1. Week 5 Fall 2

2. Project Management and Operations

3. Project Management First Essay on Project Management: 1697 – “An Essay Upon Projects” 1959 HBR Article – “The Project Manager” Air Force Manual 1964

4. Project Management In today’s global marketplace, complexity and speed are certainties. In such an environment, a good axiom for project management is, Do It, Do It Right, Do It Right Now. Creating clear direction, efficiency, timely response, and quality outcomes requires project managers who are agile -- adept at change. The associated disciplinary areas are clearly spelled out in the following PMI definition. “Project management is the application of knowledge, skills, tools, and techniques to a broad range of activities in order to meet the requirements of a particular project. Project management is comprised of five Project Management Process Groups – Initiating Processes, Planning Processes, Executing Processes, Monitoring and Controlling Processes, and Closing Processes. Source: Project Management Institute - http://www.pmi.org/info/PP_AboutProfessionOverview.asp?nav=0501http://www.pmi.org/info/PP_AboutProfessionOverview.asp?nav=0501

5. Elements of Project Management Project team Project team Individuals from different departments within company Individuals from different departments within company Matrix organization Matrix organization Team structure with members from different functional areas depending on skills needed Team structure with members from different functional areas depending on skills needed Project manager - Leader of project team Project manager - Leader of project team Project Charter – high level description of what is to be accomplished in a project and delegates authority to project manager to implement actions to complete project Project Charter – high level description of what is to be accomplished in a project and delegates authority to project manager to implement actions to complete project

6. Project Planning Statement of work Statement of work Written description of goals, work & time frame of project Written description of goals, work & time frame of project Activities require labor, resources & time Activities require labor, resources & time Precedence relationship shows sequential relationship of project activities Precedence relationship shows sequential relationship of project activities

7. Elements of Project Planning Define project objective(s) Define project objective(s) Identify activities Identify activities Establish precedence relationships Establish precedence relationships Make time estimates Make time estimates Determine project completion time Determine project completion time Compare project schedule objectives Compare project schedule objectives Determine resource requirements to meet objective Determine resource requirements to meet objective

8. Work Breakdown Structure Hierarchical organization of work to be done on a project Hierarchical organization of work to be done on a project Project broken down into modules Project broken down into modules Modules subdivided into subcomponents, activities, and tasks Modules subdivided into subcomponents, activities, and tasks Identifies individual tasks, workloads, and resource requirements Identifies individual tasks, workloads, and resource requirements

9. Project Control All activities identified and included All activities identified and included Completed in proper sequence Completed in proper sequence Resource needs identified Resource needs identified Schedule adjusted Schedule adjusted Maintain schedule and budget Maintain schedule and budget Complete on time Complete on time

10. A Gantt Chart Popular tool for project scheduling Popular tool for project scheduling Graph with bar for representing the time for each task Graph with bar for representing the time for each task Provides visual display of project schedule Provides visual display of project schedule Also shows slack for activities - Also shows slack for activities - Amount of time activity can be delayed without delaying project Around since 1912

11. Gantt Charts Gantt charts were employed on major infrastructure projects including the Hoover Dam and Interstate highway system and still are an important tool in project management. Gantt described two principles for his charts: 1.measure activities by the amount of time needed to complete them 2.the space on the chart can be used the represent the amount of the activity that should have been done in that time.

12. A Gantt Chart |||||||||| Activity Design house and obtain financing Lay foundation Order and receive materials Build house Select paint Select carpet Finish work 0246810 MonthMonth 13579135791357913579

13. CPM/PERT Critical Path Method (CPM) DuPont & Remington-Rand (1956) Deterministic task times Project Eval. & Review Technique (PERT) US Navy, Lockheed Multiple task time estimates

14. PERT/CPM Program Evaluation and Review Technique (PERT): developed in conjunction with the development of the Polaris missile program for submarines – developed by the US Navy with Lockheed as the lead contractor Critical Path Method (CPM): developed through a joint venture between the DuPont Corporation and the Remington Rand Corporation – the original purpose was to monitor and evaluate plant maintenance management projects.

