ISQS 3344 Introduction to Production and Operations Management Spring 2014

1. ISQS 3344 Introduction to Production andOperations ManagementSpring 2014 Quantitative Review II

2. Taguchi Loss Function • Design the product or service so that it will not be sensitive to variations during the manufacturing or delivery process • For example, design a manufactured good with a smaller design tolerance = better quality

3. Taguchi Loss Function where L(x) = the monetary value of the loss associated with deviating from the target limit “T” k = the constant that translates the deviation into dollars x = the actual value of the dimension T = target limits

4. A quality characteristic has a specification (in inches) of 0.200  0.020. If the value of the quality characteristic exceeds 0.200 by the tolerance of 0.020 on either side, the product will require a repair of $150. Develop the appropriate Taguchi loss function (k).

5. A quality engineer has a manufacturing specification (in cm) of 0.200 plus or minus 0.050. Historical data indicates that if the quality characteristic takes on values larger than .250 cm or smaller than .150 cm, the product fails and a cost of $75 is incurred. Determine the Taguchi Loss Function and estimate the loss for a dimension of 0.135 cm.

6. Reliability Management • Series product components • Parallel product components

7. The manufacturing of compact disks requires four sequential steps. The reliability of each of the steps is 0.96, 0.87, 0.92, and 0.88 respectively. What is the reliability of the process?

8. Parallel/Redundancy B .91 A C .98 .97 B .91

9. Given the diagram below, determine the system reliability if the individual component reliabilities are: A = 0.94, B = 0.92, C = 0.97, and D = 0.93. C A D B RaRb = 1 - (1 - 0.94)(1 - 0.92) = 0.9952 RcRd = 1 - (1 - 0.97)(1 - 0.93) = 0.9979 RabRcd = (0.9952)(0.9979) = 0.9931

10. The system reliability for a two-component parallel system is 0.99968. If the reliability of the first component is 0.99, determine the reliability of the second component. 0.99968 = 1 – (1 – 0.99)(1 – p2) 0.99968 = 1 – (0.01 – 0.01p2) 0.99968–1 = -0.01 + 0.01p2 p2 = 0.968

11. More Reliability Question A 0.987 B 0.895 C 0.947 D 0.918 What is the reliability of this system? If you could add one process (must be one of the existing processes) to best improve reliability what would be the improved reliability?

12. More Reliability Question -- Solution B 0.895 A 0.987 C 0.947 D 0.918 A 0.987 B 0.895 C 0.947 D 0.918 B 0.895 Parallel B Reliability = 1-(1-0.895)*(1-0.895) = 0.989 System Reliability = 0.987*0.989*0.947*0.918 = 0.849 Improvement = 0.849 – 0.768 = 0.08 Reliability = 0.987*0.895*0.947*0.918= 0.768

13. Kanban where: K = the number of Kanban cards d = the average production rate OR demand of product p = the processing time w = the waiting time of Kanban cards α = safety stock as a %, usually ranging from 0 to 1 C = the capacity of a standard container

14. Computing the number of kanbans: An aspirin manufacturer has converted to JIT manufacturing using Kanban containers. They wish to determine the number of containers at the bottle filling operation which fills at a rate of 400 per hour. Each container holds 35 bottles, it takes 30 minutes to receive more bottles (processing plus delivery time) and safety stock is set at 10%. d = 400 bottles per hour p+w = 30 minutes or 0.5 hour C = 35 bottles per container α = 0.10

15. Location Analysis Methods 2*10= 5*10= 2*20= 4*20= 5*30= 2*30= 3*10= 5*10= 5*30= 3*30= Factor Rating Method: Σ (Factor Weighti * Factor Scorei)

16. Location Analysis Methods Center-of-Gravity Method: where dix = x-coordinate of location i diy = y-coordinate of location i Qi = Quantity of goods moved to or from location i

17. Center-of-Gravity Method Where would be the best place to put the warehouse?

18. Question 3 A Plus Logistics Co. has just signed a contract to deliver products to three locations, and they are trying to decide where to put their new warehouse. The three delivery locations are Chicago, Pittsburgh, and New York. Which town would be the best place to put the warehouse?

19. Question 3 (Continued)

20. Question 3 -- Solution Therefore, the best place to put warehouse is Insanity!

21. Location Analysis Methods Load Distance Model: Find load distance score by: Calculate the rectilinear distance and multiply by the number of loads

22. Load Distance Model Calculate Rectilinear Distance Identify Loads, i.e., 4 loads from A to B Load Distance Score for AB = 45*4 = 180

23. TT Logistics Co. has just signed a contract to deliver products to three locations, and they are trying to decide where to put their new warehouse. The three delivery locations are A, B, and C. The two potential sites for the warehouse are D and E. The total quantity to be delivered to each destination is: 200 to A, 100 to B, and 300 to C. The x, y coordinates for the delivery locations and warehouses are as follows: Where to locate warehouse, D or E?

24. Load Distance Score Warehouse D Distance Loads Score Location A 2+3=5 200 1000 Location B 10+5=15 100 1500 Location C 0+10=10 300 3000 5500 Warehouse E Distance Loads Score Location A 2+2=4 200 800 Location B 10+0=10 100 1000 Location C 0+5=5 300 1500 3300

25. Designing Process Layouts • Step 1: Gather information • Space needed, space available, importance of proximity between various units • Step 2: Develop alternative block plans • Using trial-and-error or decision support tools • Step 3: Develop a detailed layout • Consider exact sizes and shapes of departments and work centers including aisles and stairways • Tools like drawing, 3-D models, and CAD software are available to facilitate this process.

