Purchasing at a Cost

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- Project is defined as series of tasks that …

- Requires completion of specific objectives

- Has defined start and stop dates

- Consumes resources, particularly time, personnel, and budget

- Operates with limited resources

Dimensions of a Project

- Defined scope

- Project overview

- Agreed-upon tasks, responsibilities, and deliverables

- Time frame

- Starting and ending points

- Cost

Six Phases of a Project

Concept, project definition, planning, preliminary studies, performance, post completetion

Project Planning and Control Techniques

- Gantt charts

- Visually displays tasks and times associated with a project

- Advantages

- Relatively inexpensive to develop and use

- Can convey great deal of information

- Disadvantages

- Difficult to use and maintain for complex projects

- Critical path method (CPM)

- Use when there is single known time for each activity with no variance

- CPM is used for projects where there is a single time estimate for each activity.

- Critical path analysis:

- Determine the longest time path through the network. Any delay in the activities will delay the project!

- To find the path we need 4 times

- Earliest start (ES) = earliest time that an activity can start

- Earliest finish (EF) = earliest time that an activity can be finished

- Latest start (LS) = latest time that an activity can start so as to not delay the completion time of the project

- Latest finish (LF) = latest time that an activity has to finish so as to not delay the completion time of the project

- Program evaluation and review technique (PERT)

- Use where time estimates are variable or uncertain

- Most likely vs. pessimistic vs. optimistic

- Forward path: identifies all the earliest times.

- Earliest start time rule: ES

- ES = Max { Earliest Finish of all immediate predecessors }

- Earliest finish time rule: EF

- EF = ES + Activity time

- Backward path: find all latest times.

- Latest finish time rule: LF

- LF = Min { Latest start time of all immediate following activities }

- Latest start time rule: LS

- LS = LF - Activity time

- Calculating slack time and find critical path

- Slack time: the free time for each activity

- Slack = LS – ES = LF – EF

- Path with no slack time are the critical path!!

Learning Curves

- Establish rate of improvement due to direct labor cost improvement as production volumes increase

- Learning rate represents improvement as production doubles

85% learning rate indicates that direct labor declines by 15% each time production doubles in volume

- Use to lower purchase price over time

- Ability of workforce to learn and improve through repetitive effort and increased efficiency

- Effort by management to pursue productivity gains

When to Use the Learning Curve

- Not all processes or items are subject to learning curve effects

- When supplier uses new production process for first time

- When supplier produces technically complex item for first time

- When item has high direct labor content

Two Types of Learning Curves

Cumulative Average Cost Curve

- Commonly used in price and cost analysis

- Plots cumulative units produced against the average direct labor cost (or average labor hours required per unit for all units produced)

2. Unit or marginal cost curve

- Used in labor and cost-estimating work

- Plots cumulative units produced against the actual labor hours required to produce each unit

Process Mapping

- A Lean Method to reduce component parts or activities

- Helps identify and then eliminate non-value-added activities (waste) or delays

- Process

- Is outcome of set of tasks, activities, or steps

- Crosses multiple functional boundaries

Process Mapping

- Types:

- Sequential processes

- Concurrent processes (rolling)

Often conducted by cross-functional teams

- Generates buy-in from affected groups

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