Department of Management (DMU)

CHAPTER THREE

DESIGN OF THE OPERATION SYSTEM

3.1. Introduction
The essence of any organization is the products or services it offers. There is an obvious link
between the design of those products or services and the success of the organization that have
well-designed products or services. Firms that have well-designed products or services are more
likely to realize their goals than those with poorly designed products or services. Hence,
organizations have a vital stake in a good product and service design. This unit presents the
major aspects of product and services design and how the process to produce them is designed
and selected.
Product and service design plays a strategic role in the degree to which an organization is able to
achieve its goals. It is a major factor in customer satisfaction, product and service quality, and
production costs (price). Because product design is concerned with the functional (use) and
aesthetic requirements necessary to meet the demands of the market place and at the same time
achieve an acceptable rate of return. Decisions related to product designs have far reaching effect
on the future of an organization. Therefore, great care must be taken while designing a
product/service.
3.2. Product and Service Design
Different customers have different tastes, preferences, and product needs. The variety of product
designs on the market appeals to the preferences of a particular customer group. Also, the
different product designs have different processing requirements. This is what product design
and process selections are all about.
Product/service design is the process of defining the specification of products and/or services in
order for them to fulfill a specific market need. The outcome of the product/service design
process is a fully detailed product or service that can be produced on an ongoing basis by the
operation. This should be a cross-functional process. Contributions are needed from those who
understand market requirements, those who understand the technical aspects of the product or
service, those with access to cost and investment information, those who can protect the design’s
intellectual property, and most of all, the operations people who will have to produce the product
or service on an ongoing basis.

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Product design and process selection affect product quality, product cost, and customer
satisfaction. If the product is not well designed or the manufacturing process is not true to the
product design, the quality of the product may suffer. Furthermore, the product has to be
manufactured using materials, equipment, and labor skills that are efficient and affordable;
otherwise, its cost will be too high for the market. We call this the product’s manufacturability
—the ease with which the product can be made. Finally, if a product is to achieve customer
satisfaction, it must have the combined characteristics of good design, competitive pricing, and
the ability to fill a market need.
Reasons for Product or Service Design
Organizations become involved in product or service design for a variety of reasons.
 To be competitive by offering new products or services.
 Another one is to make the business grow and increase profits.
 Furthermore, the best organizations try to develop new products or services as an alternative
to downsizing. Sometimes product or service design is actually redesign. This, too, occurs
for a number of reasons such as customer complaints, accidents or injuries, excessive
warranty claims, or low demand. This desire to achieve cost reductions in labor or materials
can also be a motivating factor.
Trends in product and service design
Over the last few years, the designing of products and services has increased emphasis on a
number of aspects of design. Among them are the following:
1. Increased emphasis on customer satisfaction and increased pressure to be competitive.
2. Increased emphasis on reducing the time needed to introduce a new product or service.
3. Increased emphasis on reducing the time needed to produce a product or provide a service.
4. Greater attention to environmental concerns, including waste minimization, recycles parts,
and disposal of worn-out products.
5. Increased emphasis on designing products and services that is user-friendly/ accessible/easy
to use.
6. Increased effort to use less material for products (e.g., concentrated liquid detergents) and
less packaging.

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In a competitive environment, getting new or improved products or services to the market ahead
of competitors gives an organization a competitive advantage that can lead to increased profits
and an increased market share, and create an image of the organization as a leader.
Strategies for New-Product Introduction
There are three fundamentally different ways to introduce new products.
1. Market pull- According to this view, the market is the primary basis for determining the
products a firm should make, with little regard to existing technology. It is get customers to come
to you, where marketers are attempting to pull customers in by using mass media promotions,
advertising sales promotions. Customer needs are the primary basis for new product introduction.
One can determine the types of new products which are needed through market research or
customer feedback. These products are then produced.
It requires a lot of advertisement dollars to spent on making brand and products household name.
For example marketing of children’s toys. First the company advertises product, next children
and parents see advertising and want to purchase the toy. Therefore as demand increases,
retailers begin scrambling trying to stock product in their stores. The company has successfully
pulled customers to them.
 A firm should make what it can sell. “We make what we can sell”.
 The customer needs are determined, and processes needed to supply the customer.
 The market will “pull” through the products that are made.
2. Technology push- In this view, technology is the primary determinant of the products that the
firm should make, with little regard for the market. It implies new inventions is pushed through
research and development, production, sales and enters on to market. It is to promote products by
pushing them on to people and develop innovative technologies and applying it to product.
This approach suggests that “you should sell what you can make”. The firm should pursue a
technology based advantage by developing superior technologies and products.
The products are then pushed into the market, and the marketing’s job is to create demand for
these superior products.
Since the products have superior technology, they will have a natural advantage in the market
and the customers will want to buy them.
3. Inter-functional View- This view holds that the product should not only fit the market needs
but have a technical advantage as well. The new products development process is determined by

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a co-ordinate effort between functions. The result should be products which meet customer needs
while utilizing technology to the best advantage.
To accomplish this, all functions (e.g., marketing, engineering, operations, and finance) should
cooperate to design the new products needed by the firm.
Often this is done by forming cross functional teams that are responsible for development of the
new product.
This is the most appealing of the three views but also the most difficult to implement.
Cross-functional rivalry and friction must be overcome to achieve the degree of cooperation
required for inter functional product development to succeed.
3.2.1. Product design (in manufacturing)
Product design is the process of defining all of the product’s characteristics. Product design
defines a product’s characteristics, such as its appearance, the materials it is made of, its
dimensions and tolerances, and its performance standards. New Product design greatly affects
operations by specifying the products that will be made; it is a prerequisite for production to
occur.
The Product Design Process
The design process begins with the motivation for design. For a new business or a new product,
the motivation may be obvious: to achieve the goals of the organization. For an existing
business, in addition to that general motivation, there are more specific factors to consider, such
as government regulations, competitive pressures, customer needs, and the appearance of new
technologies that have product or process applications.
New-Product Development Process
The new product development process consists of the following steps.
1. Idea Generation- The main purpose of idea generation is to generate many ideas as much as
possible. Ideas for new products can arise from a variety of sources. These are within or
internal sources: Company can find new ideas through its own formal research and
development effort. Research and development (R&D) plays an important role in developing
new products and advancing technology. The purpose of R&D is to generate new ideas and
concepts and to develop these ideas and concepts into useful products.
External to the firm: From customers, competitors, distributers and suppliers.

