line balancing

Measuring Process Performance

1. Importance of Metrics

 Metrics help track process performance and productivity over time.

 Before using a metric from a company or industry, understand how it is
calculated because methods vary widely.
 Benchmarking involves comparing metrics between companies to track
progress.

2. Key Metrics Defined

 Utilization: The percentage of time a resource (e.g., machine or labor) is actually

used compared to its availability.
 Productivity: The ratio of output to input.
 o Total Factor Productivity: Measured in monetary terms (e.g., total
output value ÷ total input cost).
o Partial Factor Productivity: Focuses on one input (e.g., output per
employee).

o Efficiency: How actual output compares to a standard.

 Example: If a machine designed to make 30 units/min produces 36

units/min, efficiency =

3. Time-Related Metrics

o Run Time: Time needed to produce a batch (unit time × batch size).
o Setup Time: Time to prepare a machine for a specific task.
o Operation Time: Setup time + run time for a batch.
 Example: Producing 10,000 boxes with a 30-min setup and 2 seconds/box =
363.33 minutes.
o Cycle Time: Time between starting and finishing a job.
o Flow Time: Total time a unit spends in a process, including work and waiting times.

4. Throughput and Buffers

o Throughput Rate: Output rate a process can produce over time.

 Example: If cycle time = 30 seconds, throughput =


o Buffers: Extra positions in a process to reduce delays caused by variability.

 Adding buffers increases flow time but reduces dependency between steps.

5. Process Velocity (Throughput Ratio)

o Ratio of value-added time (actual work) to flow time.

o Example: For a flow time of 8 minutes (with buffers) and value-added time of 3

minutes, process velocity

 Little’s law
EXAMPLE 11.1 An automobile company assembles cars in a plant and purchases batteries from a
vendor in China. The average cost of each battery is $45. The automobile company takes ownership
of the batteries when they arrive at the plant. It takes exactly 12 hours to make a car in the plant and
the plant assembles 200 cars per 8-hour shift (currently the plant operates one shift per day). Each
car uses one battery. The company holds, on average, 8,000 batteries in raw mate rial inventory at
the plant as a buffer.

Assignment: Find the total number of batteries in the plant, on average (in work-in-process at the
plant and in raw material inventory). How much are these batteries worth? How many days of
supply are held in raw material inventory, on average?

Problem Breakdown and Solution

Given Data:

1. Cost per battery = $45

2. Time to make a car = 12 hours
3. Production rate = 200 cars per 8-hour shift (1 shift/day)
4. Raw material inventory = 8,000 batteries (average)
5. Each car uses one battery

1. Batteries in Work-In-Process (WIP):

Throughput is the production rate of the plant: 200 cars per 8-hour shift, or 25 cars per hour.
Since we use one battery per car, our throughput rate for the batteries is 25 per hour. Flow
time is 12 hours, so the work-in-process is
Work-in-process inventory = 25 batteries/hour × 12 hours = 300 batteries

2. Total Batteries in the Plant:

We know from the problem that there are 8,000 batteries in raw material inventory, so the total
number of batteries in the pipeline, on average, is:

Total inventory = 8,000 + 300 = 8,300 batteries

3. Calculate batteries worth:

8,300 × $45 = $373,500.

4. Days of supply of raw material in inventory

The days of supply in raw material inventory is the “flow time” for a battery in raw mate rial
inventory (or the average amount of time a battery spends in raw material inventory). Here, we
need to assume they are used in the same order they arrive. Rearranging our Little’s law
formula:
Flow time = Inventory/Throughput
=8,000 batteries/(200 batteries/day) = 40 days,
which represents a 40-day supply of inventory.
 EXAMPLE 11.2:
Bread Making For the manager of a bakery, a first priority is to understand the products made and
the pro cess steps required. Exhibit 11.5A is a simplified diagram of the bread-making process. Two
steps are required to prepare the bread. The first is preparing the dough and baking the loaves, here
referred to as bread making. The second is packaging the loaves. Due to the size of the mixers in the
bakery, bread is made in batches of 100 loaves. Bread making completes a batch of 100 loaves every
hour, which is the cycle time for the activity. Packaging needs only 0.75 hour to place the 100 loaves
in bags. We can assume that packaging starts up an hour after bread making, otherwise it would be
idle for a full hour before getting any work at the start of the day. From this, we see that bread
making is the bottleneck in the process. A bottleneck is the activity in a process that limits the overall
capacity of the process. So if we assume that the bread making and packaging activities both operate
the same amount of time each day, then the bakery has a capacity of 100 loaves per hour. Notice
that over the course of the day the packaging operation will be idle for quarter-hour periods in
which the next batch of bread is still being made, but packaging has already completed bagging the
previous batch. One would expect that the packaging operation would be utilized only 75 percent of
the time under this scenario. Suppose that instead of having only one bread making operation we
now have two, as shown in Exhibit 11.5B. The cycle time for each individual bread-making operation
is still one hour per 100 loaves. The cycle time for the two bread-making lines operating together is
half an hour. Because the packaging operation takes 0.75 hour to bag 100 loaves, the packag ing
operation now is the bottleneck. If both bread making and packaging were operated the same
number of hours each day, it would be necessary to limit how much bread was made because we do
not have the capacity to package it. However, if we operated the packaging operation for three
eight-hour shifts and bread making for two shifts each day, then the daily capacity of each would be
identical at 3,200 loaves a day (this assumes that the packaging operation starts up one hour after
the bread-making operation). Doing this requires building up inventory each day as work-in-process.
Packaging would bag this during the third shift. So what is the flow time of our bakery?

