1. Project Management and Operations

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

3. 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 -

4. Elements of Project Management
Project team
Individuals from different departments within company
Matrix organization
Team structure with members from different functional areas depending on skills needed
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

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

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

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

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

9. A Gantt Chart Around since 1914
Popular tool for project scheduling
Graph with bar for representing the time for each task
Provides visual display of project schedule
Also shows slack for activities
Amount of time activity can be delayed without delaying project

10. Gantt Charts Gantt described two principles for his charts:
measure activities by the amount of time needed to complete them
the space on the chart can be used the represent the amount of the activity that should have been done in that time.
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.

11. A Gantt Chart Month 0 2 4 6 8 10 | | | | | 1 3 5 7 9 Figure 6.2
| | | | |
Activity
Design house and obtain financing
Lay foundation
Order and receive materials
Build house
Select paint
Select carpet
Finish work
Month
Figure 6.2

12. Example of Gantt Chart Problem

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 House3 2 1 4 6 7 5
Lay foundation
Design house and obtain financing
Order and receive materials
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
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

17. The Critical Path A: 1-2-3-4-6-7 3 + 2 + 0 + 3 + 1 = 9 months1 4 6 7 5
Lay foundation
Design house and obtain financing
Order and receive materials
Dummy
Finish work
Select carpet
Select paint
Build house
A: = 9 months
B: = 8 months
C: = 8 months
D: = 7 months

18. The Critical Path 1 2 4 6 7 3 5 Activity Start Times1 4 6 7 5
Lay foundation
Design house and obtain financing
Order and receive materials
Dummy
Finish work
Select carpet
Select paint
Build house 1 2 4 6 7 3 5
Start at 3 months
Start at 5 months
Finish at 9 months
Start at 8 months
Activity Start Times
Figure 6.6

19. 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

20. Time-Cost Relationship
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

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. Capacity and Aggregate Planning

23. Capacity Outputs: Examples

24. The goal of capacity planning decisions
The capacity of the firm to produce the service or good
The processes for providing the service or making the good
The layout or arrangement of the work space
The design of work processes to enhance productivity

25. Capacity The max output that an organization be capable of producing
Measure a single facility:
Design vs. Effective capacity
Capacity Utilization: design vs. efficient utilization
For systems have more than one facility and flows of product
System capacity and bottleneck
Improve system capacity

26. Determinants of Effective Capacity
Facilities
Human considerations
Adding people
Increasing employee motivation
Operations
Improving operating rate of a machine
Improving quality of raw materials and components
External forces
Safety regulations

27. Capacity Utilization
Measures how much of the available capacity is actually being used:
Always <=1(percentage of usage)
Higher the better
Denominator:
If effective capacity used: efficient utilization
If design capacity used: design utilization

28. Aggregate Planning
The process of planning the quantity and timing of output over the intermediate range (3-18 months) by adjusting production rate, employment, inventory
Master Production Schedule: formalizes the production plan and translates it into specific end item requirements over the short to intermediate horizon

29. Capacity Planning
The process of determining the amount of capacity required to produce in the future. May be at the aggregate or product line level
Master Production Schedule - anticipated build schedule
Time horizon must exceed lead times for materials

30. Capacity Planning
Look at lead times, queue times, set up times, run times, wait times, move times
Resource availability
Material and capacity - should be in synch
driven by dispatch list - listing of manufacturing orders in priority sequence - ties to layout planning
load profiles - capacity of each section

31. the capacity decisions:
When to add capacity
How much capacity to add
Where to add capacity
What type of capacity to add
When to reduce capacity

32. Capacity Planning
Rough Cut Capacity Planning - process of converting the master production schedule into requirements for key resources
capacity requirements plan - time-phased display of present and future capacity required on all resources based on planned and released orders

33. Capacity Planning
Capacity Requirements Planning (CRP) - process of determining in detail the amount of labor and machine resources required to meet production plan
RCCP may indicate sufficient capacity but the CRP may indicate insufficient capacity during specific time periods

34. Theory of Constraints Every system has a bottle neck
capacity of the system is constrained by the capacity of the bottle neck
increasing capacity at other than bottle neck operations does not increase the overall capacity of the system

35. Theory of Constraints What needs to be changed What to change to
How to make the change happen

36. Theory of Constraints Identify the constraint Subordinate Inertia
Walk the process again
inertia of change can create new bottle necks

37. Capacity Planning Establishes overall level of productive resources
Affects lead time responsiveness, cost & competitiveness
Determines when and how much to increase capacity

38. Capacity Expansion Volume & certainty of anticipated demand
Strategic objectives for growth
Costs of expansion & operation
Incremental or one-step expansion

39. Sales and Operations Planning (S&OP)
Brings together all plans for business
performed at least once a month
Internal and external

40. Adjusting Capacity to Meet Demand
Producing at a constant rate and using inventory to absorb fluctuations in demand (level production)
Hiring and firing workers to match demand (chase demand)
Maintaining resources for high demand levels
Increase or decrease working hours (overtime and undertime)
Subcontracting work to other firms
Using part-time workers
Providing the service or product at a later time period (backordering)

