INTRODUCTION ............................................................................................................................................. 5
COURSE OVERVIEW .................................................................................................................................................. 5
DEFINITIONS OF OM ................................................................................................................................................ 5
STRATEGY AND COMPETITION .................................................................................................................................... 7
PERFORMANCE MANAGEMENT ..................................................................................................................... 9
Productivity ................................................................................................................................................... 10
MANAGING AND ANALYZING BUSINESS PROCESSES: LITTLE’S LAW .................................................................................... 10
FORECASTING .............................................................................................................................................. 11
INTRODUCTION ..................................................................................................................................................... 11
SUBJECTIVE VERSUS OBJECTIVE FORECASTING METHODS ................................................................................................ 12
EVALUATION OF FORECASTS ............................................................................................................................ 12
FORECASTS ERRORS OVER TIME TO DETECT BIAS ........................................................................................ 13
MEASURES OF FORECAST ACCURACY ........................................................................................................... 13
CONTROL CHART CONSTRUCTION ................................................................................................................ 13
FORECASTING FOR STATIONARY SERIES ....................................................................................................................... 14
moving averages .......................................................................................................................................... 14
WHAT ABOUT WEIGHTED MOVING AVERAGES?.......................................................................................... 15
EXPONENTIAL SMOOTHING.......................................................................................................................... 15
EFFECT OF a VALUE ON THE FORECAST ....................................................................................................... 16
COMPARISON OF MA AND ES ....................................................................................................................... 16
TREND-BASED METHODS ......................................................................................................................................... 17
REGRESSION FOR TIMES SERIES FORECASTING ............................................................................................ 17
DOUBLE EXPONENTIAL SMOOTHING – HOLT’s method ............................................................................... 18
METHODS FOR SEASONAL SERIES .............................................................................................................................. 18
SEASONAL FACTORS FOR STATIONARY SERIES ............................................................................................. 19
SEASONAL DECOMPOSITION USING CMA .................................................................................................... 19
BUT WHAT ABOUT NEW DATA? ................................................................................................................... 20
WINTERS’S METHOD..................................................................................................................................... 20
CONCLUSION .................................................................................................................................................... 21
INVENTORY DETERMINISTIC ........................................................................................................................ 22
RELEVANT COSTS ................................................................................................................................................... 22
holding cost .................................................................................................................................................. 22
order cost ...................................................................................................................................................... 22
sawtooth pattern .......................................................................................................................................... 23
BASIC EOQ MODEL ................................................................................................................................................ 24
ROBUSTNESS OF THE SOLUTION – SENSITIVITY............................................................................................ 24
INCLUSION OF ORDER LEAD TIME ≤ T........................................................................................................... 24
EOQ WITH FINITE PRODUCTION RATE: EPQ ................................................................................................................ 25
MOTIVATION FOR HOLDING INVENTORIES .................................................................................................. 25
QUANTITY DISCOUNTS ............................................................................................................................................ 26
ALL-UNITS DISCOUNTS.................................................................................................................................. 26
INCREMENTAL DISCOUNTS ........................................................................................................................... 26
RESOURCE-CONSTRAINED MULTIPLE PRODUCT SYSTEMS ................................................................................................ 27
MOTIVATION FOR HOLDING INVENTORIES ................................................................................................................... 28
INVENTORY STOCHASTIC ............................................................................................................................. 29
SINGLE-PERIOD INVENTORY: NEWSVENDOR MODEL ...................................................................................................... 29
1
, Optimal solution ........................................................................................................................................... 29
Performance measures ................................................................................................................................. 32
Other objectives for choosing an order quantity .......................................................................................... 33
MULTIPLE PERIOD INVENTORY MODELS ...................................................................................................................... 34
WHAT IS SAFETY STOCK (SS)? ....................................................................................................................... 34
SS FOR MULTIPLE PERIOD INVENTORY MODELS .......................................................................................... 34
DEMAND DURING UNCERTAINTY PERIOD .................................................................................................... 34
INVENTORY MANAGEMENT ...................................................................................................................................... 36
ABC ANALYSIS ............................................................................................................................................... 36
SUPPLY CHAIN MANAGEMENT ..................................................................................................................... 38
WHAT IS SUPPLY CHAIN MANAGEMENT (SCM)? ........................................................................................................ 38
WHY SO MUCH INTEREST IN SCM RECENTLY? .............................................................................................. 38
(DE)CENTRALIZING INVENTORIES?............................................................................................................................. 39
IMPACT ON SAFETY STOCK ........................................................................................................................... 40
RISK POOLING ............................................................................................................................................... 42
BULLWHIP EFFECT AND REMEDIES ............................................................................................................................. 43
TRANSPORTATION AND ROUTING .............................................................................................................................. 44
SUSTAINABLE SUPPLY CHAINS .......................................................................................................................... 44
AGGREGATE PLANNING ............................................................................................................................... 45
MANUFACTURING PLANNING AND CONTROL (MPC).................................................................................................... 45
