NOTES ON OM

8/12/2019 NOTES ON OM

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OPERATIONS MANAGEMENT

Operations management refers to the administration of business practices to create the highest

level of efficiency possible within an organization. Operations management is concerned with

converting materials and labor into goods and services as efficiently as possible to maximize the

profit of an organization.

Operations management teams design the method of conversion of inputs (materials, labor,proprietary information, etc.) into outputs (goods, services, value-added products, etc.) that is

most beneficial to the organization. Operations management teams attempt to balance costs with

revenue to achieve the highest net operating profit possible.

SYSTEMIt consists of elements or components. The elements or components are interlinked together to

achieve the objective for which it exists. Eg: human body, educational institutions, business

organizations.

Components of a system:

The input, processing, output and control of a system are called the components of a system

Control:There are two types of control, namely Proactive Control and Reactive Control.

Proactive Control:When an operation is carried out on a product in a workstation, the quality inspector goes to the

workstation and inspects the product. When the samples that he has taken for the inspection are

not confirming to the quality, he stops the machine and identifies the reason for the deviation and

corrects the problem, so that the produced product thereafter conform to the specifications. Thistype of control prevents any major quality setback after the production. This is an example for

proactive control.

Reactive Control:

In a planning period, usually the quality target is fixed. Suppose, an organization feels to fix 5%defective is safe in the targeted production quantity and assumes that at the end of the planning

period it finds that the defective output exceeds the targeted defective products. Then, it has to

find out the reason for the deviations, namely, whether the problem is due to the method of doing


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the work or the resources used in the process. Then the planner uses this knowledge to prevent

any problem in the future. Thus a Reactive Control is a post mortem case.

Business System:The business organization is classified into different subsystems based on the functions like

marketing, production/operation, finance and human resource etc.

PRODUCTION/OPERATION SYSTEM:-

. Operation system is either manufacturing sector or service sector. The input requirements areshown in figure1.3 The transformation process, in which part of the value addition takes place to

get the required quantity of the product or services with the targeted quality within the specified

time period, is carried out in a most economical way. Operation Management Plan coordinatesand controls all the activities in the operation system to achieve the stated objectives.

Thus (the activities listed in the diagram) the Operations Management activities, ensure the

objective of quantity, quality, delivery time and economical way of doing work. The

communication link between the various activities are shown in the figure. Each activity is dealtin detail in different sections of this material.

Operation Management is a way or means through which the listed objectives of an operating

system is achieved. There is always a confusion between the word OM & PM (Production

Management). It is accepted norm that OM includes techniques which are enabling theachievement of operational objectives in an operation system.

The operation system includes both manufacturing sector as well as service sector, but when you

use the word PM, you should be careful to note that it refers to the manufacturing sector but notthe service sector. Suppose, you are designing a layout for the hospital you should say that you

are applying Operations Management Technique not the Production Management Technique.

From, the above discussion we can come to a conclusion that production management is a subsetof Operations Management.


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Operations Management deals with the design and management of products, processes, services

and supply chains. It considers the acquisition, development, and utilization of resources that

firms need to deliver the goods and services their clients want.

Tactical issues include plant layout and structure, project management methods, and equipment

selection and replacement. Operational issues include production scheduling and control,inventory management, quality control and inspection, traffic and materials handling, and

equipment maintenance policies.

TYPES OF OPERATION SYSTEMThe type of Operation System to be adopted should be known to the people, and then only you

may choose the system based on the nature of the product that you are going to manufacture. The

types of operation system are classified based on the following criteria.

Product flow pattern in conversion system

Output of the product

Specification of the outputTYPES OF OPERATION MANAGEMENT

Flow Shop

In this kind of production, the productive resources are arranged according to the sequence ofoperation required by the product design. Assume that you are engaged in the ready to wear

clothing, if you want to adopt the flow shop production, then the productive resources are keptaccording to the sequence of operations required by the product like

Cutting

Joining by sewing

Adding, buttons, zippers etc

Quality checking

Packaging


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Mostly Flow shop production are adopted when there is untapped market for the product,

customers are price sensitive and more competition in the market.

Flow shop production as shown in the figure is further divided into Continuous Production,

Mass Production and Batch production.

Continuous Production

The industries involved in the following activities are classified as Continuous Production Oil refining.

Fertilizer production.

Chemical processing etc.In this type of production the product flows continuously without much interruption. This type of

production lacks in flexibility.