SOLUTIO

Step 1: Understanding the Original Process

 Bread making produces 100 loaves per hour.

 Packaging takes 0.75 hours per 100 loaves.
 Bread making is the bottleneck since it determines the process capacity.
 Flow time = Bread making time + Packaging time = 1 + 0.75 = 1.75 hours.

Step 2: Adding a Second Bread-Making Operation

 Now, two bread-making lines operate simultaneously.

 Each still takes 1 hour per 100 loaves, but together they produce 200 loaves per hour.
 Since packaging still takes 0.75 hours per 100 loaves, it becomes the new bottleneck.

Step 3: Managing Packaging Bottleneck

 To match capacity, packaging must run 3 shifts (24 hours) while bread making runs 2
shifts (16 hours).
 Bread making produces 1,600 loaves per shift (total 3,200 loaves per day).
 Packaging operates for an extra shift to clear the backlog.
 Step 4: Applying Little’s Law to Find Average Inventory Waiting Time

i. Bread-Making Production in 16 Hours

 Each bread-making line produces 100 loaves per hour.
 With two lines running, total production = 200 loaves per hour.
 Over 16 hours (2 shifts), total bread produced

ii. Packaging Process in 16 Hours

 Packaging processes 100 loaves in 0.75 hours.
 Packaging throughput rate:

In 15 hours, total loaves packaged:

133 x 15 = 2000

iii. Work-in-Process Inventory Calculation

 Total loaves produced (bread making) in 16 hours = 3,200 loaves.
 Total loaves packaged in 15 hours = 2,000 loaves.
 Inventory buildup = Bread produced - Bread packaged:
3200 – 200 = 1200

The average inventory level is calculated based on the fact that the inventory builds up gradually
over time and then depletes in a similar manner. Here’s how they arrived at 600 loaves as the
average inventory level:

The average inventory level is 600 loaves (half the maximum).

 The throughput rate is 133.3 loaves/hour (100 loaves per 0.75 hours).
 Using Little’s Law:

Step 5: Calculating the Total Flow Time

Total flow time includes:

1. Bread making → 1 hour

2. Waiting in inventory → 4.5 hours
3. Packaging → 0.75 hours

Total Flow Time=1+4.5+0.75=6.25 hours.

Little’s Law uses average inventory to calculate average waiting time because it assumes that every
item in the system spends an equal amount of time waiting.

Simple Explanation

Imagine a bakery where loaves of bread pile up before packaging. Some loaves arrive early and wait
a long time, while others arrive later and wait less. Instead of tracking each loaf’s exact wait time,
Little’s Law takes the average inventory and divides it by the average production rate to estimate the
average waiting time for a loaf.

EOQ

The Optimal Order Quantity (Qopt) refers to the order size that minimizes total annual inventory
cost, which consists of:

The Economic Order Quantity (EOQ) Model is used to determine this optimal order quantity

 At Qopt , the ordering cost and holding cost are equal, ensuring minimum total cost.
 If you order more than Qopt→ holding costs increase.
 If you order less than Qopt → ordering costs increase.
 Concept of ABC Classification:

 ABC classification is a method of categorizing inventory items based on their annual dollar
volume.
 The Pareto principle (80/20 rule) applies: a small number of items contribute to a large
percentage of the total inventory value.
 Helps prioritize inventory management efforts.

Importance of ABC Classification:

 Improves inventory control: Ensures that high-value items receive more attention.
 Optimizes ordering frequency: A items are ordered weekly, B items biweekly, and C items
monthly or bimonthly.
 Enhances cost efficiency: Focuses resources on managing critical items efficiently.
 Reduces stockouts for critical items: Some items may be classified as A or B based on
criticality, even if their dollar volume is low.