ENTERPRISE RESOURCE PLANNING (ERP) ......................................................................................................... 45
AGGREGATE PLANNING / SALES AND OPERATIONS PLANNING (S&OP) ............................................................................ 46
HIERARCHY OF MPC FRONT END DECISIONS ................................................................................................ 46
Aggregate planning ...................................................................................................................................... 47
Strategies ...................................................................................................................................................... 48
MASTER PRODUCTION SCHEDULING ........................................................................................................................... 49
MPS – TIME-PHASED RECORD ...................................................................................................................... 49
MPS PLANNING HORIZOND .......................................................................................................................... 50
THE CODP ..................................................................................................................................................... 50
MPS AND THE CODP ..................................................................................................................................... 50
MRP (PUSH)-KANBAN (PULL) ....................................................................................................................... 51
3 MAJOR CONTROL PHASES.......................................................................................................................... 51
MATERIAL REQUIREMENTS PLANNING (MRP) BASICS................................................................................................... 52
EXPLOSION CALCULUS ............................................................................................................................................. 52
PRODUCT STRUCTURE DIAGRAM ................................................................................................................. 52
LOT-SIZING SCHEME ..................................................................................................................................... 53
ALTERNATIVE LOT-SIZING SCHEMES ........................................................................................................................... 53
EOQ lot sizing................................................................................................................................................ 54
SILVER-MEAL HEURISTIC ............................................................................................................................... 55
least unit cost ............................................................................................................................................... 56
PART PERIOD BALANCING ............................................................................................................................ 57
COMPARISON OF LOT-SIZING SCHEMES ....................................................................................................... 58
Lot sizing with capacity constraints .............................................................................................................. 58
SHORTCOMINGS OF MRP ....................................................................................................................................... 60
FROM MRP I TO MRP II TO ERP .................................................................................................................... 62
PUSH VERSUS PULL AND KANBAN .............................................................................................................................. 62
HOW MANY KANBAN CARDS NEEDED IN 1 LOOP? ....................................................................................... 63
2
, COMPARISON OF MRP AND JIT .................................................................................................................... 67
SCHEDULING ................................................................................................................................................ 68
FACTORY PLANNING ..................................................................................................................................... 68
JOB SHOP SCHEDULING PROBLEM.................................................................................................................... 68
Characteristics of job shop scheduling problem ........................................................................................... 68
OBJECTIVES IN JOB SHOP SCHEDULING ........................................................................................................ 69
COMMON SEQUENCING RULES .................................................................................................................... 69
Scheduling n jobs on 1 machine .................................................................................................................... 70
MOORE’S ALGORITHM ................................................................................................................................. 71
Scheduling n jobs on m machines ................................................................................................................. 71
JOHNSON’S RULE FOR N JOBS ON 2 SERIAL .................................................................................................. 73
JOHNSON’S RULE FOR N JOBS ON 3 SERIAL .................................................................................................. 74
IMPORTANCE OF SHORT-TERM SCHEDULING .............................................................................................. 74
PRODUCT-ORIENTED PRODUCTION ............................................................................................................................ 74
SIMPLE ASSEMBLY LINE BALANCING PROBLEM ........................................................................................... 74
HEURISTICS ................................................................................................................................................... 76
General assembly line balancing .................................................................................................................. 76
Assembly line sequencing problem ............................................................................................................... 77
HYBRID AND RECONFIGURABLE LAYOUTS .................................................................................................................... 77
PROCESS ANALYSIS ...................................................................................................................................... 78
PROCESS ANALYSIS .............................................................................................................................................. 78
PROCESS FLOW DIAGRAM ............................................................................................................................ 78
PROCESS ANALYSIS WITH MULTIPLE FLOWS ................................................................................................................. 81
GENERALIZED PROCESS FLOW PATTERNS .................................................................................................... 81
demand table................................................................................................................................................ 81
FINDING THE BOTTLENECK (MULTIPLE FLOWS) ........................................................................................... 81
Flow-dependent processing times ................................................................................................................ 82
ATTRITION LOSSES AND YIELDS ................................................................................................................................. 83
REWORK .............................................................................................................................................................. 84
PROCESS INTERRUPTIONS: SETUPS............................................................................................................................. 84
.................................................................................................................................................................... 84
VARIABILITY WAITING ................................................................................................................................. 87
WAITING LINES ..................................................................................................................................................... 87
WHY IS THERE WAITING? ........................................................................................................................................ 88
CHARACTERISTICS OF WAITING LINES ......................................................................................................................... 89
Population source ......................................................................................................................................... 89
Number of servers ........................................................................................................................................ 90
Arrival and service patterns .......................................................................................................................... 91
