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161-639904-01 Competitive Cost Planning & Analysis Lecture 5 -1- 161-639904-01 Competitive Cost Planning & Analysis Lecture 5 Product, Service & Process Design Strategies for new product introduction market pull we make what we can sell example: food industry technology push we sell what we can make example: electronics inter-functional view example: personal computers 161-639904-01 Competitive Cost Planning & Analysis Lecture 5 Product, Service & Process Design Product development process typical phases of product development planning concept development product or service design pilot production, testing and refinement production ramp up designing a product without co-operation outcome is shown in figure 3.1 (Schroeder, 5/e)

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Page 1: Product, Service & Process Design -  · PDF fileperformance and customer satisfaction. ... Ritz-Carlton Hotel Company ... Product, Service & Process Design

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

- 1 -

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Product, Service & Process Design

Strategies for new product introduction market pull

we make what we can sell

example: food industry

technology push we sell what we can make

example: electronics

inter-functional view example: personal computers

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Product, Service & Process Design

Product development process typical phases of product development

planning

concept development

product or service design

pilot production, testing and refinement

production ramp up

designing a product without co-operation outcome is shown in figure 3.1 (Schroeder, 5/e)

Page 2: Product, Service & Process Design -  · PDF fileperformance and customer satisfaction. ... Ritz-Carlton Hotel Company ... Product, Service & Process Design

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

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161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Product, Service & Process Design

Economic analysis of development costs using measurable factors to help determine

operational design and development decisions

go and no-go milestones

building a base case financial model a financial model consisting of major cash flows

sensitivity for what if analysis

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Product, Service & Process Design

House of Quality

What the Customer

Wants

How to SatisfyCustomer Wants

Inter-relationships

Analysis ofCompetitors

RelationshipMatrix

TechnicalAttributes and

Evaluation

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161-639904-01 Competitive Cost Planning & Analysis Lecture 5

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161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Product, Service & Process Design

Designing for the customer ideal customer product

quality function deployment (QFD)– inter-functional team from marketing, design engineering,

and manufacturing

– also known as house of quality

» voice of customer/engineer, competitors comparison

» example: exhibit 4.6 (Jacobs, 12/e)

value analysis / engineering– achieve equivalent or better performance at a lower cost

while maintaining all functional requirements of customer

– by eliminating redundant features, non standard parts, or consider two or more parts be combined

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Product, Service & Process Design

Product design in the old days, “over the wall”

we design it, you build it

now, concurrent engineering must be able to make it (process)

– technology

– availability of resources

must have the capacity

must deliver a quality product or service

must decide inventory policies

Page 4: Product, Service & Process Design -  · PDF fileperformance and customer satisfaction. ... Ritz-Carlton Hotel Company ... Product, Service & Process Design

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

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161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Product, Service & Process Design

Product design design for manufacturing and assembly (DFMA)

improvements arise from simplification of the product by reducing the number of separate parts:

– during the operation of the product, does the part move relative to all other parts already assembled?

– must the part be of a different material or be isolated from other parts already assembled?

– must the part be separate from all other parts to allow the disassembly of the product for adjustment/maintenance?

modular design– multiple products using common parts, processes and

modules

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Product, Service & Process Design

Measuring development performance dimensions measures

time to market frequency of new products introduced

time to market introduction

number stated and number completed

percentage of sales from new products

productivity engineering hours per project

cost of materials and tooling per project

actual versus plan

quality conformance reliability in use

performance and customer satisfaction

Page 5: Product, Service & Process Design -  · PDF fileperformance and customer satisfaction. ... Ritz-Carlton Hotel Company ... Product, Service & Process Design

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

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161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Product, Service & Process Design

Product and process flow basic work flow structures

project, batch layout, and work center

manufacturing cell

assembly line

continuous process

process flow structures job shop

batch shop

assembly line

continuous flow

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Product, Service & Process Design

Product and process flow product process matrix

Product Volumelow high

Sta

nd

ard

izat

ion

low

high

continuousprocessline

manufacturingcell

work center

project

Page 6: Product, Service & Process Design -  · PDF fileperformance and customer satisfaction. ... Ritz-Carlton Hotel Company ... Product, Service & Process Design

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

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161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Product, Service & Process Design

Product and process flow product flow characteristics

continuous process– highly standardized and automated (beer, paper, etc)

– high volumes of production, flexibility limited

– commodity products

– low cost is the ‘order winner’

assembly line flow– linear sequence of operations for discrete products

– high volume, standardized products (appliances, etc)

– inflexibility in product and volume

– very efficient but large capital investment

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Product, Service & Process Design

Product and process flow product flow characteristics

batch flow– production of batches or lots

– batches flow from one work center to another

– low volume products

– many different types of products

– flow is jumbled and intermittent

– flexible labour and equipment

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161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Product, Service & Process Design

