Académique Documents
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Management
Study Material For
MBA 2nd Semester
Compiled by:
Published by: Mrs. Viraja.Kanawally
Chapter1
1. Operations Management: product strategies
Product life cycle Productive system types
Impact of technology and organization of the
operations function Requirements of
forecasting for operations.
Meaning of Production
Production is an intentional act of producing something in an organized manner. It is the
fabrication of a physical object through the use of men, material and some function which has
some utility e.g. repair of an automobile, legal advice to a client, banks, hotels, transport
companies etc.
The main inputs are information, management, material, land, labour and capital. This figure
shown below explains the production process of an organization.
PROCESS
OUTPUT
Information
Management
Transformation
Goods
&
service
s
Labor, capital
Specifying and accumulating the input resources, i.e., management, men, information,
materials, machine and capital.
Designing and installing the assembling or conversion process to transform the inputs into
output, and
Coordinating and operating the production process so that the desired goods and services
may be produced efficiently and at a minimum cost.
The production department in an enterprise is not only concerned with the full exploitation of
production facilities but also the human factor that indirectly affects the production, utilization of
latest techniques of production and the production of quality goods to the satisfaction of customers
of the product.
The various activities that form scope of production function can be studied in the following
broad areas:
Product selection
& Design
Activities relating to
production system
Designing
Production
Control
Facilities
Location
Inventory
Control
Production
planning
Method
Study
Capacity
Planning
Facilities layout
& materials handling
i.
Product selection and design: the product mix marks the production system either
efficient or inefficient. Choosing the right products keeping the mission and overall
objective of the organization in mind is the key to success. It is the design of the product,
which makes the organization competitive or noncompetitive.
ii.
iii.
Facilities location: the selection of an optimum plant location very much depends upon the
decision taken regarding production engineering. A wrong decision may prove disastrous.
Location should as far as possible cut down the production and distribution cost. There are
diverse factors to be considered for selecting the location of a plant.
iv.
Method study: the next decision regarding production system design concerns the use of
those techniques, which are concerned with work environment and work measurement.
Standard method should be devised for performing the repetitive functions efficiently.
Unnecessary movements should be eliminated and suitable positioning of the workers for
different processes should be developed. Such methods should be devised with the help of
time study and motion study. The workers should be trained accordingly.
v.
Facilities layout and materials handling: plant layout deals with the arrangements of
machines and plant facilities. The machine should be so arranged that the flow of
production remains smooth. There should not be overlapping, duplication or interruption in
production flow. Product layout where machines are arranged in a sequence required for
the processing of a particular product, and process layout, where machines performing the
similar processes are grouped together are two popular methods of layout. The departments
are layout in such a way that the cost of material handling is reduced. There should be
proper choice of material handling equipment.
vi.
Capacity planning: This deals with the procurement of productive resources. Capacity
refers to a level of output of the conversion process over a period of time. Full capacity
indicates maximum level of output. Capacity is planned for short-term as well as for long
term. Process industries pose challenging problems in capacity planning, requiring in the
long run, expansion and contraction of major facilities in the conversion process.
Tools for capacity planning are marginal costing (Break Even Analysis), learning
curves, linear programming, and decision trees.
vii.
Production planning: the decision in production planning include preparation of shortterm production schedules, plan for maintaining the records of raw materials, finished and
semi-finished stock, specifying how the production resources of the concern are to be
employed over some future time in response to the predicted demand for products and
services
viii.
Production control: after planning, the next managerial production function is to control
the production according to the production plans because production plans cannot be
activated unless they are properly guided and controlled.
Acc. To Soriebal and Lansburgh Production control is the process of planning
production in advance of operations; establishing the exact route of each individual item,
part or assembly; setting, starting and finishing dates for each
important item, assembly and
the finished products; and releasing the necessary orders as well as initiating the required followup to effect the smooth functioning of the enterprise
ix.
Inventory Control: inventory control deals with the control over raw-materials, work-inprogress, finished products, stores, supplies, tools, and so is included in production
management. The raw materials, supplies etc should be purchased at right time, right
quality, in right quantity, from right source and at right price.