Queue discipline............................................................................................................................................ 92
Kendall’s notation: A/B/C ............................................................................................................................. 92
Measures of waiting line performance ......................................................................................................... 92
AN APPROXIMATE QUEUING MODEL WITH A SINGLE SERVER: G/G/1 ............................................................................... 93
Queuing models: basic relationships ............................................................................................................ 93
G/G/1 ............................................................................................................................................................ 94
The Key Drivers of Waiting Time................................................................................................................... 94
Utilization factor (ρ/(1-ρ)) ............................................................................................................................ 95
3
, WAITING LINE MANAGEMENT .................................................................................................................................. 95
Managerial implications of waiting lines...................................................................................................... 95
Goal of waiting line management ................................................................................................................ 95
OTHER QUEUEING MODELS ...................................................................................................................................... 96
M/M/1 .......................................................................................................................................................... 96
M/D/1 ........................................................................................................................................................... 97
M/M/S .......................................................................................................................................................... 98
Maximum line length .................................................................................................................................... 99
M/M/S multiple-priority model .................................................................................................................. 100
WAITING LINE MANAGEMENT APPLIED ..................................................................................................................... 102
Cost analysis ............................................................................................................................................... 102
SIMULATION ....................................................................................................................................................... 104
Reasons for the popularity of simulation .................................................................................................... 104
Basic steps for all simulation models .......................................................................................................... 104
Discrete-event simulation ........................................................................................................................... 105
Queuing theory versus simulation .............................................................................................................. 105
LEAN .......................................................................................................................................................... 106
DEFINITIONS ....................................................................................................................................................... 106
OPERATIONAL EXCELLENCE .................................................................................................................................... 107
LEAN ................................................................................................................................................................. 107
what is lean?............................................................................................................................................... 107
WASTE .............................................................................................................................................................. 109
MANAGEMENT ................................................................................................................................................... 109
LEAN TOOLBOX ................................................................................................................................................... 110
4
COURSE OVERVIEW .................................................................................................................................................. 5
DEFINITIONS OF OM ................................................................................................................................................ 5
STRATEGY AND COMPETITION .................................................................................................................................... 7
PERFORMANCE MANAGEMENT ..................................................................................................................... 9
Productivity ................................................................................................................................................... 10
MANAGING AND ANALYZING BUSINESS PROCESSES: LITTLE’S LAW .................................................................................... 10
FORECASTING .............................................................................................................................................. 11
INTRODUCTION ..................................................................................................................................................... 11
SUBJECTIVE VERSUS OBJECTIVE FORECASTING METHODS ................................................................................................ 12
EVALUATION OF FORECASTS ............................................................................................................................ 12
FORECASTS ERRORS OVER TIME TO DETECT BIAS ........................................................................................ 13
MEASURES OF FORECAST ACCURACY ........................................................................................................... 13
CONTROL CHART CONSTRUCTION ................................................................................................................ 13
FORECASTING FOR STATIONARY SERIES ....................................................................................................................... 14
moving averages .......................................................................................................................................... 14
WHAT ABOUT WEIGHTED MOVING AVERAGES?.......................................................................................... 15
EXPONENTIAL SMOOTHING.......................................................................................................................... 15
EFFECT OF a VALUE ON THE FORECAST ....................................................................................................... 16
COMPARISON OF MA AND ES ....................................................................................................................... 16
TREND-BASED METHODS ......................................................................................................................................... 17
REGRESSION FOR TIMES SERIES FORECASTING ............................................................................................ 17
DOUBLE EXPONENTIAL SMOOTHING – HOLT’s method ............................................................................... 18
METHODS FOR SEASONAL SERIES .............................................................................................................................. 18
SEASONAL FACTORS FOR STATIONARY SERIES ............................................................................................. 19
SEASONAL DECOMPOSITION USING CMA .................................................................................................... 19
BUT WHAT ABOUT NEW DATA? ................................................................................................................... 20
WINTERS’S METHOD..................................................................................................................................... 20
CONCLUSION .................................................................................................................................................... 21
INVENTORY DETERMINISTIC ........................................................................................................................ 22
RELEVANT COSTS ................................................................................................................................................... 22
holding cost .................................................................................................................................................. 22
order cost ...................................................................................................................................................... 22