Application of ABC Classification:

 Inventory Replenishment: Different ordering cycles based on classification.

 Stockout Management: Ensures essential items are always available.
 Supply Chain Optimization: Helps in better vendor negotiations and stocking policies.
 Warehouse Organization: High-value items are stored for easy access and better security.

Limitations of ABC Classification (Simplified):

1. Unclear Boundaries: The way items are grouped into A, B, or C categories might not always be
exact. Different businesses may define these categories differently based on their needs.
2. Changes Over Time: The demand for items can go up or down, which may cause an item’s
classification to change. For example, a "B" item today might become an "A" item if its demand
increases.
3. Ignores Dependencies: Some items are used together, but ABC classification looks at items
individually. For example, a high-value machine (A item) may not work without a small, low-
value spare part (C item), but the system does not account for such relationships.

ABC Classification in Inventory Management

Classifica Priority Percentage Contribution to Control Example

tion of Items Dollar Volume Measures
A Items (High Value) 15–20% 70–80% Strict control, Gasoline in an
frequent reviews, automobile service
accurate demand station
forecasting
B Items (Moderate 30–35% 15–25% Moderate control, Tires, batteries,
Value) periodic lubricants
monitoring
C Items (Low Value) 50% 5–10% Minimal control, Valve stems, wiper
 less frequent blades, radiator
ordering caps, car wax

Material requirements planning

Measuring Process Performance – Pg.273 to 275

Consider the following four step manufacturing process with 3 buffers in between viz. B1, B2 and B3.

Each step takes 30 sec to process one unit of the product being manufactured. The process has
reached a steady state of operation i.e. all the buffers are full and receiving and supplying the
product as required. ( Hence set up time is not to be considered)

Consider first shift of 8 hours.

Cosider two cases:

a) Take each buffer capacity = one unit

b) Take each buffer capacity = 3 units

1 B1 2 B2 3 B3 4

Calculate for each cases:

1) Cycle time
2) Flow time

3) Throught put rate

4) Process Velocity ( or Through put ratio)

5) Utilization, If the process stopped after running for 6 hours.

6) Efficiency, if 600 units were found to be produced in these 6 hours of run.

7) Productivity, if the raw material consumed in these 6 hours should have given 610 units.
Production planning
Operations and Supply Chain Management (OSCM):
The process of designing, operating, and improving systems that create and deliver a firm's primary
products and services.

Operations and supply chain processes can be conveniently categorized, particularly from the view
of a producer of consumer products and services, as planning, sourcing, making, delivering, and
returning.

Companies occupy various positions in the supply chain, and their roles determine their processes.
These roles typically include:

1. Planning: Forecasting demand, managing inventory, and scheduling production.

2. Sourcing: Procuring raw materials or components.

3. Making: Manufacturing or assembling products.

4. Delivering: Transporting products to customers.

5. Returning: Managing product returns, repairs, or recycling.

The things produced by a service are intangible. Service processes tend to be highly variable and
time dependent compared to goods-producing processes.

Example:

 Intangibility: A bank provides financial advice, which cannot be physically touched, unlike a
product like a smartphone.

 Variability: The quality of a haircut depends on the skills of the hairstylist and the customer’s
preferences, leading to variation in the service.

 Time Dependence: A restaurant meal must be prepared and served promptly to ensure
customer satisfaction, while a packaged food product can be stored and consumed later.

Product service bundling refers to a company building service activities into its product offerings for
its customers. Such services include maintenance, spare part provisioning, training, and, in some
cases, total systems design and R&D. A well-known pioneer in this area is IBM, which treats its
business as a service business and views physical goods as a small part of the “business solutions” it
provides its customers.

Contrast the marketing and finance jobs to OSCM jobs. The operations and supply chain manager is
out working with people to figure out the best way to deliver the goods and ser vices of the firm.
Sure, they work with the marketing folks, but rather than being on the selling side, they are on the
buying side: trying to select the best materials and hiring the greatest talent. They will use the data
generated by the finance people and analyze processes to figure out how to deliver that good or
service.
The manufacturing strategy paradigm focused on how manufacturing leaders could use their
factories' strengths as competitive advantages. A key idea was the need to balance trade-offs
between performance measures like low cost, high quality, and high flexibility.

Just-in-time (JIT) An integrated set of activities designed to achieve high-volume production using
minimal inventories of parts that arrive exactly when they are needed.

Total quality control (TQC) Aggressively seeks to eliminate causes of production defects.

Lean manufacturing To achieve high customer service with minimum levels of inventory investment.

Toyota pioneered lean manufacturing by adopting the Just-In-Time (JIT) system, where components
are produced or ordered only when needed. This minimizes excess inventory, reduces costs, and
ensures timely delivery to meet customer demand efficiently.