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Manufacturers are always trying to develop new products that meet the needs of consumers, e.g.
development of small cars.
Identification of market needs can lead to the development of new technologies and products to
meet those needs.
2. Screening- The purpose of screening is to eliminate ideas that do not appear to have a high
potential for success and thus avoid expensive development costs. Three major criteria are used
in initial screening:
 Product development –technical and operational feasibility
 Market criteria – current market and potential to grow
 Financial feasibility – contribution to overall profitability and cash flow.
Before a new product idea is put into preliminary design, it should be subjected to analysis
organized around these three tests. The purpose of screening is not to reach a conclusive decision
to produce and market the product. After initial development, more extensive analysis may be
conducted through test markets and pilot operations before a final decision is made to introduce
the product.
To assist in product analysis, several methods have been developed. One is a checklist scoring
method that involves developing a list of factors along with a weight for each.
If the total score is above a certain minimum level the new product idea may be selected for
further development. Alternatively, the method may be used to rank products in priority order for
selection.
A new product idea may also be subjected to standard financial analysis by computing an
approximate return on investment. To do this, cash flows must be estimated for investments,
revenues, and costs for future product sales.
3. Preliminary product design- This process is concerned with developing the best design for
the new product idea. Preliminary product design must specify the product completely. At the
end of the product design phase, the firm has a set of product specifications and engineering
drawings (or computer images) specified in sufficient detail that production prototypes can be
built and tested.
If the preliminary design is approved, a prototype or prototypes may be built for further
testing and analysis. In the preliminary design, tradeoffs between cost, quality, and product

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performances are considered. The result should be a product design, which is competitive in the
market place and produce able by operations.
4. Prototype testing- A model is tested for its physical properties or use under actual operating
conditions. It is verifying marketing and technical performance to gather data on customers
acceptance of the product. Or it is market test of sample products to gather customer opinion.
Such testing is important in uncovering any problems and correcting them prior to full-scale
production. Road-testing an automobile or using a consumer panel to test a new pizza are some
examples.
5. Final product design – As a result of prototype testing certain changes may be incorporated
into the final design. Drawings and specifications for the product are developed. If the changes
are made, the product may be tested further to ensure final product performance. An information
package should be developed to ensure that the product is produce able. A great many ideas
originate at the beginning but only a few are successfully introduced to the market as products.
Value Analysis
There is a need to improve constantly the products and services we produce in order to stay
competitive. Value analysis (or value engineering)–is a method for improving the usefulness of a
product without increasing its cost or reducing the cost without reducing the usefulness of the
product. Value analysis is a philosophy of eliminating anything which causes cost but does not
contribute to the value or function of the products or service. It is aimed at meeting product
performance requirements and customer needs at the lowest possible cost. It can result in great
cost savings or a better product for the customer, or both. Value is defined as the ratio of
usefulness to cost. Cost is an absolute term and measures the amount of resources used to
produce the product. Usefulness, on the other hand, is a relative term describing the functionality
that the customer ascribes to the product. Usefulness can be described by such terms as product
features, performance, or reliability of the product.
Value engineering or value analysis is an attempt to see if any materials or components can be
substituted or redesigned in such a way as to continue to perform the desired function, but at a
lower cost. Typical questions that are asked during value engineering studies include:
 What are the functions of a particular component? Are they necessary? Can they be
accomplished in a different way?
 What materials are used? Can a less costly material be substituted?

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 How much material is wasted during manufacturing? Can waste be reduced by changing
the design?
Value analysis /engineering-is an organized way for improving the usefulness of a product
relative to its cost. Value analysis is carefully examined for possible elimination.
3.2.2. DESIGNING SERVICES
Defining Service
Service is the dominant economic force in the industrialized world today, and growth projections
indicate this trend will continue.
Service is an intangible product, which is produced and consumed simultaneously. Therefore, a
service never exists, only the results of the service can be observed. If you get a haircut, the
effect is obvious, but the service itself was produced and consumed at the same time.
Simultaneous production and consumption is a critical aspect of service, because it implies that
the customer must be in the production system while production takes place. The simultaneity of
production and consumption indicate that service cannot be stored or transported; it must be
produced at the point of consumption. For operations this means that capacity must be located at
or near the customer’s location and that the service cannot be produced now and placed into
inventory for later consumption. The American Marketing Association defines services as -
“Activities, benefits and satisfactions which are offered for sale or are provided in connection
with the sale of goods.”
Service consists of acts and interactions that are social contacts. The interaction between the
producer and customer at the time of production is a critical attribute of service. There are
professional services such as medicine, law, education and architecture; and capital-intensive
services; such as airlines, electric utilities; mass services such as retailing, wholesale, and fast
food.
Service: Something that is done to or for a customer
Service delivery system-: The facilities, processes, and skills needed to provide a service
Product bundle-: The combination of goods and services provided to a customer
Service package-: The physical resources needed to perform the service

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The Service Design Process

Service design is more comprehensive and occurs more often than product design. The inherent
variability of service processes requires that the service system be carefully designed. Figure 3.1
shows the service design process beginning with a service concept and ending with service
delivery.

Figure 3.1: The service design process

The service concept defines the target customer and the desired customer experience. It also
defines how our service is different from others and how it will compete in the marketplace.
Sometimes services are successful because their service concept fills a previously unoccupied
niche or differs from the generally accepted mode of operation.
From the service concept, a service package is created to meet customer needs. The package
consists of a mixture of physical items, sensual benefits, and psychological benefits. For a
restaurant the physical items consist of the facility, food, drinks, tableware, napkins, and other
touchable commodities. The sensual benefits include the taste and aroma of the food and the
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sights and sounds of the people. Psychological benefits are rest and relaxation, comfort, status,
and a sense of well-being.
Effective service design recognizes and defines all the components of a service package. Finding
the appropriate mix of physical items and sensual and psychological benefits and designing them
to be consistent with each other and the service concept is also important. A fast-food restaurant
promises nourishment with speed. The customer is served quickly and is expected to consume
the food quickly. Thus, the tables, chairs, and booths are not designed to be comfortable, nor
does their arrangement encourage lengthy or personal conversations. The service package is
consistent. This is not the case for an upscale restaurant located in a renovated train station. The
food is excellent, but it is difficult to enjoy a full-course meal sitting on wooden benches in a
drafty facility, where conversations echo and tables shake when the trains pass by.
From the service package, service specifications are developed for performance, design, and
delivery. Performance specifications outline expectations and requirements for general and
specific customers. Performance specifications are converted into design specifications and,
finally, delivery specifications (in lieu of manufacturing specifications).
Design specifications must describe the service in sufficient detail for the desired service
experience to be replicated for different individuals at numerous locations. The specifications
typically consist of activities to be performed, skill requirements and guidelines for service
providers, and cost and time estimates. Facility size, location, and layout, as well as equipment
needs, are also included. Delivery specifications outline the steps required in the work process,
including the work schedule, deliverables, and the locations at which the work is to be
performed.
3.3. Process Selection

A process is any part of an organization that takes inputs and transforms them into outputs that, it
is hoped, are of greater value to the organization than the original inputs. A process is a group of
related tasks with specific inputs and outputs. A process is a collection of interrelated work tasks
initiated in response to an event that achieves a specific result for the customer of the process.
Processes exist to create value for the customer, the shareholder, or society.

