Topic one

Introduction to operation management

What to cover:

• Concept of operation management.

• Transformation process in operation management.

• Product versus service operations.

• Role of materials manager.

Operation management

An area of management concerned with overseeing, designing and controlling the process of production
and re-designing business operations in the production of goods and services.

Operations management helps ensure that business operations are efficient [in terms of using few
resources as needed and effectively].

It’s concerned with managing the process that converts inputs into outputs.

Objectives of operation management

1]. To ensure quality performance

It deals with how well a product performs its intended functions, the desirability of the product features
and reliability of the product.

2]. To speed performance.

This is the rate at which a company can generate sales quotes and how rapidly and often a company can
deliver its products.

It can also refer to the time required to manufacture one or more products and the time the company
needs to research and develop a new product.

3]. The dependability performance.

It’s the desire of any firm to fill the customers’ satisfaction. The operation management has the
responsibility of producing and delivering its product to customer on time and according to a good cost
and price.

4]. Flexibility performance.

The operations will be flexible if the production lines can be made to deal with various products
requirements and if operations can adjust to new requirements.
5]. To record, monitor and review aspects of operations performance.

It identifies appropriate measures of performance that relate to internal and external factors that are
relevant to organizational competitiveness.

6]. Cost performance.

Operation cost is an important factor that’s affecting the final price of the product or service and how it
becomes affordable by the customer, which will finally affect the profitability of the business.

The lower the cost operations, the lower the price that can be given for the product or the higher profit
if no price competition is in place.

That’s why cost is one of the most attractive operations objectives.

Transformation process in operation management

A transformation process is any activity or group of activities that takes one or more inputs, transforms
and adds values to them and provides outputs for customers.

Transformation process includes;

• Changes in physical characteristics of materials.

• Changes in location of materials.

• Changes in ownership of materials.

• Storage/ accommodation of materials.

Roles of materials management in an organization

• Direct and coordinate the establishment of production schedules and resources allocation to
meet customers’ needs.

• Budgets for and oversee expenditure towards staffing, raw materials purchasing, machine
maintenance etc.

• Set criteria for supply sources and establish approvals, standards and certification.

• Responsible for final negotiation of all supply and services contracts.

• Manage supplier relationships.

• Direct and formulate procedures and policies to ensure materials are available to support
production schedules and customer service targets.

• Manage and control inventories.

• In aid with design and engineering departments; they seek ways to improve quality and reduce
costs of purchased materials.

• In aid with quality assurance, they liaise on matters of supply delivered quality and vendor rating
systems.

• In construction, they liaise with sales and marketing officers in conducting product forecasts and
demand.

Product versus service operations

Characteristics of a service

• Lack of ownership

• Intangibility

• Perish ability

Characteristics of a product

• Tangibility

Difference between manufacturing operations and service operations

1]. Characteristics

Manufacturing operations produce tangible goods, which are physical products that can be held and
seen. On the other hand, service operations provide certain intangible services that may not be easily
identifiable.
2]. Production environment

Manufacturing and service operation both plan the environment in which work takes place, but they
focus on different elements;

• Manufacturing operations, considers the manufacturing layout [ ie it can be fixed, product

focused etc].

• Service operations on the other hand plan the environment according to how it affects
consumers.

3]. Operation management

In manufacturing environment, operation managers oversee the activities required to produce goods
from raw materials [ie managing the space to store the raw materials, the flow of materials etc].

In a service operation, operation managers schedule workers to handle customers demand.

4]. Inventory

Service firms unlike manufacturers do not hold inventory; they create a service when a client requires it.
Manufacturer’s produces goods for stock with inventory levels aligned to forecasts of market demand.

5]. Customers

Service firms do not produce a service unless a customer requires it, although they design and develop
the scope and content of services in advance of any orders [eg 12hrs consultancy]

Manufacturers can produce goods without a customer order or forecast of customer demand.

6].Labor.

A service firm recruits people with specific knowledge and skills in the service disciplines that it offers.
Service delivery is labor intensive and cannot be easily automated. Manufacturers can automate many
of their productions processes to reduce their labor requirement [eg use of robots]

Topic two
PRODUCT DEVELOPMENT AND DESIGN

What to cover;

• Need for product development.