ORGANIZATIONAL CHART OF PRODUCTION MANAGEMENT DEPARTMENT
Managing Director
Works Manager
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2
SERVICES
Intangible and perishable; consumed
in the process of their production
Simple processing
on
Performance Objectives
The performance objectives may include:
Cost objectives
Attaining high degree of customer satisfaction on performance front must be coupled with lower
cost of producing the goods or rendering a service. Thus cost minimization is an important systems
objective. Costs can be explicit or implicit. These could be tangible in economic terms or
intangible in social cost terms- such as delayed supplies, customer complaints etc. While managing
production systems we must consider the visible and invisible, tangible and intangible costs some
examples of these costs are:
a) Explicit costs:
Material cost
Direct and Indirect labour cost
Scrap/rework cost
Maintenance cost
b) Implicit costs:
Cost of carrying inventory
Cost of stock outs, storage, back-logging, lost sales
Cost of delayed deliveries
Cost of material handling
Cost of inspection
Cost of grievances, dissatisfaction
Down time cost
Opportunity cost
For the purpose of managerial decision-making, we should consider the total relevant
systems costs including visible and invisible. A longer term cost implication rather than
only short-term will help in arriving at better decision.
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1. Periodic decisions which include selection, design and updating of resource, structure,
systems and procedures.
2. Continual decisions which are required in day-to-day operations and control of production
systems.
Value Analysis
Value analysis is a cost reduction & control technique, which operates by attacking the basic
design of the product or service.
Value analysis is an organized procedure for the efficient identification of unnecessary costs by
analysis of function --function being that property of product which makes it work or sell.
This means value analysis involves:1. Identification of function- the first & most important, step in the value analysis is to make a
formal statement of the function of the product or service.
Function means- what is purpose of operation?
What does it do?
A lamp function is to give light
A beam function is to support weight
A cheques function is to transfer cash
A shafts function is to transmit force.
- Identification of function of product
- Examine alternative way in which this function can be done.
- Choosing the least cost alternative.
Value Engineering The application of value analysis techniques at the design stage of a product
or service.
Value
1. Value may be equated with a price, which is that which must be given, done sacrificed to
obtain a thing and any product or service will have several different values.
Exchange value, the price a purchaser will offer. This is sum of two parts, value due to
usefulness & the value the ownership itself bestows.
Exchange value = use value + esteem value.
Use value = the price the purchaser will offer in order to ensure that the purpose (or function)
is achieved.
Esteem value = the price which is offered beyond the use value e.g. possession of ----------?
Exchange value is set by the market & is influenced by the usefulness & esteem in which the
product is held.
2. Cost value (intrinsic value)- sum of all the costs incurred in providing the product.
Profit = exchange value cost value
The task of a value analyst is to increase exchange value & decrease cost value.
Carrying out a value analysis exercise:
Value analysis team it must consist of a small core of experienced people + concerned people
+ intelligent laymen to raise basic & fundamental questions.
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A Structured Approach Gage has laid down a 12-step process for conducting value analysis
exercise.
1. Select the product to be analysed based on
- Multiplicity of components.
- Large forecast usage.
- Small difference between use value & cost value.
- Considerable market competition.
- A long designed product.
- Generation of considerable documentation.
- Creation of organizational complexity.
2. Extract the cost of product the cost required here is the marginal or out of pocket cost as
overheads can distort the picture. Details of individual components at this stage are not
required.
3. Record the number of parts the larger the number of parts, greater the chances of reduction.
4. Record all the functions purpose of the product.
5. Record the number required currently & in future.
6. The above five questions are the fact finding they firmly establish the bases upon which all
further work is created.
7. Determine primary function from all the functions already listed in 4. Some priority must
be established among functions.
8. List of all other ways of achieving the primary function here creativity & brainstorming
plays important role. This should include part wise/component wise discussion.
9. Assign costs to various alternatives.
10. Examine the 3 cheapest alternatives.
11. Decide which idea should be further developed.
12. See what other functions need to be incorporated reexamining of step 11. Does its use
contribute value.
Can anything be removed without degrading the product? While the new product is being
developed the value analysis team can undertake the final step.
13. Ensure the new design is accepted. This will mean:
- A model
- Anticipated savings.
- Anticipated capital expenditure.
- Improvement in value.
- Critical path analysis.
Operations strategy:
Operations strategy is defined as the set of decisions that are warranted in the
operational processes in order to support the competitive strategies of the business.
Operatios strategy is a long-range business plan for the company's products and will
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provide a road map for the operational functions to be pursued. Therefore, the
strategic decisions include the capacity to be built into the production system, the
type of processes and manufacturing technology to be adopted, the nature of
products to be produced, and the type of material flow and other logistics required to
achieve the level of performance. Planning of operations strategy is very essential as
it will enable the organization to respond to the market needs in an effective manner.
It also gives the opportunity to align the resources and manufacturing activities to
produce and deliver the products and become successful in the market.
Definition of Strategy
Strategy is a deliberate search for a plan of action that will develop a
business's distinctive competence and compound it.
Definition of Operations Strategy
An operations strategy consists of a sequence of decisions that, over time,
enables a business unit to achieve a desired operations structure,
infrastructure, and set of specific capabilities in support of the competitive
priorities.
Operations strategy as a competitive weapon
The important objective of any business is to occupy a position from where the
organization is able to attract more customers than its competitors. For this, they
should identify the distinctive competencies that will give the leading position in the
market segment.
Competitiveness is one of the crucial factors that decides the survival and
growth of a firm. This competitiveness is how effectively an organization meets the
needs of its consumers as compared to its immediate operational strengths and equip
themselves effectively to use their strengths and opportunities as competitive
weapons.
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customers they serve, the basic beliefs of their business, and the expected goals and
profitability.
Similarly, business strategy is a long-range plan and serves as a road map to
achieve the above said corporate mission. These plans encompass many functional
areas like production, marketing, finance, human resources, etc.
Operations strategy translates all the decision processes that supports the
business strategy. How these operating strategies work under the corporate strategies
and serve the business strategy is explained in developing operations strategy.
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To develop this competitive priority, the operations function must focus primarily on
cutting costs in the system, such as costs of labor, materials, and facilities.
Companies that compete based on cost study their operations system carefully to
eliminate all waste. They might offer extra training to employees to maximize their
productivity and minimize scrap. Also, they might invest in automation in order to
increase productivity. Generally, companies that compete based on cost offer a
narrow range of products and product features, allow for little customization, and
have an operations process that is designed to be as efficient as possible.
NOTE: Cost A competitive priority focusing on low cost.
EXAMPLE: One company that successfully competes on cost is Southwest
Airlines. Southwests entire operations function is designed to support this strategy.
Facilities are streamlined: only one type of aircraft is used, and flight routes are
generally short. This serves to minimize costs of scheduling crew changes,
maintenance, inventories of parts, and many administrative costs. Unnecessary costs
are completely eliminated: there are no meals, printed boarding passes, or seat
assignments. Employees are trained to perform many functions and use a team
approach to maximize customer service. Because of this strategy, Southwest has
been a model for the airline industry for a number of years.
2. Quality Many companies claim that quality is their top priority, and many
customers say that they look for quality in the products they buy. Yet quality has a
subjective meaning; it depends on who is defining it. For example, to one person
quality could mean that the product lasts a long time, such as a Volvo, a car known
for its longevity. To another person quality might mean high performance, such as a
BMW. When companies focus on quality as a competitive priority, they are focusing
on the dimensions of quality that are considered important by their customers.
Quality as a competitive priority has two dimensions. The first is highperformance
design. This means that the operations function will be designed to focus on aspects
of quality such as superior features, close tolerances, high durability, and excellent
customer service. The second dimension is product and service consistency, which
measures how often the product or service meets the exact design specifications. A
good example of product consistency is McDonalds, where we know we can get the
same product every time at any location. Companies that compete on quality must
deliver not only high-performance design but product and service consistency as
well.
A company that competes on this dimension needs to implement quality in every
area of the organization. One of the first aspects that needs to be addressed is
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product design quality, which involves making sure the product meets the
requirements of the customer. A second aspect is process quality, which deals with
designing a process to produce error-free products. This includes focusing on
equipment, workers, materials, and every other aspect of the operation to make sure
it works the way it is supposed to. Companies that compete based on quality have to
address both of these issues: the product must be designed to meet customer needs,
and the process must produce the product exactly as it is designed.
NOTE: Quality A competitive priority focusing on product and service quality.
EXAMPLE: To see why product and process quality are both important, lets say
that your favorite fast-food restaurant has designed a new sandwich called the Big
Yuck. The restaurant could design a process that produces a perfect Big Yuck
every single time. But if customers find the Big Yuck unappealing, they will not
buy it. The same would be true if the restaurant designed a sandwich called the
Super Delicious to meet the desires of its customers. Even if the Super Delicious
was exactly what the customers wanted, if the process did not produce the sandwich
the way it was designed, often making it soggy and cold instead, customers would
not buy it. Remember that the product needs to be designed to meet customer wants
and needs, and the process needs to be designed to produce the exact product that
was intended, consistently without error.
3. Time Time or speed is one of the most important competitive priorities today.
Companies in all industries are competing to deliver high-quality products in as
short a time as possible. Companies like Federal Express, LensCrafters, UPS,
and Dell Computer compete based on time. Todays customers dont want to
wait, and companies that can meet their need for fast service are becoming
leaders in their industries.
Making time a competitive priority means competing based on all time-related
issues, such as rapid delivery and on-time delivery. Rapid delivery refers to how
quickly an order is received; on-time delivery refers to the number of times
deliveries are made on time. When time is a competitive priority, the job of the
operations function is to critically analyze the system and combine or eliminate
processes in order to save time. Often companies use technology to speed up
processes, rely on a flexible workforce to meet peak demand periods, and
eliminate unnecessary steps in the production process.
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NOTE:
2. We hired two new workers to paint small tables in our furniture shop. If the
workers painted 22 tables in 8 hours, what was their productivity?
Labour productivity = no. of tables/workers*hours
= 22 tables/2workers*8 hours=1.4 tables/hour
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productivity. For example, lets say that output is worth Rs.382 and labor and
materials costs are Rs.168 and Rs.98, respectively. A multifactor productivity
measure of our use of labor and materials would be
Multifactor productivity= output/(labor +materials)
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Productivity Measures
Total Productivity Measure
Partial Productivity Measure
Output/labor or
Output/machines or
Output/materials or
Output/capital
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GLOBAL
BUSINESS
ENVIRONMENT
BUSINESS STRATEGY
COMPETENCIES
PRODUCT OR SERVICE
COMPETITIVE PRIORITIES
COST, TIME, QUALITY, FLEXIBILITY
OPERATIONS STRATEGY
Develops a plan for the operations
function focusing on specific
competitive priorities in order to
meet the long range plan.
Competitive Cost
Priorities: Quality Time
Flexibility
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decision as the alternatives are many. The techno-economic analysis for each
alternative will help to decide the required technology.
5. Allocation of resources: - The production units face continuous problems of
allocating the scarce resources like capital, machines, equipment, materials,
manpower, services, etc. Allocation at the right time to the right place of production
indicates the efficiency of the production planners. Optimal use of resources will
enable economical production. Minimizing waste, optimal utilization of resources,
and the best quality product demand a sound operations strategy.
6. Facility, capacity, and layout planning: - The location, layout, and facilities
creation for the production are the key decision areas for the operations manager.
These are critical for achieving the competitiveness. The decision also influences the
future expansion of the plant. While evaluating the alternatives, the operations
manager will consider the availability of raw materials, access to market, etc.
Enormous capital requirement is required and the planning is always long range.
Here, the production process adopted and the technology pursued dictates the
volume, quality, and cost of production.
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INTERMITTENT SYSTEM
In this system, the goods are manufactured specially to fulfill orders made by
customers rather than for stock. Here the flow of material is intermittent. Intermittent
production systems are those where the production facilities are flexible enough to
handle a wide variety of products and sizes. These can be used to manufacture those
products where the basic nature of inputs changes with the change in the design of
the product and the production process requires continuous adjustments.
Considerable storage between operation is required, so that individual operations can
be carried out independently for further utilization of men and machines. Examples
of intermittent system are: machine shops, hospitals, general office etc.
Chief characteristics of intermittent system are: (i) Most products are produced in small quantities
(ii) Machines and equipment are laid out by process.
(iii) Workloads are generally unbalanced.
(iv) Highly skilled operators are required for efficient use of machines and
equipment.
(v) In-process inventory is large.
(vi) Flexible to suit production varieties.
Planning and Control Mechanism for Intermittent System : Organization of production planning and control operations in intermittent systems
needs estimation of jobs, routing, scheduling, preparation of manufacturing orders,
dispatching and production control.