41. Demand Management Shift demand into other periods
Incentives, sales promotions, advertising campaigns
Offer product or services with countercyclical demand patterns
Partnering with suppliers to reduce information distortion along the supply chain

42. Remedies for Underloads
Acquire more work
Pull work ahead that is scheduled for later time periods
Reduce normal capacity

43. Remedies for Overloads
Eliminate unnecessary requirements
Reroute jobs to alternative machines or work centers
Split lots between two or more machines
Increase normal capacity
Subcontract
Increase the efficiency of the operation
Push work back to later time periods
Revise master schedule

44. Scheduling as part of the Planning Process

45. Scheduling Scheduling is the last step in the planning process?
It is one of the most challenging areas of operations management.
Scheduling presents many day-to-day problems for operations managers because of
Changes in customer orders
Equipment breakdowns
Late deliveries from suppliers
A myriad of other disruptions

46. Objectives in Scheduling
Meet customer due dates
Minimize job lateness
Minimize response time
Minimize completion time
Minimize time in the system
Minimize overtime
Maximize machine or labor utilization
Minimize idle time
Minimize work-in-process inventory
Efficiency

47. Sequencing Rules FCFS - first-come, first-served
LCFS - last come, first served
DDATE - earliest due date
CUSTPR - highest customer priority
SETUP - similar required setups
SLACK - smallest slack
CR - critical ratio
SPT - shortest processing time
LPT - longest processing time

48. Critical Ratio Rule CR considers both time and work remaining
If CR > 1, job ahead of schedule
If CR < 1, job behind schedule
If CR = 1, job on schedule
time remaining due date - today’s date
work remaining remaining processing time
Ties scheduling to Gantt Chart or PERT/CPM

49. Chapter 12
Inventory Management

52. Why is Inventory Important to Operations Management?
The average manufacturing organization spends 53.2% of every sales dollar on raw materials, components, and maintenance repair parts
Inventory Control – how many parts, pieces, components, raw materials and finished goods

53. Inventory Conflict Accounting – zero inventory
Production – surplus inventory or “just in case” safety stocks
Marketing – full warehouses of finished product
Purchasing – caught in the middle trying to please 3 masters

54. Inventory Stock of items held to meet future demand
Insurance against stock out
Coverage for inefficiencies in systems
Inventory management answers two questions
How much to order
When to order

55. Types of Inventory Raw materials Purchased parts and supplies
In-process (partially completed) products
Component parts
Working capital
Tools, machinery, and equipment
Safety stock
Just-in-case

56. Inventory Hides Problems
Policies
Inventory
Accuracy
Transportation
Problems
Training
Poor
Quality

57. Aggregate Inventory Management
How much do we have now?
How much do we want?
What will be the output?
What input must we get?
Correctly answering the question about when to order is far more important than determining how much to order.

58. Inventory Costs Carrying Cost Cost of holding an item in inventory
As high as 25-35% of value
Insurance, maintenance, physical inventory, pilferage, obsolete, damaged, lost
Ordering Cost
Cost of replenishing inventory
Shortage Cost
Temporary or permanent loss of sales when demand cannot be met

59. ABC Classification System
Demand volume and value of items vary
Classify inventory into 3 categories, typically on the basis of the dollar value to the firm
PERCENTAGE PERCENTAGE
CLASS OF UNITS OF DOLLARS A
B 30 15 C

60. Why ABC? Inventory controls Security controls Monetary constraints
Storage locations

61. Economic Order Quantity

62. Assumptions of Basic EOQ Model
Demand is known with certainty and is constant over time
No shortages are allowed
Lead time for the receipt of orders is constant
The order quantity is received all at once

63. No reason to use EOQ if: Customer specifies quantity
Production run is not limited by equipment constraints
Product shelf life is short
Tool/die life limits production runs
Raw material batches limit order quantity

64. EOQ Formula 2CoD Cc EOQ = Co = Ordering costs
D= Annual Demand
Cc = Carrying Costs
Cost per order can increase
if size of orders decreases
Most companies have no idea
of actual carrying costs

65. When to Order
Reorder Point is the level of inventory at which a new order is placed
R = dL
where
d = demand rate per period
L = lead time

66. Forms of Reorder Points
Fixed
Variable
Two Bin
Card
Judgmental
Projected shortfall

67. Why Safety Stock Accurate Demand Forecast Length of Lead Time
Size of order quantities
Service level

68. Inventory Control Cyclic Inventory Annual Inventory Periodic Inventory
Sensitive Item Inventory

69. Vendor-Managed Inventory
Not a new concept – same process used by bread deliveries to stores for decades
Reduces need for warehousing
Increased speed, reduced errors, and improved service
Onus is on the supplier to keep the shelves full or assembly lines running
variation of JIT
Proctor&Gamble - Wal-Mart
DLA – moving from a manager of supplies to a manager of suppliers
Direct Vendor Deliveries – loss of visibility

70. Inventory Management: Special Concerns
Defining stock-keeping units (SKUs)
Increase in number of SKUs – 15% over past 3 years
Dead inventory
Deals
Substitute items
Complementary items
Informal arrangements outside the distribution channel
Repair/replacement parts
Reverse logistics