Assignment Cover Sheet

Surname: Govender

First Names: Krishna

Student Number: 109662

Subject: Operations Management

Assignment Number: 04

Tutor’s Name:

Examination Venue: Johannesburg

Date Submitted: 21 May 2011

Submission: First (X) Resubmission :()

Postal Address: P.O. Box 20568 Protea Park 0305

Email: devgov12345@gmail.comContact No’s: (Cell) 082 452 4447 Course/Intake: MBA 1 – July 2011

Declaration: I hereby declare that the assignment submitted is an original piece of work produced by myself.

Table of ContentsTable of Contents Page No

Introduction 3

1. Waste’s at St James Hospital. 4

2. The elements in St. James new approach. 4-7.

3. Further ideas from Just in Time manufacturing. 8-10.

4. Main factors that influenced the four location decision. 10-12.

5. What the companies were trying to improve. 12.

6. Factors that influence the location of design centres compared 13.

factors that influence manufacturing operations.

7. Benefits of Materials Requirement Planning. 13-19.

8. Weighted moving average demand forecast. 19-20.

9. Costs associated with poor quality. 20-22.

10. Expected completion time and variance. 22-23.

11. AON network diagram 23.

12. Limitations of PERT and CPM. 24.

13. Conclusion. 24-25

14. Bibliography 25

2

Introduction.

Just In Time systems principal goal is the elimination of waste and the principal measure of

success is how much or how little inventory there is. Virtually anything that achieves this end can

be considered a Just In Time innovation. Just In Time (JIT) purchasing practices uniquely deliver

high quality material. A major operational decision is the location strategy, which is the process of

determining where the organisation should put its facility and how the organisation should

determine the decision. Materials Requirement Planning (MRP) is more commonly regarded as a

“push” system. It is a simple method of projecting the requirements of the individual components

of a product.

List of Abbreviations.

JIT – Just in Time.

MRP – Materials Requirement Planning.

PERT – Program Evaluation and Review Technique.

CPM – Critical Path Method.

3

Question 1.1

Identify the ‘wastes’ that initially could be found at St Jame’s Hospital.

1.1.1. Excess inventory: Fifteen thousand different products is excessive inventory holding.

1.1.2. The use of expensive items instead of low cost items: The expensive surgeon’s gloves

could be replaced by cheaper alternatives.

1.1.3. Duplicated inventory: Twenty different types of gloves are used, this could be reduced to

fewer types.

1.1.4. Purchasing administration: Similar items are supplied by six or more suppliers.

1.1.5. Too many buyers.

1.1.6. Excess materials in standard packs.

1.1.7. Cancelled appointments in Urology surgery.

1.1.8. Process complexity in Urology administration. Applying lean principles [online].

Available from http://www.pearsoned.co.uk. [Accessed 14 March 2012].

1.1.9. The first six are typical wastes that can be identified in manufacturing, as they involve

material management. The last two concern process management in administration

systems.

Question 1.2

Describe and explain the elements in St. James new approach which could be seen as

deriving from JIT principles of manufacturing.

1.2.1. Origins of JIT

JIT is a manufacturing philosophy, which seeks to eliminate the ultimate source of waste

in all of its forms throughout the producing process, from purchasing through

distribution. By eliminating waste, JIT targets production with the minimum lead time and

at the lowest total cost.

4

1.2.2. Goals and building block of JIT.

Source: Applying Lean Principles [online] available from http://www.pearsoned.co.uk

[Accessed 14 March 2012].

Figure 1: An overview of the goals and building block of JIT concept

1.2.2.0. The main emphasis in the case is on the elimination of waste in the purchasing system.

Jimmy’s relationship with suppliers is changing from a medium term commitment towards

a more stable long term relationship with fewer suppliers. Available from http://www.

pearsoned.co.uk [Accessed 14 March 2012]. JIT purchasing practices are characterized by

a small supplier base whose firm’s will be located close to Jimmy’s, make frequent

deliveries and will be considered long term “partners” with Jimmy’s. Under these

operating conditions supplier relations are built on a high degree of mutual trust and

5

openness when entering with a long term relationship it is important that the buyer and the

supplier must share information and also protect t its confidentiality.

