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example a certain minimum amount of water must flow。 
Excel incorporates a Solver add…in feature to solve standard linear programming 
problems。 It is not usually installed when Excel is first loaded so 
to add this facility: 
。 Select the menu option Tools | Add_Ins (you will need your original 
installation disk)。 
。 From the dialog box check Solver Add…In。 
。 Access to the Solver option is now available from the new menu option 
Tools | Solver 
These websites provide more information on using linear programming in 
operations: 
。 Economics Network (economicsnetwork。ac。uk/cheer/ch9_3/ch9_ 
3p07。htm) provides a detailed explanation and Excel worked example。 
。 IBM (www…128。ibm/developerworks/linux/library/l…glpk1) has a 
worked example。 
Queuing theory 
Agner Krarup Erlang; a Danish engineer who worked for the Copenhagen 
Telephone Exchange; had the problem of estimating how many circuits 
were needed to provide an acceptable telephone service。 He found out by 
empirical observation that the relationship between the number of circuits 
and the number of telephone customers who could be provided with an 
acceptable level of service was not as obvious as it at first seemed。 For example; 
in his experiments where one circuit was provided on a network; 
adding just one more could reduce waiting time by over 90 per cent; rather 
than just halving it as simple logic might suggest。 He published the first 
paper on queuing theory in 1909 and this new operation scheduling technique 
was born。 
Queuing theory can help answer operational questions such as these 
for a service business such as a restaurant; bank or call centre: Given the 
present resources:
240 The Thirty…Day MBA 
。 How long will a customer have to wait before they are served? 
。 How long will it take for the service to be pleted? 
。 How big a waiting area will be needed for the queue? 
。 What is the probability of a customer having to wait longer than a 
given time interval before they are served – the classic service standard 
problem calling for; say; ‘all telephone calls to be answered within 10 
rings’? 
。 What is the average number of people in the queue? 
。 What is the probability that the queue will exceed a certain length? This 
can cause congestion; say in a bank or supermarket。 
。 What time period will the server be fully occupied for and how much 
idle time are they likely to have; bearing in mind this is a cost to be 
minimized? 
The technique can be used for any operational problem where efficiency 
is determined by calculating the optimal number of channels required 
to meet a level of demand。 J E Beasley; formerly of the Tanaka Business 
School (Imperial College) and currently Professor of Operational Research 
at Brunel University; provides helpful notes on the subject at this web link 
(h。。p://people。brunel。ac。uk/~mastjjb/jeb/or/queue。html)。 
INVENTORY MANAGEMENT 
High inventory levels are popular with marketing departments; as having 
them makes satisfying customers an easier task; they are less popular with 
production departments who have to carry inventory costs in their budgets。 
Finance departments insist on having the lowest possible stock levels; as 
high stock pushes working capital levels up and return on investment 
down。 (Look back to Financial ratios in Chapter 1 on accounting to see how 
this works。) This tussle between departments is a strategic issue that has to 
be resolved by top management。 The birth of Waterstone’s; the bookshop 
business founded by Tim Waterstone; fortuitously a marketing visionary; 
qualified accountant and the pany’s managing director; provides an 
interesting illustration of the dimension of the stock control issue。 Until the 
advent of Waterstone’s the convention had been to store books spine out on 
shelves; in alphabetical order; under major subject headings – puting; 
Sport; Travel。 This had the added advantage of making it easy to see 
what books needed reordering and stock counts were a simple process。 
Waterstone; however; knew that ‘browsers’; the majority (60 per cent; 
according to his research) of people who go into bookshops to look around; 
had no idea what book they wanted; so didn’t know where to start looking。 
His differentiating strategy was that as well as following the conventional 
model of having books on shelves; he sca。。ered the books in piles around 
Operations Management 241 
the store using a variety of methods: new books in one pile; special offers 
in another。 Sales and profits soared; sufficient to more than pensate for 
the near doubling of book stock。 
Inventory categories 
There are three different categories of inventory that a business needs to 
have and keep track of: 
。 Finished goods: These are products ready to ship out to customers。 
For Apple these would be puters; iPods and so forth; for General 
Motors vehicles and for a baker loaves of bread。 
。 Work in progress (WIP): These are products in the process of being 
pleted。 They have used up some raw materials and had workers 
paid to start the manufacturing process; so the cost will reflect those 
inputs。 For General Motors WIP would include vehicles awaiting paint 
or a pre…delivery inspection。 
。 Raw materials: These are the basic materials from which the end product 
is made。 For General Motors this would include metal and paint; but 
it could also include a plete bought…in engine for the vehicles in 
which they use third…party power units。 
Economic order quantity (EOQ) 
Businesses have to carry a certain minimum amount of stock to ensure 
that the production pipeline works efficiently and likely demand is met。 
So the costs associated with ordering large quantities infrequently and 
so reducing the order cost but increasing the cost of holding stock has to 
be balanced with placing frequent orders; so pushing the costs in placing 
orders up; but reducing stock holding costs。 EOQ is basically an accounting 
formula that calculates the point at which the bination of order costs 
and inventory carrying costs are the least and so arriving at the most costeffective 
quantity to order。 
The formula for EOQ is: 
Economic order quantity = (√ (2×R×O)) 
C 
Where: R = Annual demand in units; O = Cost of placing and order; C= Cost 
of carrying a unit of inventory for the year。 
InventoryOps; a website created and run by Dave Piasecki to support 
his book Inventory Accuracy: People; Processes; & Technology (2003; Ops 
Publishing); provides a useful starting point in your quest for information 
242 The Thirty…Day MBA 
on all aspects of inventory management and warehouse operations。 At this 
link (inventoryops/economic_order_quantity。htm); you will find 
a full explanation of how to use EOQ。 
QUALITY 
As well as using efficient operation and control procedures an organization 
has to deliver a quality product or service。 Quality in operations does 
not carry quite the same meaning as it does in; say; marketing; where it 
signifies something of a high standard。 In operations; quality means that 
something meets a set of prescribed standards and performs as expected。 
In other words; promises are made and kept。 But quality is also part of 
the efficiency equation too。 Quality below standard can lead to high waste; 
disrupted schedules and lost orders。 The ideas; concepts and techniques 
that drive thinking on quality e from these management ideas。 
Inspection 
Frederick W Taylor (see above) in his book The Principles of Scientific Management 
stated that one of the clearly defined tasks of management was 
to ensure that no faulty product le。。 the factory or workshop。 This led to 
a focus on the detection of problems in the product; testing every item to 
ensure that it plied with product specifications。 The task was carried 
out at the end of the production process using specially trained inspectors。 
The ‘big idea’ emerging from this approach was defect prevention as the 
means to ensure quality control。 Inspection still plays a part in modern 
quality practices; but less as an answer and more as one tool in the toolkit。 
Philosophy 
W Edwards Deming (deming); an American statistician and 
me

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