sawtooth pattern .......................................................................................................................................... 23
BASIC EOQ MODEL ................................................................................................................................................ 24
ROBUSTNESS OF THE SOLUTION – SENSITIVITY............................................................................................ 24
INCLUSION OF ORDER LEAD TIME ≤ T........................................................................................................... 24
EOQ WITH FINITE PRODUCTION RATE: EPQ ................................................................................................................ 25
MOTIVATION FOR HOLDING INVENTORIES .................................................................................................. 25
QUANTITY DISCOUNTS ............................................................................................................................................ 26
ALL-UNITS DISCOUNTS.................................................................................................................................. 26
INCREMENTAL DISCOUNTS ........................................................................................................................... 26
RESOURCE-CONSTRAINED MULTIPLE PRODUCT SYSTEMS ................................................................................................ 27
MOTIVATION FOR HOLDING INVENTORIES ................................................................................................................... 28
INVENTORY STOCHASTIC ............................................................................................................................. 29
SINGLE-PERIOD INVENTORY: NEWSVENDOR MODEL ...................................................................................................... 29
1
, Optimal solution ........................................................................................................................................... 29
Performance measures ................................................................................................................................. 32
Other objectives for choosing an order quantity .......................................................................................... 33
MULTIPLE PERIOD INVENTORY MODELS ...................................................................................................................... 34
WHAT IS SAFETY STOCK (SS)? ....................................................................................................................... 34
SS FOR MULTIPLE PERIOD INVENTORY MODELS .......................................................................................... 34
DEMAND DURING UNCERTAINTY PERIOD .................................................................................................... 34
INVENTORY MANAGEMENT ...................................................................................................................................... 36
ABC ANALYSIS ............................................................................................................................................... 36
SUPPLY CHAIN MANAGEMENT ..................................................................................................................... 38
WHAT IS SUPPLY CHAIN MANAGEMENT (SCM)? ........................................................................................................ 38
WHY SO MUCH INTEREST IN SCM RECENTLY? .............................................................................................. 38
(DE)CENTRALIZING INVENTORIES?............................................................................................................................. 39
IMPACT ON SAFETY STOCK ........................................................................................................................... 40
RISK POOLING ............................................................................................................................................... 42
BULLWHIP EFFECT AND REMEDIES ............................................................................................................................. 43
TRANSPORTATION AND ROUTING .............................................................................................................................. 44
SUSTAINABLE SUPPLY CHAINS .......................................................................................................................... 44
AGGREGATE PLANNING ............................................................................................................................... 45
MANUFACTURING PLANNING AND CONTROL (MPC).................................................................................................... 45
ENTERPRISE RESOURCE PLANNING (ERP) ......................................................................................................... 45
AGGREGATE PLANNING / SALES AND OPERATIONS PLANNING (S&OP) ............................................................................ 46
HIERARCHY OF MPC FRONT END DECISIONS ................................................................................................ 46
Aggregate planning ...................................................................................................................................... 47
Strategies ...................................................................................................................................................... 48
MASTER PRODUCTION SCHEDULING ........................................................................................................................... 49
MPS – TIME-PHASED RECORD ...................................................................................................................... 49
MPS PLANNING HORIZOND .......................................................................................................................... 50
THE CODP ..................................................................................................................................................... 50
MPS AND THE CODP ..................................................................................................................................... 50
MRP (PUSH)-KANBAN (PULL) ....................................................................................................................... 51
3 MAJOR CONTROL PHASES.......................................................................................................................... 51
MATERIAL REQUIREMENTS PLANNING (MRP) BASICS................................................................................................... 52
EXPLOSION CALCULUS ............................................................................................................................................. 52
PRODUCT STRUCTURE DIAGRAM ................................................................................................................. 52
LOT-SIZING SCHEME ..................................................................................................................................... 53
ALTERNATIVE LOT-SIZING SCHEMES ........................................................................................................................... 53
EOQ lot sizing................................................................................................................................................ 54
SILVER-MEAL HEURISTIC ............................................................................................................................... 55
least unit cost ............................................................................................................................................... 56
PART PERIOD BALANCING ............................................................................................................................ 57
COMPARISON OF LOT-SIZING SCHEMES ....................................................................................................... 58
Lot sizing with capacity constraints .............................................................................................................. 58
SHORTCOMINGS OF MRP ....................................................................................................................................... 60
FROM MRP I TO MRP II TO ERP .................................................................................................................... 62
PUSH VERSUS PULL AND KANBAN .............................................................................................................................. 62
HOW MANY KANBAN CARDS NEEDED IN 1 LOOP? ....................................................................................... 63
2
, COMPARISON OF MRP AND JIT .................................................................................................................... 67
SCHEDULING ................................................................................................................................................ 68
FACTORY PLANNING ..................................................................................................................................... 68
JOB SHOP SCHEDULING PROBLEM.................................................................................................................... 68
Characteristics of job shop scheduling problem ........................................................................................... 68
OBJECTIVES IN JOB SHOP SCHEDULING ........................................................................................................ 69