1.2.2.1. When entering a long term relationship, it is important that the buyer selects suppliers

that has consistently exhibited high levels of quality and delivery reliability.

1.2.2.2. The JIT purchasing concept at Jimmy’s will reduce replenishment lead times by

utilizing suppliers close to the hospital and by ordering small quantities, which in turn

reduces a supplier’s workload per period.

1.2.2.3. The benefits of JIT purchasing at Jimmy’s includes: reduced inventory carrying costs,

reduced costs for materials, few suppliers to contract with, reduced expediting, reduced

travel and telephone costs, fast detection of defects, less need for inspection, reduced

production control and supervision.

1.2.2.4. Suppliers involvement in the design of products may help improve product quality and

minimize costs to both suppliers and Jimmy’s. Further, sharing accurate scheduling

information between the two entities is essential. This removes the uncertainty of

demand and improves the understanding of future material requirements. Suppliers

should be treated as an integral part of Jimmy’s. Dennision, R., Kathawala, Y., and

Elmuti, D. (1993). Just-in-time: Implications for the hospital industry. Journal of

Hospital Marketing, 8(1), pp. 122-129.

1.2.3.0. The main problem appears to be the medical staff’s preference for a wide range of

different types of materials at Jimmy’s. To reduce input variety means standardisation

and this can be achieved by negotiation, persuasion or by imposition. Suppliers must be

assessed for their capability and interest, in order to ensure that they are likely never to

fail to deliver as promised. Long term value for money in the overall purchasing and

inventory processes is more critical. [online] available from http://www.pearsoned.

co.uk [Accessed 14 March 2012].

1.2.3.1. The standardization of ordering materials is crucial to the elimination of redundant

ordering of parts for a particular product or service. Jimmy’s can create an “approved

6

product list” to standardise supplies. More importantly, all information will be stored in a

computerized system connecting Jimmy’s and supplier. This provides accurate and

dependable information regarding the needs of Jimmy’s and supplier.Dennision, R.,

Kathawala, Y., and Elmuti, D. (1993). Just-in-time: Implications for the hospital

industry. Journal of Hospital Marketing, 8(1), pp. 122-129.

1.2.3.2. The use of standard parts at Jimmy’s means that workers have fewer parts to deal with,

and training time and costs are reduced. purchasing, handling and checking quality

become more routine and lend themselves to continual improvement. Another important

benefit is the capability to use standard processing.

1.2.4.0. Another element of improvement from JIT principles is the use of cellular operations.

The application of cellular principles involved making four people responsible for the

admissions to urology at Jimmy’s. According to Barrett, M. (1994). JIT layout is

organized in groups called cells where they are laid out in series to serve the workers.

These workers possess all necessary skills required to run all workstations in their cell

and have the authority and freedom with their own planning and scheduling. Input and

output of the patients are usually received and completed within the same location or

area. This helps to synchronize the inflow and outflow of patients at Jimmy’s.

1.2.5.0. The introduction of kanban systems for some inventory management at Jimmy’s.

According to Barrett, M. (1994). kanban is a signalling system and uses cards to signal

the need for an item or trigger the movement, production or supply of a unit. For

example at Jimmy’s the kanban system can be used for syringes. The boxes of syringes

arrive in one shelf and the empty syringe boxes are placed in another shelf. These

shelves act as kanbans and are sized so that it can only hold the number of items that are

needed. The outgoing kanban signals the need to order another.

7

Question 1.3

Discuss further ideas from JIT manufacturing that could be applied in a hospital setting

such as St. James.

1.3.1. According to Barrett, M (1994). Using a JIT approach at Jimmy’s would not only

benefit the organization, but also patients. In order to improve the quality of patient care,

managers should focus on cycle time per stage of care, interconnections between stages

of care, service quality, staffing and patient waiting times. Some other measurable

benefits include a reduction of redundant clinical and administrative procedures, a

reduction of delays due to inadequate documentation and a reduction in staff waiting time.