• Sources of new product ideas.

• Stages in new product development.

• Roles of purchasing in product development and design.

Product;

Product development;- these are series of steps that include the conceptualization, design,
development and marketing of newly created or newly rebranded goods or services.

The objective of product development is to cultivate, maintain and increase a company’s market share
by satisfying a consumer demand.

Need of product development

• Due to changes in consumer needs and wants.

• When a product reaches the end of its product life cycle.

• When product is at the maturity stage of the product life cycle.

• Due to environmental changes.

• Due to competition.

• When a product experiences a problem; - if a product is experiencing poor sales or suffering

from negative reputation it’s time to change your product offering.

Sources of new product ideas

The sources are basically divided into two;

• The internal sources

• The external sources

Internal sources

These are the great way to find new ideas. Internal sources can be divided into two parts;

1]. Research and development [R&D]

It’s the formal development of any organization to generate new ideas. The R&D department research
according to the company’s plan and then come up with the new ideas.

2]. Employees

Companies can use the brains of their employees to generate business ideas.

External sources

Companies can also gain good product development ideas from external ideas. External sources are
those affiliated with the company externally.

1]. Customers

Customers know best what they need and what they are looking for.

2]. Distributors and suppliers

Distributors works closely with the market and they know consumer problems and their needs.
Suppliers on the other hand can help with the information of the market like new concept, techniques
or materials which can be used for developing new product.

3]. Competitors

One can analyze their competitors and can find many ways which can be used for idea generation.

• Consultancies

• Design firms.

• Trade magazines.

• Shows and seminars

• Government agencies

• Advertising agencies

• Market research firms

Stages in new product development

1]. Idea generation

It involves brainstorming possible new products. Once an idea has been identified as a prospective
product, a more formal product development strategy can be applied.

2]. Idea screening/ idea analysis

It involves a closer evaluation of the product concept. Market research and concept studies are
undertaken to determine if the idea is feasible or within a relevant business context to the company or
to the consumer.

An organization normally screen product ideas against the corporate goals and objectives to determine
whether the product will correspond with the basic purpose and expected performance.

An organization must therefore evaluate the new product ideas to establish whether the organization
has the opportunities that may be prevailing [by use of SWOT analysis].

3]. Evaluating/ testing the concept/ concept genesis

It involves turning an identified product opportunity into a tangible concept.

4]. Business analysis

The new product ideas that successfully pass the third phase stage are further evaluated at this stage.
Assessing the profitability of a new product helps management decide whether to introduce the new
product, continue the development and evaluation process or drop the idea all together.

5]. Product development

The new product ideas that pass the above stages are then turned into a real product to be availed in
the market.

6]. New product testing

This stage involves a thorough assessment of potential market acceptance of the new product.

There are two aspects tested at this stage;

• Product use testing

This test measure market reaction to the actual characteristics and benefits of the physical product or
service. The product being tested should be unlabelled and unbranded. It should be given to a sample of
customers together with similar products already existing in the market.

• Market testing

This test is intended to assess the real market situation for the new product but on a smaller scale at the
lower cost. Market tests require decisions on the following aspects;

• The marketing strategies to be [Link] advertisement

• The data to be collected eg product movement, sales etc

• The number and location of the test areas.

7]. Commercialization

This is the actual presentation of the product into the market with all decisions and resource
commitment. A decision must finally be made on whether or not the new product should be introduced
in the market.

Product life cycle

The product life cycle shows the actual or potential sales of a new product overtime together with
stages of development ie

• Introduction.

• Growth.

• Maturity.

• Decline.

• Withdrawal.

1] Product development stage

It begins when company finds and develops a new product. During product development sales are zero
and the company invests more.

2] Introduction stage
It’s a period of slow sales growth as the product is introduced in the market.

Characteristics

• There are slow sales.

• High cost per customer.

• Few competitions.

• Profits are non-existent – [because of the heavy experiences of product introduction ].

3] Growth stage

It’s a period of rapid market acceptance and increasing profits.

Characteristics

• Rapid rise in sales.

• Average costs per customer.

• Rising profits or increase in profits.

• Growing number of competition since there are new competitors entering the markets.

4] Maturity /saturation stage

It’s a period of slowdown in sales growth because the product has achieved acceptance by most
potential buyers.

Characteristics

• There is slowdown in sales.

• There are low costs per customer.

• Stable number of competitors begins to decline.

• Profit decline because of increased marketing outlays to depend products against

competition.

Strategies to be put in place to avoid the product from declining are;

• Value analysis strategies.

• Value engineering strategy.

 • Modification of the product.

• Build more intense distribution.

• Stress brand difference.

• Encourage brand switching.

6] Decline stage

It’s a period where the sales fall and profits drop.

Characteristics

• Technological advancement.

• Shift in consumer tastes and preferences.

• Increased competition.

• Declining sales.

• Declining profits.

• Declining number of competitors.

• Low cost per customer.

• Many substitute products.

What to be done at growth stage to save the product

• Build intensive distribution.

• Build awareness and interest in the mass market.

• Offer product extension, service warranty etc

• Reduce price to take advantage of heavy consumer demand.

Why products don’t succeed in the market

• No consumer market research.

• Poor quality of the product.

• High prices of the product.

• The culture.
TOPIC THREE

PRODUCTION PLANNING AND CONTROL

What to cover;

• Meaning of production planning and control.

• Factors to be considered when planning for materials to be used in production.

• Production planning techniques.

• Interface between production planning and control.

Production planning

It’s the planning of production and manufacturing schedules in a company or industry. It utilizes
the resource allocation of activities like employees, material and production capacity in order to
serve different customers.

Production control

The task of predicting, planning and scheduling work, taking into account manpower, materials
availability and other capacity restrictions and cost so as to achieve proper quality and quantity
at the time it is needed and then following up the schedule to see that the plan is carried out
effectively.

This is the activity of monitoring and controlling any particular production or operation.

It involves the coordination and integration of the factors of production for optimum efficiently.

It’s done after production planning. It implements the production plan.

Production planning techniques

1]. Capacity planning

It’s the process of determining the production capacity needed by an organization to meet
changing demands for its product.

Capacity planning is essential to be determining optimum utilization of resources and plays an

important role in decision making process. eg

• existing operations

• modifications to product lines

 • starting new products etc

Effective capacity is the maximum of work that an organization is capable of completing in a

given period due to constraints such as quality problems, delays, materials handling etc.

2. Enterprise Resource Planning (ERP)

Is a business process management software that allows an organization to use a system of

integrated applications to manage the business and automate many back office function related
to technology, services and human resource.

ERP software integrates all faces of an operation (including product planning, development,
manufacturing, sales and marketing in a single database, application and user interface.

Benefits of implementing ERP

Efficiency

An ERP system eliminates processes and greatly reduces the need to manually enter
information. The system will also streamline business processes and makes it easier and more
efficient for companies to collect data.

Integrated information

Instead of having data distributed throughout a number of separate database all information is
now located in a single location. Data is also kept consistent and up to date.

Reporting

ERP helps make reporting easier and more customized with improved reporting capabilities,
your company can respond to complex data request more easily.

Customer service

It’s easier to provide high quality customer service using an ERP system. Sales and customer
service people can interact with customers better and improve relationships with them,
through faster, more accurate access to customers’ information and history.

Security

A new system will improve the accuracy, consistency and security of data. Restrictions to data
can also be enhanced.

• Improve productivity.
 • Decrease costs.

• Streamline processes.

• Makes it easier in order tracking.

Just in time [JIT]

JIT is an inventory strategy companies employ to increase efficiency and decrease waste by
receiving goods only as they are needed in the production process, thereby reducing inventory
costs.

This production strategy aims to reduce in-process inventory and carrying costs in a
manufacturing system. This method requires purchasers to forecast demand accurately.

JIT focuses on continuous improvement and can improve manufacturing organizations’ returns
on investments, quality and efficiency.

To achieve continuous improvement, key areas of focus are;

• Flow

• Employee involvement

• Quality

Benefits of JIT

• Reduced set up time. Cutting set up time allows the company to reduce or eliminate
inventory for changeover time.

• The flow of goods from warehouse to shelves improves.

• Employees with multiple skills are used more efficiently. Having employees trained to
work on different parts of the process allows companies to move workers where they
are needed.

