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 a prototype or overview Develop the business case as to why idea is good Develop the business case as to why idea is good  Required: Written report (due March 13) Written report (due March 13) Include both business plan and service descriptionInclude both business plan and service description Can focus more heavily on either plan or prototypeCan focus more heavily on either plan or prototype Presentation on March 13 Presentation on March 13 15 minutes + 5 minutes questions15 minutes + 5 minutes questions

5. StrikeIron Preparation  Bring Laptop to class next week!  Register for StrikeIron at: http://www.strikeiron.com/register.aspx http://www.strikeiron.com/register.aspx  Install the following BEFORE class: http://www.strikeiron.com/tools/tools_soaexpr ess.aspx http://www.strikeiron.com/tools/tools_soaexpr ess.aspx http://www.strikeiron.com/tools/tools_soaexpr ess.aspx http://www.strikeiron.com/tools/tools_soaexpr ess.aspx

6. Video Clip  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 CT=90 min. Credit Report CT=45 min. Title Search CT=30 min. Unapproved Mortgages Approved Mortgages Completed Applications Mortgage Applications Final Approval CT=15 min. Yes No. Operation and cycle time Decision Wait Flow of customers/goods/information

10. Product Layout Work Allocation Problem Automobile Driver’s License Office Review Payment Violations Eye Test Photograph Issue Review Payment Violations Eye Test Photograph IssueIn 1 240 15 2 120 30 3 60 4 90 40 5 180 20 6 120 30 Activity Number(s) Capacity per hour Cycle Time in seconds Out

11. Automobile Driver’s License Office (Improved Layout) 1,4 65 55 3 60 3 60 1,4 65 55 6 120 30 5 180 20 2 120 30 In Out

12. Process Layout Relative Location Problem  Ocean World Theme Park Daily Flows 10 0 6 60 75 0 6020 43 6 6 1 7 010 15 2 8 3 10 15 8820 630 15030 8104012 6 8 530 10 A B C D E F A B C D E F A B C D E F Net flow Flow matrix Triangularized matrix Description of attractions: A=killer whale, B=sea lions, C=dolphins, D=water skiing, E=aquarium, F=water rides.

13. Ocean World Theme Park (Proposed Layout) (a) Initial layout (b) Move C close to A Pair Flow distances Pair Flow distances Pair Flow distances Pair Flow distances AC 30 * 2 = 60 CD 20 * 2 =40 AC 30 * 2 = 60 CD 20 * 2 =40 AF 6 * 2 = 12 CF 8 * 2 =16 AF 6 * 2 = 12 CF 8 * 2 =16 DC 20 * 2 = 40 DF 6 * 2 = 12 DC 20 * 2 = 40 DF 6 * 2 = 12 DF 6 * 2 = 12 AF 6 * 2 = 12 DF 6 * 2 = 12 AF 6 * 2 = 12 Total 124 CE 8 * 2 = 16 Total 124 CE 8 * 2 = 16 Total 96 Total 96 (c ) Exchange A and C (d) Exchange B and E and move F Pair Flow distances Pair Flow distances Pair Flow distances Pair Flow distances AE 15 * 2 = 30 AB 15 * 2 =30 AE 15 * 2 = 30 AB 15 * 2 =30 CF 8 * 2 = 16 AD 0 * 2 = 0 CF 8 * 2 = 16 AD 0 * 2 = 0 AF 6 * 2 = 12 FB 8 * 2 = 16 AF 6 * 2 = 12 FB 8 * 2 = 16 AD 0 * 2 = 0 FD 6 * 2 = 12 AD 0 * 2 = 0 FD 6 * 2 = 12 DF 6 * 2 = 12 Total 58 DF 6 * 2 = 12 Total 58 Total 70 Total 70 ABC DEF A C D B EF C A D B FE AF CE DB

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 Metropolitan 0 Xi X j Yi X

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 City B City C -10 -5 5 10 15 -15 -10 -5 5 10 15 20 25 3 2 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 1 (W 1 =7) 2 (W 2 =1) 3 (W 3 =3) 4 (W 4 =5)