1.3.2. Implementation of Flow.

According to Manou, O. (2007). In order to establish flow in a system the following must

exist:

1.3.2.1. Maintenance, Organization and Housekeeping.

A typical cause of setup problems is poor housekeeping, equipment maintenance and

incorrect organization of tools. Implementation of flow at Jimmy’s will enforce proper

maintenance, organization and housekeeping of intensive care and X-ray machines, this

result in significant benefits for Jimmy’s.

1.3.2.2. Eliminate Adjustments.

A short period of time is required to enforce a new adjustment but a long period of time

is required to make this adjustment to function properly.

1.3.2.3. JIT Scheduling.

Heizer and Render (2008:651) state that better scheduling improves the ability to meet

patients needs and reduces patients waiting.

1.3.3.0. Barret, M. (1994). state that simplicity is one of JIT’s key components. Hospitals can

8

eliminate complex billing procedures, which will accelerate the billing process and

improve efficiency. the JIT approach can eliminate the need for a separate inspection

process after discharging a patient if each case is reviewed and tracked during the

patient’s stay, which will also improve efficiency.

1.3.4.0. In order to successfully implement the JIT system at Jimmy’s, hospital personnel need to

educated about the philosophy behind JIT and their role in the JIT system.

1.3.5.0. Quality at Source.

According to Manou, O. (2007). the implementation of Quality at the Source technique

at Jimmy’s will aim to reduce manufacturing costs significantly (e.g. costs occurring by

the shorter life cycle of the machines and major equipment repairs.) while upgrading the

quality of treatment at the same time. Quality at source rests on two principles: Total

Productive Maintenance and Total Quality Management.

1.3.5.1. Total Productive Maintenance.

The technique of achieving Total Productive Maintenance focus on:

Preventative Maintenance which is the scheduled maintenance to avoid breakdowns.

Predictive Maintenance which is the prediction of pending machine breakdowns and

appropriate intervention to prevent them.

1.3.5.2. Total Quality Management.

According to Manou, O. (2007). time studies and work method techniques are used to

determine the amount of work needed to perform a task. Process standardization is

applied to expose problems and motivate their solution by implementing new methods.

this manner, inherent sources of variation is eliminated.

1.3.5.3. Visual control.

Manou, O. (2007). state that visual control is the design of a production system that

controls itself by clearly identifying where the problems are and by creating a sense of

urgency wherever is necessary. In particular visual means of control should be designed

9

in order for each worker at Jimmy’s to assume actions for maintaining the control of the

production system. In summary visual controls establishes the means to visualize

whether the state of a system is within acceptable limits and to pinpoint waste.

1.3.5.4. Kaizen.

According to Manou, O. (2007). Kaizen is a Japanese term meaning continuous and

unending improvement in the processes in order to eliminate waste and to enhance

value. It is an ongoing process of identifying opportunities for improvement. The

Kaizen technique aims in reducing non value added activities such as set up times and

unnecessary transport of materials.

1.3.5.5. The frequent and scheduled implementation of the above quality of source techniques

at Jimmy’s have long term benefits. Operators are more recognizable with production

equipment and pending problems.

Question 2.1.

For each of these four location decisions, rank what you think are the main factors that

influenced the location decision.

2.1.1. In April 1994, Ford Motor Company announced that product development, previously

undertaken independently by each operation, would be integrated into five Vehicle

Programme Centres, with each having worldwide responsibility for the design,

development and engineering of any vehicle assigned to it. The firm was effectively

moving from a multi domestic strategy in which each of its North American and

European operations independently developed products to serve its own markets,

to a global strategy in which the company would have one operation that develops

products for worldwide markets.