15. Project Network for a House 3 20 1 3 11 1 12467 3 5 Lay foundation Design house and obtain financing Order and receive material s Dummy Finish work Select carpet Select paint Build house Figure 6.4

16. Critical Path A path is a sequence of connected activities running from start to end node in network A path is a sequence of connected activities running from start to end node in network The critical path is the path with the longest duration in the network The critical path is the path with the longest duration in the network Project cannot be completed in less than the time of the critical path Project cannot be completed in less than the time of the critical path

17. The Critical Path A:1-2-3-4-6-7 3 + 2 + 0 + 3 + 1 = 9 months B:1-2-3-4-5-6-7 3 + 2 + 0 + 1 + 1 + 1 = 8 months C:1-2-4-6-7 3 + 1 + 3 + 1 = 8 months D:1-2-4-5-6-7 3 + 1 + 1 + 1 + 1 = 7 months 3 20 1 3 11 1 12467 3 5 Lay foundatio n Design house and obtain financing Order and receive material s Dummy Finish work Select carpet Select paint Build house

18. Project Crashing Crashing is reducing project time by expending additional resources Crash time is an amount of time an activity is reduced Crash cost is the cost of reducing the activity time Goal is to reduce project duration at minimum cost

19. The Critical Path 3 20 1 3 11 1 12467 3 5 Lay foundatio n Design house and obtain financing Order and receive material s Dummy Finish work Select carpet Select paint Build house 12467 3 5 3 20 1 3 11 Start at 3 months Start at 5 months 1 Finish at 9 months Start at 8 months Figure 6.6 Activity Start Times

20. Crashing costs increase as project duration decreases Indirect costs increase as project duration increases Reduce project length as long as crashing costs are less than indirect costs Time-Cost Relationship

21. Life Cycle Management  Long term view of projects to guide decision making – solutions that provide life time success vice short term  Acquisition; development; production; introduction; sustainment; disposal  Links system costs to big picture; better use of resources; minimize total cost of ownership

22. Forecasting

23. Forecasting Survey How far into the future do you typically project when trying to forecast the health of your industry? ]less than 4 months3% ]4-6 months12% ]7-12 months28% ]> 12 months57% Fortune Council survey, Nov 2005

24. Indices to forecast health of industry  Consumer price index 51%  Consumer Confidence index44%  Durable goods orders20%  Gross Domestic Product35%  Manufacturing and trade inventories and sales27%  Price of oil/barrel34%  Strength of US $46%  Unemployment rate53%  Interest rates/fed funds59% Fortune Council survey, Nov 2005

25. Forecasting Importance  Improving customer demand forecasting and sharing the information downstream will allow more efficient scheduling and inventory management  Boeing, 1987: $2.6 billion write down due to “raw material shortages, internal and supplier parts shortages” Wall Street Journal, Oct 23, 1987

26. Forecasting Importance  “Second Quarter sales at US Surgical Corporation decline 25%, resulting in a $22 mil loss…attributed to larger than anticipated inventories on shelves of hospitals.” US Surgical Quarterly, Jul 1993  “IBM sells out new Aetna PC; shortage may cost millions in potential revenue.” Wall Street Journal, Oct 7, 1994

27. Principles of Forecasting  Forecasts are usually wrong  every forecast should include an estimate of error  Forecasts are more accurate for families or groups  Forecasts are more accurate for nearer periods.

28. Important Factors to Improve Forecasting  Record Data in the same terms as needed in the forecast – production data for production forecasts; time periods  Record circumstances related to the data  Record the demand separately for different customer groups

29. Forecast Techniques  Extrinsic Techniques – projections based on indicators that relate to products – examples  Intrinsic – historical data used to forecast (most common)

30. Forecasting Forecasting errors can increase the total cost of ownership for a product - inventory carrying costs - obsolete inventory - lack of sufficient inventory - quality of products due to accepting marginal products to prevent stockout

31. Forecasting  Essential for smooth operations of business organizations  Estimates of the occurrence, timing, or magnitude of uncertain future events  Costs of forecasting: excess labor; excess materials; expediting costs; lost revenues

32. Forecasting Predicting future events Usually demand behavior over a time frame Qualitative methods Based on subjective methods Quantitative methods Based on mathematical formulas

33. Time Frame Short-range to medium-range Daily, weekly monthly forecasts of sales data Up to 2 years into the future Long-range Strategic planning of goals, products, markets Planning beyond 2 years into the future

34. Demand Behavior Trend gradual, long-term up or down movement Cycle up & down movement repeating over long time frame Seasonal pattern periodic oscillation in demand which repeats Random movements follow no pattern

35. Forms of Forecast Movement Time (a) Trend Time (d) Trend with seasonal pattern Time (c) Seasonal pattern Time (b) Cycle Demand Demand Demand Demand Random movement

36. Forecasting Methods Time series Regression or causal modeling Qualitative methods Management judgment, expertise, opinion Use management, marketing, purchasing, engineering Delphi method Solicit forecasts from experts

37. Time Series Methods Statistical methods using historical data Moving average Exponential smoothing Linear trend line Assume patterns will repeat Naive forecasts Forecast = data from last period