Total quality management (TQM) Managing the entire organization so it excels in all dimensions of
products and services important to the customer.

Business Process Reengineering (BPR):

A method of improving business processes by making radical, big changes instead of small, gradual
improvements.

Six Sigma:
A quality management approach aiming for near perfection, with a goal of no more than 3.4 defects
per million units. It also represents a philosophy and program for continuous improvement.

Mass Customization:
The capability to produce tailored products that meet each customer's specific requirements while
maintaining the efficiency of mass production.

Sustainability:
The practice of using resources in a way that meets current needs while ensuring future generations
can also meet theirs.

Triple Bottom Line:

A business strategy that measures success based on three key criteria: social responsibility,
economic performance, and environmental sustainability.
Business analytics The use of current business data to solve business problems using mathematical
analysis.

Efficiency A ratio of the actual output of a process relative to some standard. Also, being “efficient”
means doing something at the lowest possible cost

Effectiveness Doing the things that will create the most value for the customer.

Value The attractiveness of a product relative to its price.

Benchmarking is a process in which one company studies the processes of another company (or
industry) to identify best practices.

Operations Effectiveness:
Executing activities in a way that aligns with strategic priorities while keeping costs as low as
possible.

Current Issues in Operations and Supply Chain Management:

1. Coordinating Relationships Between Organizations:

Working effectively with different organizations that support each other but are separate
entities.

2. Optimizing Global Networks:

Improving the management of suppliers, production, and distribution across different
countries.

3. Managing Customer Interactions:

Ensuring smooth and efficient communication and service between the company and
customers.

4. Raising Management Awareness:

Helping senior leaders understand that operations and supply chain management (OSCM)
can be a major source of competitive advantage.
Competing Based on Cost:
It can be challenging to compete on cost unless a company has a unique advantage over its
competitors. For example, having access to cheaper raw materials or lower labor costs can provide
the competitive edge needed to keep costs down.

Same-day delivery of items ordered from the Internet is now an important competitive feature for
some companies. Keep in mind that competitive priorities may change over time

Quality: “Make a Great Product or Deliver a Great Service” There are two characteristics of a
product or service that define quality: design quality and process quality. Design quality relates to
the set of features the product or service contains. This relates directly to the design of the product
or service.

Delivery Speed: “Make the Product or Deliver the Service Quickly” In some markets, a firm’s ability
to deliver more quickly than its competitors is critical.

Delivery Reliability: “Deliver It When Promised” This dimension relates to the firm’s ability to supply
the product or service on or before a promised delivery due date.

Coping with Changes in Demand: “Change Its Volume” In many markets, a company’s ability to
respond to increases and decreases in demand is important to its ability to compete.

Flexibility and New-Product Introduction Speed: “Change It” Flexibility, from a strategic
perspective, refers to the ability of a company to offer a wide variety of products to its customers.

Straddling:
When a company tries to match a competitor by adding new features, services, or technologies to its
existing activities. This can cause problems if the company needs to make trade-offs between
different goals.-kingfishar

Order Winners:
Key marketing factors or features that clearly differentiate a product from its competitors and make
customers choose it.

Order Qualifiers:
The basic criteria or features that a product or service must meet to be considered for purchase, but
do not necessarily differentiate it from competitors.

Activity-System Maps:
Diagrams that illustrate how a company’s strategy is implemented through a series of
interconnected supporting activities.

ntroduction: IKEA’s strategy focuses on providing stylish, low-cost furniture to young customers. The
company has developed a set of activities that work together to deliver this strategy efficiently,
creating a competitive advantage in the market.

Main Body:

 Activity-System Map:
IKEA’s approach to operations involves a self-service model, where customers pick up
furniture from a warehouse and assemble it themselves. This reduces costs by eliminating
the need for salespeople and third-party manufacturers.
 Additionally, IKEA designs its own furniture, which further cuts costs by avoiding the markup
from external manufacturers. The ready-to-assemble model makes transportation cheaper
and allows customers to take products home the same day.

 Competitive Advantage:
These activities are tailored to IKEA's target market—young, budget-conscious customers.
The self-service and low-cost approach aligns with customer needs, while services like home
delivery and assembly add value without significantly raising costs.
The activity-system map demonstrates how all these activities work together, with each
reinforcing the other to support the overall strategy of cost leadership and customer
satisfaction.

Conclusion: In conclusion, IKEA’s strategy is delivered through a well-aligned system of activities,

each designed to reduce costs while meeting customer needs. The company’s competitive
advantage comes from how its activities fit together to deliver its unique value proposition.