2.1.2. Fiat’s location decision to invest in FSM at Bielsko-Biola seems to have been looking to

the future of its sales. Eastern Europe will certainly be a growing market and expects the

regions to develop quickly in the wake of Communism’s collapse. There are also

10

advantages of locating in Eastern Europe, the most obvious of these are exceptionally

low cost, highly skilled labour and proximity to the growing market. Of all the

potential Eastern European locations, the one in Poland seems to present Fiat with

fewer difficulties than many of the others For Poland, Fiat’s involvement means

new technology, more jobs and management expertise. [online] available from http:

//www.pearsoned.co.uk [Accessed 14 March 2012].

2.1.3. The move by Hyundai to relocate the bulk of its personal computer operations from South

Korea to America is an illustration how powerful proximity to a market can be for some

operations. When configuring products to what the customer wants, it is an advantage to

have those kinds of operations in America, the world’s largest computer market. The

California advantage was mainly proximity to the market, which meant shortening the

supply chain between the manufacturing plant and its main market, which both saves the

cost of inventories in the pipeline and improves the responsiveness of delivery times to the

market. [online] available from http: //www.pearsoned.co.uk[Accessed 14 March 2012].

In making the shift Hyundai joins other Asian manufacturers as Taiwan’s Acer Group in

claiming that, while the Far East provides a low cost manufacturing base, a large share of

the consumer trend and technologies driving personal computer development still

originate in America. It is important to have a local operation closer to the market to react

to changes. These advantages clearly outweighs any additional cost of labour and

accommodation. The perceived disadvantages of high labour costs may be far less an issue

now than they might have been several years ago. [online] available from http: //www.

fundinguniverse.com [Accessed 16 March 2012].

2.1.4. Hoover reorganized its operations in the United Kingdom and Europe into Hoover Europe

which was responsible for all manufacturing throughout the region. To increase Hoover

Europe’s competitive position, in 1994 Hoover also consolidated all vacuum cleaner

production in Europe at its facility in Scotland, closing its manufacturing facility in

France. To remain competitive in the fast emerging global business, Hoover found that it

had to concentrate its production facilities into one European plant. The low wage and non

11

wage labour cost of Britain when compared to France also contributed to this decision.

The company also reasoned that Scotland would provide a more flexible workforce, an

important competitive advantage in many industries. [online] available from http: //

www.fundinguniverse. com [Accessed 16 March 2012].

Question 2.2. What do you think the companies described in each of these four location

decisions were trying to improve and why?

2.2.1. Ford was trying to put some clarity into its globally complex organisational strategy by

identifying certain design responsibilities with specific locations that develops products

for worldwide markets. This eliminates the duplication of value chain activities, the firm

saves on product development and manufacturing costs. Second, by producing a standard

product for the world that uses standard parts, the firm can enjoy economies of scale.

2.2.2. Fiat, in investing in Poland, was looking to secure new and large markets in the future.

Establishing experience in what may continue to be a low cost production and highly

skilled labour. Fiat expects FSM to expand output substantially by 1993.

2.2.3. Hyundai were getting close to the market to improve responsiveness of supply and

responsiveness in product development. Their development operations work with

companies like Intel and Advanced Micro Devices. They act as beta test sites for IBM and

Microsoft, which allows Hyundai to be up to the minute on new products. if they were far

away, that would be impossible. [online] available from http:// www.findarticles.com.

[Accessed 18 March 2012].

2.2.4. Hoover was consolidating their operations in Europe to be more competitive.

They were reducing manufacturing costs and were looking at a more flexible

workforce.

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Question 2.3. In the decision by the Ford Motor company to establish vehicle programme

centres, do you think the factors influencing the location of design centres are different

from those that influence the location of manufacturing operations? Explain your answer.

2.3.1. The Ford location decision is different from manufacturing operations location decision

in two important respects. Firstly, it is clearly evident that location of responsibility type

decisions are being undertaken in the context of the existing operations within the

company. It is not a single location decision, it is a highly complex set of interrelated

decisions which include not only location but product development strategy, organisational

structure, focus of decision making responsibility and overall operations configuration.

[online] available from http: //www.pearsoned.co.uk [Accessed 14 March 2012].