38. Moving Average Average several periods of data Average several periods of data Dampen, smooth out changes Dampen, smooth out changes Use when demand is stable with no trend or seasonal pattern Use when demand is stable with no trend or seasonal pattern Sum of Demand In n Periods n

39. Simple Moving Average Jan120 Feb90 Mar100 Apr75 May110 June50 July75 Aug130 Sept110 Oct90 ORDERS MONTHPER MONTH

40. Jan120 Feb90 Mar100 Apr75 May110 June50 July75 Aug130 Sept110 Oct90 ORDERS MONTHPER MONTH Example 8.1 MA nov = 3 = 90 + 110 + 130 3 = 110 orders for Nov Simple Moving Average D aug +D sep +D oct

41. Jan120– Feb90 – Mar100 – Apr75103.3 May11088.3 June5095.0 July7578.3 Aug13078.3 Sept11085.0 Oct90105.0 Nov –110.0 ORDERSTHREE-MONTH MONTHPER MONTHMOVING AVERAGE Simple Moving Average

42. Jan120– Feb90 – Mar100 – Apr75103.3 May11088.3 June5095.0 July7578.3 Aug13078.3 Sept11085.0 Oct90105.0 Nov –110.0 ORDERSTHREE-MONTH MONTHPER MONTHMOVING AVERAGE Example 8.1 = 90 + 110 + 130 + 75 + 50 5 = 91 orders for Nov Simple Moving Average

43. Jan120– – Feb90 – – Mar100 – – Apr75103.3 – May11088.3 – June5095.099.0 July7578.385.0 Aug13078.382.0 Sept11085.088.0 Oct90105.095.0 Nov –110.091.0 ORDERSTHREE-MONTHFIVE-MONTH MONTHPER MONTHMOVING AVERAGEMOVING AVERAGE

44. Weighted Moving Average Adjusts moving average method to more closely reflect data fluctuations

45. Weighted Moving Average WMA n = i = 1  Wi DiWi DiWi DiWi Di where W i = the weight for period i, between 0 and 100 percent  W i = 1.00 Adjusts moving average method to more closely reflect data fluctuations Adjusts moving average method to more closely reflect data fluctuations

46. Weighted Moving Average Example MONTH WEIGHT DATA August 17%130 September 33%110 October 50%90

47. Weighted Moving Average Example MONTH WEIGHT DATA August 17%130 September 33%110 October 50%90 November forecast WMA 3 = 3 i = 1  Wi DiWi DiWi DiWi Di = (0.50)(90) + (0.33)(110) + (0.17)(130) = 103.4 orders 3 Month = 110 5 month = 91

48. Averaging method Weights most recent data more strongly Reacts more to recent changes Widely used, accurate method Exponential Smoothing

49. F t +1 = D t + (1 - )F t where F t +1 =forecast for next period D t =actual demand for present period F t =previously determined forecast for present period =weighting factor, smoothing constant Averaging method Weights most recent data more strongly Reacts more to recent changes Widely used, accurate method Exponential Smoothing

50. Forecast for Next Period  Forecast = (weighting factor)x(actual demand for period)+(1-weighting factor)x(previously determined forecast for present period) 0 >  <= 1 Lesser reaction to recent demand Greater reaction to recent demand

51. Forecast Accuracy Find a method which minimizes error Error = Actual - Forecast

52. Forecast Control Reasons for out-of-control forecasts Change in trend Appearance of cycle Weather changes Promotions Competition Politics

53. Reverse Logistics: Important or Irritant? Estimated $100 billion industry in 2006 Survey shows considerable spending on Returns

54. “In an ideal world, reverse logistics would not exist.” Jim Whalen, “In Through the Out Door,” Warehousing Management, March 2001

55. “Now, more than ever, reverse logistics is seen as being important.” Dale Rogers, Going Backwards, 1999

56. Reverse Logistics - What is it? The Army’s Definition The return of serviceable supplies that are surplus to the needs of the unit or are unserviceable and in need of rebuild or remanufacturing to return the item to a serviceable status

57. Reverse Logistics - What is it? The Commercial Perspective  Reverse Logistics is the process of moving products from their typical final destination to another point, for the purpose of capturing value otherwise unavailable, or for the proper disposal of the products.  Any activity that takes money from the company after the sale of the product

58. Typical Reverse Logistics Activities  Processing returned merchandise - damaged, seasonal, restock, salvage, recall, or excess inventory  Recycling packaging materials/containers  Reconditioning, refurbishing, remanufacturing  Disposition of obsolete stuff  Hazmat recovery

