Day 5
Day 5
Day 5
1
Where are we?
Significance of Operations
Strategic and Tactical
Variability Management
• Improvement Methods
—Strategic or Systems Level
—Operations Level
2
Tools & Techniques for Improvement
Materials Maintenance
Management Management
Process Quality
Design Management
Resources
Facility
(Internal)
Design
Management
Product/ Resources
Operations
Service (External)
Design Management
Management
3
Operations Management Functions
4
Operations Management Functions
Demand Forecasting,
Production
Aggregate Planning, Work Planning
Plng. Resources
Allocation Job
Scheduling Machine routing
Worker allocation
Capital allocation
Subcontracting
Inventory
Allocating jobs to machines
Mgmt.
Maintenance Performance parameters
Norms, Points
Mgmt Quality
Control Mgmt.
Procurement
Equipment control
Inspection, TPM
SQC,TQM, Quality Operational Functions
Measures & Mgmt
5
Operating Systems : Scope of Improvement
6
Impact of lack of synchronisation
Excess Material
Excess Time
7
Stock of Material and profitability
Labor Sales
$.700,000 $.5,000,000 Net income
Rs.400,000 What if we
Operating cost elements
Minus
Cost of ($.515,000)
Profit
margin
decrease
Materials
$.2,300,000
Goods Sold
$.3,800,000
Divided by 8% materials cost
Sales (10.3%)
($.2,185,000) ($.3,685,000)
Plus
$.50,00,000 by 5%?
Overhead
$.800,000 Other costs (or $.115,000)
$.800,000
Return on
Investments
Multiply
10.0%
(13.0%)
Inventories
$.500,000 Sales Profit increases
$.5,000,000
($.475,000) Current assets Asset turnover
By 30%
Assets
8
How to reduce Solve?
—Customer end
Demand Mgmt
—Distributor end
Retail Mgmt
—Logistics End
Logistics Mgmt
—Production End
Operations Mgmt
—Supplier End
Supply Mgmt
•
• Challenge is to synchronise between these factors
9
Synchronizing the Flows
• Two Aspects
• Predicting the demand
• Meeting demand in the most optimized manner
10
Managing Operations
STC Company: PCB Division
11
What is the competitive advantage of STCPCB?
• Fast-responsive, reliable supplier of small orders
• External Environment
• Fragmented structure of PCB Market
• Internal Environment
• Complex workflows & scheduling
• Equipment Flexibility
• Worker skills
12
STC :Current Situation
• Impressive Growth
13
Process Flow Diagram
Artwork Manual
Drill (7)
Stor
Inspect& Punch tooling Metalize
age
Shear Holes
CNC (1)
Punch Press
Inspect,Test
Soldermask Solder Dip ship
Pack
14
Process Flow Diagram
29 /0
15 /40b
Artwork Manual
Drill (7)
10 /0.75
Stor 20 /0.5 10 /0.5
Inspect& Punch tooling Metalize
age 240 /16pa
Shear Holes
CNC (1)
15
Design Decisions
• Process Design
• Equipment selection :degree of automation
• Flexibility with product ranges
• Capacity of operating system as a whole
• Information flow designs
• Operating Decisions
• Order selection
• Loading and scheduling
— When to send an order to shop floor
— To rush an order
— Tukker and work allotment
• Technology Choice
16
Technology Choice
• Drill : Manual Vs CNC Time
• 15+40 B
• 240 + 2 B
• B= 5.975
• CNC Router vs Punch Press
• 150 + 0.5 B
• 50 + B ?
Board/order
• Minimum of 10 boards in CNC drill
• Minimum 200 boards in Router
Panel
Laminate Develop
Prep
18
Capacity and Product Mix
• Dry Film Photoresist
Panel
Laminate Develop
Prep
1 22 21.8 21.8
10 40 12 120
100 220 2.18 218
19
Labour Time
• Calculate total labour time (per board basis)
• Order size of 1 board
• Order size of 8 boards
• Order size of 40,200 and 800 boards
20
How is STC’s PCB Division Doing?
21
Financial Performance
Is Financial Performance August September
Satisfactory? Gross Profit 27.2 15.8
Net Profit 14.8 3.1
22
Information Flow Analysis
Normal
Customer Design Engr Blue print Factory Order Purchasing
Estimate Vendors
Specs Manager1
Sheet
Blue Print
Factory Raw Material
Order
Factory
COO Supervisor
DPR
Small
Sales Manager Orders Batch #
Shop Floor
Tukker
23
Information Flow Analysis
Normal
Customer Design Engr Blue print Factory Order Purchasing
Estimate Vendors
Specs Manager1
Sheet
Blue Print
Factory Raw Material
Order
Factory
COO Supervisor
DPR
Small
Sales Manager Orders Batch #
Shop Floor
24
Performance Measures and Problems
• Delivery Performance
• Quality Performance
• Productivity
• Financial Performance
25
Delivery Performance
• Delivery Target
•
• Actual deliveries are 9 days late WHY? What are the implications?
• Rush orders : 4 days avg :2-3/month : Are they the real culprit?
— What percentage of total orders are rush orders?
• Why Delay?
• Lack of material in stock
• Shifting of bottlenecks
• Mistakes
• Interruptions
• Poor information flows
26
Shifting of Bottlenecks
• Degree of variability in orders, routing
• Interruptions due to rush orders
• Tukker & Small rush orders
27
Quality Performance
• Internal Rejects : 7% 1.4% total loss & 5.6% rework
• External rejects: 1-3% in Sep 0.6% loss and 2.4% rework
28
Productivity
• September :
• Total hours worked :1531.7 hrs
• Available : 21 * 22* 8 = 3696 hrs i.e productivity 41.44%
29
Financial Performance
Is Financial Performance August September
Satisfactory? Gross Profit 27.2 15.8
Net Profit 14.8 3.1
30
What should we do?