• Production scheduling and working hour consistency are synchronized with demand [if
there is no demand for a product at the time it’s not made].

• Increased emphasis on supplier relationships;- a company without inventory does not

want a supply shortage; this makes supplier relationships extremely important.

• Supplier comes in at regular intervals throughout production period.

• Minimizes storage space needed.

 • Smaller chances of inventory breaking/ expiring.

• Reduces costs by eliminating warehouse storage.

Materials requirement planning [MRp 1] and manufacturing resource

planning [M RPII]

Mrp - i

It’s a production planning scheduling, and inventory control system used to manage
manufacturing process. MRP system is intended to simultaneously meet three objectives;

• Ensure materials are available for production and products are available for delivery to
customers.

• Maintain the lowest possible materials and product levels in store.

• Plan manufacturing activities, delivery schedules and purchasing activities.

MRP systems uses four pieces of information to determine what material should be ordered
and when.

Master production schedule [MPS]- it describes when each product is scheduled to be

manufactured.

Bill of materials [BOM] – it lists exactly parts or materials required to make each product.

Production cycle; - times and material needs at each stage of the production cycle.

Supplier lead time- how long will it take for the suppliers to deliver the ordered materials.

MPS includes quantities of products to be produced at a given time period.

BOM gives information about the product structure ie parts and raw materials units necessary
to manufacture one unit of the product of interest.

Manufacturing resource planning [mrpii]

It’s also referred to as management resource planning.

It’s a method for effective planning of all resources of a manufacturing company. Ideally, it
addresses operational planning in units, financial planning etc.

MRPII is not a proprietary software system and can thus take money forms. Almost every MRPII
system is modular in construction characteristics basic modules in an MRPII system are;

• Master production schedule [MPS]

• Item master data [ technical data]

• Bill of materials [BOM]

• Production resource data [manufacturing technical data]

• Inventories and orders

• Purchasing management.

The MRP II system integrates these modules together so that they use common data freely
exchange information, in a model of how a manufacturing enterprise should and can operate.

Benefits of MRP II

• Better control of inventories.

• Improved scheduling.

• Productive relationship with suppliers.

• Improved design control.

• Better quality and quantity control.

• Reduced working capital for inventory.

• Improved cash flow through quicker deliveries.

• Accurate inventory records.

NOTE;

• MRP 1 is concerned primarily with manufacturing materials while MRP II is concerned

with the coordination of the entire manufacturing production including materials,
finance and human relations.
 • The goal of MRP II is to provide consistent data to all members in the manufacturing
process as the product moves through the production line.

• MRP II begins with MPR I. MPR allows for the input of sales forecasts from sales and
marketing. This forecast determines the raw materials demand.

Network analysis/ critical path analysis [CPA]/ program evaluation and review techniques
[PERT]

It’s the mathematical analysis of complex working procedure in terms of a network of related
activities.

Standardization

Loading, sequencing and scheduling

Gantt chart

Factors to consider when planning for materials to be used in production

• The type of production operation to employ;

• Production to stock

• Production to order

• Production technology available

• The production capacity

• Production facilities available

• Organization orientation

• Whether product or consumer oriented

• The availability of funds

• The volume of the product the nature of the product

Topic four

Production systems

What to cover;
 • Types of production systems

• Factors that influence the choice of production systems

From one engineering point of view, there are three methods of production namely;

• Jobbing [job shop] production

• Batch production

• Mass production

Jobbing production system

This type of production deals with a wide range of products made in fatly small quantities. The
same type and size of a product is made once and never again or is repeated over at indefinite
period of time.

Features/ characteristics of jobbing production

• A variety of operations are carried out at each work station.

• Products made for special order; - products are made [consumer built products] eg
aircraft construction

• General purpose tools and machines/ equipment are made.

• Low capital investments in machines, equipment and tools

• Requires highly multi-skilled workforce

• Production runs are short.

• Products are produced in small quantities.

• Small support staff compared with workforce is required.

• Product change over are relatively easier and less costly.

• It requires frequent intervention and close relationships between the workforce,

management and customers.