Mass ProductionThe industries involved in the following activities are classified as the Mass ProductionIndustries:

Auto Manufacturing

TV Manufacturing Cigarettes

This kind of flow shop produces the same type of output, it has little flexibility compared to

Continuous Production.

Batch Production

The industries involved in the following activities are classified as the Intermittent Production. Shoe manufacturing

Bottling plant

Cloth manufacturing

Here the basic design of the product is the same but the specification of the product differs. Theproduction gets interrupted when the system switches over to other type of the product

specification. The products are similar in nature but not identical.


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The Characteristics of Flow Shop Production:

Job Shop

In the case of Job Shop Production, the products are mostly customized products. Based on the

customer requirements, the products are produced. The productive resources are kept accordingto the function.

The industries involved in the following activities are classified as the Job Shop production: Auto repairing

Hospital

Machine shop


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Plant location: Plant location is a strategic decision several factors influence this decision. The

main objective of any business is to optimize its cost and revenue that is, minimize its costs and

maximize its returns. The degree of significance for the selection of location for any enterprisemainly depends on its size and nature large scale industries requiring huge amount of investment

there are many considerations other than the local demand in the selection proper plant location

these plants cannot be easily shifted to other place and an error of judgment in the selection ofsite can be very expensive to the organization. However, small-scale industry mainly selects thesite where in accordance with its capacity; the local market is available for its products. It can

easily shift to other place when there is any change in the market.

Factors affecting plant location:

Nearness to Market: If the plant is located close to the market the cost of transportationcan be minimized. This also helps the producers to have direct knowledge of the

requirements of the customers.

Nearness to supply of raw materials: As far as possible the site selected should be nearthe source of raw materials, so that the cost of transportation can be minimized and

storing cost can be reduced due to shorter lead time. Availability of labour: Availability of right kind of labour force in required number at

reasonable rates is also a deciding factor in selection of site

Transport and communication facilities: Generally, industries have a tendency to locatethe industrial units near the railway station, highway or port areas.

Availability of power and fuel: Coal, electricity, oil and natural gas are the importantsources of power in the industries.

Ex: Tata iron and steel industry is established near the coalmines of Bihar.

Climatic conditions: Climatic conditions largely affect certain production processes andalso the efficiency of the employees.

Ex: Textile mills require moist climate that why these plant located at Mumbai

and Ahmedabad. Availability of water: Water is used in industries for processing as in paper in chemical

industries, for generation of power in hydroelectric power, plants and also required fordrinking sanitary purpose also.

Ancillary industries: Many industries such as processing and assembly industries are notproducing al the parts of their product but purchase some of the parts from ancillary

industries producing it.

Financial and other aids: For the development of backward regions central as well as stategovernment provide certain incentives and facilities such as cash subsides, concession

financial assistance, land, power and other facilities at cheaper rates, tax concession etc.

Plant Layout: A technique of locating machines, processes and plant services within the factory

in order to secure the greatest possible output of high quality at the lowest possible total cost of

production


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Type of plant layout:

Product or line layout: This type of layout is developed for product-focused systems. In thistype of layout only one product, or one type of product, is produced in a given area. In case of

product being assembled, this type of layout is popularly known as an assembly line layout.

The work centers are organized in the sequence of appearance. The raw material centre at oneend of the line and goes from one operation to another rapidly with minimum of work-in-processstorage and material handling.

Process or Functional layout: This type of layout is developed for process focused systems.

The processing units are organized by functions into departments on the assumption that certainskills and facilities are available in each department similar equipments and operations are

grouped together, e.g., milling, foundry, drilling, plating, heat treatment etc.

The use of process-focused systems is very wide in both manufacture and other service facilitiessuch as hospitals, large offices, municipal services, etc.

s

Cellular or group layout: It is special type of functional layout in which the facilities are

clubbed together into cells. This is suitable for systems designed to use the concepts, principles

and approaches of group technology. Such alayout offers the advantages of mass productionwith high degree of automation even if the numbers of products are more with flexible

requirement. In such a system the facilities are group in to cells which are able to perform similar

type of functions for a group of products.


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Job Shop Layout: It is a layout for a very general flexible system that is processing job

production, The preparation of such a layout is dependent on the analysis of the possiblepopulations of orders and is a relatively, complex affair.

Project or Fixed position Layout: This is the layout for project type systems in which the majorcomponent is kept at a fixed position and all other materials, components, tools machines, worketc. are brought and assembly or fabrication is carried out. This type of layout is now not used

very commonly as the machines required for manufacturing work are big and complicated. The

fixed position layout is used only when it is difficult to move the major component andfabrication is to be carried out. Ex: production of ships.