Here customer provides the blue print and other specification regarding the product
to be manufactured. Then the organization formulates their production strategy to
suit the needs of the customer.
(i) This type of manufacturing system covers specialties of every type and sub
assemblies or parts which are required to manufacture the product. Due to this there
is continuous planning at each fresh order.
(ii) Due to variety of orders and different lot sizes, the system needs wise and careful
sequencing of operations which makes routing and scheduling operations elaborate
and complex.
(iii) Proper regulation and close inspection is required at different stages of
production.
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In this system the control mechanism is not as elaborate and complex as for
intermittent system. In continuous system large quantities of standardized products
are produced using standardized production process.
Following points of control mechanism are worth noting for such a system
(i) This system does not involve diverse work, due to which routing standardized
route and schedule sheets are prepared.
(ii) In case of standard products meant for mass production, master route sheets are
prepared for more effective co- ordination of various departments.
(iii) Scheduling is required to rate the output of various standard products in their
order of priority, operations and correct sequence to meet sales, requirements.
(iv) Work relating to dispatching and follow-up is usually simple. Dispatch
schedules can be prepared well in advance in such systems. Continuous system can
be divided into two types of production, namely
(A) Mass &
(B) Process production.
Mass and flow production where a production run is conducted either on a single
machine or on a number of machines, arranged according to the sequence of
operations and several number of a product are manufactured at a time and stocked
in warehouse awaiting sales.
INTERMITTENT PRODUCTION SYSTEM
PROJECT PRODUCTION
Project production is characterized by complex sets of activities that must be
performed in a particular order within the given period and within the estimated
expenditure. Where output of a project is a product, such products are generally
characterized by immobility during transformation. Operations of such products are
carried out in fixed position assembly type of layout which can be observed in
production of ships, locomotive and aircraft, construction of roads, buildings, etc.
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are absorbed, and then it levels off until there is gradual cutback as the project
approaches completion.
(B) Involvement of different agencies
A project generally involves many tasks, each having its own specialization to be
performed by different agencies. The tasks generally have strict precedence (i.e.
certain tasks must be completed before the next begins) amid as such co-ordination
between agencies is of utmost importance.
(C) Scheduling and control
Because of large number of activities, involvement of different agencies and strict
precedence requirements, scheduling and control assumes great importance. Some
network planning techniques like PERT and CPM have been found to be very useful
to overcome the problems mentioned above.
JOB PRODUCTION
Jobbing production is characterized by the manufacture of one or few numbers of a
single product designed and manufactured strictly to customers specifications,
within, the given period and wit/tin the price fixed prior to tile contract. Some
typical examples of industries engaged in jobbing production are: general repair
shops; special purpose machine tool manufacturers; workshops to manufacture jigs
and fixtures for other units; building contractors; tailoring shops manufacturing
made-to-measure suite of clothes; manufacturers of ships, cranes, furnaces, turbogenerators, pressure vessels; and others manufacturing articles made to customers
orders.
Characteristics of Job production
(A) Disproportionate manufacturing cycle time
A considerable amount of pre-planning and organization is necessary in such a
venture. Relatively long delays occur at the assembly as well as at the materials
processing stages due to lack of materials or components, imbalanced work flow,
design changes, design errors detected during manufacture, inaccurate work
measurements, etc. which tend to lengthen the manufacturing cycle time. At times,
tile time needed to design the product exceeds its manufacturing time.
(B) Large work-in-progress
The work-in-progress inventory in a jobbing production is generally very large as
detailed scheduling and progress control in this type of production is economically
infeasible. For various reasons, jobs get delayed causing temporary work shortages.
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To overcome work shortages and keep men and machines busy, more work is
released to the shops which in turn increases work-in-progress.
(C) Limited functions of production planning and control
The success of jobbing production mainly depends on the ability of the engineer in
charge of the contract.
(D) Materials are indented and purchased on receipt of orders unlike in batch or
mass production where material requirements are planned well in advance.
(E) Process planning activity is almost absent. Drawings and specifications are
directly given to the supervisor who is expected to decide work methods, select
optimum process, fix up machine tools to be used and estimate time required
completing an operation.
Importance of Job production: (A) Small production runs
Jobbing production is characterized by the manufacture of one or few pieces of a
product at a time under a separate contract, the production is made strictly to
customers specifications.