• Process layout is set out in a way that sets of similar purpose machines, tools and
equipment are grouped together
Batch/ intermittent production system

Batch production is production of standardization units or parts of materials in small or large

lots [batches]. It represents a half away position between jobbing production and mass
production.

This production method is commonly used in light engineering industries. It deals with wide
varieties of products produced in relatively large quantities.

After a batch of one design [type &size] has been produced the plant facilities are adjusted and
used to produce a batch of products of a different design.

The main distinction or difference between batch and jobbing production systems lies in the
standardized nature of the batch.

Batches of products may be produced to order [as per a particular customer order] and
forwarded direct to the consumer.

Examples of products produced by this method of production include;

• Machines

• Tools

• Stationery

• Chemicals etc

Features/ characteristics of batch production system

• Both specified products [customized products] and standardized products are produced.

• Highly skilled workforce is required.

• Production lines are relatively shorter.

• Small support staff is required.

• Multi-skilled but fewer personnel is required.

• A variety of routing of product through the process is used.

• Process layout is set up with sets of similar purpose machines, equipment and tools
grouped together.

• Both special and general purpose machines, equipment and tools are used.
 • Production changeovers are quicker without resulting into plant closure/ shutdown.

Mass/ repetitive flow production system

Mass production deals with the product of standardized nature and of limited varieties in large
quantities.

Mass production is the most efficient method of producing large quantities of standardized
nature. This method requires careful and lengthy planning of plant and processing.

It requires high capital investment on the account of specialized nature of machines required
for production line. Mass production largely depends on high demand created by customer
markets.

Some of the products produced by this method of production include;

• Consumer durable products

• Products for industrial use eg

• Auto mobile tractors

• Electric motors

• Bicycle

• Bolts

• Nuts etc

Features/ characteristics of mass production system

• Extensive used of special purpose machines, tools and equipment.

• Permanent set up of machines, tools and equipment.

• A mixture of skilled, semi skilled and unskilled workforce is used.

• Standardized products are produced whether made to order or to stock.

• Large workforce is required especially support staff.

• Require high capital investment

• Production runs are relatively large

 • Flow of information is formal

• Production change over is time consuming and requires plant closure.

Factors that influence the choice of production system

1]. Type of production

Most of the organizations that undertake production activities normally do so for two purposes
namely;

• Production for [to] stock

The finished products under this category are normally stocked and the customers are served
from un-established inventory.

Here, a forecast of future customer demand is required and the products are produced keeping
the forecast in constant review.

Products produced are usually standardized and have a continued demand. In such case, the
mass production system would be more appropriate.

• Production for customer order [production to order]

Here, production starts only after a confirmed order has been received from a particular
customer.

However, it’s always advisable for the manufacturers to stock a certain amount of raw
materials or to keep some common parts of materials in finished or semi-finished state.

2]. Volume of product

The producer should consider the volume of product to be [Link] how much products
should be produced within a given period of time.

Large volume of products produced over a long period of time would require mass production
system.

3]. Nature of the product

A product to be produced may be either consumable or non-consumable. Most consumable

products require mass production while non-consumable requires jobbing or batch production.
Also large production may be produced over a long period of time per unit, requiring a variety
of materials and skills as such as time projects would require the jobbing method of production
eg

• Ship building

• Air craft building

• Machinery

4]. Production facilities available

This includes equipment and machines including buildings in which they are housed in.

5]. Production technology.

6]. Availability of skilled labor or manpower.

7]. Production capacity

This refers to the amount of output which a facility is able to produce within a given period of
time.

8]. Organization orientation

Whether product or customer oriented

9]. Availability of funds.

Funds must be adequate to finance a given production system especially in capital investment.
[Acquisition of production machinery and equipment together with the relevant technology]

Topic six

Plant layout and location in operation management

What to cover;
 • Factors that determine the location of operating units

• Location analysis tools

• Types of factory/ plant layout

The arrangement of machines, work areas and services areas within a factory

Plant layout involves the development of physical relationship among buildings, equipment and
production operations which will enable the manufacturing process to be carried on efficiently.

Objectives of plant layout

• To achieve economies in holding of raw materials, work-in-progress and finished goods.