Factors influencing plant layout:

1. Management policy: Management has to decide on many matters e.g. nature and qualityof products, size of the plant, integration of production process, plans for expansion,

amount of inventory in stock, employee facilities2. Manufacturing process: The type of manufacturing process e.g.synthetic/analytical,continuous/intermittent and repetitive/non-repetitive, willgovern the type of plant layout.

3. Nature of product: Small and light products can be moved easily to the machines,whereas for heavy and bulky products the machines may have to be moved.

4. Type of equipment: The use of single purpose and multi-purpose machine substantiallyaffects the plant layout. Similarly, noisy and vibrating machines require special attention

in the plant layout decision.5. Types of buildings: The plant layout in a single storey building will be different from that

in a multi storey building. The covered areas, the number of storeys, elevators and stairs,

parking and storage area all affect the layout.

6. Availability of total floor area: The allocation of space for machines, workbenches, sub-store aisles etc., is made on the basis of the available floor area use of overhead space is

made in case of shortage of space.

7. Arrangement of materials handing equipment: Provide sufficient aisles for freemovement of material handling equipment such as hand truck, fork truck etc.

8. Service facilities: The layout of factory must include proper service facilities required forthe comfort and welfare of workers. These include canteen, lockers, drinking water, firstaid etc.

9. Possibility of future expansion: Plant layout is made in the light of future requirement andinstallations of additional activities.

Principles of plant layout:

1. Principle of integration: The best layout is one which integrates the men, materials,machinery, supporting activities and any other such a factors that results in the bestcompromise.

2. Principle of minimum movement: The number of movement of workers and materialsand the distance moved should be minimized. The materials should be transported in bulkrather than in small amounts.


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3. Principle of smooth and continue flow: It states that bottlenecks, congestion points andbulk tracking should be removed by proper line balancing techniques.

4. Principle of cubic space: Space of a room, it the ceiling height is also utilized, morematerials can be accommodated in the same space.

5. Principle of satisfaction of safety: Working places-safe, well-ventilated and free from

dust, noise fumes, odors and other hazardous conditions, help to increase the efficiency ofthe workers and improve their morale.6. Principle of flexibility: It means the best layout in one which can be adopted and re-

arranged at a minimum cost with least inconvenience.

Method of Production:

Job production: In this system, goods are produced according to the orders with this method,

individual requirements of the consumers can be met. Each job order stands alone and is notlikely to be repeated. This type of production has a lot of flexibility of operation and hence

general purpose machines are required. Factories adopting this type of production, are generally

small in size.Advantages:

1. It is the only method, which can meet the individual requirement.

2. There is no managerial problem, because of very less number of workers, and small size of

concern.3. Such type of production requires less money and is easy to start.

Disadvantages:

1. There is no scope for continuous production and demand2. As the purchase of raw materials is less, hence cost of raw materials per unit will be slightly

more.

3. For handling different type of jobs, only skilled and intelligent workers are needed, thus labour

cost increases.

Batch production: This type of production is generally adopted in medium size enterprise.

Batch production is in between job production and mass production.Batch production is bigger inscale than the job production. While it is smallerthan that of mass production, batch production

requires more machines than jobproduction and fewer machines that the of mass production.

Advantages:1. While comparing with mass production it requires less capital

2. Comparing with job production, it is more advantageous commercially.

3. If demand for one product decrease then production, for another product may be increased,

thus the risk of loss is very less.Disadvantages:

1. Comparing with mass production cost of scales and advertisement per unit is more

2. Raw materials to be purchased are in less quantity than that in mass production; therefore it is

slightly costlier than that of mass production because less quantity discount is available.

Mass production: This method of production is used by concerns where manufacturing is

carried on continuously in anticipation of demand though demand of the product may not beuniform through the year.


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In mass production, simplification and standardization of products are made with the help of

specialized (one purpose) machine, articles of standardized nature can easily and economically

be produced on a large scale.There is a small difference between mass production and continuous production. This is mainly

in the kind of product and its relation to the plant. In mass production plant and equipment are

flexible enough to deal with other products, involving same production process. Where as incontinuous or process production only standardized product in a sequence produced. In thismethod layout and requirement of additional tools and equipment

Advantages:

1. A smooth flow of materials from one work station to the next in logical order.2. Since the work from one process is fed directly into the next, small in process inventories

result

3. Total production time per unit short

4. Simple production planning control system are possible5. Little skill is usually required by operations at the production line, hence training is simple,

short and inexpensive.