2.3.2. Secondly the decision as opposed to location of manufacturing operations, concerns

location of a service. Although the service is within a manufacturing company but it is a

service none the less. Furthermore it is a service which relies on embedded expertise

within the existing resources of the company. Ford is making quite a subtle assessment

of each alternative site’s experience and potential. Not only to do the job of designing

motor vehicles, but also co-ordinating the global network in helping them to do so.

[online] available from http: //www.pearsoned.co.uk [Accessed 14 March 2012].

Question 3. Discuss the benefits of a MRP system in an organisation.

3.1. MRP is a computer based system designed to organize the timing and ordering of the

dependant demand products. The demand for the raw material and components of the final

product are calculated by using the demand for the final product and it is determined how

much and in what quantity to order from these components and raw material, considering

considering the production and lead times and counting back from the delivery time of the

product. The dependent technique used in a production environment is called material

requirement planning.

3.2. MRP Structure.

According to Heizer, J. and Render, B. (2008:568) most MRP systems are computerized,

13

the MRP procedure is straightforward and can be done by hand. The ingredients of a

material requirement planning system are master production schedule, bill of material,

inventory, purchase records and lead times for each items.

Figure 3.2: MRP Structure.

Source: Heizer and Render (2008:568).

3.3. Heizer, J. and Render, B. (2008:562) mention that organizations have found very important

benefits in MRP:

More effective response to customer orders as a result of improved adherence to schedules,

this increases customer satisfaction and orders.

Faster and expedient response to market changes increases market share.

Vastly improved utilization of facilities and labour improves productivity and return on

14

investment.

Reduced inventory levels, frees up holding costs and floor space for other uses.

These benefits are the result of a decision to use a dependent inventory scheduling system.

Demand for every component is dependent.

3.4. Dependent Demand.

According to Heizer, J. and Render, B. (2008:562) dependent demand implies that the

demand for one item is related to the demand for another item. Demand for items is

dependent when the relationship between items can be determined. Once an organisation

receives and order or forecasts demand for the final product, quantities required for all

components of the finished product can be computed due to all components being

dependent items. The operations manager who schedules production for any order, knows

the material requirement down to the last item. The dependent technique used in a

. production environment is called material requirement planning.

3.5. Dependent Inventory Model Requirements.

According to Heizer, J. and Render, B. (2008:562) effective and efficient use of dependent

inventory models require the operations manager to have intensive knowledge with the

following:

Master production schedule – what is to be made and when.

Specification or bill of material – materials and parts required to make the product.

Inventory availability – what is in stock.

Purchase orders outstanding – what is in order and expected delivery date.

Lead times – how long it takes to get various components.

3.6. Master Production Schedule.

The master production schedule drives the system. It states the planned due dates for end

items. MRP computer runs involve an interactive process. The master production schedule

proposes a tentative schedule. After the MRP run with this schedule. the shop scheduler

examines the MRP plan for impractical loads on the productive system, either by stating

excessive demands on personnel, equipment or in excessive idle time. The master

15

production schedule is revised and the program is run again. [online] available from http: //

www.conestogac.on.ca [Accessed 20 March 2012].

An MRP system generates schedules to meet material needs. It starts with the master

schedule and develops a time phased schedule which specifies what, when and how many

units of each material are required. Whether this schedule is adhered to, depends first on the

master scheduler who may change the schedule. Then on inventory control personnel who

may choose to change order quantities or timing. Then on the purchasing department who

may make further modifications to a purchase order and finally on the production scheduler

who may actually release the work to production, which may be at some time other than that

called for in the MRP schedule. [online] available from http: // www.conestogac.on.ca

[ Accessed 20 March 2012].

The major demands on the system occur through the master production schedule. From

here on throughout the system, the demands are then dependent on the master production

schedule. Orders for spare parts and material normally do not go through the master

production schedule unless their amounts are large enough to place significant load on the

productive system. These demands are fed into the inventory records file by passing the

master production schedule. Once there, they are then exploded into the required parts and

materials needed during the normal course of the MRP run. the parts and material needed to

make the spares and repair parts are therefore dependant demand. [online] available from

http: // www.conestogac.on.ca [Accessed 20 March 2012].