• To have most effective and optimum utilization of available floor space

• To introduce system of production control

• To provide better quality products at lesser costs to the consumers

• To minimize the possibility of accidents

• To provide for adequate storage and packing facilities

• To work out possibilities of future expansions of the plant

• To provide such a layout that permits meeting of competitive costs

• To ensure loyalty of workers and improve their morale

• To ensure means of safety and provision of amenities to the workers

Principles of plant layout

• Principle of integration

• Principle of minimum distance

• Principle of space utilization

• Principle of floor

• Principle of maximum flexibility

• Principle of safety, security and satisfaction

• Principle of material handling

 • Classification of plant layout

It can be classified into 5;

• Process layout

• Product layout

• Combined layout

• Fixed position layout

• Group layout

Product/ line layout

The arrangement of machines in a line [not always straight] or a sequence in which they would
be used in the process of manufacturing the product

More appropriate in case of continuous type of industries where raw materials are fed at one
end and taken as finished products at the other end

Situations that call for the use of this type;

• Large quantity of standardized products are produced

• The standardized products are to be processed repetitively or continuously in the given

production facilities

• There must be sufficient volume of goods processed to keep the production line actively
occupied

• There should be greater interchangeability of parts

• To maintain good equipment balance

Advantages of line layout system

1]. lesser manufacturing time

Under this method, backward and forward handling of materials is not involved. It leads to a
considerable saving in manufacturing time.
2]. Economies in material handling

There are direct channels for the flow of materials requiring lesser time which considerably
eliminate back tracking of materials [the cost of material handling is considerably reduced]

3]. Removal of obstacles in production

Product layout ensures unrestricted and continuous production thereby minimizing bottlenecks
in the production process; this is because work stoppages are less under this method.

4]. lesser work in progress [W-I-P]

On account of continuous uninterrupted production, there is lesser accumulation of work in

progress [W.I.P] or semi-finished goods.

5]. Economy in inspection

Inspection can be easily and conveniently undertaken under this method and any defects in
production operation can be easily located in production operations.

6]. Proper use of floor space

Under this method, facilitates for proper and optimum use of available floor space. This is due
to no-accumulation of work-in-progress and overstocking of raw materials.

7]. Introduction of effective production control

Effective production control on account of simple operations of this method can be employed
successfully [production control refers to the adoption of measures to achieve production
planning]

8]. lesser labor cost

Due to specialization and simplification of operations and use of automatic simple machines,
employment of unskilled and semi-skilled workforces can carry on the work. The workers are
required to carry routine tasks under this method thus leading to lesser labor costs.

Disadvantages of line layout

• Large investment is involved

• Lesser flexibility

• Higher overhead charges

 • Interruption due to breakdown [ie if one machine break down, others cannot operate
and work will be stopped]

• Difficulty in expanding production [ production cannot be expanded beyond certain

limits under this method]

• Lack of specialization in supervision

• Under utilization of machines

Function/ process layout

It’s recommended for batch production all machines performing similar tasks are grouped in
one location

Its normally used when production roll is not sufficient to justify product layout usually the path
are long and there will be possibility of back tracking.

Advantages of process layout

1]. Maximum utilization of machines

This method ensures full and effective utilization of machines and consequently investments in
equipment and machines becomes economical.

2]. Greater flexibility

Changes in the sequence without much difficulty because machines are arranged in different
departments in accordance with nature of functions performed by them.

3]. Specialization

Specialized machines are used for performing different production operations thus leading to
specialization.

4]. Scope of expansion

Production can be increased by installing additional machines without much difficulty.

5]. Effective utilization of work

Specialized workers are appointed to carry out different type of work in different departments.
This leads to effective and efficient use of their talents and capabilities.

6]. Effective supervision

Disadvantages of process layout

• Coverage of more floor space

• Higher cost of material handling

• Higher labor cost

• Longer production time

• Increased inspection costs

Layout by stationary materials

This type of layout is undertaken for manufacture of large parts and assemblies. Materials
remain fixed/ stationed at one place. Men and equipment are taken to the site of materials.

This is suitable in case of ship building, locomotives and heavy machinery industries

Advantages

1]. Economies in transformation [transformation costs]

As the work is carried out at one place and materials are not taken from one place to the other.