Disadvantages:1. A breakdown of one machine may lead to a complete stoppage of the line that follows the

machine. Hence maintenance and repair is challenging job.

2. Since the product dictates the layout, changes in product design may require major changes in

the layout.3. Generally high investment are required owing to the specialized nature of the machines and

their possible duplication in the line

THE SCOPE OF OPERATIONS MANAGEMENT

The scope of operations management ranges across the organization. Operations management

people are involved in product and service design, process selection, selection and managementof technology, design of work systems, location planning, facilities planning, and quality

improvement of the organizations products or services.

The operations function includes many interrelated activities, such as forecasting, capacityplanning, scheduling, managing inventories, assuring quality, motivating employees, deciding

where to locate facilities, and more.

We can use an airline company to illustrate a service organizations operations system. Thesystem consists of the airplanes, airport facilities, and maintenance facilities, sometimes spread

out over a wide territory. The activities include:

Forecasting - such things as weather and landing conditions, seat demand for flights, and thegrowth in air travel.

Capacity planning, essential for the airline to maintain cash flow and make a reasonable profit.

(Too few or too many planes, or even the right number of planes but in the wrong places, will

hurt profits.)

Scheduling of planes for flights and for routine maintenance; scheduling of pilots and flight

attendants; and scheduling of ground crews, counter staff, and baggage handlers.

Managing inventories of such items as foods and beverages, first-aid equipment, inflightmagazines, pillows and blankets, and life preservers.


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Assuring quality, essential in flying and maintenance operations, where the emphasis is on

safety, and important in dealing with customers at ticket counters, check-in, telephone and

electronic reservations, and curb service, where the emphasis is on efficiency and courtesy.

Motivating and training employees in all phases of operations. Locating facilities according

to managers decisions on which cities to provide service for, where to locate maintenance

facilities, and where to locate major and minor hubs.

The operations function consists of all activities directly related to producing goods or providing

services. Hence, it exists both in manufacturing and assembly operations, which are goods-

oriented, and in areas such as health care, transportation, food handling, and retailing, which areprimarily service-oriented

A primary function of an operations manager is to guide the system by decision making. Certain

decisions affect the design of the system, and others affect the operation of the system. Systemdesign involves decisions that relate to system capacity, the geographic location of facilities,

arrangement of departments and placement of equipment within physical structures, product and

service planning, and acquisition of equipment. These decisions usually, but not always, requirelong-term commitments. Moreover, they are typically strategic decisions. System operation

involves management of personnel, inventory planning and control, scheduling, project

management, and quality assurance. These are generally tactical and operational decisions.

Feedback on these decisions involves measurement and control. In many instances, theoperations manager is more involved in day-to-day operating decisions than with decisions

relating to system design. However, the operations manager has a vital stake in system design

because system design essentially determines many of the parameters of system operation. Forexample, costs, space, capacities, and quality are directly affected by design decisions. Even

though the operations manager is not responsible for making all design decisions, he or she can

provide those decision makers with a wide range of information that will have a bearing on their

decisions.A number of other areas are part of, or support, the operations function. They include

purchasing, industrial engineering, distribution, and maintenance.

Purchasing has responsibility for procurement of materials, supplies, and equipment. Closecontact with operations is necessary to ensure correct quantities and timing of purchases. The

purchasing department is often called on to evaluate vendors for quality, reliability, service,

price, and ability to adjust to changing demand. Purchasing is also involved in receiving andinspecting the purchased goods.

Industrial engineering is often concerned with scheduling, performance standards, work

methods, quality control, and material handling.

Distribution involves the shipping of goods to warehouses, retail outlets, or final customers.

Maintenance is responsible for general upkeep and repair of equipment, buildings and grounds,

heating and air-conditioning; removing toxic wastes; parking; and perhaps security.

FUNCTIONS OF PRODUCTION MANAGEMENT

1. Materials: The selection of materials for the product. Production manager must havesound Knowledge of materials and their properties, so that he can select appropriate


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materials for his product. Research on materials is necessary to find alternatives to satisfy

the changing needs of the design in the product and availability of material resumes.

2. Methods: Finding the best method for the process, to search for the methods to suit theavailable resources, identifying the sequence of process are some of the activities of

Production Management.

3. Machines and Equipment: Selection of suitable machinery for the process desired,designing the maintenance policy and design of layout of machines are taken care of bythe Production Management department.