COMMON SEQUENCING RULES .................................................................................................................... 69
Scheduling n jobs on 1 machine .................................................................................................................... 70
MOORE’S ALGORITHM ................................................................................................................................. 71
Scheduling n jobs on m machines ................................................................................................................. 71
JOHNSON’S RULE FOR N JOBS ON 2 SERIAL .................................................................................................. 73
JOHNSON’S RULE FOR N JOBS ON 3 SERIAL .................................................................................................. 74
IMPORTANCE OF SHORT-TERM SCHEDULING .............................................................................................. 74
PRODUCT-ORIENTED PRODUCTION ............................................................................................................................ 74
SIMPLE ASSEMBLY LINE BALANCING PROBLEM ........................................................................................... 74
HEURISTICS ................................................................................................................................................... 76
General assembly line balancing .................................................................................................................. 76
Assembly line sequencing problem ............................................................................................................... 77
HYBRID AND RECONFIGURABLE LAYOUTS .................................................................................................................... 77
PROCESS ANALYSIS ...................................................................................................................................... 78
PROCESS ANALYSIS .............................................................................................................................................. 78
PROCESS FLOW DIAGRAM ............................................................................................................................ 78
PROCESS ANALYSIS WITH MULTIPLE FLOWS ................................................................................................................. 81
GENERALIZED PROCESS FLOW PATTERNS .................................................................................................... 81
demand table................................................................................................................................................ 81
FINDING THE BOTTLENECK (MULTIPLE FLOWS) ........................................................................................... 81
Flow-dependent processing times ................................................................................................................ 82
ATTRITION LOSSES AND YIELDS ................................................................................................................................. 83
REWORK .............................................................................................................................................................. 84
PROCESS INTERRUPTIONS: SETUPS............................................................................................................................. 84
.................................................................................................................................................................... 84
VARIABILITY WAITING ................................................................................................................................. 87
WAITING LINES ..................................................................................................................................................... 87
WHY IS THERE WAITING? ........................................................................................................................................ 88
CHARACTERISTICS OF WAITING LINES ......................................................................................................................... 89
Population source ......................................................................................................................................... 89
Number of servers ........................................................................................................................................ 90
Arrival and service patterns .......................................................................................................................... 91
Queue discipline............................................................................................................................................ 92
Kendall’s notation: A/B/C ............................................................................................................................. 92
Measures of waiting line performance ......................................................................................................... 92
AN APPROXIMATE QUEUING MODEL WITH A SINGLE SERVER: G/G/1 ............................................................................... 93
Queuing models: basic relationships ............................................................................................................ 93
G/G/1 ............................................................................................................................................................ 94
The Key Drivers of Waiting Time................................................................................................................... 94
Utilization factor (ρ/(1-ρ)) ............................................................................................................................ 95
3
, WAITING LINE MANAGEMENT .................................................................................................................................. 95
Managerial implications of waiting lines...................................................................................................... 95
Goal of waiting line management ................................................................................................................ 95
OTHER QUEUEING MODELS ...................................................................................................................................... 96
M/M/1 .......................................................................................................................................................... 96
M/D/1 ........................................................................................................................................................... 97
M/M/S .......................................................................................................................................................... 98
Maximum line length .................................................................................................................................... 99
M/M/S multiple-priority model .................................................................................................................. 100
WAITING LINE MANAGEMENT APPLIED ..................................................................................................................... 102
Cost analysis ............................................................................................................................................... 102
SIMULATION ....................................................................................................................................................... 104
Reasons for the popularity of simulation .................................................................................................... 104
Basic steps for all simulation models .......................................................................................................... 104
Discrete-event simulation ........................................................................................................................... 105
Queuing theory versus simulation .............................................................................................................. 105
LEAN .......................................................................................................................................................... 106
DEFINITIONS ....................................................................................................................................................... 106
OPERATIONAL EXCELLENCE .................................................................................................................................... 107
LEAN ................................................................................................................................................................. 107
what is lean?............................................................................................................................................... 107
WASTE .............................................................................................................................................................. 109
MANAGEMENT ................................................................................................................................................... 109
LEAN TOOLBOX ................................................................................................................................................... 110
4