Risk Management Framework

 Identify the sources of potential disruptions

 Assess the potential impact of the risk and probability of occurrence.
 Develop plans to mitigate the risk.

Productivity A measure of how well resources are used.

Core competency

The one thing that a firm can do better than its competitors. The goal is to have a core competency
that yields a long-term competitive advantage to the company.

The product development process needs to be adapted depending on market and product
characteristics

Concurrent engineering is a method that focuses on the simultaneous, development of a product

and its related processes. It encourages collaboration across different departments to work
together from the start of the project. This helps to speed up the product development process,
reduce costs, and improve product quality by identifying issues early on.

Quality Function Deployment (QFD) is a process that helps a company identify the features and
qualities that are most important to customers when designing a product. It also helps the
company compare its product with competitors' products to see where it stands.

The House of Quality is a matrix used in Quality Function Deployment (QFD) that helps a product
design team convert customer needs and requirements into specific engineering or operational
goals. It looks like a grid, where one side lists customer requirements (what customers want), and
the other side lists technical requirements (how the company will meet those needs). The matrix
helps the team prioritize features, identify trade-offs, and ensure that the product design aligns with
customer expectations.
Value analysis/value engineering (VA/VE) Analysis with the purpose of simplifying products and
processes by achieving equivalent or better performance at a lower cost

QFD and VA/VE are intended to ensure that what the customer wants is considered in the design of
a product.

Value Analysis/Value Engineering

Another way to consider customers in designing products is by analyzing the “value” they see in the
end product. Because it is so important that value be designed into products, we briefly describe
value analysis and value engineering. The purpose of value analysis/value engineering (VA/VE) is to
simplify products and processes.

The VA/VE analysis approach involves brainstorming such questions as:

 Does the item have any design features that are not necessary?
 Can two or more parts be combined into one?
 How can we cut down the weight? Can any nonstandard parts be eliminated?

Service products and manufactured products have different design criteria due to the nature of
what they offer.

Capacity The output that a system is capable of achieving over a period of time.

Best operating level The level of capacity for which the process was designed and the volume of
output at which average unit cost is minimized.
Capacity utilization rate - Measure of how close the firm’s current output rate is to its best
operating level (percent).

Economies of scale Idea that as the plant gets larger and volume increases, the average cost per unit
drops. At some point, the plant gets too large and cost per unit increases.

Economies of Scope: Producing multiple products together is cheaper than producing them
separately.

Focused Factory:
A facility built to focus on a limited number of production goals. It is designed to be efficient by
concentrating on producing a specific product or a group of related products, rather than trying to
make a wide variety of items.

Plant Within a Plant (PWP):

This refers to a section within a larger facility that is dedicated to a specific production goal, such as a
particular product or product group. It's like a mini-factory inside a bigger factory, focused on a
specific task.

Flexible Plants:

A highly adaptable plant capable of quickly changing its production process to meet new needs.

Flexible Processes:
These processes are designed to be adaptable, allowing for the quick setup of different products.
This can include using flexible manufacturing systems (automated systems that can handle different
tasks) or simple, easily adjustable equipment that can be quickly reconfigured for new products.
Example: A manufacturing system where robots or machines can be quickly reprogrammed to
assemble different products based on demand.

Capacity Cushion: Extra production capacity added beyond what is expected to meet demand.
7th

Lead time The time needed to respond to a customer order

Customer Order Decoupling Point (CODP): The point in the supply chain where inventory is
positioned to separate customer demand from production or supply processes. It determines how
quickly a company can respond to customer orders by leveraging existing inventory.

Make-to-Stock (MTS): A production strategy where products are manufactured in advance and
stored as finished goods inventory. Customers are served immediately from this inventory when
they place an order.

Assemble-to-order A production environment where pre assembled components, subassemblies,

and modules are put together in response to a specific customer order.

Make-to-order A production environment where the product is built directly from raw materials and
components in response to a specific customer order.

Engineer-to-order Here the firm works with the customer to design the product, which is then made
from purchased material, parts, and components.

8th

RETAIL SERVICE LAYOUT

The objective of a retail service layout (as is found in stores, banks, and restaurants) is to maximize
net profit per square foot of store space. A company that has been very success ful leveraging every
inch of its layout space to achieve this objective

Retail Store Layout and Servicescape: A Simple Explanation

The main goal of a retail store's layout is to increase profits by making the best use of floor space. To
do this, stores try to:

 Reduce handling costs (making it easier to stock and manage products).

 Increase product exposure (ensuring customers see as many items as possible).

However, if stores only focus on these factors, they can end up looking like warehouses, making
shopping feel like an industrial task. Some stores, like Walmart and Home Depot, follow this model
because customers accept it in exchange for lower prices.