31
Recommendations
• Specific operating Decisions
• Procedural Recommendations
• System Changes
• Strategic decisions
32
Recommendations:Operating
• ??
33
Recommendations: Procedural
• Change information flow ? How?
• Tukker?
• ??
34
Recommendations: System Changes
• Scheduling with a “chain” view and change POP
• Inventory Management
35
Product-Process Matrix Analysis
One Low Volume Little Moderate Vol High Volume High Volume
Process Of a Little Standardisation Customised Features Low Variety High Standard
Structure Kind High Variety Multiple Products Few Major prdts Commodity
Project
Job Shop
(General Eqp
Jumbled Flow)
Batch
(Disconnected
Line Flow
Flexible Eqp)
Assembly
(Connected Line
Flow
Specialised Eqp)
Continuous Process
(Dedicated equp
Continuous flow)
• Is it necessary?
37
Going Back… Synchronizing the Flows
• Two Aspects
• Predicting the demand
• Meeting demand in the most optimised manner
• Forecasting
• Supply (Operations) Management
• Inventory Management
• Production & Scheduling
38
Business Forecasting
39
Overview
• Why Forecasting?
• Changes in Business Environment and relevance of Forecasting
• Characteristics of good forecasts
• Forecasting Techniques
• Time series
• Associative
• Judgmental
• Special Forecasting cases
• Short Life Cycle products /services
— Obermeyer methods
• Advanced Computational methods
40
Why Forecasting?
:Conflicting Objectives?
• “We can’t afford to loose this customer. So let us keep plenty of inventory”
• “We have to set the numbers higher than the last year to show a plan rise”
• “We never trust those sales guys, so we make what we feel they can sell”
• “Our clients doesn’t want their customers to wait in the call centres, so we have enough
manpower to take care of the changes in demand”
• Optimization
• Partnership Design
Supplier OEM 43
General Characteristics of All Forecasts
44
Requirements for successful forecasts
45
Elements of a Good Forecast
Timely
Reliable Accurate
Written
46
Forecasting Process: Decision Points
Identify Objective
And use of Prepare the
Forecast Forecast
Fix the
Forecasting Period Monitor results relative
To errors, reliability
Need for revision
Select an
Appropriate
Forecasting Approach Make Revisions
When necessary
47
Forecast Techniques
Identify Objective
And use of Prepare the
Forecast Forecast
Fix the
Forecasting Period Monitor results relative
To errors, reliability
Need for revision
Select an
Appropriate
Forecasting Approach Make Revisions
necessary
Forecasting
Information
Top-Down Judgmental
Bottom-Up
Causal
Technology
Forecasting
Time Series
• Data Sources
• Mature Products
— Internal records
— Secondary sources
- Government
- trade associations
- private companies
—Primary sources
49
Identify Objective
And use of
Prepare the
Forecast Forecast
Fix the
Forecasting Period
Monitor results relative
FORECASTING APPROACHES
To errors, reliability
Need for revision
Select an
Appropriate
Forecasting Approach
Make Revisions
necessary
–Bottom-up Approach
•Develop forecasts sales to individual accounts
then combine these account forecasts into
territory, district, region, zone, and company
forecasts.
–Top-Down Approach
•Develop aggregate company forecasts then
breakdown into zone, region, district, territory
and account forecasts.
50
BOTTOM - UP APPROACH
51
BOTTOM - UP APPROACH
52
Quantitative Approaches
•Naive Forecasts
•Time Series Models
•Moving Averages
•Exponential Smoothing
53
Basic Approach to Forecasting
• Demand 42
Seasonality
$3,000 Additive Seasonal Effects
Heat Pumps Sold
• Dependent 40
Stationary Time Series
Non-Stationary Time Series
$2,500
S a le s (in $ 1 ,0 0 0 s )
• Independent $2,000
38
U n its S o ld
415 36
$1,500
34
395
• Demand Pattern 1
$1,000
2 3
32
4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
U n its So ld
30
Number of VCRs Sold
355 Multiplicative Seasonal Effects
• Non-stationary
$0
28
1
1 2 33 4 5 56 7 87 9 10 911 12 11
13 14 13 16
15 17 15
18 19 17
20 21 1923
22 24 21
25
Time Period
Time Period
335
• Product Life Cycle
315
295
Heat Pumps Sold
275
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
• Trends 1 3 5 7 9 11
Tim
13
TimeePeriod
Period
15 17 19 21 23
• Seasonality
• Erratic (Random) 54
Naive Forecasts
•The best estimate for the future is the
current level of sales.
–Assumes nothing is going to change
from one period to the next.
•Percentage forecasting error:
forecast - actual
Percentage forecasting error =
actual
55
Time Series Models
Stationary Non-Stationary
Additive
Moving Average Seasonal Smoothing
Holt-Winter
Weighted Multiplicative Double Moving
Moving Average Seasonal Smoothing Additive
Average
Seasonal
Exponential Double Smoothing
Smoothing Exponential
Smoothing
(HOLT’s) Holt-Winter
Multiplicative
OLS Regression Seasonal
Models Smoothing
56
Suitability of a Forecasting Method: Performance Indicators
N Et
N
Et t 1 Y
MAPE 100% t
MAD/ MAE t 1
N
N
N 2 N 2
Et Et
RMSE t 1 t 1
RMSE
N N
57
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