59. Why Reverse Logistics?  Competitive advantage  Customer service - Very Important: 57% - Important: 18% - Somewhat/unimportant:23%  Bottom line profits

60. Reverse Logistics - New Problem?  Sherman  Montgomery Ward’s - 1894  Recycling/remanufacturing in 1940s  World War II - 77,000,000 square feet of storage across Europe with over $6.3 billion in excess stuff  Salvage and reuse of clothing and shoes in the Pacific Theater World War II

61. Key Dates in Reverse Logistics  World War II – the advent of refurbished automobile parts due to shortages  1984 - Tylenol Scare - Johnson and Johnson  1991 - German ordinance that put teeth in environmental reverse pipeline  Summer 1996 – UK Packaging and Packaging Waste Legislation  1998 - first real study of reverse logistics in the US - University of Nevada, Reno  2001 – EU goal of 50-65% recovering or recycling of packaging waste

62. Reverse Logistics A US Army Perspective

63. Operation Iraqi Freedom The US Army moved the equivalent of 150 Wal-Mart Supercenters to Kuwait in a matter of a few months

64. Military Operations and Excess “In battle, troops get temperamental and ask for things which they really do not need. However, where humanly possible, their requests, no matter how unreasonable, should be answered.” George S. Patton, Jr.

65. Jane’s Defence Weekly “Recent report (Aug 2003): There is a 40 hectare (~100 acres) area in Kuwait with items waiting to be retrograded back to the US.”

66. From GAO Audit Report Does this create a problem?

67. From GAO Audit Report

68. Reverse Logistics The Commercial Perspective

70. Reverse Logistics  Rate of returns?  Cost to process a return?  Time to get the item back on the shelf if resaleable?

71. Costs - above the cost of the item  Merchandise credits to the customers.  The transportation costs of moving the items from the retail stores to the central returns distribution center.  The repackaging of the serviceable items for resale.  The cost of warehousing the items awaiting disposition.  The cost of disposing of items that are unserviceable, damaged, or obsolete.

72. Costs  Process inbound shipment at a major distribution center = 1.1 days  Process inbound return shipment = 8.5 days  Cost of lost sales  Wal-Mart: Christmas 2003 - returns = 4 Days of Supply for all of Wal-Mart = 2000 Containers

73. More Costs  Hoover - $40 Million per year  Cost of processing $85 per item  Unnamed Distribution Company - $700K items on reverse auction  2001 - over $60 billion in returns; $52 billion excess to systems; $40 billion to process  2010 – majority of cell phones -

74.  Estimate of 2004 holiday returns: $13.2 billion  % of estimated 2004/2005 holiday returns: 25%  Wal-Mart: $6 Billion in annual returns = 17,000 truck loads (>46 trucks a day)  Electronics: $10 Billion annually in returns  Personal Computers: $1.5 Billion annually = approximately $95 per PC sold  79% of returned PCs have no defects  Home Depot ~ $10 million in returns in the stores alone  Local Wal-Mart ~ $1 million a month in returns

75. Is it a Problem?  European influence – spread to US - Green Laws  Estee Lauder - $60 million a year into land fills  FORTUNE 500 Company - $200 million over their $300 million budget for returns  Same Provider - 40,000 products returned per month; 55% no faults noted  K-Mart - $980 million in returns 1999  Warranty vice paid repairs  Recent survey of FORTUNE 500 Companies = 12% of companies:

76. More consequences  Increased Customer Wait Times  Loss of Confidence in the Supply System  Multiple orders for the same items  Excess supplies in the forward pipeline  Increase in “stuff” in the reverse pipeline  Constipated supply chain

77. Impact?  Every resaleable item that is in the reverse supply chain results in a potential stock out or “zero balance” at the next level of supply.  Creates a “stockout” do-loop

78. Results?  This potential for a stock out results in additional parts on the shelves at each location to prevent a stock out from occurring.  More stocks = “larger logistics footprint” = the need for larger distribution centers and returns centers.

79. Reverse Logistics  According to the Reverse Logistics Executive Council, the percent increase in costs for processing a return, as compared to a forward sale, is an astounding 200- 300%.  Typically, as many as 8-12 more steps per item in the reverse pipeline than items in the forward pipeline

80. “The truth is, for one reason or another, materials do come back and it is up to those involved in the warehouse to effectively recover as much of the cost for these items as possible.” - Whalen, “In Through the Out Door”

81. RFID and Returns  Visibility Tracking  Component tracking  Data Warehouse on what, why, when  Altered products  Not for every product

82. Impacts of Reverse Logistics  Forecasting  Carrying costs  Processing costs  Warehousing  Distribution  Transportation  Personnel  Marketing