Product and process flow type of customer order

make to stock (MTS)– produce finished goods; customer buys from inventory– advantage: smooth production– disadvantage: inventory

make to order (MTO)– start production when customer orders– advantage: no finished goods inventory– disadvantage: intermittent production

assemble to order (ATO)– advantages: less inventory, faster service– disadvantage: some WIP inventory

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Product, Service & Process Design

Product and process flow type of customer order

customization point

distributionassemblyfabricationsupplier

MTO MTO ATO MTS

∇ ---------- ∇ ∇ ∇

Figure 4.4 (Schroeder, 5/e)

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161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Product, Service & Process Design

Product and process flow process selection decisions

factors affecting process choice– market conditions and competition

– capital requirements

– labour supply and cost

– state of technology

product process strategy– strategy must consider not only the product or service,

but also how to produce it

– as many industries move through their product life cycles, they also move through a process life cycle

– figure 4.5 product process matrix (Schroeder, 5/e)

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Product, Service & Process Design

Product and process flow focused operations

rationale– company may have products or services with different

volumes and levels of standardization, mixing them in the same operation can cause significant problems

– separating different products/services in the same facility

types of focus– product focus

– process type, technology

– volume of sales

– make-to-stock and make-to-order

– new products and mature products

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161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Product, Service & Process Design

Product and process flow mass customization

rationale– provide products in lot sizes of one in high volume

– economies of scope instead of economies of scale

» a high variety of products from a single process

– possible because of flexible manufacturing

forms of customization– modular production & ATO (example: Dell)

– fast changeover (example: Motorola)

– postponement of options (example: Hewlett-Packard)

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Product, Service & Process Design

Service business what is it?

the management of organizations whose primary business requires interaction with the customer to produce the service

types of service facilities based

– where the customer must go to the service facility

field based– where the production and consumption of the service

takes place in the customer’s environment

Page 10: Product, Service & Process Design -  · PDF fileperformance and customer satisfaction. ... Ritz-Carlton Hotel Company ... Product, Service & Process Design

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

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161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Product, Service & Process Design

Service business customer centered view

TheCustomer

The ServiceStrategy

ThePeople

TheSystems

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Product, Service & Process Design

Service business service system design matrix

mail contact

face-to-faceloose specs

face-to-facetight specs

phonecontact

face-to-facetotal

customization

high

lowhigh

low

internet & on-site

technology

SalesOpportunity

ProductionEfficiency

Degree of customer/server contact

buffered permeable reactive

Exhibit 7.6(Jacobs, 12/e)

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161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Product, Service & Process Design

Service business example of service blueprinting

Brushshoes

Applypolish

Failpoint

BuffCollect

payment

Cleanshoes Materials

(e.g., polish, cloth)

Select andpurchasesupplies

Standardexecution time

2 minutes

Total acceptableexecution time

5 minutes

30secs

30secs

45secs

15secs

Wrongcolor wax

Seen bycustomer 45

secs

Line ofvisibility

Not seen bycustomer butnecessary toperformance

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Product, Service & Process Design

Service business three contrasting service designs

production line approach– example: McDonald’s

self service approach– example: automatic teller machines

personal attention approach– example: Ritz-Carlton Hotel Company

managing customer introduced variation variability in

– arrival, request, capability, effort, subjective preference

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161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Product, Service & Process Design

Service business characteristics of a well designed service system

each element is consistent with the operating focus

user friendly

robust

structured to maintain consistent performance easily

provides effective links between the back office and the front office so that nothing falls between the cracks

manages evidence of service quality in such a way that customers see the value of the service provided

it is cost effective

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Product, Service & Process Design

Reference chapters 3, 4, 5 & 6 (Schroeder, 5/e)

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161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Quality

Quality one of the four key objectives of operations

historical development of quality concepts inspection (early 1900s)

statistics quality control (Shewhart, 1940s)

quality management (1960s)

responsibility of everyone in the organization

meeting (or exceeding) customer requirements now and in the future

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Quality

Quality pioneers W. Edwards Deming (1900-1993)

14 Management Principles

advocate of statistical process control

emphasis on continuous improvement

PDCA wheel (example)

Joseph Juran (1904- 2008 ) quality trilogy: planning, control and improvement

emphasis on management

“Quality Handbook”

plus many others

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161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Quality

Dimensions of quality quality of design

determined before the product is produced

put “wishes” of customers into specifications

concurrent design through the QFD process

quality of conformance producing a product to meet the specifications

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Quality

Dimensions of quality abilities

availability– continuity of service to customers

reliability– length of time that a product can be used before it fails

– measured by MTBF

maintainability– restoration of the product or service once it has failed

– measured by MTTR

figure 8.1

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161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Quality

