ISM 270

1
ISM 270

• Service Engineering and Management
• Lecture 6 Facility Location, Project Management

2
Announcements

• Project 1 due today
• Homework 3 due next week
• Project 2 today

3
Homework 3

• Exercises in forecasting and demand management
  for services
• See hints on website

4
Project 2

• Choose a service idea
• Develop a prototype or overview
• Develop the business case as to why idea is good
• Required
• Written report (due March 13)
• Include both business plan and service
  description
• Can focus more heavily on either plan or
  prototype
• Presentation on March 13
• 15 minutes 5 minutes questions

5
StrikeIron Preparation

• Bring Laptop to class next week!
• Register for StrikeIron at
• http//www.strikeiron.com/register.aspx
• Install the following BEFORE class
• http//www.strikeiron.com/tools/tools_soaexpress.a
  spx

6
Video Clip

• Clip

7
Process Analysis Terminology

• Cycle Time is the average time between
  completions of successive units.
• Bottleneck is the factor that limits production
  usually the slowest operation.
• Capacity is a measure of output per unit time
  when fully busy.
• Capacity Utilization is a measure of how much
  output is actually achieved.
• Throughput Time is the time to complete a process
  from time of arrival to time of exit.

8
Process Analysis Terminology (cont.)

• Rush Order Flow Time is the time to go through
  the system without any queue time.
• Direct Labor Content is the actual amount of work
  time consumed.
• Total Direct Labor Content is the sum of all the
  operations times.
• Direct Labor Utilization is a measure of the
  percentage of time that workers are actually
  contributing value to the service.

9
Process Flow Diagram of Mortgage Services
Property Survey CT90 min.
 
Yes
Final Approval CT15 min.
Mortgage Applications
Completed Applications
Approved Mortgages
Credit Report CT45 min.
Title Search CT30 min.
No
Unapproved Mortgages
Operation and cycle time Decision Wait Flow of
customers/goods/information
.
10
Product Layout Work Allocation Problem

• Automobile Drivers License Office
• Review Payment
  Violations Eye Test
  Photograph Issue
• In

2 120 30
4 90 40
1 240 15
3 60 60
5 180 20
6 120 30
Out
Activity Number(s)
Capacity
per hour Cycle Time
in seconds
11
Automobile Drivers License Office (Improved
Layout)

1,4 65 55
3 60 60
In
Out
6 120 30
5 180 20
2 120 30
3 60 60
1,4 65 55
In
12
Process LayoutRelative Location Problem

• Ocean World Theme Park Daily Flows

A B C D E F
A B C D
E F

A
7
5
6
0
20
15
15
0
30
6
6
0
10
2
8
10
40
12
8
B
Net flow
C
10
6
7
15
8
8
8
20
D
0
3
6
30
5
30
10
E
10
6
20
1
10
10
F
6
0
0
4
3
Flow matrix
Triangularized matrix
Description of attractions Akiller whale,
Bsea lions, Cdolphins, Dwater skiing,

Eaquarium, Fwater rides.
13
Ocean World Theme Park (Proposed Layout)

• (a) Initial layout
  (b) Move C close to A
• Pair Flow
  distances
  Pair Flow distances
• AC 30
  2 60
  CD 20 2 40
• AF 6
  2 12
  CF 8 2 16
• DC 20
  2 40
  DF 6 2 12
• DF 6
  2 12
  AF 6 2 12
• Total
  124
  CE 8 2 16
• 
  
  Total 96
• (c ) Exchange A and C
  (d) Exchange B and E and move F
  
  
• Pair Flow
  distances
  Pair Flow distances
• AE 15
  2 30
  AB 15 2 30
• CF 8
  2 16
  AD 0 2 0
• AF 6
  2 12
  FB 8 2 16
• AD 0
  2 0
  FD 6 2 12
• DF 6
  2 12
  Total 58
  
• Total
  70

C
A
B
C
A
B
D
E
F
D
F
E
A
A
F
C
B
C
E
D
E
F
D
B
14
Service Facility Location
15
Service Facility Location Planning

• Competitive positioning prime location can be
  barrier to entry.
• Demand management diverse set of market
  generators.
• Flexibility plan for future economic changes and
  portfolio effect.
• Expansion strategy contiguous, regional followed
  by fill-in, or concentrated.