Process selection refers to deciding on the way production of goods or services will be
organized. It has major implications for capacity planning, layout of facilities, equipment, and
design of work systems. Process selection occurs as a matter of course when new products or
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services are being planned. However, it also occurs periodically due to technological changes in
products or equipment, as well as competitive pressures.

The primary questions bear on process selection:

 How much variety in products or services will the system need to handle?
 What degree of equipment flexibility will be needed?
 What is the expected volume of output?

Answers to these questions will serve as a guide to selecting an appropriate process.

Process design defines what tasks need to be done and how they are to be coordinated among
functions, people, and organizations. Planning, analyzing, and improving processes is the
essence of operations management. Processes are planned, analyzed, and redesigned as required
by changes in strategy and emerging technology.

Process strategy is an organization’s overall approach for physically producing goods and
providing services. Process decisions should reflect how the firm has chosen to compete in the
marketplace, reinforce product decisions, and facilitate the achievement of corporate goals.

A firm’s process strategy defines its:

Vertical integration: The extent to which the firm will produce the inputs and control the
outputs of each stage of the production process. Vertical integration can be in two directions.
Backward integration represents movement upstream toward the sources of raw materials
and parts. Forward integration means that the firm acquires more channels of distribution,
such as its own distribution centers (warehouses) and retail stores.
Capital intensity: The mix of capital (i.e., equipment, automation) and labor resources used
in the production process.
Process flexibility: The ease with which resources can be adjusted in response to changes in
demand, technology, products or services, and resource availability. Usually, the choices that
management makes with respect to competitive priorities determine the degree of flexibility
required of a company’s resources (i.e. its employees, facilities, and equipment). With
respect to human resources, operations managers must decide whether to have a flexible
work force or an inflexible one. Members of a flexible workforce are capable of doing many
tasks. However this flexibility has its costs. For example, it requires greater skills and thus

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more training and education. On the other hand, worker flexibility provides an opportunity to
achieve reliable customer service and alleviate capacity bottlenecks. When a firm’s product
or service has a short life cycle and a high degree of customization, low production volumes
suggest that the firm should select flexible, general-purchase equipment.
Customer involvement: The role of the customer in the production process. It is the
process decision which is the extent to which customers interact with the process. The
amount of customer involvement may range from self-service to customization of product
to deciding the time and place that the service is to be provided.
Process planning determines how a product will be produced or a service provided. It decides
which components will be made in-house and which will be purchased from a supplier, selects
processes, and develops and documents the specifications for manufacture and delivery.
Types of production Processes
Production processes can be classified into projects, job shop, batch production, mass
production, and continuous production.

A. Project
Projects are used to make one-of-a-kind products exactly to customer specifications. These
processes are used when there is high customization and low product volume, because each
product is different.
Examples can be seen in construction, shipbuilding, medical procedures, and creation of artwork,
custom tailoring, and interior design. With project processes the customer is usually involved in
deciding on the design of the product. Project take a long time to complete, involve a large
investment of funds and resources, and produce one item at a time to consumer order.
B. Job-Shop Production

Job-shop productions are characterized by manufacturing one or few quantity of products

designed and produced as per the specification of customers within prefixed time and cost. The
distinguishing feature of this is low volume and high variety of products. A job-shop comprises
of general-purpose machines arranged into different departments. Each job demands unique
technological requirements, demands processing on machines in a certain sequence. Examples
are custom metal processing shop, custom plastic injection molding shop, or making customized
cabinets.

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Job-shop Production is characterized by

High variety of products and low volume.

Use of general purpose machines and facilities.
Highly skilled operators who can take up each job as a challenge because of uniqueness.
Large inventory of materials, tools, parts.
Detailed planning is essential for sequencing the requirements of each product, capacities
for each work centre and order priorities.
C. Batch Production

Batch productions are used to produce small quantities of products in groups or batches based on
customer orders or product specifications. The volumes of each product produced are still small,
and there can still be a high degree of customization. Examples can be seen in bakeries,
education, and printing shops furniture making. The classes you are taking at the university use a
batch process. Batch production processes many different jobs through the production system at
the same time in groups or batches. Products are typically made to customer order, volume (in
terms of customer order size) is low, and demand fluctuates.

Batch Production is characterized by:

Shorter production runs.

Plant and machinery are flexible.
Plant and machinery set up is used for the production of item in a batch and change of
set up is required for processing the next batch.
Manufacturing lead-time and cost are lower as compared to job order production.
D. Mass Production

These are designed to produce a large volume of a standardized product for mass production.
They are also known as flow shops, flow lines, or assembly lines. With line processes the
product that is produced is made in high volume with little or no customization. Think of a
typical assembly line that produces everything from cars, computers, television sets, shoes,
candy bars, even food items. The machines are arranged in a line or product layout. Product and
process standardization exists and all outputs follow the same path. Product demand is stable,
and product volume is high. Goods that are mass produced include automobiles, televisions,
personal computers, fast food, and most consumer goods.

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Mass Production is characterized by

Standardization of product and process sequence.

Dedicated special purpose machines having higher production capacities and output rates.
Large volume of products.
Shorter cycle time of production.
Lower in process inventory.
Flow of materials, components and parts is continuous and without any back tracking.
Production planning and control is easy.
Material handling can be completely automatic.
E. Continuous processes

Continuous production operates continually to produce very high volume of fully standardized
commodity products. The system is highly automated and is typically in operation continuously
24 hours a day. Examples include oil refineries, water treatment plants, and certain paint
facilities. The products produced by continuous processes are usually in continual rather than
discrete units, such as liquid or gas. They usually have a single input and a limited number of
outputs. Also, these facilities are usually highly capital intensive and automated. Continuous
processes are more extreme cases of high volume and product standardization than are line
processes.

Continuous production is characterized by:

Dedicated plant and equipment with zero flexibility.

Material handling is fully automated.
Process follows a predetermined sequence of operations.
Component materials cannot be readily identified with final product.
Planning and scheduling is a routine action.