4. Estimating: To fix up the Production targets and delivery dates and to keep theproduction costs at minimum, production management department does a thoroughestimation of Production times and production costs. In competitive situation this will

help the management to decide what should be done in arresting the costs at desired level.

5. Loading and Scheduling: The Production Management department has to draw the timetable for various production activities, specifying when to start and when to finish theprocess required. It also has to draw the timings of materials movement and plan the

activities of manpower. The scheduling is to be done keeping in mind the loads on hand

and capacities of facilities available.6. Routing: This is the most important function of Production Management department.The Routing consists of fixing the flow lines for various raw materials, components etc.,

from the stores to the packing of finished product, so that all concerned knows what

exactly is happening on the shop floor.7. Despatching: The Production Management department has to prepare various

documents such as Job Cards, Route sheets, Move Cards, Inspection Cards for each and

every component of the product. These are prepared in a set of five copies. Thesedocuments are to be released from Production Management department to give green

signal for starting the production. The activities of the shop floor will follow the

instructions given in these documents. Activity of releasing the document is known as

dispatching.8. Expediting or Follow up: Once the documents are dispatched, the management wants to

know whether the activities are being carried out as per the plans or not. Expediting

engineers go round the production floor along with the plans, compare the actual with theplan and feed back the progress of the work to the management. This will help the

management to evaluate the plans.

9. Inspection: Here inspection is generally concerned with the inspection activities duringproduction, but a separate quality control department does the quality inspection, which is

not under the control of Production Management. This is true because, if the quality

inspection is given to production Management, then there is a chance of qualifying the

defective products also. For example Teaching and examining of students is given to thesame person, then there is a possibility of passing all the students in the first grade. To

avoid this situation an external person does correction of answer scripts, so that the

quality of answers are correctly judged.

10.Evaluation: The Production department must evaluate itself and its contribution infulfilling the corporate objectives and the departmental objectives. This is necessary for

setting up the standards for future. Whatever may be the size of the firm; Production

management department alone must do Routing, Scheduling, Loading, Dispatching and


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expediting. This is because this department knows very well regarding materials,

Methods, and available resources etc.

Product Sequencing

It explains how the organizations can successfully build and utilize knowledge and capabilities,over long time spans, in single and multiple product markets, for continuing competitiveadvantage. A matrix of product-market expansion paths, traced out by a series of new product

introductions

Both core and integrative knowledge, accumulated through an interactive course of incremental

and step-function learning, provide the basis for product sequencing both within and across

vertical chains.

Examples of product sequencing strategies of three technology-intensive Japanese firms: Sony,Canon and NEC. Their evolution histories basically prove that a superior system of learning

which form the basis for continued product sequences can turn short-term competitive success

into long-term advantage.

Contribution of the product sequencing model lies in applying the concept of shared

knowledge to explain vertical expansion as well as related diversification. It also provides adynamic framework that enables us to track how expansion into new product markets unfolds

over time.

The relationship between vertical chain and product sequencing is ambiguous.As product sequencing is a matrix of expansion, where the contribution of vertical

chain, which is stated to be the basic unit of analysis, exactly lies in needs to be furtherdefined.

While the integrative knowledge of a firm tends to be consistent over a long time span,the core knowledge is more likely to shift by the step-function learning effect when

technology or business opportunity comes. Like Canon, which relied on precision optics

previously, has shifted its core technology to electronics.

What is Project management?

Project management is the discipline of planning, organizing, securing and managing resources to

bring about the successful completion of specific project goals and objectives. It is sometimes

conflicted with program management, however technically that is actually a higher level

construction: a group of related and somehow interdependent engineering projects.

A project is a temporary endeavor, having a defined beginning and end (usually constrained by

date, but can be by funding or deliverables), undertaken to meet unique goals and objectivesusually to bring about beneficial change or added value. The temporary nature of projects stands

in contrast to business as usual (or operations) which are repetitive, permanent or semi-permanent functional work to produce products or services. In practice, the management of these

two systems is often found to be quite different, and as such requires the development of distinct

technical skills and the adoption of separate management.


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The primary challenge of project management is to achieve all of the engineering project goals

and objectives while honoring the preconceived project constraints. Typical constraints are

scope, time, and budget the secondaryand more ambitiouschallenge is to optimize the

NETWORK ANALYSIS

Network Techniques helps managers to plan when to start various tasks to allocate resources so

that the task can be carried out within schedule.