The Importance of Servicescape

A good layout also needs to consider the human experience—how the store's environment affects
customers and employees. This is called the servicescape, which includes three main elements:

1. Ambient Conditions

These are the background characteristics that influence how people feel in the store, such as:

 Lighting (bright vs. dim)

 Temperature (warm vs. cool)
 Noise level (quiet vs. loud)
 Scent (food smells near a kitchen area)
These factors impact how long customers stay and how much they spend. For example, dim lighting
in a movie theater hallway creates the right mood, while tables near a stage will always be noisy.

2. Spatial Layout and Functionality

This refers to how the store is arranged and how customers move through it. Two key aspects are:

 Customer Circulation Path – Stores plan paths so customers see more products while
shopping. For example, IKEA makes sure you walk past almost everything before
reaching the checkout.
 Merchandise Grouping – Items are grouped based on what customers find useful
together (e.g., a boutique section in a department store).

Other Layout Considerations

 Aisle Design – Stores must decide how many aisles to have and how wide they should
be. Some layouts make it hard for customers to turn around with a shopping cart,
encouraging them to move forward.
 Focal Points – Special displays or signs can grab attention and guide customers in a
certain direction (e.g., Kmart’s blue light specials).
 Angle of Aisles – Angled aisles help customers see more products, while straight aisles
allow for more storage.

3. Signs, Symbols, and Artifacts

These are elements like signs, displays, and decorations that create a brand identity and guide
customers.

Marketing Research Insights for Layout Planning

Studies show that customers tend to behave in certain ways while shopping. Retailers use these
insights to design their stores:

1. People shop around the perimeter – High-profit items are placed along the walls to
increase sales.
2. End-of-aisle displays sell more – Products on sale near aisle ends attract more
customers.
3. Credit & service areas should be in less busy spots – These should be placed in areas
with lower sales potential, like upper floors or unused corners.
4. Entrance areas are prime locations – The space near the entrance and store windows is
most valuable for attracting customers and boosting sales.

Conclusion

A well-designed retail store layout balances efficiency (reducing costs, increasing product exposure)
and customer experience (making shopping pleasant and engaging). This combination helps
businesses increase profits while keeping customers satisfied.

11th Process Design and Analysis

 Process

Process Any set of activities performed by an organization that takes inputs and transforms them
into outputs ideally of greater value to the organization than the original inputs.
 Cycle time
 The cycle time of a repetitive process is the average time between completions of successive
units.
 Eg: Imagine a bakery that bakes and packs cakes. If it takes 10 minutes to bake and pack one
cake, and a new cake is completed every 10 minutes, then the cycle time is 10 minutes per
cake. This means that every 10 minutes, a new cake is ready for sale.

 Utilization
 Utilization is the ratio of the time a resource is actually activated relative to the time it is
available for use
 Eg: A machine in a factory is available for 10 hours per day but is only running for 7 hours
due to maintenance and setup time.70% utilization

 Why Drawing a Picture is the First Step in Process Analysis

When analyzing a process, the first step is to draw a simple diagram of how the process works. This
helps in:

1. Visualizing the Process – A picture makes it easier to see the steps, flow, and
connections.
2. Identifying Bottlenecks – It helps find areas where delays or inefficiencies occur.
3. Simplifying Complexity – Breaking down a process into steps makes it easier to
understand and improve.

 Buffer
 A storage area between stages where the output of a stage is placed prior to being used in a
downstream stage.
 Buffering allows the stages to operate independently. If one stage feeds a second stage with
no inter mediate buffer, then the assumption is that the two stages are directly [Link]
a process is designed this way, the most common problems that can happen are blocking
and starving.

 Blocking
 Blocking occurs when the activities in the stage must stop because there is no place to
deposit the item just completed.
 Eg: A painting station finishes painting a car, but the drying station is full, so the painting
must stop.

 Starving
 Starving occurs when the activities in a stage must stop because there is no work.
 Eg: The assembly line runs out of car frames because the previous welding station is too
slow, so workers in assembly have nothing to do.

 Bottleneck
 A bottleneck is the slowest stage in a process that limits the overall production speed. It
creates delays and reduces efficiency because the next steps cannot move faster than the
bottleneck allows.
  will control the speed of the entire process, making it the bottleneck

 Make-to-order
 A production environment where the product is built directly from raw materials and
components in response to a specific customer order.

 Make-to-stock
 A production environment where the customer is served "on-demand" from finished goods
inventory.

 Hybrid
 Combines the features of both make-to-order and make-to-stock

Pacing

 Pacing means controlling the speed at which items move through a process using a timing
system. This ensures that work happens at a steady and predictable rate.
 Example: In a car assembly line, each worker gets exactly 2 minutes to complete their task
before the car moves to the next station. This timing keeps all workers in sync and prevents
delays.