26. Process Layout (Step 1: Gather information) Recovery First Sports Medicine Clinic Layout (total space 3750 sq.ft.)

27. Process Layout (Step 2: Develop a block layout) Proposed layout would require less walking. Current Proposed

28. Load Distance Problem What is the load distance for this layout? Trips between departments

29. Load Distance Problem

30. Assembly Line Balancing Step 1: Identify task & immediate predecessors Step 2: Calculate the cycle time Step 3: Determine the output rate Step 4: Compute the theoretical minimum number of workstations Step 5: Assign tasks to workstations (balance the line) Step 6: Compute efficiency, idle time & balance delay

31. Assembly Line Balancing(Step 1: Identify tasks & immediate predecessors)

32. Layout Calculation • Step 2: Determine cycle time (The amount of time each workstation is allowed to complete its tasks.) • Cycle time = Station A (50 seconds) -- the bottleneck • Step 3: Determine output rate • Step 4: Compute the theoretical minimum number of workstations (number of station needed to achieve 100% efficiency)

33. Assembly Line Balancing(Step 5: Balance the line) 55 sec 55 sec 55 sec 3 Work Stations (A,B), (C,D,G), (E,F,H,I)

34. Assembly Line Balancing(Step 6: Compute efficiency, idle time & balance delay) • Efficiency • Balance Delay • Balance Delay = 1 – Assembly Line Efficiency

35. Line Balancing Problem 3.4 mins B 2.3 mins E 2.7 mins A C 4.1 mins D 1.6 mins F 3.3 mins G 2.6 mins What is the bottleneck? What is the maximum production per hour? What is efficiency and balance delay? How to minimize work stations? How should they be groups? New efficiency?

36. Line Balancing Problem • What is the bottleneck? • 4.1 minutes • What is the maximum production per hour? • 60/4.1 = 14.63 units/hour • What is efficiency and balance delay? • Efficiency = 20/(7*4.1) = 69.69% • Balance Delay = 1-.6969 = 30.31% • How to minimize work stations? • Should we use 4 or 5 work stations?

37. 4 Work Stations Efficiency = 20/(4*6) = 20/24 = 83.3% Balance delay = 1-.833 = 16.7% Maximum production/hour = 60/6 = 10 units/hour 3.4 mins B 5.7 mins 2.3 mins E 2.7 mins 6 mins A C 4.1 mins D 1.6 mins F 3.3 mins G 2.6 mins 2.6 mins 5.7 mins

38. 5 Work Stations Efficiency = 20/(5*5.7) = 20/28.5 = 70.18% Balance delay = 1-.7018 = 29.82% Maximum production/hour = 60/5.7 = 10.52 units/hour 3.4 mins B 5.7 mins 2.3 mins E 2.7 mins 2.7 mins A C 4.1 mins 4.1 mins D 1.6 mins F 3.3 mins G 2.6 mins 2.6 mins 4.9 mins

39. Should we use 4 or 5 or 7 work stations? • 4 Work Stations • Efficiency = 83.3% • Balance delay = 16.7% • Maximum production/hour = 10 units/hour • 5 Work Stations • Efficiency = 70.18% • Balance delay = 29.82% • Maximum production/hour = 10.52 units/hour • 7 Work Stations • Efficiency = 69.69% • Balance delay = 30.31% • Maximum production/hour = 14.63 units/hour

40. Supply Chain Efficiency • Measuring Cash to Conversion Cycle • Inventory Turnover(IT) • Inventory Days’ Supply(IDS) • Accounts Receivable Turnover(ART) • Accounts Receivable Days’ Supply(ARDS) • Accounts Payable Turnover(APT) • Accounts Payable Days’ Supply(APDS) Cash-to-Cash Conversion Cycle = IDS + ARDS - APDS

41. Inventory Ratios • Inventory Turnover(IT): # of times you turn your inventory annually • Inventory Days’ Supply(IDS): how many days inventory you keep

42. Accounts Receivable Ratios Accounts Receivable Turnover(ART): # of times you turn your accts. rec. annually Accounts Receivable Days’ Supply(ARDS): how long it takes to get $ owed paid to you

43. Accounts Payable Ratios Accounts Payable Turnover(APT): # of times you turn your accts. payable annually Accounts Payable Days’ Supply(APDS): how long you take to pay your bills

44. Dell’s Financial data Revenue $35.40 billions Cost of goods sold $29.10 billions Average Inventory Value $0.306 billions Average Accounts Receivable $2.586 billions Average Accounts Payable $5.989 billions

45. Dell’s Example Dell’s Inventory Turnover Dell’s Inventory Days’ Supply

46. Dell’s Example Dell’s Accounts Receivable Turnover Dell’s Accounts Receivable Days’ Supply

47. Dell’s Example Dell’s Accounts Payable Turnover Dell’s Accounts Payable Days’ Supply

48. Dell’s Example Dell’s Cash-to-Cash Conversion Cycle = IDS + ARDS – APDS = 3.84 days + 26.66 days – 61.76 days = -31.26 days The negative value means that Dell receives customers’ payments (accounts receivable) 31.26 days, on average, before Dell has to pay its suppliers (accounts payable). This means that Dell’s value chain is a self-funding cash model.

49. Dell’s Negative Cash-to-Cash Conversion Cycle

50. Breakeven Analysis(Make/Buy Decision) Total Cost of Outsourcing: Total Cost of Insourcing: Indifference Point: