OM final
considerations are important to the design of a product.
(1) robust design, (2) modular design, (3) computer-aided design/computer-aided manufacturing (CAD/CAM), (4) virtual reality technology, (5) value analysis, and (6) sustainability/life cycle assessment (LCA)
impact of product demand forecast on three activities:
1) supply-chain management, (2) human resources, and (3) capacity.
time series models
1. naive approach 2.moving averages 3. exponential smoothing 4.trend projection
Five Quantitative forcasting methods
1. naive approach 2.moving averages 3. exponential smoothing 4.trend projection 5.linear regression
Medium-range forecast
A medium-range, or intermediate, forecast generally spans from 3 months to 3 years. It is useful in sales planning, production planning and budgeting, cash budgeting, and analysis of various operating plans.
Mean Absolute Percent Error
A problem with both the MAD and MSE is that their values depend on the magnitude of the item being forecast. If the forecast item is measured in thousands, the MAD and MSE values can be very large. To avoid this problem, we can use the mean absolute percent error (MAPE). This is computed as the average of the absolute difference between the forecasted and actual values, expressed as a percentage of the actual values.
when α reaches the extreme of 1.0
All the older values drop out, and the forecast becomes identical to the naive model mentioned earlier in this chapter. That is, the forecast for the next period is just the same as this period's demand.
how how the quality effort will be deployed.
Another use of quality function deployment (QFD) is to
Maturity Phase
By the time a product is mature, competitors are established. So high-volume, innovative production may be appropriate. Improved cost control, reduction in options, and a paring down of the product line may be effective or necessary for profitability and market share.
PERT and CPM both follow six basic steps:
Define the project and prepare the work breakdown structure. Develop the relationships among the activities. Decide which activities must precede and which must follow others. Draw the network connecting all the activities. Assign time and/or cost estimates to each activity. Compute the longest time path through the network. This is called the critical path. Use the network to help plan, schedule, monitor, and control the project.
Seven Steps in the Forecasting System step 3
Determine the time horizon of the forecast: Is it short, medium, or long term? Disney develops daily, weekly, monthly, annual, and 5-year forecasts.
Seven Steps in the Forecasting System step 1
Determine the use of the forecast: Disney uses park attendance forecasts to drive decisions about staffing, opening times, ride availability, and food supplies.
Advantages of PERT
Especially useful when scheduling and controlling large projects. Straightforward concept and not mathematically complex. Graphical networks help highlight relationships among project activities. Critical path and slack time analyses help pinpoint activities that need to be closely watched. Project documentation and graphs point out who is responsible for various activities. Applicable to a wide variety of projects. Useful in monitoring not only schedules but costs as well.
student tip
Forecasts tend to be more accurate as they become shorter. Therefore, forecast error also tends to drop with shorter forecasts
Three popular techniques to allow managers to plan, schedule, and control
Gantt charts, PERT, and CPM
Gantt chart problems
Gantt charts, though, do not adequately illustrate the interrelationships between the activities and the resources
Seven Steps in the Forecasting System step 5
Gather the data needed to make the forecast: Disney's forecasting team employs 35 analysts and 70 field personnel to survey 1 million people/businesses every year. Disney also uses a firm called Global Insights for travel industry forecasts and gathers data on exchange rates, arrivals into the U.S., airline specials, Wall Street trends, and school vacation schedules.
Long-range forecast:
Generally 3 years or more in time span, long-range forecasts are used in planning for new products, capital expenditures, facility location or expansion, and research and development.
Supply chain
Good supplier relations and the ensuing advantages in product innovation, cost, and speed to market depend on accurate forecasts.
Usually, we can shorten an activity by adding extra resources (e.g., equipment, people) to it.
Hence, it is logical for the crash cost of an activity to be higher than its normal cost.
Human Resources
Hiring, training, and laying off workers all depend on anticipated demand. If the human resources department must hire additional workers without warning, the amount of training declines, and the quality of the workforce suffers. A large Louisiana chemical firm almost lost its biggest customer when a quick expansion to around-the-clock shifts led to a total breakdown in quality control on the second and third shifts.
Growth Phase
In the growth phase, product design has begun to stabilize, and effective forecasting of capacity requirements is necessary. Adding capacity or enhancing existing capacity to accommodate the increase in product demand may be necessary.
qualitative forecasting techniques: Sales force composite:
In this approach, each salesperson estimates what sales will be in his or her region. These forecasts are then reviewed to ensure that they are realistic. Then they are combined at the district and national levels to reach an overall forecast. A variation of this approach occurs at Lexus, where every quarter Lexus dealers have a "make meeting." At this meeting, they talk about what is selling, in what colors, and with what options, so the factory knows what to build.
Moving averages do, however, present three problems:
Increasing the size of n (the number of periods averaged) does smooth out fluctuations better, but it makes the method less sensitive to changes in the data. Moving averages cannot pick up trends very well. Because they are averages, they will always stay within past levels and will not predict changes to either higher or lower levels. That is, they lag the actual values. Moving averages require extensive records of past data.
mean squared error (MSE)
MSE is the average of the squared differences between the forecasted and observed values.
Seven Steps in the Forecasting System step 6
Make the forecast.
Decline Phase
Management may need to be ruthless with those products whose life cycle is at an end. Dying products are typically poor products in which to invest resources and managerial talent. Unless dying products make some unique contribution to the firm's reputation or its product line or can be sold with an unusually high contribution, their production should be terminated
Mathematically, the simple moving average (which serves as an estimate of the next period's demand) is expressed as:
Movingaverage=∑demand in previous n periods /n
The basic exponential smoothing formula can be shown as follows:
Newforecast=Lastperiod'sforecast+α(Last period's actual demand−Last period'sforecast) where α is a weight, or smoothing constant, chosen by the forecaster, that has a value greater than or equal to 0 and less than or equal to 1 can also be written mathematically as: Ft=Ft−1+α(At−1−Ft−1) where: Ft= new forecast Ft-1= last years forecast fish thing= smoothing or weight At-1=previous periods actual demand
In PERT we employ a probability distribution based on three time estimates for each activity, as follows:
Optimistic time (a) =time an activity will take if everything goes as planned. In estimating this value, there should be only a small probability (say, 1/100) that the activity time will be < a. Pessimistic time (b) = time an activity will take assuming very unfavorable conditions. In estimating this value, there should also be only a small probability (also 1/100) that the activity time will be > b. Most likely time (m) = most realistic estimate of the time required to complete an activity.
CPM and PERT VS Gantt
PERT and CPM, the two widely used network techniques that we shall discuss shortly, do have the ability to consider precedence relationships and interdependency of activities. On complex projects, the scheduling of which is almost always computerized, PERT and CPM thus have an edge over the simpler Gantt charts. Even on huge projects, though, Gantt charts can be used as summaries of project status and may complement the other network approaches.
Program evaluation and review technique (PERT)
PERT was developed in 1958 for the U.S. Navy.
3 primary activities of managing a project
Planning: This phase includes goal setting, defining the project, and team organization. Scheduling: This phase relates people, money, and supplies to specific activities and relates activities to each other. Controlling: Here the firm monitors resources, costs, quality, and budgets. It also revises or changes plans and shifts resources to meet time and cost demands.
Modular Design
Products designed in easily segmented components Modular designs offer flexibility to both production and marketing. Operations managers find modularity helpful because it makes product development, production, and subsequent changes easier. Marketing may like modularity because it adds flexibility to the ways customers can be satisfied. For instance, virtually all premium high-fidelity sound systems are produced and sold this way. The customization provided by modularity allows customers to mix and match to their own taste. harley davidson
limitations of PERT
Project activities have to be clearly defined, independent, and stable in their relationships. Precedence relationships must be specified and networked together. Time estimates tend to be subjective and are subject to fudging by managers who fear the dangers of being overly optimistic or not pessimistic enough. There is the inherent danger of placing too much emphasis on the longest, or critical, path. Near-critical paths need to be monitored closely as well.
Quality function deployment (QFD)
Refers to both (1) determining what will satisfy the customer and (2) translating those customer desires into the target design. The idea is to capture a rich understanding of customer wants and to identify alternative process solutions. This information is then integrated into the evolving product design. QFD is used early in the design process to help determine what will satisfy the customer and where to deploy quality efforts.
Seven Steps in the Forecasting System step 4
Select the forecasting model(s): Disney uses a variety of statistical models that we shall discuss, including moving averages, econometrics, and regression analysis. It also employs judgmental, or nonquantitative, models.
Seven Steps in the Forecasting System step 2
Select the items to be forecasted: For Disney World, there are six main parks. A forecast of daily attendance at each is the main number that determines labor, maintenance, and scheduling.
Crashing a project involves four steps: step 1
Step 1: Compute the crash cost per week (or other time period) for each activity in the network. If crash costs are linear over time, the following formula can be used: Crash cost per period=(Crashcost−Normalcost)/(Normaltime−Crashtime)
Crashing a project involves four steps: step 2
Step 2: Using the current activity times, find the critical path(s) in the project network. Identify the critical activities.
Crashing a project involves four steps: step 3
Step 3: If there is only one critical path, then select the activity on this critical path that (a) can still be crashed and (b) has the smallest crash cost per period. Crash this activity by one period. If there is more than one critical path, then select one activity from each critical path such that (a) each selected activity can still be crashed and (b) the total crash cost per period of all selected activities is the smallest. Crash each activity by one period. Note that the same activity may be common to more than one critical path.
Crashing a project involves four steps: step 4
Step 4: Update all activity times. If the desired due date has been reached, stop. If not, return to Step 2.
critical path
The activities on the critical path represent tasks that will delay the entire project if they are not completed on time
Let's look at four approaches to organizing for product development
The difference between a moving-average model and an exponential smoothing model is that First, the traditional U.S. approach to product development is an organization with distinct departments: a research and development department to do the necessary research; an engineering department to design the product; a manufacturing engineering department to design a product that can be produced; and a production department that produces the product. The distinct advantage of this approach is that fixed duties and responsibilities exist A second and popular approach is to assign a product manager to "champion" the product through the product development system and related organizations. However, a third, and perhaps the best, product development approach used in the U.S. seems to be the use of teams. Such teams are known variously as product development teams, design for manufacturability teams, and value engineering teams. The Japanese use a fourth approach. They bypass the team issue by not subdividing organizations into research and development, engineering, production, and so forth. Consistent with the Japanese style of group effort and teamwork, these activities are all in one organization. Japanese culture and management style are more collegial and the organization less structured than in most Western countries. Therefore, the Japanese find it unnecessary to have "teams" provide the necessary communication and coordination. However, the typical Western style, and the conventional wisdom, is to use teams. .
CPM and PERT difference
The major difference is that PERT employs three time estimates for each activity. These time estimates are used to compute expected values and standard deviations for the activity. CPM makes the assumption that activity times are known with certainty and hence requires only one time factor for each activity.
crashing.
The process by which we shorten the duration of a project in the cheapest manner possible is called project
qualitative forecasting techniques: Delphi method:
There are three different types of participants in the Delphi method: decision makers, staff personnel, and respondents. Decision makers usually consist of a group of 5 to 10 experts who will be making the actual forecast. Staff personnel assist decision makers by preparing, distributing, collecting, and summarizing a series of questionnaires and survey results. The respondents are a group of people, often located in different places, whose judgments are valued. This group provides inputs to the decision makers before the forecast is made. The state of Alaska, for example, has used the Delphi method to develop its long-range economic forecast. A large part of the state's budget is derived from the million-plus barrels of oil pumped daily through a pipeline at Prudhoe Bay. The large Delphi panel of experts had to represent all groups and opinions in the state and all geographic areas.
Short-range forecast
This forecast has a time span of up to 1 year but is generally less than 3 months. It is used for planning purchasing, job scheduling, workforce levels, job assignments, and production levels.
PERT addresses this issue.
This means that we cannot ignore the impact of variability in activity times when deciding the schedule for a project.
qualitative forecasting techniques: Market survey
This method solicits input from customers or potential customers regarding future purchasing plans. It can help not only in preparing a forecast but also in improving product design and planning for new products. The consumer market survey and sales force composite methods can, however, suffer from overly optimistic forecasts that arise from customer input.
When a detectable trend or pattern is present, weights can be used to place more emphasis on recent values.
This practice makes forecasting techniques more responsive to changes because more recent periods may be more heavily weighted. Choice of weights is somewhat arbitrary because there is no set formula to determine them. Therefore, deciding which weights to use requires some experience. For example, if the latest month or period is weighted too heavily, the forecast may reflect a large unusual change in the demand or sales pattern too quickly.