Productivity

 Productivity A measure of how well resources are used.

 Productivity is the ratio of output to input. Total factor productivity is usually measured in
monetary units—dollars, for example—by taking the dollar value of the output (such as
goods and services sold) and dividing by the cost of all the inputs (that is, material, labor,
and capital investment)

 Efficiency A ratio of the actual output of a process relative to some standard. Also, being
"efficient" means doing something at the lowest possible cost.
 Run time The time required to produce a batch of parts.
 Setup time
 The time required to prepare a machine to make a particular item
 Eg: A factory produces both blue and red T-shirts using the same printing machine.
When switching from blue to red, workers must:
1. Change ink color
2. Clean the machine
3. Adjust settings

If this takes 15 minutes, then the setup time is 15 minutes before production can resume.

 Operation time The sum of the setup time and run time for a batch of parts that are run on a
machine.
 Flow time The average time it takes a unit to move through an entire process.
 Throughput rate The output rate that the process is expected to produce over a period of time.
Key Takeaways:

 Formula 1(1/c.t) works only for ideal, uninterrupted production.

 Formula 2 (TO/TT) (is better for real-world production with delays.
 If there are no stoppages, both formulas give the same value.
 When stoppages occur, Formula 2 gives a more accurate throughput rate.

 Value-added time The time in which useful work is actually being done on the unit.

 Process Velocity (Throughput Ratio) Explained Simply

 Process velocity (also called throughput ratio) measures how efficiently a process
adds value compared to the total time it takes to complete. It is calculated as:

 Example : Hospital Patient Processing ,A patient in an emergency room:

o 30 minutes getting treatment (value-added time)
o 90 minutes waiting for a doctor and test results
o Total Flow Time = 30 + 90 = 120 minutes
o Process Velocity = 30/120 =0.25
 👉 Only 25% of the patient's time is spent receiving actual medical care!

 Total average value of inventory

 The total average value of inventory refers to the average amount of money invested in
three types of inventory:
1. Raw Material Inventory – Unprocessed materials used for production.
2. Work-in-Process (WIP) Inventory – Partially completed products still in production.
3. Finished Goods Inventory – Completed products ready for sale.

 Inventory Turn Explained Simply

  Inventory Turn is a measure of how many times a company sells and replaces its
inventory in a given period (usually a year).

 Days of Supply

 Days of Supply tells us how many days a company’s inventory will last before it runs
out, assuming the current sales/usage rate.

 Little’s law States a mathematical relationship between throughput rate, flow time, and
the amount of work-in process inventory

19th Sales and Operations Planning

Aggregate Operations Plan Explained Simply

 An Aggregate Operations Plan is a plan that helps a company decide how much
labor and production are needed over the next intermediate term (3 to 18 months) to
meet customer demand while keeping costs low.
 Goal: Balance demand and resources (workers, machines, materials) at the lowest
cost.

Sales and operations planning

The process that companies use to keep demand and supply in balance by coordinating
manufacturing, distribution, marketing, and financial plans.

the time dimension is shown as long, intermediate, and short range. Long-range planning
generally is done annually, focusing on a horizon greater than one year. Intermediate-range
planning usually covers a period from 3 to 18 months, with time increments that are weekly,
monthly, or sometimes quarterly. Short-range planning covers a period from one day to six
months, with daily or weekly time increments.

 Production rate refers to the number of units completed per unit of time (such as per
hour or per day).
 Workforce level is the number of workers needed for production
 production = production rate × workforce level.
 Inventory on hand is unused inventory carried over from the previous period.

Example:

o Each worker can assemble 5 phones per hour (Production Rate = 5 phones/hour).
o The factory has 20 workers (Workforce Level = 20).
o Yesterday’s leftover inventory = 100 phones (Inventory on Hand = 100).
o Factory runs 8 hours per day.

 Production Planning Strategies Explained Simply

Companies use different strategies to balance production and demand while managing
costs and employee stability.

1. Chase Strategy (Flexible Workforce)

 o 📌 Adjust workforce based on demand (hire more workers when demand is
high, lay off when low).
o ✅ Example: A car manufacturer hires more workers during peak sales months
and lays them off when demand drops.
o Pros: No excess inventory, lower storage costs.
Cons: Employee layoffs may reduce morale and increase hiring/training costs.
2. Workforce – Variable Work Hours (Flexible Hours)
o 📌 Keep the workforce constant but change working hours (overtime, reduced
shifts).
o ✅ Example: A mobile phone factory keeps its workers but increases overtime before
a new phone launch.
o Pros: Employee stability, less hiring/firing costs.
Cons: Overtime costs can be high, employees may feel overworked.
3. Level Strategy (Constant Production)
o 📌 Keep workforce and production steady, absorb demand changes using inventory
or order backlogs.
o ✅ Example: A chocolate factory produces a fixed number of chocolates daily,
storing extras for peak seasons like Diwali.
o Pros: Stable workforce, predictable costs.
Cons: Risk of high inventory costs or unsold products.