3.7. Bills of Material.

The Bill of Material file contains information about the product, including listing of parts

numbers, quantities needed per unit or product and the assembly or process flow stipulating

how the unit is structured. Engineering design changes that affect t the product structure

are placed into the Bill of Materials file. Also parts or material changes occur through a

change of vendors or material composition are also added to update the file. Bill of

16

Materials not only specify requirements but are also useful for costing and they can serve

as a list of items to be issued to production or assembly personnel. when Bill of materials

are used in this way, they are usually called pick lists.

.

According to Heizer, J. and Render, B. (2008:566) Modular Bills. “Bill of Materials may

be organized around products modules.” Modules are not the final finished products to be

sold but are components that can be assembled into units. Bill of Materials is sometimes

organized as modules, instead of part of a final product because production scheduling and

production are often organized around few modules than a large number of final

assemblies.

According to Heizer, J. and Render, B. (2008:566) there are also two other special kinds of

Bill of Materials. Planning Bills are created to assign an artificial parent to the Bill of

Materials. These are used to group sub assemblies so that the number of items to be

scheduled is reduced and also when kits are issued to the production department.

Phantom Bills are Bill of Materials for components of sub assemblies that exist temporarily.

These components go directly into another assembly and are never inventoried. They have

zero lead times.

3.8. Inventory Record File.

It contains the status of an inventory item. it indicates the current stock position, the past

timing and sizes of all orders, including open orders for the item and the lead time for each

item. It basically happens to be the past experience and serves as a good reference point for

planning the future.

3.9. Purchase Orders Outstanding. According to Heizer, J. and Render, B. (2008:567) efficient purchasing and inventory

control departments should have a fairly good idea of outstanding orders. When purchase

orders are processed, details of those orders and their scheduled delivery dates must be

made available to production personnel. This enables managers to prepare good

production plans and effectively execute an MRP system.

17

3.10. Lead Time for Components.

Heizer, J. and Render, B. (2008:567) state that when products are needed, managers

determine when to acquire them. The time that it takes to receive purchased items from

suppliers, manufacture or assemble an item is referred to as lead time. Lead time for a

manufactured item is made up of move, setup and assembly or run times for each

component.

3.11. Closed Loop MRP. .

According to Heizer, J. and Render, B. (2008:579) closed loop material requirement

planning provides feedback to scheduling from the inventory control system. A closed

MRP system provides information to the capacity plan, master production schedule and

production plan.

3.12. Capacity Planning.

Heizer, J. and Render, B. (2008:579) state that feedback relating to workload is obtained

from each work centre. Load reports indicate the resource requirement in a work centre

for all work assigned to a work centre, work planned and expected orders. MRP systems

allow production planners to move the work between time periods to smooth the load

within capacity.

3.13. Lot Sizing Techniques.

According to Heizer, J. and Render, B. (2008:574) MRP systems provide details

to determine production schedules and net requirements. Whenever there is a net

requirement, a decision has to be taken about how much to order. This decision is

known as lot sizing decision. There are a variety of ways of determining lot sizes in an

MRP system:

Lot for Lot – Produce what is exactly required, which meets the requirement of dependent

demand.

Economic Order Quantity – Over time an MRP system reveals the ideal lot sizes that

should be purchased for each component item or raw material. By taking into account

18

demand information for an item, carrying costs and transportation cost the most cost

effective order amount can be determined with great accuracy.

Part Period Balancing – A dynamic approach to balance setup and holding costs for a

demand. Lot size is changed to reflect requirements of the next lot size in the future.

Question 4

4.1. Data collected on the annual number of engine manifold orders are shown in the

following table:

Year 1 2 3 4 5 6 7 8

Applications 400 600 400 500 1000 800 700 900

Forecast the demand for years 4 to 9 with a three year weighted moving average. The

weights are reflected in the table below, are as follows: engine manifold orders in the most

recent years are given a weight of two and orders in the other two years are given a weight

of one.