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Figure 3.3 Different process types imply different volume-variety characteristics

3.4. Capacity Planning

Capacity can be defined as the maximum output rate that can be achieved by a facility. The
facility may be an entire organization, a division, or only one machine. The first level of capacity
decisions is strategic and long-term in nature. This is where a company decides what investments
in new facilities and equipment it should make. Because these decisions are strategic in nature,
the company will have to live with them for a long time. The second level of capacity decisions
is more tactical in nature, focusing on short-term issues that include planning of workforce,
inventories, and day-to-day use of machines.

Measuring Capacity

Although our definition of capacity seems simple, there is no one way to measure it. Different
people have different interpretations of what capacity means, and the units of measurement are
often very different.

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Note that each business can measure capacity in different ways and that capacity can be
measured using either inputs or outputs. Output measures, such as the number of cars per shift,
are easier to understand. However, they do not work well when a company produces many
different kinds of products. For example, if we operate a bakery that bakes only pumpkin pies,
then a measure such as pies per day would work well. However, if we made many different kinds
of pies and varied the combination from one day to the next, then simply using pies per day as
our measure would not work as well, especially if some pies took longer to make than others.
Suppose that pecan pies take twice as long to make as pumpkin pies. If one day we made 20
pumpkin pies and the next day we made 10 pecan pies, using pies per day as our measure would
make it seem as if our capacity was underutilized on the second day, even though it was equally
utilized on both days.
Table 3.1. Common measures of capacity
Business Inputs Outputs
Auto manufacturer • Labor hours Number of cars per shift
• Machine hours
Oil refinery • Refinery size Gallons of fuel per day
Farming • Number of hectares Pounds of grain per hectare per year
• Number of cows Gallons of milk per day
Restaurant • Number of tables Number of meals served per day
• Seating capacity

Types of Capacity

Design /Theoretical Capacity: is the maximum output rate that can be achieved by a facility
under ideal conditions. In some cases this might be interpreted as maximum capacity. This is a
theoretical number and not one that is applied to the daily production of an operation. Design
capacity is the output that an operation can produce continuously, at maximum rate without
stopping for any shift changeovers, maintenance or any other delays. What the process is capable
of producing under perfect conditions. A company achieves this output rate by using many
temporary measures, such as overtime, overstaffing, maximum use of equipment, and
subcontracting. Design capacity can be sustained only for a relatively short period of time.
Effective/System Capacity: is the maximum output rate that can be sustained under normal
conditions considering operational constraints. These constraints that need to be considered
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include realistic work schedules and breaks, changing product mix, regular staff levels,
scheduled machine maintenance, and none of the temporary measures that are used to achieve
design capacity. Note that effective capacity is usually lower than design capacity.

Actual /Operating Capacity: The actual output that the company has already produced or
achieved. It cannot exceed effective capacity and is often less than effective capacity due to
absenteeism, machine breakdowns, defective outputs, shortage of materials as well as factors
that are outside the control of the operations manager

These different measures of capacity are useful in defining two measures of system
effectiveness: efficiency and utilization. Utilization refers to the percentage of available working
time that a worker actually works or a machine actually runs. Efficiency refers to how well a
machine or worker performs compared to a standard output level.

Example: The design capacity for engine repair in our company is 80 trucks per day. The
effective capacity is 40 engines per day and the actual output is 36 engines per day. Calculate the
utilization and efficiency of the operation. If the efficiency for next month is expected to be 82%,
what is the expected output?
Solution
Actual output 36
Utilization= = = 45%
Design capacity 80
Actua l output 36
Efficiency= = = 90%
Effective capacity 40
Expected output=(Effective capacity) (Efficiency)
=(40) (0.82) =32.8 engines per day
Determinants of Effective Capacity
 Facilities- location, size, working conditions
 Product and service factors- level of standardization
 Process factors- quantity and quality capability
 Human factors- skill, experience

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 Operational factors-scheduling, late deliveries, acceptability of purchased materials,

parts, quality inspection, control procedures and inventory problems.
 Supply chain factors
 External factors- regulatory standards
3.5. Facility Location and Layout
3.5.1. Facility Location
Plant location refers to the choice of the region and the selection of the site for setting up a
business or factory. It is the process of determining a geographic site for firms operations. It is a
strategic decision that cannot be changed once taken. If all changed only at considerable loss, the
location should be selected as per its own requirement and circumstances. Each individual plant
is a case in itself. Businessman should try to make an attempt to optimum or ideal location.
An ideal location is one where the cost of the product is kept minimum with a large market
share, the least risk and the maximum social gain.
Importance of Location Decisions
There are two primary reasons that location decisions are a highly important part of production
systems design.
 They entail a long-term commitment, which makes mistakes difficult to overcome.
 Location decisions often have an impact on investment requirements, operating costs
and revenues, and operations.
A poor choice of location might result in
 excessive transportation costs,
 a shortage of qualified labor,
 Loss of competitive advantage, inadequate supplies of raw materials, or some similar
condition that is detrimental to operations. For services, a poor location could result
in lack of customers and/or high operating costs. For both manufacturing and
services, location decisions can have a significant impact on competitive advantage.
Objectives of Location Decisions
As a general rule, profit-oriented organizations base their decisions on profit potential, whereas
nonprofit organizations strive to achieve a balance between cost and the level of customer
service they provide. It would seem to follow that all organizations attempt to identify the "best"
location available.

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Need for selecting a suitable location

The need for selecting a suitable location arises because of three situations.
I. In Case of Location Choice for the First Time or New Organizations
Cost economies are always important while selecting a location for the first time, but should
keep in mind the cost of long-term business/organizational objectives. The following are the
factors to be considered while selecting the location for the new organizations:
1. Identification of region: The organizational objectives along with the various long-term
considerations about marketing, technology, internal organizational strengths and weaknesses,
region specific resources and business environment, legal-governmental environment, social
environment and geographical environment suggest a suitable region for locating the operations
facility.
2. Choice of a site within a region: Once the suitable region is identified, the next step is
choosing the best site from an available set. Choice of a site is less dependent on the
organization’s long-term strategies. Evaluation of alternative sites for their tangible and
intangible costs will resolve facilities-location problem. The problem of location of a site within
the region can be approached with the following cost-oriented non-interactive model, i.e.,
dimensional analysis.
3. Dimensional analysis: If all the costs were tangible and quantifiable, the comparison and
selection of a site is easy. The location with the least cost is selected. In most of the cases
intangible costs which are expressed in relative terms than in absolute terms.
II. In Case of Location Choice for Existing Organization
In this case a manufacturing plant has to fit into a multi-plant operations strategy. That is,
additional plant location in the same premises and elsewhere under following circumstances:
1. Plant manufacturing distinct products.
2. Manufacturing plant supplying to specific market area.
3. Plant divided on the basis of the process or stages in manufacturing.
4. Plants emphasizing flexibility.