The network diagram may be defined as a graphical representation of the projects activitiesshowing the planned sequence of work. There are various terminology which is used in nework

Technique

1) Event or Node: An event is a specific instant of time which marks the start and end

of the activity.

2) Dummy Activity: it is hat activity which is accomplished in zero time and no

consuming resources.

CPM - Critical Path MethodDuPont developed a Critical Path Method (CPM) designed to address the challenge of shutting

down chemical plants for maintenance and then restarting the plants once the maintenance had

been completed.

Complex project, like the above example, require a series of activities, some of which must beperformed sequentially and others that can be performed in parallel with other activities. This

collection of series and parallel tasks can be modeled as a network.

CPM models the activities and events of a project as a network. Activities are shown as nodes on

the network and events that signify the beginning or ending of activities are shown as arcs orlines between the nodes.

Project management is an important part of every business enterprise. Whenever a new productor service is launched; when embarking on a marketing campaign; or when organizing any new

projects; project management is needed to make everything organized and successful.

As all projects consume resources such as materials, time, people, and money; starting onewould entail an effective project management team and the right techniques to accomplish them,

especially those projects that are very complex ones.


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A complex project would normally encounter several delays and may surpass the budget

allocated for it making a project very costly and which may lead to losses. While many

techniques fail in solving these problems, there are two tools which have been proven to beeffective. The two most effective and widely used techniques are the Program Evaluation and

Review Technique (PERT) and the Critical Path Method (CPM).

While both serve the same purpose, that is, the fast and effective completion of a project, they

are different in many aspects such as the amount of time that they allow for each assignment.

CPM is a technique that is used in projects that have predictable activities and tasks such as in

construction projects. It allows project planners to decide which aspect of the project to reduce or

increase when a trade-off is needed. It is a deterministic tool and provides an estimate on the cost

and the amount of time to spend in order to complete the project. It allows planners to control

both the time and cost of the project.

Benefits and limitations of CPM Method

CPM Benefits

Provides a graphical view of the project.

Predicts the time required to complete the project.

Shows which activities are critical to maintaining the schedule and which are not.

CPM Limitations

While CPM is easy to understand and use, it does not consider the time variations that can have agreat impact on the completion time of a complex project. CPM was developed for complex but

fairly routine projects with minimum uncertainty in the project completion times. For less routine

projects there is more uncertainty in the completion times, and this uncertainty limits its

usefulness.

PERT Technique

The Program Evaluation and Review Technique (PERT) is a network model that allows for

randomness in activity completion times. PERT was developed in the late 1950's for the U.S.

Navy's Polaris project having thousands of contractors. It has the potential to reduce both thetime and cost required to complete a project.

PERT, on the other hand, is used in projects that have unpredictable tasks and activities such as in

research and development projects. It utilizes three estimates of the time to complete the project:the most probable, the most promising, and the most unfavorable.It is a probabilistic tool using several estimates to determine the time completion of the project

and to control the activities involved in the project so that it will be completed faster and at a

lower cost.

The Network Diagram


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In a project, an activity is a task that must be performed and an event is a milestone marking the

completion of one or more activities. Before an activity can begin, all of its predecessor activities

must be completed. Project network models represent activities and milestones by arcs andnodes. PERT is typically represented as an activity on arc network, in which the activities are

represented on the lines and milestones on the nodes.

There are three times have to be calculated:

3) Most likely times

4) Optimistic times5) Pessimistic time

Weeks are a commonly used unit of time for activity completion, but any consistent unit of time can

be used.

A distinguishing feature of PERT is its ability to deal with uncertainty in activity completion

times. For each activity, the model usually includes three time estimates:

Optimistic time (OT) - generally the shortest time in which the activity can be completed.

Most likely time (MT) - the completion time having the highest probability. This is differentfrom expected time. Seasoned managers have an amazing way of estimating very close to actual

data from prior estimation errors.

Pessimistic time (PT) - the longest time that an activity might require.

The expected time for each activity can be approximated using the following weighted average:

Expected time = (OT + 4 x MT+ PT) / 6

Variance for each activity is given by:

[(PT - OT) / 6]2

Benefits of PERT

PERT is useful because it provides the following information:

Expected project completion time.

Probability of completion before a specified date.

The critical path activities that directly impact the completion time.

The activities that have slack time and that can lend resources to critical path activities.

Activities start and end dates.


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Limitations of PERT

The following are some of PERT's limitations:

The activity time estimates are somewhat subjective and depend on judgment. In case s

where there is little experience in performing an activity, the numbers may be only a

guess. In other cases, if the person or group performing the activity estimates the timethere may be bias in the estimate.