2]. Different jobs with same layout

Different projects can be undertaken with the help of same layout.

3]. Production in accordance with specialization

The jobs can be performed in accordance with the specifications given by the consumers.

4]. Scope of flexibility

It provides maximum flexibility for various changes in production process and design of the
project.

Disadvantages

1]. Immobility of materials

As materials are fixed at one place, this leads to certain difficulties in arranging specialized
workers, machines and equipment for the job.
2]. Large investment

This method is time consuming and costly as compared to other methods.

3]. Unsuitable for small products

Plant location

This is one of the strategic levels of decision making for an organization. One of the key features
of conversion process is the efficiency with which the product or service are transferred to the
customer.

Before allocation for a plant is selected long range factors should be made anticipating future
needs of the company.

Need for selecting a suitable location arises from three situations;

• When a new organization wants to establish for the first time.

• In case of an existing organization

• In case of global location

In case of a new organization

At this stage cost economists are very essential in choosing a location for the first time. As they
need to consist the cost of long term organization or business objective.

The following are factors to consider;

• Identification of a region

• Choice of site within a region

• Dimensional analysis

In case of existing organization

In manufacturing plant which is producing multiple products, they are to consider the following;

• Plant manufacturing distinct products

• Manufacturing plant supplying to specific market areas

 • Plant divided on the basis of process or stage in manufacturing

In case of global location

Reason for global or foreign location

• Tangible reason

• Reach customers

Factors considered

• Host nation may offer substantial tax advantage compared to home country

• The cost of manufacturing and running operation may be substantially less in foreign
country

• Company may overcome the tariff barriers by setting up manufacturing plants in a

foreign country

Factors influencing plant location / facility location

Facility location is the process of determining geographical site for a firms operation. One must
consider tangible or non- tangible factors. These factors can be divided into two;

General location factors which include;

Controllable and uncontrollable for all types of organization

Controllable factors include;

• Supply of materials

• Transportation facilities

• Infrastructure availability

• Labor and wages

• External economies

• Capital

Uncontrollable factors

• Government policies
 • Climatic conditions

• Community and labor attributes

• Community infrastructure

Location factors

In most organization, the location factors are calculated using various techniques. They include;

• Factor rating method

• Weighted factor method

• Lord distance method

• Centre of gravity

A]. factor rating method

Under this method, find the sum time calculated for each factor rating and select the best
location having the highest score.

Location factors Factor rating Location X Location y

Facility utilization 8 3 5
Total patients per 5 4 3
month
Average time per 6 4 5
emergency
Plant and 3 1 2
construction cost
Employee 5 5 3
performance

Assume that a new medical facility [healthcare] is to be located in Kakamega. The location
factors and scores for two potential sites are shown above; find the best location basing on
factor rating method

Solution

LOCATION X Y
24 40
20 15
24 30
 3 6
25 15
96 106

The best location is Y

B]. weighted factor method

In this method, there is much use of qualitative and quantitative factors. Factors are assigned
weight basing on relative importance and weighted score for each site using preference matrix
to calculate.

The site with the highest weighted score is then selected as the best choice eg using the above
example the location factors, weights and score [1=poor, 5=excellent] for two potential sites,
what is the weighted score for each of the sites.

Location factors weight Location X Location Y

1 25 3 5
2 25 4 3
3 25 4 5
4 15 1 2
5 10 5 3

Solution

Weight x probability

Location Y = [25x3] + [25x4] + [25x4] + [15x1] + [10x5]

= 75+100+100+15+50

=340

Location X = [25x5] + [25x5] + [25x5] + [15x2] + [10x3]

= 125 + 75+125+30+30

= 385

C]. lord distance method

It’s a mathematical model used to evaluate location based on proximity factors. The objective is
to select a location that minimizes the total weighted moving into and out of facility.
The distance between two points is expressed by assigning the points to a gradient cord on the
map.

Example; a lord is expected to move between 2 points. Point A has the following coordinates
[10, 15] and location B has the following coordinates 30, 10]. Find the most suitable location.

D]. centre of gravity

It’s primarily based on cost considerations. The method can be used to assist managers in
balancing costs and service objectives. This method takes into consideration the location the
location of the plant and market, volume of goods moved and transportation costs in arriving at
the best location.