III. In Case of Global Location

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 Department of Management (DMU)

Because of globalization, multinational corporations are setting up their organizations, for

instance, in Ethiopia and Ethiopian companies are extending their operations in other countries.
In case of global locations there is scope for virtual proximity and virtual factory.
Virtual proximity:-It is the level of closeness between individuals that developed through use of
information technologies. With the advance in telecommunications technology, a firm can be in
virtual proximity to its customers. For a software services firm much of its logistics is through
the information/ communication pathway. Many firms use the communications highway for
conducting a large portion of their business transactions.
Virtual factory:- It is an integrated simulation model of subsystems in factory provides
advanced support capability. Many firms based in USA and UK in the service sector and in the
manufacturing sector often out sources part of their business processes to foreign locations such
as India. Thus, instead of one’s own operations, a firm could use its business associates’
operations facilities.
Factors That Affect Location Decisions
Many factors influence location decisions. However, it often happens that one or a few factors
are so important that they dominate the decision. For example, in manufacturing, the potentially
dominating factors usually include availability of an abundant energy and water supply and
proximity to raw materials. Thus, nuclear reactors require large amounts of water for cooling,
heavy industries such as steel and aluminum production need large amounts of electricity, and so
on. Transportation costs can be a major factor. In service organizations, possible dominating
factors are market related and include traffic patterns, convenience, and competitors' locations, as
well as proximity to the market. For example, car rental agencies locate near airports and mid-
city where their customers are.
Facility location decisions are commonly made in three stages:
o The Regional Decision
o The Local Decision and
o The Site Decision
 The Regional Decision: - A region may be a country, part of a country or province, and at
this stage: economic, market and legal factors are dominant
The Following are specific factors of potential importance:
o Market proximity

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 Department of Management (DMU)

o Proximity to raw materials

o Availability of utilities
o labour supply and unionization
o Additional factors for international location decision:
o National taxes –profit taxes vs value added taxes and Legal restrictions
The primary regional factors involve raw materials, markets, and labor considerations.
Location of Raw Materials Firms locate near or at the source of raw materials for three
primary reasons: necessity, perish ability, and transportation costs. Mining operations,
farming, forestry, and fishing fall under necessity.
Obviously, such operations must locate close to the raw materials. Firms involved in canning
or freezing of fresh fruit and vegetables, processing of dairy products, baking, and so on must
consider perish ability when considering location. Transportation costs are important in
industries where processing eliminates much of the bulk connected with a raw material,
making it much less expensive to transport the product or material after processing.
Examples include aluminum reduction, cheese making, and paper production
Location of Markets: Profit-oriented firms frequently locate near the markets they intend to
serve as part of their competitive strategy, whereas nonprofit organizations choose locations
relative to the needs of the users of their services. Other factors include distribution costs or
the perish ability of a finished product. Retail sales and services are usually found near the
center of the markets they serve. Examples include fast-food restaurants, service stations, dry
cleaners, and supermarkets. Quite often their products and those of their competitors are so
similar that they rely on convenience to attract customers. Hence, these businesses seek
locations with high population densities or high traffic. The competition/convenience factor
is also important in locating banks, hotels and motels, auto repair shops, drugstores,
newspaper kiosks, and shopping centers. Similarly, doctors, dentists, lawyers, barbers, and
beauticians typically serve clients who reside within a limited area.
Locations of many government services are near the markets they are designed to serve. Hence,
post offices are typically scattered throughout large metropolitan areas. Police and emergency
health care locations are frequently selected on the basis of client needs. For instance, police
patrols often concentrate on high crime areas, and emergency health care facilities are usually
found in central locations to provide ready access from all directions.

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 Department of Management (DMU)

Labor Factors: Primary labor considerations are the cost and availability of labor, wage rates in
an area, labor productivity and attitudes toward work, and whether unions are a serious potential
problem.
 Skills of potential employees may be a factor, although some companies prefer to train
new employees rather than rely solely on previous experience. Increasing specialization
in many industries makes this possibility even more likely than in the past. Although
most companies concentrate on the supply of blue-collar workers, some firms are more
interested in scientific and technical people as potential employees, and they look for
areas with high concentrations of those types of workers.
 Worker attitudes toward turnover, absenteeism, and similar factors may differ among
potential locationsworkers in large urban centers may exhibit different attitudes than
workers in small towns or rural areas. Furthermore, worker attitudes in different parts of
the country or in different countries may be markedly different.
 The Local Decision: - This involves selecting among cities, metropolitan areas etc.
For example a company may decide to locate within southern Tigray. Within this zone, the
possible local alternatives might be: Maichew, Korem, Alamata etc.
At this point, the following additional location factors are relevant for consideration:
 Economic incentives free land, low-cost loans or tax abatements , employee training
 Attractiveness of the community Quality of housing, rate of crime, quality of schools,
recreational areas,
 Transportation Network Government policy and Attitude
 Environmental Regulations Compatible Industry and Taxes etc.
 The Site Decision
This involves: comparing the relative availability and costs of the needed resources such as
transport, power, water, land, labour, raw materials in alternative sites.
Evaluation of potential sites may require consulting with engineers or architect especially in
the case of heavy manufacturing or the erection of large buildings or facilities with special
requirements. Soil conditions, load factors, and drainage rates can be critical and often
necessitate certain kinds of expertise in evaluation.
 Because of the long-term commitment usually required, land costs may be secondary to
other site-related factors, such as room for future expansion, current utility and sewer

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 Department of Management (DMU)

capacitiesand any limitations on these that could hinder future growthand sufficient
parking space for employees and customers. In addition, for many firms access roads for
trucks or rail spurs are important.
Plant Location Methodology: Factor Rating Method Example
A typical location decision involves both qualitative and quantitative inputs, which tend to vary
from situation to situation depending on the needs of each organization. Factor rating is a
general approach that is useful for evaluating a given alternative and comparing alternatives. The
value of factor rating is that it provides a rational basis for evaluation and facilitates comparison
among alternatives by establishing a composite value for each alternative that summarizes all
related factors. Factor rating enables decision makers to incorporate their personal opinions and
quantitative information into the decision process.
The following procedure is used to develop a factor rating:
1. Determine which factors are relevant (e.g., location of market, water supply, parking
facilities, revenue potential).
2. Assign a weight to each factor that indicates its relative importance compared with all other
factors. Typically, weights sum to 1.00.
3. Decide on a common scale for all factors (e.g., 0 to 100).
4. Score each location alternative.
5. Multiply the factor weight by the score for each factor, and sum the results for each location
alternative.
6. Choose the alternative that has the highest composite score.