Mean Absolute Deviation
This value is computed by taking the sum of the absolute values of the individual forecast errors (deviations) and dividing by the number of periods of data (n):
critical path analysis
To find out just how long the project will take
qualitative forecasting techniques:Jury of executive opinion:
Under this method, the opinions of a group of high-level experts or managers, often in combination with statistical models, are pooled to arrive at a group estimate of demand. Bristol-Myers Squibb Company, for example, uses 220 well-known research scientists as its jury of executive opinion to get a grasp on future trends in the world of medical research
Seven Steps in the Forecasting System step 7
Validate and implement the results: At Disney, forecasts are reviewed daily at the highest levels to make sure that the model, assumptions, and data are valid. Error measures are applied; then the forecasts are used to schedule personnel down to 15-minute intervals.
Capacity
When capacity is inadequate, the resulting shortages can lead to loss of customers and market share. This is exactly what happened to Nabisco when it underestimated the huge demand for its new Snackwell Devil's Food Cookies. Even with production lines working overtime, Nabisco could not keep up with demand, and it lost customers. Nintendo faced this problem when its Wii was introduced and exceeded all forecasts for demand. Amazon made the same error with its Kindle. On the other hand, when excess capacity exists, costs can skyrocket.
The project organization may be most helpful when
Work tasks can be defined with a specific goal and deadline. The job is unique or somewhat unfamiliar to the existing organization. The work contains complex interrelated tasks requiring specialized skills. The project is temporary but critical to the organization. The project cuts across organizational lines.
Economic forecasts
address the business cycle by predicting inflation rates, money supplies, housing starts, and other planning indicators.
A product-by-value report
allows management to evaluate possible strategies for each product. These may include increasing cash flow (e.g., increasing contribution by raising selling price or lowering cost), increasing market penetration (improving quality and/or reducing cost or price), or reducing costs (improving the production process).
Product development teams
are charged with the responsibility of moving from market requirements for a product to achieving a product success. Such teams often include representatives from marketing, manufacturing, purchasing, quality assurance, and field service personnel.
Technological forecasts
are concerned with rates of technological progress, which can result in the birth of exciting new products, requiring new plants and equipment.
Gantt charts
are low-cost means of helping managers make sure that (1) activities are planned, (2) order of performance is documented, (3) activity time estimates are recorded, and (4) overall project time is developed. Gantt charts are easy to understand. Horizontal bars are drawn for each project activity along a time line.
Three of the most popular measures to measure forecast error
are mean absolute deviation (MAD), mean squared error (MSE), and mean absolute percent error (MAPE). We now describe and give an example of each.
Cycles
are patterns in the data that occur every several years. They are usually tied into the business cycle and are of major importance in short-term business analysis and planning. Predicting business cycles is difficult because they may be affected by political events or by international turmoil.
Demand forecasts
are projections of demand for a company's products or services. Forecasts drive decisions, so managers need immediate and accurate information about real demand. They need demand-driven forecasts, where the focus is on rapidly identifying and tracking customer desires. These forecasts may use recent point-of-sale (POS) data, retailer-generated reports of customer preferences, and any other information that will help to forecast with the most current data possible. Demand-driven forecasts drive a company's production, capacity, and scheduling systems and serve as inputs to financial, marketing, and personnel planning. In addition, the payoff in reduced inventory and obsolescence can be huge.
critical path method (CPM)
as a tool developed to assist in the building and maintenance of chemical plants at duPont
Moving-average methods always lag behind when there is a trend present
student tip
The late start and finish times (LS and LF) are determined during the
backward pass.
work breakdown structure (WBS)
defines the project by dividing it into its major subcomponents (or tasks), which are then subdivided into more detailed components, and finally into a set of activities and their related costs. The division of the project into smaller and smaller tasks can be difficult, but is critical to managing the project and to scheduling success. Gross requirements for people, supplies, and equipment are also estimated in this planning phase.
project organization
developed to make sure existing programs continue to run smoothly on a day-to-day basis while new projects are successfully completed.
Introductory Phase
ecause products in the introductory phase are still being "fine-tuned" for the market, as are their production techniques, they may warrant unusual expenditures for (1) research, (2) product development, (3) process modification and enhancement, and (4) supplier development. For example, when the iPhone was first introduced, the features desired by the public were still being determined. At the same time, operations managers were still groping for the best manufacturing techniques.
forecast error
forecast error=Actual Demand - forecast value =At-Ft
moving-average
forecast uses a number of historical actual data values to generate a forecast.