The underestimation of the project completion time due to alternate paths becoming critical

is perhaps the most serious

Difference between PERT & CPM

CPM PERT

CPM uses activity oriented network. PERT uses event oriented Network.

Durations of activity may be estimated with a

fair degree of accuracy.

Estimate of time for activities are not so

accurate and definite.

It is used extensively in construction projects. It is used mostly in research and development

projects, particularly projects of non-repetitive

nature.

Deterministic concept is used. Probabilistic model concept is used.

CPM can control both time and cost when

planning.

PERT is basically a tool for planning.

In CPM, cost optimization is given prime

importance. The time for the completion of the

project depends upon cost optimization. The

cost is not directly proportioned to time. Thus,

cost is the controlling factor.

In PERT, it is assumed that cost varies directly

with time. Attention is therefore given to

minimize the time so that minimum cost results.

Thus in PERT, time is the controlling factor.


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Transportation modelThe transportation model uses the principle of 'transplanting' something, like taking a hole from

one place and inserting it in another without change. First it assumes that to disturb or change

the idea being transported in any way will damage and reduce it somehow. It also assumes that

it is possible to take an idea from one person's mind into another person's so that the two

people will then understand in exactly the same way.

The transportation model is a valuable tool in analyzing and modifying existing transportation

systems or the implementation of new ones. In addition, the model is effective in determining

resource allocation in existing business structures.

The model requires a few keys pieces of information, which include the following:

Origin of the supply

Destination of the supply

Unit cost to ship

The transportation model can also be used as a comparative tool providing business decisionmakers with the information they need to properly balance cost and supply. The use of thismodel for capacity planning is similar to the models used by engineers in the planning ofwaterways and highways.

This model will help decide what the optimal shipping plan is by determining a minimum cost for

shipping from numerous sources to numerous destinations.This will help for comparison whenidentifying alternatives in terms of their impact on the final cost for a system. The mainapplications of the transportation model mention in the chapter are location decisions,production planning, capacity planning and transshipment. Nonetheless,the major assumptionsof the transportation model are the following :

1. Items are homogeneous2. Shipping cost per unit is the same no matter how many units are shipped3. Only one route is used from place of shipment to the destination

The transportation problem involves determining a minimum-cost plan for shipping from multiple

sources to multiple destinations. A transportation model is used to determine how to distributesupplies to various destinations while minimizing total shipping cost. In this case, a shippingplan is produced and is not changed unless factors such as supply, demand, or unit shippingcosts change. The variables in this model have a linear relationship and therefore, can be putinto a transportation table. The table will have a list of origins and each one's capacity or supplyquantity period. It will also show a list of destinations and their respective demands per period.

Also, it will show the unit cost of shipping goods from each origin to each destination.

Transportation costs play an important role in location decision. The transportation problem involves


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finding the lowest-cost plan for distributing stocks of goods or supplies from multiple origins to multiple

destinations that demand the goods. The transportation model can be used to compare location

alternatives in terms of their impact on the total distribution costs for a system. It is subject to demand

satisfaction at markets supply constraints. It also determines how to allocate the supplies available form

the various factories to the warehouses that stock or demand those goods, in such a way that total

shipping cost is minimized.

The transportation problem is concerned with finding the minimum cost of transportinga single commodity from a given number of sources (e.g. factories) to a given number of

destinations (e.g. warehouses).

The data of the model include

1. The level of supply at each source and the amount of demand at each destination.2. The unit transportation cost of the commodity from each source to each destination.

Since there is only one commodity, a destination can receive its demand from more than one

source. The objective is to determine how much should be shipped from each source to eachdestination so as to minimise the total transportation cost.

A transportation model in which the total supply and total demand are unequal is calledunbalanced. It is always possible to balance an unbalanced transportation problem.

Example 1 Balanced transportation model.Consider the following problem with 2 factories and 3 warehouses

Total supply = 20 + 10 = 30

Total demand = 7 + 10 + 13 = 30

Since Total supply = Total demand, the problem is balanced.

Example 2 Unbalanced transportation model.

There are two cases to consider, namely excess demand and excess supply.

1. Suppose the demand at warehouse 1 above is 9 units. Then the total supply and total demand

are unequal, and the problem is unbalanced. In this case it is not possible to satisfy all the

demand at each destination simultaneously.We reformulate the model as follows: since demandexceeds supply by 2 units, we introduce a dummy source (i.e. a fictitious factory) which has a

capacity of 2. The amount shipped from this dummy source to a destination represents the

shortage quantity at that destination. It is necessary to specify the costs associated with thedummy source. There are two situations to consider.