Example1, A photo-processing company intends to open a new branch store. The table below
contains information on two potential locations.

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 Department of Management (DMU)

Scores
(out of 100) Weighted Scores
Factor Weight Alt. 1 Alt. 2 Alternative 1 Alternative 2
Proximity to
existing store .10 100 60 .10(100)=10.0 .10(60)=6.0
Traffic volume .05 80 80 .05(80)=4.0 .05(80)=4.0
Rental costs .40 70 90 .40(70)=28.0 .40(90)=36.0
Size .10 86 92 .10(86)=8.6 .10(92)=9.2
Layout .20 40 70 .20(40)=8.0 .20(70)=14.0
Operating costs .15 80 90 .15(80)=12.0 .15(90)=13.5
1.00 70.6 82.7
Alternative 2 is better because it has the higher composite score.
Example 2
Using the following factors ratings, determine which location alternatives should be chosen on
the basis of maximum composite score A, B or C.
Factor Locations (max score 100) Weighted score
(out of 100 pts. each) Weight A B C A B C
1. Convenient 0.15 80 70 60 12.0 10.5 9
2. Parking facilities 0.20 72 76 92 14.4 15.2 18.4
3. Display area 0.18 88 90 90 15.84 16.2 16.2
4. Shopper traffic 0.27 94 86 80 25.38 23.22 21.6
5. Operating costs 0.10 98 90 82 9.8 9 8.2
6. Neighborhood 0.10 96 85 75 9.6 8.5 7.5
Sum 1.00 87.02 79.92 73.6
Decision: - Location A is better because it results in a highest score.
Plant Location Methodology: Center of Gravity Method
The center of gravity method is a method to determine the location of a distribution center that
will minimize distribution costs. The center of gravity method is used for locating single
facilities that considers existing facilities, the distances between them, and the volumes of goods
to be shipped between them. This methodology involves formulas used to compute the

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 Department of Management (DMU)

coordinates of the two-dimensional point that meets the distance and volume criteria stated
above.
 The center of gravity is found by calculating the X and Y coordinates that result in the
minimal transportation cost.
Plant Location Methodology: Center of Gravity Method Formulas

Cx =
∑ d ix V i Cy =
∑ d iy Vi
∑Vi ∑Vi
Cx = X coordinate of center of gravity Cy = Y coordinate of center of gravity

dix = X coordinate of the ith location

diy = Y coordinate of the ith location, Vi = volume of goods moved to or from ith location

Center of gravity method example: - Several automobile showrooms are located according to
the following grid which represents coordinate locations for each showroom.

Y
Showroom No of Z-Mobile s
Q sold pe r month
(790,900)

D A 1250
(250,580)

A D 1900
(100,200)

(0,0) X
Q 2300

Question: What is the best location for a new

Z-Mobile warehouse/temporary storage facility
considering only distances and quantities sold
per month?

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 Department of Management (DMU)

Y
To begin, you must Q
(790,900)
identify the existing D
facilities on a two- (250,580)

dimensional plane A
(100,200)
or grid and (0,0) X
determine their S ho wro o m No o f Z-Mo b ile s
You must also
coordinates. s o ld p e r mo nth

have the A 1250

volume D 1900
information on
Q 2300
the business
activity at the
existing
facilities.

You then compute the new coordinates

Cusing the+ formulas:
100(1250) 250(1900) + 790(2300) 2,417,000
= x = = 443.49
1250 + 1900 + 2300 5,450

200(1250) + 580(1900) + 900(2300) 3,422,000

Cy = = = 627.89
1250 + 1900 + 2300 5,450

Y S ho wro o m No o f Z-Mo b ile s

Q s o ld p e r mo nth
(790,900)
D Z New A 1250
(250,580)
A
locat D 1900
(100,200)
(0,0)
ion Q 2300
X

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 Department of Management (DMU)

Example: A refining company needs to locate an intermediate holding facility between its
refining plant in place A and its major distributors. The following exhibit shows the coordinate
map.

500 -
E(25,450)
400 - D(350,400)
C(450,350)
300 -
center of gravity(308,217)
200 -
B(400,150)
100 -
A(325,75)

0 100 200 300 400 500

Gird Map
 Plant
 Distributor
Shipping Volumes
Locations A B C D E
Gallons of Gasoline per month (000,000) 1,500 250 450 350 450
In this example, for location A d1x=325, d1y=75, and V1=1,500
Solution- using the above information we can calculate the coordinates of the center of gravity.
(325x1,500)+(400x250)+(450x450)+(350x350)+(25x450)
Cx= 1,500+250+450+350+450

923,750

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 Department of Management (DMU)

= 3,000 =307.9

(75x1,500)+(150x250)+(350x450)+(400x350)+(450x450)
Cy= 1,500+250+450+350+450

650,000
= 3,000 =216.7
EXAMPLE
Mosobo cement factory needs to locate warehouse for the distribution of the product to its
outlets, A, B, C & D. the coordinates of the outlets are shown below.
coordinate weekly
Outlet (x,y) demand
A (2,2) 800
B (3,5) 900
C (5,4) 200
D (8,5) 100
2,000

3.5.2. Facility Layout

Facility layout decision entails determining the placement of departments, workstations,
machines and stockholding points within a productive facility. General objective of facility lay

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 Department of Management (DMU)

out is to arrange these elements in the way that ensures a smooth workflow (in a factory) or a
particular traffic pattern (in service organization).

Arrangement of areas within a facility is important to:

 Minimize material handling costs  Reduce manufacturing cycle time

 Utilize space efficiently  Reduce customer service time
 Utilize labor efficiently  Eliminate redundant movement
 Eliminate bottlenecks  Incorporate safety and security measures
 Facilitate comm. and interaction  Increase capacity etc

Types of Layouts
There are four basic layout types: process, product, hybrid, and fixed position.
A. Process Layouts
Process layouts are layouts that group resources based on similar processes or functions. This
type of layout is seen in companies with intermittent processing systems. You would see a
process layout in environments in which a large variety of items are produced in a low volume.
A hospital is an example of process layout. Departments are grouped based on their function,
such as cardiology, radiology, laboratory, oncology, and pediatrics. The patient, the product in
this case, is moved between departments based on his or her individual needs. A university is
another example. Colleges and departments are grouped based on their function. You, the
student, move between departments based on the unique program you have chosen.
Characteristics of process layout

 Resources used are general purpose. The resources in a process layout need to be capable
of producing many different products.
 Facilities are less capital intensive. Process layouts have less automation, which is
typically devoted to the production of one product.
 Facilities are more labor intensive. Process layouts typically rely on higher-skilled workers
who can perform different functions.
 Resources have greater flexibility. Process layouts need to have the ability to easily add or
delete products from their existing product line, depending on market demands.
 Processing rates are slower. Process layouts produce many different products, and there is
greater movement between workstations.