Weights Period of Orders

2 In the most recent (last year)

1 Two years back

1 Three years back

4 Total

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Weighted moving average = ∑ (weight for period n) (demand in period n)

∑ weights

Solution 4.1 The result of this weighted moving average forecast are as follows:

Year

Engine Manifold

Orders Three Year Weighted moving average

1 400

2 600

3 400

4 500 [(3*400)+(2*600)+(1*400)/4=700

5 1000 [(3*500)+(2*400)+(1*600)/4=725

6 800 [(3*1000)+(2*500)+(1*400)/4=1100

7 700 [(3*800)+(2*1000+(1*500)/4=1225

8 900 [(3*700)+(2*800+(1*1000)/4=1175

9 - [(3*900)+(2*700+(1*800)/4=1225

4.2. Using relevant examples, discuss the costs associated with poor quality.

The costs associated with quality are divided into two categories: costs due to poor

quality and costs associated with improving quality. prevention costs and appraisal

costs are associated with improving quality, while failure costs result from poor quality.

Failure costs are separated into two different categories: internal and external.

Worthington, J.C. and Frodge, J.P. (2008) Roadmap to Quality Costs [online].Available

from http://www.epa.gov/quality [Accessed 24 March 2012].

4.2.1. Prevention Costs.

These are costs incurred to keep failure and appraisal costs to a minimum. This includes

cost of:

Quality planning – a broad array of activities which create the overall quality plan.

Quality audits – the costs of evaluating the execution of activities in the quality plan.

20

Training - the costs of preparing and conducting quality related training programs.

Worthington, J.C. and Frodge, J.P. (2008) Roadmap to Quality Costs [online].Available

from http://www.epa.gov/quality [Accessed 24 March 2012].

4.2.2. Appraisal Costs.

These are costs incurred to determine the degree of conformance to quality requirements.

This includes cost of:

Product quality audits – the cost of performing quality audits on finished products.

Maintaining accuracy of test equipment – the costs of keeping measuring instruments and

equipment in calibration.

Incoming inspections and test – the cost of determining the quality of purchased product

by inspection on receipt or by inspection at source. Worthington, J.C. and Frodge, J.P.

(2008) Roadmap to Quality Costs [online].Available from http://www.epa.gov/quality

[Accessed 24 March 2012].

4.2.3. Internal Failure Costs.

These are costs associated with defects that are found prior to transfer of the product to

the customer. They are costs that would disappear if no defects existed in the product

prior to shipment. This includes cost of:

Scrap – the labour, material and usually overhead on defective product that cannot

economically be repaired.

Rework – the cost of correcting defectives to make them fit for use.

Re-inspection – the cost of re-inspection of products that have undergone rework or other

revision. Worthington, J.C. and Frodge, J.P. (2008) Roadmap to Quality Costs [online].

Available from http://www.epa.gov/quality [Accessed 24 March 2012].

4.2.4. External Failure Costs.

These are costs associated with defects that are found after the product is shipped to the

customer. These costs would disappear if there were no defects. This includes cost of:

Warranty charges – the costs involved in replacing or making repairs to products that are

21

still within warranty period.

Complaint adjustment – the cost of investigation and adjustment of justified complaints

attributable to defective product or installation.

Returned material – the cost associated with receipt and replacement of defective

product. Worthington, J.C. and Frodge, J.P. (2008) Roadmap to Quality Costs [online].

Available from http://www.epa.gov/quality [Accessed 24 March 2012].

Question 5.

A building project comprises the following list of activities:

Time in days Immediate predecessorActivity a m B

A 3 6 8 -B 2 4 4 -C 1 2 3 -D 6 7 8 CE 2 4 6 B,DF 6 10 14 A,EG 1 2 4 A,EH 3 6 9 FI 10 11 12 GJ 14 16 20 H,1

The list of activities above show the optimistic times (a), the most likely completion times

(m) and the pessimistic completion times (b).