The early start and finish times (ES and EF) are determined during the
forward pass
product's life as divided into four phases.
hose phases are introduction, growth, maturity, and decline.
Managers can gain the flexibility needed to complete critical tasks by
identifying noncritical activities and replanning, rescheduling, and reallocating labor and financial resources.
Concurrent engineering
implies speedier product development through simultaneous performance of the various stages of product development
Subjective or qualitative forecasts
incorporate such factors as the decision maker's intuition, emotions, personal experiences, and value system in reaching a forecast.
Seasonality
is a data pattern that repeats itself after a period of days, weeks, months, or quarters. There are six common seasonality patterns:
Step 5, finding the critical path
is a major part of controlling a project.
Multiple regression
is a practical extension of the simple regression model we just explored. It allows us to build a model with several independent variables instead of just one variable.
Exponential smoothing
is another weighted-moving-average forecasting method. It involves very little record keeping of past data and is fairly easy to use.
Forecasting
is the art and science of predicting future events.
Trend
is the gradual upward or downward movement of the data over time. Changes in income, population, age distribution, or cultural views may account for movement in trend.
naive approach
is the most cost-effective and efficient objective forecasting model. if sales of a product—say, Nokia cell phones—were 68 units in January, we can forecast that February's sales will also be 68 phones.
Computer-aided design (CAD)
is the use of computers to interactively design products and prepare engineering documentation. CAD uses three-dimensional drawing to save time and money by shortening development cycles for virtually all products (see the 3-D design photo in the Regal Marine Global Company Profile that opens this chapter). The speed and ease with which sophisticated designs can be manipulated, analyzed, and modified with CAD makes review of numerous options possible before final commitments are made. Faster development, better products, and accurate flow of information to other departments all contribute to a tremendous payoff for CAD. The payoff is particularly significant because most product costs are determined at the design stage.
The objective of the product decision
is to develop and implement a product strategy that meets the demands of the marketplace with a competitive advantage.
associative model
linear regression
Product-by-value analysis
lists products in descending order of their individual dollar contribution to the firm it also lists the total annual dollar contribution of the product. Low contribution on a per-unit basis by a particular product may look substantially different if it represents a large portion of the company's sales.
robust design
means that the product is designed so that small variations in production or assembly do not adversely affect the product. For instance, Lucent developed an integrated circuit that could be used in many products to amplify voice signals. As originally designed, the circuit had to be manufactured very expensively to avoid variations in the strength of the signal. But after testing and analyzing the design, Lucent engineers realized that if the resistance of the circuit was reduced—a minor change with no associated costs—the circuit would be far less sensitive to manufacturing variations. The result was a 40% improvement in quality.
CPM is a technique in which each activity has
normal or standard time that we use in our computations. Associated with this normal time is the normal cost of the activity. However, another time in project management is the crash time, which is defined as the shortest duration required to complete an activity. Associated with this crash time is the crash cost of the activity.
Time-series models
predict on the assumption that the future is a function of the past. In other words, they look at what has happened over a period of time and use a series of past data to make a forecast
Random variations
re "blips" in the data caused by chance and unusual situations. They follow no discernible pattern, so they cannot be predicted.
Associative Models
such as linear regression, incorporate the variables or factors that might influence the quantity being forecast. For example, an associative model for lawn mower sales might use factors such as new housing starts, advertising budget, and competitors' prices.
expected activity time the beta distribution weights the three time estimates as follows:
t=(a+4m+b)/6 That is, the most likely time (m) is given four times the weight as the optimistic time (a) and pessimistic time (b). The time estimate t computed using Equation for each activity is used in the project network to compute all earliest and latest times.
coefficient of correlation
this measure expresses the degree or strength of the linear relationship
Quantitative forecasts
use a variety of mathematical models that rely on historical data and/or associative variables to forecast demand.
Moving averages are useful if
we can assume that market demands will stay fairly steady over time
One extension of CAD is design for manufacture and assembly (DFMA) software
which focuses on the effect of design on assembly.
linear-regression analysis
yˆ=a+bx yˆ=value of the dependent variable (in our example ,sales) a=y axis intercept b=slope of the regression line x=independent variable
