4𝑡ℎ 𝑏𝑜𝑎𝑡 → 90,375 ℎ𝑟𝑠 ∗ $40 𝑝𝑒𝑟 ℎ = $𝟑, 𝟔𝟏𝟓, 𝟎𝟎𝟎 2) How long will all four boats require? 𝑻𝟒 = 125,000 ℎ𝑟𝑠 ∗ 3.345 𝑡𝑜𝑡𝑎𝑙 𝑡𝑖𝑚𝑒 (𝑡𝑎𝑏𝑙𝑒) = 𝟒𝟏𝟖, 𝟏𝟐𝟓 𝒉𝒓𝒔 𝑓𝑜𝑟 𝑎𝑙𝑙 𝑓𝑜𝑢𝑟 𝑏𝑜𝑎𝑡𝑠 3) Great Lakes, Inc., believes that unusual circumstances in producing the first boat imply that the time estimate of 125,000 hours is not as valid a base as the time required to produce the third boat. Boat number 3 was completed in 100,000 hours. To solve for the revised estimate for boat number 1, we return to Table E.3, with a unit value of N = 3 and a learning-curve coefficient of C = 0.773 in the 85% column. To find the revised estimate, we divide the actual time for boat number 3, 100,000 hours, by C = 0.77 Third boat required 100,000 hrs; Learning factor = 85% ; hrs for first boat = ?? 𝑻𝑵 100,000 𝑇𝑁 = 𝑇1 𝐶 → 𝑻𝟏 = = = 𝟏𝟐𝟗, 𝟑𝟔𝟔 𝒉𝒓𝒔 𝑪 0.773 𝑢𝑛𝑖𝑡 𝑡𝑖𝑚𝑒 (𝑡𝑎𝑏𝑙𝑒) LIMITATIONS OF LEARNING CURVES • Learning curves differ from company to company as well as industry to industry so estimates should be developed for each organization • Learning curves are often based on time estimates which must be accurate and should be reevaluated when appropriate • Any changes in personnel, design, or procedure can be expected to alter the learning curve • Learning curves do not always apply to indirect labor or material • The culture of the workplace, resource availability, and changes in the process may alter the learning curve E XAMPLE 2. • Manager of a custom manufacturer has received a production schedule for an order for 30 large turbines. • Over the next 5 months, the company is to produce 2, 3, 5, 8, and 12 turbines, respectively. • The first unit took 30,000 direct labor hours, and experience on past projects indicates that a 90 % learning curve is appropriate; therefore, the second unit will require only 27,000 hours. • Each employee works an average of 150 hours per month. Question: Estimate the total number of full-time employees needed each month for the next 5 months. Production schedule and cumulative Find cumulative average time per unit + cumulative number of units scheduled for total hrs through each month production through each month Mo nth Units/ month 1 2 3 4 5 2 3 5 8 12 Cum. units Determine number of labor hrs needed each month Cumulative Average time Cumulative Total hrs Number of hrs needed for a per unit for all units particular month 2 30,000(0.95000) = 28,500.0 (2)28,500.0 = 57,000 57,000 – 0 = 57,000 hrs 5 30,000(0.86784) = 26,035.2 (5)26,035.2 = 130,176 130,176 – 57,000 = 73,176 hrs 10 30,000(0.79945) = 23,683.5 (10)23,983.5 = 239,835 239,835 – 130,176 = 109,659 hrs 18 30,000(0.74080) = 22,224.0 (18)22,224.0 = 400,032 400,032 – 239,835 = 160,197 hrs 30 30,000(0.69090) = 20,727.0 (30)20,727.0 = 621,810 621,810 – 400,032 = 221,778 hrs ➔ The number of employees increases dramatically over the next 5 months ➔ Management may have to begin hiring now so that proper training can take place Required number of employees 57,000/150 = 380 73,176/150 = 488 109,659/150 = 731 160,197/150 = 1,068 221,778/150 = 1,479 M ANAGERIAL C ONSIDERATIONS IN THE USE OF LEARNING CURVES • An estimate of the learning rate is necessary in order to use learning curves, and it may be difficult to get. • The entire learning curve is based on the time required for the first unit. • Learning curves provide their greatest advantage in the early stages of new service or product production. • Total quality management continuous improvement programs will affect learning curves. • Learning curves are only approximations of actual experience.