OTHER OPTION

 Mixed Strategy (Combination of Above)

o Most companies use a mix of these strategies to balance stability, costs, and
demand fluctuations.
o ✅ Example: An electronics company may hire seasonal workers (chase strategy)
for peak periods while also using overtime (variable hours strategy) to meet
unexpected demand.

 Subcontracting Strategy Explained Simply

o 📌 Definition: Instead of hiring and firing workers, companies outsource some
production to third-party suppliers when demand increases.
o ✅ Example: A laptop company sees a spike in demand before the holiday
season. Instead of hiring more workers, they subcontract some production to
another factory.
o Pros:
✔️Flexible – No need to hire/fire employees.
✔️Cost-effective – No long-term labor costs.
✔️Quickly meet demand – Helps handle sudden order surges.
o Cons:
❌ Less control over production quality and schedule.
❌ Supplier dependency – If the supplier delays, production suffers.
o 🛠 Best Use: When demand is unpredictable, and a company wants to avoid hiring
full-time employees.

20 Inventory Management
Customer Order Decoupling Point (CODP) – Explained Simply
 📌 Definition: It is the point in the supply chain where inventory is stored to allow the
production process (upstream) and customer demand (downstream) to function
separately.
 ✅ Example:
o A supermarket stocks bread on shelves. Customers pick it up without placing
an order with the bakery.
o The bakery produces bread based on forecasted demand, not individual
customer orders.
 Different Types of CODP:
1. Make-to-Stock (MTS)
2. Make-to-Order (MTO)
3. Assemble-to-Order (ATO)
 In practice, the idea of a single decoupling point in a supply chain is unrealistic. There
may actually be multiple points where buffering takes place

 Inventory
 Inventory is all the money spent on buying materials, parts, or products that a business
plans to sell.
 Inventory is the stock of any item or resource used in an organization.
 Every individual item in inventory should be there for a specific purpose. Also, when
you see an item in inventory, put a dollar sign on it. Inventory is like piles of money
sitting in a warehouse

 Purposes of Inventory:
1. Independence of Operations
 Inventory reduces setup time and keeps workflow smooth by acting as a buffer.
2. Meeting Demand Variations
 Uncertain demand requires safety stock to prevent shortages.
3. Flexibility in Production Scheduling
 Inventory reduces pressure on production, allowing for smoother workflows and
cost-efficient batch production.
4. Safeguard Against Delays
 Acts as a buffer against vendor delays due to shipping issues, strikes, or
shortages.
5. Economic Purchase Order Size
 Larger orders reduce ordering and shipping costs, improving efficiency.
6. Other Domain-Specific Reasons
 In-transit inventory (goods in transport).
 Speculative inventory (bought in advance to hedge against price fluctuations).

 Inventory Costs – Concise Notes

1. Holding (Carrying) Costs
o Includes storage, insurance, depreciation, taxes, obsolescence, and opportunity
cost.
o Higher holding costs → Favor low inventory & frequent replenishment.
2. Setup (Production Change) Costs
 o Costs for equipment setup, material arrangement, paperwork, and moving old
stock.
o Higher setup costs → Favor larger batch sizes.
o JIT systems aim to reduce setup costs for smaller, more frequent batches.
3. Ordering Costs
o Includes clerical, managerial, and system costs for placing and tracking orders.
o Higher ordering costs → Favor bulk purchasing.
4. Shortage Costs
o Stockouts (missed sales, lost customers) vs. Backorders (delayed fulfillment).
o Trade-off: Holding more stock prevents shortages but increases costs.

 Inventory position
 Inventory position is defined as the on-hand plus on-order minus backordered
quantities.
 Inventory Position = Stock Available + Stock Ordered − Stock Backordered

The order size that minimizes total annual costs, including ordering costs and holding costs.

Ordering too frequently increases ordering costs, while ordering in large quantities increases
holding costs. The optimal order quantity finds a balance between these two.

 Reorder point
The reorder point is the inventory level at which a new order should be placed to avoid running out
of stock.

where ¯ d = Average daily demand (constant) L = Lead time in days (constant)

 ABC inventory
classification Divides inventory into dollar volume categories that map into strategies appropriate for
the category

from 21 remaning