16
Geographic Representation

• Location on a Plane
• Y
• 
  
• 
  Destination j
• Yj
  Euclidean
• Origin i

Yi
Metropolitan
0
X
Xi
Xj
17
Effect of Optimization Criteria

• 1. Maximize Utilization
• (City C elderly find distance a barrier)2.
  Minimize Distance per Capita
• (City B centrally located)3. Minimize
  Distance per Visit
• (City A many frequent users)

City A
3

2
-10 -5 5 10 15

-15 -10 -5 5
10 15 20 25

City C
City B
1
18
Estimation of Geographic Demand

• Define the Target Market (Families receiving
  AFDC)
• Select a Unit of Area (Census track, ZIP code)
• Estimate Geographic Demand (Regression analysis)
• Map Geographic Demand (3D visual depiction)

19
Single Facility Location Using Cross Median
Approach

3 (W33)
2 (W21)
1 (W17)
4 (W45)
20
Single Facility Location Using Cross Median
Approach

3 (W33)
2 (W21)
1 (W17)
4 (W45)
Solution is line segment y2, x2,3
21
Huff Retail Location Model

• First, a gravity analogy is used to estimate
  attractiveness of store j for customers in area
  i.
• Aij Attraction to store j for customers in
  area i
• Sj Size of the store (e.g. square feet)
• Tij Travel time from area i to store j
• lambda Parameter reflecting propensity to
  travel

22
Huff Retail Location Model

• Second, to account for competitors we
  calculate the probability that customers from
  area i will visit a particular store j.

23
Huff Retail Location Model

• Third, annual customer expenditures for item k
  at store j can now be calculated.
• Pij Probability customers from area i travel to
  store j
• Ci Number of customers in area i (e.g. census
  track)
• Bik Annual budget for product k for customers
  in area i
• m Number of customer areas in the market region

24
Huff Retail Location Model

• Fourth, market share of product k purchased at
  store j can now be calculated.

25
Site Selection Considerations

• 1. Access
  4. Parking
• Convenient to freeway exit and
  Adequate off-street parking
• entrance ramps
  5. Expansion
• Served by public transportation
  Room for expansion
• 2. Visibility
  6. Environment
• Set back from street
  Immediate surroundings Surrounding
  clutter should complement the
• Sign placement service
• 3. Traffic
  7. Competition
• Traffic volume on street that may
  Location of competitors
• Indicate potential impulse buying
  8. Government
• Traffic congestion that could be a
  Zoning restrictions
• hindrance (e.g.., fire stations)
  Taxes

26
Breaking the Rules

• Competitive Clustering (Among Competitors) (e.g.
  Auto Dealers, Motels)
• Saturation Marketing (Same Firm) (e.g. An Bon
  Pain, Ice Cream Vendors)
• Marketing Intermediaries (e.g. Credit Cards,
  HMO)
• Substitute Electronic Media for Travel (e.g.
  telecommuting, e-Commerce)
• Impact of the Internet on Service Location (e.g.
  Amazon.com, eBay, FedEx)

27
Strategic Location Considerations
28
Managing Service Projects
29
Learning Objectives

• Describe the nature of project management.
• Illustrate the use of a Gantt chart.
• Construct a project network.
• Perform critical path analysis on a project
  network.
• Allocate limited resources to a project.
• Crash activities to reduce the project completion
  time.
• Analyze a project with uncertain activity times.
• Use the earned value chart to monitor a project.
• Discuss the reasons why projects fail to meet
  performance, time, and cost objectives.