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 Department of Management (DMU)

 Material handling costs are higher. It costs more to move goods from one process to
another.
 Scheduling resources is more challenging. Scheduling equipment and machines is
particularly important in this environment.
 Space requirements are higher. This type of layout needs more space due to higher
inventory storage needs.
B. Product Layouts

Product layouts are layouts that arrange resources in a straight-line fashion to promote efficient
production. They are called product layouts because all resources are arranged to meet the
production needs of the product. This type of layout is used by companies that have repetitive
processing systems and produce one or a few standardized products in large volume.

Examples of product layouts are seen on assembly lines, in cafeterias, or even at a car wash. In
product layouts the material moves continuously and uniformly through a series of workstations
until the product is completed.

Characteristics of product layout

 Resources are specialized. Product layouts use specialized resources designed to produce
large quantities of a product.
 Facilities are capital intensive. Product layouts make heavy use of automation, which is
specifically designed to increase production.
 Processing rates are faster. Processing rates are fast, as all resources are arranged in
sequence for efficient production.
 Material handling costs are lower. Due to the arrangement of work centers in close
proximity to one another, material handling costs are significantly lower.
 Space requirements for inventory storage are lower. Product layouts have much faster
processing rates and less need for inventory storage.
 Flexibility is low relative to the market. Because all facilities and resources are specialized,
product layouts are locked into producing one type of product.
C. Hybrid Layouts

Hybrid layouts combine aspects of both process and product layouts. This is the case in facilities
where part of the operation is performed using an intermittent processing system and another part

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 Department of Management (DMU)

is performed using a continuous processing system.

For example, Winnebago, which makes mobile campers, manufactures the vehicle itself as well
as the curtains and bedspreads that go into the camper. The vehicles are produced on a typical
assembly line, whereas the curtains and bedspreads are made in a fabrication shop that uses a
process layout.

Hybrid layouts are often created in an attempt to bring the efficiencies of a product layout to a
process layout environment. To develop a hybrid layout, we can try to identify parts of the
process layout operation that can be standardized and produce them in a product layout format.

D. Fixed-Position Layouts

A fixed-position layout is used when the product is large and cannot be moved due to its size.
All the resources for producing the product—including equipment, labor, tools, and all other
resources—have to be brought to the site where the product is located. Examples of fixed-
position layouts include building construction, dam or bridge construction, shipbuilding, or large
aircraft manufacture.
Designing Product Layouts

In product layouts the material moves continuously and uniformly through a sequence of
operations until the work is completed. The sequence of operations allows for the simultaneous
performance of work. When designing product layouts, our objective is to decide on the
sequence of tasks to be performed by each workstation. To accomplish this we need to consider
the logical order of the tasks to be performed and the time required to perform each task. Also,
we need to consider the speed of the production process, which will tell us how much time there
is at each workstation to perform the assigned tasks. This entire process is called line balancing.
Line Balancing
Assembly-line balancing often has implications for layout. This would occur when, for balance
purposes, workstation size or the number used would have to be physically modified.
The most common assembly-line is a moving conveyor that passes a series of workstations in a
uniform time interval called the workstation cycle time (which is also the time between
successive units coming off the end of the line). At each workstation, work is performed on a
product either by adding parts or by completing assembly operations.

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 Department of Management (DMU)

The work performed at each station is made up of many bits of work, termed tasks, elements, and
work units. Such tasks are described by motion-time analysis. Generally, they are grouping that
cannot be subdivided on the assembly-line without paying a penalty in extra motions.
The total work to be performed at a workstation is equal to the sum of the tasks assigned to that
workstation. The line-balancing problem is one of assigning all tasks to a series of workstations
so that each workstation has no more than can be done in the workstation cycle time, and so that
the unassigned (idle) time across all workstations is minimized.
The problem is complicated by the relationships among tasks imposed by product design and
process technologies. This is called the precedence relationship, which specifies the order in
which tasks must be performed in the assembly process.
The steps in balancing an assembly line are:
1. Specify the sequential relationships among tasks using a precedence diagram.
2. Determine the required workstation cycle time C, using the formula
Production time per day
C=
Required output per day (¿ units)
3. Determine the theoretical minimum number of workstations (Nt) required to satisfy the
workstation cycle time constraint using the formula

N t=
∑ of task×(T )
Cycle time(C)
4. Select a primary rule by which tasks are to be assigned to workstations, and a secondary rule
to break ties.
5. Assign tasks, once at a time, to the first workstation until the sum of the task times is equal
to the workstation cycle time or no other tasks are feasible because of time or sequence
restrictions. Repeat the process for workstation 2, workstation 3 and so on until all tasks are
assigned.
6. Evaluate the efficiency of the balance derived using the formula

Efficiency=
∑ of task ×(T )
Actual number of workstations( N a)×Workstations cycle time (C)
7. If efficiency is unsatisfactory, rebalance using a different decision rule.

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 Department of Management (DMU)

Example 1: The MS 800 car is to be assembled on a conveyor belt. Five hundred cars are
required per day. Production time per day is 420 minutes, and the assembly steps and times for
the wagon are given below. Find the balance that minimizes the number of workstations, subject
to cycle time and precedence constraints.

Task Task Description Tasks that must

time (in precede
seconds)
A 45 Position rear axle support and hand fasten -
B 11 Four screws to nuts A
C 9 Insert rear axle B
D 50 Tighten rear axle support screws to nuts -
E 15 Position front axle assembly and hand D
F 12 Fasten with four screws to nuts C
G 12 Tighten front axle assembly screws C
H 12 Position rear wheel 1 and fasten hubcap E
I 12 Position rear wheel 2 and fasten hubcap E
J 8 Position front wheel 1 and fasten hubcap F, G, H, I
K 9 Position front wheel 2 and fasten hubcap J

SOLUTION

1. Draw a precedence diagram as follows:

2. F
B C
A G

J K
H
D E

I
3. Determine workstation cycle time. Here we have to convert production time to seconds
because our task times are in seconds
Production time per day
C=
Required output per day (¿ units)

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 Department of Management (DMU)

420 min ×60 sec

C=
500 cars
25200
¿ =50.4 secs
500
4. Determine the theoretical minimum number of workstations required (the actual number
may be greater)
T 195 seconds
N t= = =3.87=4 (rounded up)
C 50.4 seconds
5. Select assignment rules.
(a) Prioritize tasks in order of the largest number of following tasks:

Task Number of following tasks

A 6
B or D 5
C or E 4
F, G, H, or I 2
J 1
K 0

Our secondary rule, to be invoked where ties exist from our primary rule, is (b) Prioritize tasks in
order of longest task time. Note that D should be assigned before B, and E assigned before C due
to this tie-breaking rule.