Dimensions of quality field service

warranty, repair or replacement of the product– after it has been sold

also called– customer service

– after sales service, or

– service

dimensions– promptness

– competence

– integrity

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Quality

Service quality measures are perceptual or subjective

SERVQUAL most popular measure

– uses a questionnaire consisting of 22 items

– an aggregate measure of the following five dimensions

five dimensions of service– tangibles

– reliability

– responsiveness

– assurance

– empathy

Page 16: Product, Service & Process Design -  · PDF fileperformance and customer satisfaction. ... Ritz-Carlton Hotel Company ... Product, Service & Process Design

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161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Quality

Quality planning, control and improvement implementing through quality cycle

define quality attributes on the basis of customer needs

decide how to measure each attribute

set quality standards

establish appropriate tests for each standards

find and correct causes of poor quality

continue to make improvements

Poka-Yoke by Toyota’s Shigeo Shingo means ‘mistake proofing’, developed in 1960s

a design approach so that mistakes cannot occur

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Quality

ISO 9000 standards established in 1987

guidelines for designing

manufacturing

selling, and

servicing products

provides some assurance that supplier follows accepted business practices in areas covered

required by many companies especially in Europe

Page 17: Product, Service & Process Design -  · PDF fileperformance and customer satisfaction. ... Ritz-Carlton Hotel Company ... Product, Service & Process Design

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161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Quality

ISO 9000 standards quality management principles

principle 1: customer focus

principle 2: leadership

principle 3: involvement of people

principle 4: process approach

principle 5: system approach to management

principle 6: continual improvement

principle 7: factual approach to decision making

principle 8: mutually beneficial supplier relationships

http://www.iso.ch

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Quality

Supply chain quality principles for outsourcing

supplier involved in product design

suppliers maintain high quality– therefore high rolled yield

operations must manage risk– e.g. defective toys

suppliers should be certified– e.g. ISO 9000

don’t rely just on price and product samples

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161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Quality

Quality control systems break down production process into

sub-processes and

internal customers

identify critical points where inspection or measurement should take place

four steps in designing QC systems identify critical points

decide on the type of measurement: variables/attribute

decide on the amount of inspection to be used

decide who should do the inspection

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Quality

Quality control systems types of measurement

attribute measurement– evaluated with a discrete choice

– counts, such as the number (or proportion) of defects

variables measurement– measured on a continuous scale

– mean, range or deviation of critical characteristics

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161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Quality

Process quality control basic assumptions

every process has random variation in it

processes are not usually found in a state of control

state of control unnecessary variation is eliminated

– assignable (special) causes identified and corrected

remaining variation is because of random causes– common causes, occur randomly

– cannot be changed unless process is redesigned

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Quality

Process quality control formulas for statistical process control (3 sigma)

p chart : n

ppp

13

x-bar chart : RAx 2

R chart : RDUCLRDLCL 43 , where A2, D3, D4 are constants depend on sample size

process capability Cp = spec width ÷ process width, higher the better

more widely used measure Cpk =

3,

3

LSLUSLMin

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161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Quality

Continuous improvement aim

reduce the variability of the product or process

priority processes with strategic importance

low process capability

use seven tools of quality control flow charts, run (trend) charts, control charts

pareto charts, histogram, scatter (x-y) diagram

cause-effect (fishbone or Ishikawa) charts

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Quality

Six Sigma quality introduction

defect level of 3.4 parts per million (ppm)

process range is +4.5 and –7.5, thus, Cpk = 1.5

airline fatalities are 6.4 sigma, most processes are 4

process improvement steps (DMAIC) define

measure

analyze

improve

control

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161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Quality

Six Sigma quality improvement cycle

uses a project/team approach

a process is selected for improvement

a cross-functional team is formed

a six sigma ‘black belt’ is chosen to head the team

uses DMAIC to find root causes and improve process

lean and six sigma are complementary approaches to improvement

lean eliminates waste, six sigma eliminates defects

six sigma is project focused, lean is more broad based

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Quality

Quality control and improvement in industry 75% use process control charts

more use of variable charts than attribute (p) charts because of sample size requirements

Six Sigma rapidly gaining acceptance

Quality control in the service industry SERVQUAL

Reference chapters 8 & 9 (Schroeder, 5/e)

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161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Capacity

Capacity is defined as

the maximum output that can be produced over a given period of time

theoretical capacity primarily determined by physical assets

labor availability

nominal capacity subtracts downtime, shift breaks, etc

capacity utilization= output ÷ nominal capacity × 100%

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Capacity

Hierarchy of capacity decisions

Planning Horizon (months)0 6 12

Scheduling

18

Aggregate Planning

24

Facilities DecisionsFacilitiesDecisions

AggregatePlanning

Scheduling

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161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Capacity