20. Single Facility Location Using Cross Median Approach 1 (W 1 =7) 2 (W 2 =1) 3 (W 3 =3) 4 (W 4 =5) Solution is line segment y=2, x=2,3

21. Huff Retail Location Model First, a gravity analogy is used to estimate attractiveness of store j for customers in area i. A ij = Attraction to store j for customers in area i S j = Size of the store (e.g. square feet) T ij = 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. P ij = Probability customers from area i travel to store j C i = Number of customers in area i (e.g. census track) B ik = 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 Front Office Back Office ExternalCustomer(consumer) Is travel out to customer or customer travel to site? Can electronic media substitute for physical travel? Is location a barrier to entry? Is service performed on person or property? Is co-location necessary? How is communication accomplished? InternalCustomer(employee) Availability of labor? Are self-service kiosks an alternative? Are economies of scale possible? Can employees work from home? Is offshoring an option?

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 effects 1.2 Move furniture 1.2.1. Contract with moving company 1.1.1.1 Prepare patients for move 1.1.1.2 Box patients personnel effects 1.2 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 J2J2 B8B8 START A2A2 C3C3 D2D2 G4G4 E 10 I3I3 F4F4 H1H1 TS ESEF LSLF

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 A M D B F(D) P(D<A) =.01 P(D>B) =.01 optimistic most pessimistic likely TIME

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

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? 24 P (Time > 24) =.5 -.4599 =.04 or 4% Days

45. Costs for Hypothetical Project Cost (0,0) Schedule with Minimum Total Cost Duration of Project Total Cost Indirect Cost Opportunity Cost Direct Cost

46. Activity Cost-time Tradeoff C C*C* D*D* D Activity Duration (Days) Normal Crash Slope is cost to expedite per day Cost

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 J2J2 B8B8 START A2A2 C3C3 D2D2 G4G4 E 10 I3I3 F4F4 H1H1 FB=7 FB=5 NOTE: E and G cannot be performed simultaneously (same person) Set feeding buffer (FB) to allow one day total slack Project duration based on Critical Chain = 24 days

51. Incorporating Project Buffer J2J2 B4B4 START A2A2 C3C3 D2D2 G2G2 E5E5 I3I3 F2F2 H1H1 FB=2 FB=3 NOTE: Reduce by ½ all activity durations > 3 days to eliminate safety time Redefine Critical Chain = 17 days Reset feeding buffer (FB) values Project buffer (PB) = ½ (Original Critical Chain-Redefined Critical Chain) PB=4

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 Forecasting Question: In what future election will a woman become president of the united states? Year 1 st Round Positive Arguments 2 nd Round Negative Arguments 3 rd Round 2008 2012 2016 2020 2024 2028 2032 2036 2040 2044 2048 2052 Never Total

58. N Period Moving Average Let : MA T = The N period moving average at the end of period T A T = Actual observation for period T Then: MA T = (A T + A T-1 + A T-2 + …..+ A T-N+1 )/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 8382 22 4 818382 29 5 98 8783 Sept. 5 6 1009387 12 793

60. Exponential Smoothing Let : S T = Smoothed value at end of period T A T = Actual observation for period T F T+1 = Forecast for period T+1 Feedback control nature of exponential smoothing New value (S T ) = Old value (S T-1 ) + [ observed error ] or :

61. Exponential Smoothing Hotel Example Saturday Hotel Occupancy ( =0.5) Actual Smoothed Forecast Period Occupancy Value Forecast Error Saturday t A t S t F t |A t - F t | Aug. 1 1 7979.00 8 2 8481.50 79 5 15 3 8382.25 82 1 22 4 8181.63 82 1 29 5 9889.81 8216 Sept. 5 6 10094.91 9010 MAD = 6.6 Forecast Error (Mean Absolute Deviation) = ΣlA t – F t l/n

62. Exponential Smoothing Implied 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

65. Exponential Smoothing With Trend Adjustment Commuter Airline Load Factor Week Actual load factor Smoothed value Smoothed trend Forecast Forecast error t A t S t T t F t | A t - F t | 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 IndexForecast Error Period t A t value S t I t F t | A t - F t| 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 0.7211236495 March 15 1733 2035.76 0.8291653 80