(a) Since the source does not exist, no shipping from the source will occur, so the unit

transportation costs can be set to zero.


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(b) Alternatively, if a penalty cost, P, is incurred for every unit of unsatisfieddemand, then the

unit transportation costs should be set equal to the unit penalty costs.

In effect we are allocating the shortage to different destinations.

2. If supply exceeds demand then a dummy destination is added which absorbs the surplus units.

Any units shipped from a source to a dummy destination represent a surplus at that source.

Again, there are two cases to consider for how the unit transportation costs should be

determined.(a) Since no shipping takes place, the unit transportation costs can be set to zero.

(b) If there is a cost for storing, S, the surplus production then the unit transportation costs shouldbe set equal to the unit storage costs.

Here we are allocating the excess supply to the different destinations.

Solution of the transportation problem

A balanced transportation problem has Total supply = Total demand which can be expressed as

A consequence of this is that the problem is defined by n + m 1 supply and demandvariables

since, if ai, i = 2; 3; : : : ; m and bj, j = 1; 2; : : : ; n are specified, then a1 can be found fromabove equation. This means that one of the constraint equations is not required. Thus, a balanced

transportation model has n + m 1 independent constraint equations.

Since the number of basic variables in a basic solution is the same as the number of constraints,

solutions of this problem should have n + m 1 basic variables which are non-zero and all the

remaining variables will be non-basic and thus have the value zero.

Starting the algorithm: finding an initial basic feasible solution

We consider two ways of constructing initial basic feasible solutions for a transportation

problem, i.e. allocations with n + m 1 basic variables which satisfy all the constraint equations.


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Method 1: The North-West Corner MethodConsider the problem represented by the following transportation tableau. The number in the

bottom right of cell (i; j) is cij , the cost of transporting 1 unit from source I to destination j.Values of xij , the quantity actually transported from source i to destination j, will be entered in

the top left of each cell. Note that there are 3 factories and 4 warehouses and so m = 3, n = 4.

The north-west corner method generates an initial allocation according to the following

procedure:

1. Allocate the maximum amount allowable by the supply and demand constraints to the variablex11 (i.e. the cell in the top left corner of the transportation tableau).

2. If a column (or row) is satisfied, cross it out. The remaining decision variables in that column

(or row) are non-basic and are set equal to zero. If a row and column are satisfiedsimultaneously, cross only one out (it does not matter which).

3. Adjust supply and demand for the non-crossed out rows and columns.

4. Allocate the maximum feasible amount to the first available non-crossed out element in the

next column (or row).

5. When exactly one row or column is left, all the remaining variables are basic and are assignedthe only feasible allocation.

For the above example:

x11 = 10. Cross out column 1. The amount left in row 1 is 10.

x12 = 10. Cross out row 1. 5 units are left in column 2.

x22 = 5. Cross out column 2. 20 units are left in row 2.

x23 = 15. Cross out column 3. 5 units are left in row 2.

Only column 4 is now left and so both the remaining variables x24 and x34 will be basic. The

only feasible allocation of the 5 units in row 2 and the 15 units in row 3 is to allocate x24 = 5 and

x34 = 15, which also ensures that the demand in column 4 is satisfied.

This provides the initial basic feasible solution x11 = 10, x12 = 10, x22 = 5, x23 = 15, x24 = 5,

x34 = 15. The remaining variables are non-basic and therefore equal to zero.

The solution has m + n 1 = 6 basic variables as required.The values of the basic variables xij are entered in the top left of each cell. There should always

be m + n 1 of these; in certain (degenerate) cases some of them may be zero. They must always

add up to the total supply and demand in each row and column.


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Note that some books position the data differently in the cells of the tableau.

Method 2: The Least-Cost Method

This method usually provides a better initial basic feasible solution than the North-West Corner

method since it takes into account the cost variables in the problem.1. Assign as much as possible to the cell with the smallest unit cost in the entire tableau. If there

is a tie then choose arbitrarily.

2. Cross out the row or column which has satisfied supply or demand. If a row andcolumn areboth satisfied then cross out only one of them.

3. Adjust the supply and demand for those rows and columns which are not crossed out.

4. When exactly one row or column is left, all the remaining variables are basic and are assigned

the only feasible allocation.

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