To do this we apply the following formula to calculate the gradient for Y and X.

TOPIC SEVEN

TECHNOLOGIES IN OPERATION MANGEMENT

What to cover;

• Concept of benchmarking
 • Flexible manufacturing system [FMS]

• Computer aided design [CAD]

• Computer integrated manufacturing system [CIMS]

• Lean performance

Benchmarking

The practice of a business comparing key components of their operations with other
organizations in the same line

It’s used to measure performance using a specific indicator like;

• Cost per unit of measure [production cost]

• Productivity

• Time taken to produce a particular product

• Defects in an organization

This then allows an organization to develop plans on how to make improvements or adopt
specific best practices with an aim of increasing some aspects of performance.

It can be a continuous process where organizations continually seek to improve their practices

Stages of benchmarking

• Select subject

• Define process

• Identify potential partners

• Identify data sources; - which methods to employ when collecting data [questionnaires,
observation etc]

• Collect data

• Determine the gap

• Establish process difference

• Target future performance

 • Communicate

• Adjust goals

• Implement

• Review

Types of benchmarking

Process benchmarking

The initiating firm focuses its observation and investigation of business with a goal of identifying
and observing the best practices from one or more benchmark firms

Performance benchmarking

Allows the initiator firm to assess their competitive position by comparing products and services
with those of target firms

Strategic benchmarking

Involves observing how other competes. This type is not industry specific, meaning its best to
look at other industries.

Flexible manufacturing system [fms]

A manufacturing system in which there is some amount of flexibility that allows the system to
react in case of changes, whether predicted or unpredicted.

Flexibility; - the ability to deal with slightly or greatly mixed parts, to allow variations on parts
assembly and variations in process sequence or change the production volume and change the
design of certain product being manufactured.

FMS falls in two categories;

• Machine flexibility

Covers the system’s ability to be changed to produce a new product type, and ability to change
the order of operations executed on a part

• Routing flexibility

Consist the ability to use multiple machines to perform the operation on a part, as large scale
changes eg volume, capability etc
Advantages of FMS

• Reduced manufacturing costs

• Lower cost per unit produced

• Greater labor productivity

• Greater machine efficiency

• Improved quality

• Increased system reliability

• Reduced parts inventories

• Shorter lead time

Disadvantages of FMS

• Costly to implement [installation cost is high]

• Substantial pre planning

• Requirement of skilled labor

• Complicated systems

Computer integrated manufacturing [CIM]

It refers to the use of computer controlled machineries and automation systems in

manufacturing products.

CIM combines various technologies like computer aided design [CAD] and computer aided
manufacturing [CAM] to provide an error free manufacturing process that reduces manual
labor and automates repetitive tasks.

The CIM approach increases the speed of the manufacturing process and use of real time
sensors and closed up loop control processes to automate the manufacturing process.

It’s widely used in the automotive, aviation, space and shipping industries.

Benefits of CIM

• It allows processes to exchange information with each other and initiate actions
 • Through the integration of computers, manufacturing can be faster and lesser error
prone

• More flexible

• There is increased manufacturing efficiency

• Greater machine utilization

• Lesser labor

• Greater consistency

• Less lead time

• Improvement in productivity

• Fewer errors and waste

• Monitoring of systems at all time

• Suitable for mass production

Disadvantages of CIM

• High initial investment and personnel

• Training cost is high

• Job losses

• Lack of individuality

• Not suitable to non-complex products

Computer aided design and drafting [cadd]/

Computer aided design [cad]

It’s the use of computer technology for design and design documentation. CAD software
replaces manual drafting with an automated process.

CAD facilitates the manufacturing process by transferring detailed diagrams of product

materials, processes, tolerance and dimensions with specific conventions for the product in
question.

Advantages of CAD
 • Increase in the productivity of the designer

• Improve the quality of the design

• There is better communication

• Creating documentation of the designing

• Saving of design data and drawings

Lean programming

A methodology focusing on optimizing efficiency and minimizing the waste of software

applications during the design and creation

This methodology may be applied throughout the organization and involves all stakeholders in
a software applications development and delivery

The main goal of lean programming is continuous product improvement at all operational levels
and steps