Facilities decisions

how much total capacity is needed?

how large should each unit of capacity be?

when is the capacity needed?

what type of facilities/capacity are needed?

strategy typically considers amount of capacity

size of the units

timing of capacity changes

types of facilities needed for the long run

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Capacity

Facilities factors affecting facilities strategy

predicted demand

cost of facilities

likely behavior of competitors

business strategy

international considerations

amount of capacity capacity cushion = capacity – average demand

build to average forecast

maximize utilization at bottlenecks

Page 24: Product, Service & Process Design -  · PDF fileperformance and customer satisfaction. ... Ritz-Carlton Hotel Company ... Product, Service & Process Design

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161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Capacity

Facilities size of the units

optimum unit size

economies of scale– production costs are not linear

– overhead spread over more units

diseconomies of scale– increased transportation costs

– cost of more bureaucracy

– increased organizational complexity

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Capacity

Facilities timing of capacity additions

preempt the competition– build capacity ahead of need

– positive capacity cushion

wait and see strategy– small or negative capacity cushion

– lower risk strategy

types of facilities product, market or process focused

general purpose

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161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Capacity

Aggregate planning characteristics

a time horizon of about 12 months

facilities that are considered fixed

aggregated level of demand– for one or few categories of product

a variety of management objectives

the possibility of changing both supply and demand

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Capacity

Aggregate planning planning options

options for managing demand– influencing demand from customers

– delivering orders as promised

options for influencing demand from customers– pricing

– advertising and promotion

– backlog or reservations (shifting demand)

– development of complementary products

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161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Capacity

Aggregate planning planning options

options for managing supply– delivering what is promised

– managing capacity and other resources

options for influencing supply– hiring and layoff of employees

– using overtime and undertime

– using part-time or temporary labor

– carrying inventory

– outsourcing or subcontracting

– making cooperative arrangements

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Capacity

Aggregate planning basic production strategies

level load strategy– deliver products and services at a constant rate

– avoid making changes to operations

chase demand strategy– produce only what you sell

– produce products or services just in time

– do not produce if there are no sales

– typical for services

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161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Capacity

Aggregate planning associated costs

level load strategy– inventory carrying costs

– cost of stock out or back order

chase demand strategy– hiring and firing costs

– overtime and undertime costs

– subcontracting costs

– part-time labor costs

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Capacity

Sales and operations planning purpose

balance demand and supply

iterative nature1. develop production plan

2. check implications for inventory / backlog plan

3. if necessary, adjust production plan

4. check against resource plan and availability

5. if necessary, adjust production plan

6. recheck against inventory / backlog and resources

7. continue (go to 5) until you meet all constraints

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161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Capacity

Scheduling it is the last and most constrained decision

in the capacity planning hierarchy

results in a time-phased plan

may range from a few hours to a few months

has conflicting objectives high efficiency

low inventories

good customer service

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Capacity

Scheduling batch scheduling

characteristics– complex scheduling environment, closely related to MRP

– can be thought of as “network of queues”

– customers or jobs spend most of their time in queues

– actual work is less than 20% of total throughput time

difficulties– variety of jobs processed

– different routing and processing requirements of each job

– number of different orders in the facility at any one time

– competition for common resources

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Managing Capacity

Scheduling batch scheduling

example: figure 13.1 (Schroeder, 5/e)job work center / machine hours due date1 A/2, B/3, C/4 32 C/6, A/4 23 B/3, C/2, A/1 44 C/4, B/3, A/3 45 A/5, B/3 2

Total machine times for the five jobs:– machine A: 15 hours– machine B:12 hours– machine C:16 hours

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Capacity

Scheduling Gantt charting

proposed by Henry Gantt in 1917

machine performance measures:– make span

» total time to complete a set of jobs

– machine utilization

» percent of make span time a machine is used

used primarily to monitor progress of jobs

one technique for executing the production plan

example: figures 13.2 & 13.3 (Schroeder, 5/e)

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Managing Capacity

Scheduling Gantt charting

hour

A1

B1

C14

5

4

4

5

2

3

2

3

3

machine idle : A 5 hoursB 8 hoursC 4 hoursTotal 17 hours

make span : 20 hours

machine utilization :

(60 – 17) hours60 hours

= 71.17%

161-639904-01 Competitive Cost Planning & Analysis Lecture 5

Managing Capacity

Scheduling other methods and techniques

finite capacity scheduling

theory of constraints

priority dispatching rules

infinite capacity loading

constant time networks

program evaluation review technique (PERT)

critical path method (CPM)

Reference chapters 12, 13 & 14 (Schroeder, 5/e)