6. Make task assignments to form workstation 1, workstation 2, and so forth until all tasks are
assigned. It is important to meet precedence and cycle time requirements as the assignments are
made.
Station Task Task time Remaining Feasible Task with Task with

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 Department of Management (DMU)

(in sec) unassigned remaining most longest

time (in sec) tasks followers operation time
Station 1 A 45 5.4 Idle None
Station 2 D 50 0.4 Idle None
Station 3 B 11 39.4 C, E C, E E
E 15 24.4 C, H, I C
C 9 15.4 F, G, H, I F, G, H, I F, G, H, I
F 12 3.4 idle None
Station 4 G 12 38.4 H, I H, I H, I
H 12 26.4 I
I 12 14.4 J
J 8 6.4 idle None
Station 5 K 9 41.4 idle None

The precedence graph for Model J Wagon can be shown as follows.

6. Calculate the efficiency.

T 195
Efficiency= = = .77 or 77%
N a C 5∗50.4

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 Department of Management (DMU)

7. Evaluate the solution. An efficiency of 77 per cent indicates an imbalance or idle time of
23 per cent (1.0 – .77) across the entire line.
3.6. Job Design and Work Measurement

Job design is the function of specifying the work activities of an individual or group in an
organizational setting. The objective of job design is to develop jobs that meet the requirements
of the organization and its technology and that satisfy the jobholder’s personal and individual
requirements.
Job Design Decisions

Who What Where When Why How

Organizational
Mental and Geographic
Time of day;rationale for Method of
physical locale of the
Tasks to be time of the job; object-
performance
characteristics organization;
performed occurrence inives and mot-and
of the location of
the work flowivation of themotivation
work force work areas
worker

Ultimate
Job
Structure
Trends in Job Design
 Cross-training workers to perform multi-skilled jobs.
 Employee involvement and team approaches in designing and organizing work.
 Automation of heavy manual work & Quality control as part of the worker's job.
 Organizational commitment in providing meaningful and rewarding jobs for all
employees.
Workplace Changes
 Labor/organizational changes, more technology, fewer workers
 Increased employee involvement.
 Composition (gender/ethnic diversity).

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 Department of Management (DMU)

 Thus, managers have different roles.

Employee Involvement
 Increases trust and commitment
 Improves employee communications and attitudes
 Involved employees are more likely to generate new ideas
 Involved employees achieve a higher quality of work life which generates higher levels
of commitment leading to higher productivity
Teamwork
 Teams often outperform than individuals.
 Self-managed teams have been found to increase organizational performance.
– Responsible for many managerial actions:
» Work assignments, Work pace.
» Quality assessment & Hiring/firing.
 Cross-functional work teams (projects, committees).
Eliminating Employee Boredom
 Job enlargement: - Horizontal expansion of the job by increasing the scope of the work
assigned. Enhances pride of work and sense of accomplishment, but reduces productivity
 Job enrichment: - Vertical expansion of the job by increased worker responsibility
planning and inspecting. Adds sense of control and enhances sense of pride
 Job rotation:- Shifting of cross trained workers to other tasks
– Broadens understanding and can reduce fatigue
Ergonomics
 Ergonomics is the study of human-body motions at work : to design jobs to suit the
physiological and psychological needs of the worker
 To improve human- body motions that increase work productivity and efficiency but also
caters for human health and welfare.
 Consider long hours or sitting, standing, posture, repetitive motion of hands, eyes, work
stress that may affect concentration in the job and long term health.
 Design ergonomic chair, ergonomic work station, lighting, ventilation, work methods.
 Consider allowance factor for workers: personal (rest), fatigue and delay.

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 Department of Management (DMU)

Alternative Workplaces
 Alternative workplaces are made possible by technologies like email, e-networks, cell
phones, & video conferencing. Current situation:
– More than 30 million employees work in alternative workspaces
– A survey at IBM reveals that 87% of alternative workplace employees believe
their effectiveness has increased significantly
– Sun Microsystems gives many of its designers the option to work at home
Work Methods –How a job is to be performed?
 Work methods deals with a better ways of performing jobs and/tasks
 This can be undertaken using: operation charts , activity charts , etc
 The end result may be: improved labour utilization, machine utilization, material
utilization, reducing operating cost, and standardization of operations and products.
In developing work methods that are motion efficient, the analyst tries to:
1. Eliminate unnecessary motions
2. Improve the arrangement of the workplace
3. Improve the design of tools and equipment
4. Combine activities & reduce fatigue
Work Measurement
• Work measurement is a process of analyzing jobs for the purpose of setting time
standards. It determines the length of time to complete a job
• Why use it?
– Schedule work and allocate capacity
– Motivate and measure work performance
– Evaluate performance
– Provide benchmarks
• Standard time:
The length of time a qualified worker, using appropriate tools & procedures, will take to
complete a job

• Standard time is used in:

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 Department of Management (DMU)

Costing the labor component of products, tracking employee performance scheduling & planning
required resources
Methods of Work Measurement
1. Stopwatch Time Study- development of a time standard based on observations of one
worker taken over a number of cycles
2. Standard Elemental Times –time standards derived from a firm’s historical time data
3. Predetermined Time Standards – Published data based on extensive research to
determine standard elemental times
4. Work Sampling – Technique for estimating the proportion of time that a worker or
machine spends on various activities
Important Terms
 Observed Time (OT):- It is the length of time a worker should take to perform a job if
there are no delays or interruptions
1. Normal Time (NT) adjusted for worker performance.
2. Standard Time (ST) =Normal time plus an allowance for delays.
Time Study Normal Time Formulas
 Normal time (NT) =
Time worked x (1+Performance rating)
Number of units produced
 Standard time = NT .
1 - Allowances
 Allowances includes: Personal needs (washroom and coffee breaks), unavoidable work
delays (equipment break down or lack of materials) and worker fatigue (physical or
mental).
Worker Compensation Systems
 Compensation is the part of work system design
 Time-based plans (day pay) versus output-based systems (incentive pay)
 Group incentive plans: profit sharing & gain sharing
– Plans put part of a worker’s salary at risk
– Does the incentive plan encourage workers to support the long-term health of the
organization?

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 Department of Management (DMU)

Basic Compensation Systems

 Time-based system:- Compensation based on time an employee has worked during a
pay period
 Output-based (incentive) system:- Compensation based on the amount of output an
employee produces during a pay period

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