30
The Nature of Project Management

• Characteristics of Projects purpose, life cycle,
  interdependencies, uniqueness, and conflict.
• Project Management Process planning (work
  breakdown structure), scheduling, and
  controlling.
• Selecting the Project Manager credibility,
  sensitivity, ability to handle stress, and
  leadership.
• Building the Project Team Forming, Storming,
  Norming, and Performing.
• Principles of Effective Project Management
  direct people individually and as a team,
  reinforce excitement, keep everyone informed,
  manage healthy conflict, empower team, encourage
  risk taking and creativity.
• Project Metrics Cost, Time, Performance

31
Work Breakdown Structure

• 1.0 Move the hospital (Project)1.1 Move patients
  (Task) 1.1.1 Arrange for ambulance (Subtask)
• 1.1.1.1 Prepare patients for move 1.1.1.2
  Box patients personnel effects1.2 Move
  furniture 1.2.1. Contract with moving
  company

32
Project Management Questions

• What activities are required to complete a
  project and in what sequence?
• When should each activity be scheduled to begin
  and end?
• Which activities are critical to completing the
  project on time?
• What is the probability of meeting the project
  completion due date?
• How should resources be allocated to activities?

33
Tennis Tournament Activities
ID Activity Description Network
Immediate Duration
Node
Predecessor (days) 1 Negotiate
for Location A
- 2 2 Contact
Seeded Players B
- 8 3 Plan
Promotion C
1 3 4 Locate
Officials D
3 2 5 Send
RSVP Invitations E
3 10 6 Sign Player
Contracts F
2,3 4 7 Purchase Balls
and Trophies G 4
4 8 Negotiate Catering
H 5,6
1 9 Prepare Location
I 5,7
3 10 Tournament
J 8,9
2
34
Notation for Critical Path Analysis
Item Symbol
Definition Activity duration t
The expected duration of an
activity Early start ES
The earliest time an activity can begin
if all previous
activities are begun at
their earliest times Early finish
EF The earliest time an
activity can be completed if it
is
started at its early start time Late start
LS The latest time
an activity can begin without
delaying
the completion of the project Late finish
LF The latest time
an activity can be completed if it
is
started at its latest start time Total slack
TS The amount of
time an activity can be delayed
without
delaying the completion of the project
35
Scheduling Formulas
ES EFpredecessor (max)
(1) EF ES t
(2) LF LSsuccessor (min)
(3) LS LF - t
(4) TS LF - EF

(5) TS LS - ES
(6)
or
36
Tennis Tournament Activity on Node Diagram
TS
ES
EF
LS
LF
A2
C3
D2
G4
START
J2
E10
I3
B8
F4
H1
37
Early Start Gantt Chart for Tennis Tournament
ID Activity Days
Day of Project
Schedule
1 2 3 4 5 6 7 8
9 10 11 12 13 14 15 16 17 18
19 20 A Negotiate for 2
Location B Contact Seeded 8
Players C Plan Promotion 3 D
Locate Officials 2 E Send RSVP
10 Invitations F Sign Player
4 Contracts G Purchase Balls
4 and Trophies H Negotiate
1 Catering I Prepare
Location 3 J Tournament 2
Personnel Required 2 2 2
2 2 3 3 3 3 3 3 2
1 1 1 2 1 1 1
1 Critical Path Activities Activities with Slack

38
Resource Leveled Schedule for Tennis Tournament
ID Activity Days
Day of Project
Schedule
1 2 3 4 5 6 7 8 9
10 11 12 13 14 15 16 17 18
19 20 A Negotiate for 2
Location B Contact Seeded 8
Players C Plan Promotion 3 D
Locate Officials 2 E Send RSVP
10 Invitations F Sign Player
4 Contracts G Purchase Balls
4 and Trophies H Negotiate
1 Catering I Prepare
Location 3 J Tournament 2
Personnel Required 2 2 2
2 2 2 2 2 2 2 2 2
2 3 2 2 2 2 1
1 Critical Path Activities Activities with Slack