22

5.1. Determine the expected completion time (t) and variance for each activity.

Solution 5.1. The result of the expected completion time and variance for the building

project.

OptimisticMost Likely Pessimistic

Expected Time Variance

Activity a m B t=(a+4m+b)/6 [(b-a)/6]²A 3 6 8 6 [(8-3)/6]²=25/36= .69B 2 4 4 4 [(4-2)/6]²=4/36= .11C 1 2 3 2 [(3-1)/6]²=4/36= .11D 6 7 8 7 [(8-6)/6]²=4/36= /11E 2 4 6 4 [(6-2)/6]²=16/36= .44F 6 10 14 10 [(14-6)/6]²=64/36= 1.78G 1 2 4 2 [(4-1)/6]²=9/36= .25H 3 6 9 6 [(9-3)/6]²=36/36= 1.00I 10 11 12 11 [(12-10)/6]²=4/36= .11

J 14 16 20 16[(20-14)/6]²=36/36= 1.00

5.2. Construct the AON network diagram for the project.

AON network diagram.

A(6) F(10)

G(2) H(6)

J(16)

B(4) E(4)I(11)

K(0)

C(2) D(7)

5.3. Outline the limitations of Program evaluation and review technique (PERT) and

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Critical path method (CPM).

Project activities have to be stable in their relationships, the expected completion time of the

project is based on ideal situations and does not take into account the possibility of

unforeseen events. The expected completion time of all subsequent activities and the project

as a whole can become skewed when things go wrong.

The technique relies on past data and experience to formulate completion time predictions.

New companies may not have any past experience to lean on, putting them at a

disadvantage.

Managers may place too much emphasis on activities along the critical path, neglecting

other activities such as quality and cost control.

6. Conclusion.

JIT is a manufacturing concept based on planned elimination of all wastes. This is

achieved by providing customers with products in the right place and at the right time.

Waste is regarded as any activity that is non value added. JIT is used to establish work

flow processes that link work centres together to create an equal flow of materials for

its workers. Being in the right location is a key ingredient in an organisation’s success.

A location strategy is a plan for obtaining the optimal location by identifying the needs and

objectives of the organisation. Location often play a significant role in profits and market

share.

In manufacturing situations, the demand for raw materials and components is dependent upon

the production plan for the final product. It is therefore possible to determine how many parts

or components will be needed in each time period. MRP is a computerised system that

exploits this information of the dependence on demand, by managing inventories and

controlling production lot sizes of the parts that make the final product.

Demand forecasts are projection of demand for a product or service. Forecasts of demand

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drive decisions in many areas. An organization’s main goal is to survive and maintain high

quality goods or services, with a comprehensive understanding of costs related to quality this

goal can be achieved. PERT and CPM is a well known method that is used to analyze

various tasks when it comes to completing a project.

7. Bibliography.

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March2012.]

Barret, M. (2004) Application of just in Time Philosophy in Healthcare. [online] available

from http://www.calstate edu.com [Accessed 15 March 2012].

Company Histories and Profiles. [online] available from http://www. fundinguniverse.

com [Accessed 16 March 2012].

Dennision, R., Kathawala, Y. and Elmuti, D. (1993). Just-in-time: Implications for the

hospital industry. Journal of Hospital Marketing, 8(1), pp. 122-129. [online] available from

http://www.ncbi.nih.gov [Accessed 15 March 2012].

Heizer, J. and Render, B. (2008) Operations Management.9th Edition. Pearson Education:

Upper Saddle.

Hyundai joins other Asia firms in moving operations. [online] available from http://www.

findarticles.com [Accessed 18 March 2012].

Manou, O. (2007) Application of just in Time Principles. [online] available

from http://www,labs.fme.aegean.gr. [Accessed 17 March 2012].

Materials Planning for Dependent Demand [online] available from http://www.

conestogac.on.ca [Accessed 20 March 2012].

Worthington, J.C. and Frodge, J.P. (2008) Roadmap to Quality Costs [online].

available from http://www,epa.gov/quality [Accessed 24 March 2012].

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