39
Incorporating Uncertainty in Activity times
P(DltA) .01
F(D)
P(DgtB) .01
TIME
A M D
B
optimistic most

pessimistic likely
40
Formulas for Beta Distribution of Activity
Duration
Expected Duration
Variance
Note (B - A ) Range or
41
Activity Means and Variances for Tennis Tournament
Activity A M B D
V A 1 2 3
B 5 8 11 C
2 3 4 D 1
2 3 E 6 9
18 F 2 4 6 G
1 3 11 H
1 1 1 I 2
2 8 J 2 2
2
42
Uncertainly Analysis
Assumptions 1.
Use of Beta Distribution and Formulas For D and
V 2. Activities Statistically Independent 3.
Central Limit Theorem Applies ( Use student t
if less than 30 activities on CP) 4.
Use of Critical Path Activities Leading Into
Event Node
Result Project Completion Time Distribution is
Normal With For Critical
Path Activities For
Critical Path Activities
43
Completion Time Distribution for Tennis Tournament
Critical Path Activities
D V A
2
4/36 C 3
4/36 E
10 144/36 I
3 36/36
J 2
0 20
188/36 5.2
44
Question
What is the probability of an overrun if a 24 day
completion time is promised?
Days
24
P (Time gt 24) .5 - .4599 .04 or 4
45
Costs for Hypothetical Project
Total Cost
Indirect Cost
Cost
Opportunity Cost
Direct Cost
(0,0)
Duration of Project
Schedule with Minimum Total Cost
46
Activity Cost-time Tradeoff
Cost
Crash
C
Slope is cost to expedite per day
Normal
C
D
D
Activity Duration (Days)
47
Cost-Time Estimates for Tennis Tournament
Time Estimate Direct
Cost Expedite Cost Activity
Normal Crash Normal Crash
Slope A 2 1
5 15 B
8 6 22
30 C 3 2
10 13 D 2
1 11 17
E 10 6 20
40 F 4
3 8 15 G
4 3 9
10 H 1 1
10 10 I
3 2 8
10 J 2 1
12 20

Total 115
48
Progressive Crashing
Project Activity Direct
Indirect Opportunity
Total Duration Crashed Cost
Cost Cost
Cost 20 Normal 115
45 8
168 19
41 6 18

37 4 17
33
2 16
29
0 15
25 -2 14

21 -4 13
17
-6 12
13 -8

Normal Duration After Crashing
Activity Project Paths Duration A-C-D-G-I-J
16 A-C-E-I-J 20 A-C-E-H-J
18 A-C-F-H-J 12 B-F-H-J
15
49
Applying Theory of Constraints to Project
Management

• Why does activity safety time exist and is
  subsequently lost?1. The student syndrome
  procrastination phenomena.2. Multi-tasking
  muddles priorities.3. Dependencies between
  activities cause delays to accumulate.
• The Critical Chain is the longest sequence of
  dependent activities and common (contended)
  resources.
• Measure Project Progress as of Critical Chain
  completed.
• Replacing safety time with buffers- Feeding
  buffer (FB) protects the critical chain from
  delays.- Project buffer (PB) is a safety time
  added to the end of the critical chain to protect
  the project completion date.- Resource buffer
  (RB) ensures that resources (e.g. rental
  equipment) are available to perform critical
  chain activities.

50
Accounting for Resource Contention Using Feeding
Buffer


NOTE E and G cannot be performed simultaneously
(same person)
A2
C3
D2
G4
FB7
START
J2
E10
I3
FB5
B8
F4
H1
Set feeding buffer (FB) to allow one day total
slack
Project duration based on Critical Chain 24 days
51
Incorporating Project Buffer


NOTE Reduce by ½ all activity durations gt 3
days to eliminate safety time
A2
C3
D2
G2
FB2
J2
START
PB4
E5
I3
B4
F2
H1
FB3
Redefine Critical Chain 17 days
Reset feeding buffer (FB) values
Project buffer (PB) ½ (Original Critical
Chain-Redefined Critical Chain)
52
Sources of Unexpected Problems
53
Earned Value Chart
54
Forecasting Demand for Services
55
Learning Objectives

• Recommend the appropriate forecasting model for a
  given situation.
• Conduct a Delphi forecasting exercise.
• Describe the features of exponential smoothing.
• Conduct time series forecasting using exponential
  smoothing with trend and seasonal adjustments.

56
Forecasting Models

• Subjective Models Delphi Methods
• Causal Models Regression Models
• Time Series Models Moving Averages Exponential
  Smoothing

57
Delphi ForecastingQuestion In what future
election will a woman become president of the
united states?
58
N Period Moving Average
Let MAT The N period moving average at the
end of period T AT Actual
observation for period T Then MAT (AT AT-1
AT-2 .. AT-N1)/N Characteristics
Need N observations to make a forecast
Very inexpensive and easy to understand
Gives equal weight to all observations
Does not consider observations older than N
periods
59
Moving Average Example
Saturday Occupancy at a 100-room Hotel

Three-period Saturday
Period Occupancy Moving Average
Forecast Aug. 1 1
79 8
2 84 15
3 83 82
22 4
81 83 82 29 5
98 87 83 Sept. 5
6 100 93 87
12 7 93


60
Exponential Smoothing
Let ST Smoothed value at end of period T
AT Actual observation for period T FT1
Forecast for period T1 Feedback control
nature of exponential smoothing New value
(ST ) Old value (ST-1 ) observed error

or
61
Exponential SmoothingHotel Example
Saturday Hotel Occupancy ( 0.5)
Actual
Smoothed Forecast
Period Occupancy
Value Forecast
Error Saturday t
At St
Ft At -
Ft Aug. 1 1
79 79.00 8 2
84 81.50 79 5 15
3 83 82.25
82 1 22 4
81 81.63 82 1 29
5 98 89.81
82 16 Sept. 5 6
100 94.91 90 10

MAD 6.6



Forecast Error (Mean Absolute
Deviation) SlAt Ftl/n

62
Exponential SmoothingImplied Weights Given Past
Demand
Substitute for
If continued
63
Exponential Smoothing Weight Distribution
Relationship Between and N
(exponential smoothing constant) 0.05 0.1
0.2 0.3 0.4 0.5 0.67 N (periods
in moving average) 39 19 9
5.7 4 3 2
64
Saturday Hotel Occupancy
Effect of Alpha ( 0.1 vs. 0.5)
Actual
Forecast
Forecast
65
Exponential Smoothing With Trend Adjustment
Commuter Airline Load Factor Week Actual
load factor Smoothed value Smoothed
trend Forecast Forecast error t
At St
Tt
Ft At - Ft 1
31 31.00
0.00 2 40
35.50 1.35
31 9 3
43 39.93 2.27 37 6 4
52
47.10 3.74 42
10 5 49
49.92 3.47
51 2 6
64 58.69
5.06 53
11 7 58
60.88 4.20
64 6 8
68 66.54
4.63 65
3

MAD
6.7
66
Exponential Smoothing with Seasonal Adjustment
Ferry Passengers taken to a Resort Island
Actual
Smoothed Index Forecast
Error Period t At
value St It
Ft At - Ft

2003 January 1 1651
.. 0.837
.. February 2
1305 ..
0.662 .. March
3 1617 ..
0.820 .. April
4 1721 ..
0.873 .. May
5 2015 ..
1.022 .. June
6 2297 ..
1.165 .. July
7 2606 ..
1.322 .. August
8 2687 ..
1.363 .. September
9 2292 ..
1.162 .. October 10
1981 ..
1.005 .. November 11
1696 ..
0.860 .. December 12 1794
1794.00 0.910
..
2004 January 13
1806 1866.74 0.876 -
-
February 14 1731
2016.35 0.721 1236 495 March
15 1733 2035.76
0.829 1653 80