(B) Discontinuous flow of materials
The flow of materials and components between different stages of manufacture is
highly discontinuous due to imbalance in operation wise work content.
(C) General purpose machines and process layout
Plant and equipment is designed or procured and arranged to obtain maximum
flexibility. General purpose machines and handling equipments capable of
performing variety of operations with minimum set-tip times are installed in lie of
variety in products. Tile machines are arranged to give process layout - layout by
function. Similar machines, capable of doing similar type of operations, are grouped
together. Presses, for example are kept at one place; milling machines are placed at
another place; drilling machines are kept at third place; and so on and so forth. Each
group of machines is usually designated as a work centre or a section or a shop.
The grouping of machines gives a lot of flexibility in loading and scheduling.
Temporary machine breakdowns and operators absenteeism can be taken care of by
shifting jobs to another machine or shifting operators from less important jobs to
important jobs.
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Batch production is used to produce or process any product in groups that are called
batches, as opposed to a continuous production process, or a one-time production.
An example of batch production can be found in a bakery. The products, for example
bread, are made in batches of however many will fit in the baker's oven at a time.
When that batch is made, the baker will start the process again with a new batch.
Batch production techniques are used in the manufacture of specialty chemicals such
as active pharmaceutical ingredients, inks, paints and adhesives.
In the manufacture of inks and paints, a technique called a color-run is used. A colorrun is where one manufactures the lightest color first, such as light yellow followed
by the next increasingly darker color such as orange, then red and so on until
reaching black and then they start over again. This minimizes the cleanup and
reconfiguring of the machinery between each batch. White (by which is meant
opaque paint, not transparent ink) is the only color that cannot be used in a color run
due to the fact that a small amount of white pigment can adversely affect the
medium colors.
There are inefficiencies associated with batch production. The production equipment
must be stopped, re-configured, and its output tested before the next batch can be
produced.
Time between batches is known as 'Down Time' where the factory would make
seasonal items or consumables such as toasters where no one can predict the
quantity needed.
There are several advantages of batch production; it can reduce initial capital outlay
because a single production line can be used to produce several products. As shown
in the example, batch production can be useful for small businesses who cannot
afford to run continuous production lines. Also, companies can use batch production
as a trial run. If a retailer buys a batch of a product and people do not buy them then
the producer can cease production without having to sustain huge losses. Other types
of production include: assembly line, job production, continuous, cell, and project.
Characteristics of batch production: (A) Supervisor to possess knowledge of a specific process
The supervisors have considerable knowledge of a specific process. Supervisor in
the grinding section for example, may not know about turning and drilling work but
is expected to a fund of knowledge of different types of grinding operations.
Similarly, a supervisor in the gear shop is expected to have sound knowledge in
working of different types of gear cutting machines.
(B) General purpose machines and process type of layout
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For example when a bakery bakes loaves of whole meal bread, a large ball of whole
meal dough will be split into several loaves which will be spread out together on a
large baking tray. The loaves on the tray will then together be cooked, wrapped and
dispatched to shelves, before the bakery starts on a separate batch of, for example,
crusty white bread. Note that each loaf is identical within a batch but that loaves can
vary from batch to batch.
Batch production is a very common method of organizing manufacture. Good
examples include:
Production of electronic instruments
Fish and chip shops
Paint and wallpaper manufacturers
Cereal farming
ADVANTAGES
1. The batch method can be an advantage for businesses that produce a
range of products. It is cheaper to produce a number of each item in one
go because machines can be used more effectively, the materials can be
bought in bulk and the workers can specialize in that task. There are
two particular advantages of workers being able to concentrate their
skills.
2. They should become more expert at their tasks, which will in turn
increase productivity (output per worker). This will lower costs, as
fewer workers are needed to produce a set amount.
3. Better quality products should be produced as workers are more
familiar with the task and so can find ways of improving it.
DISADVANTAGES
1. Batch production requires very careful planning to decide what
batch will be produced when.
2. Once a batch is in production it is difficult to change, as
switching to another batch takes time and will mean a loss of
output.
3. Batch methods can also result in the build up of significant work
in progress or stocks (i.e. completed batches waiting for their
turn to be worked on in the next operation). This increases costs
as it takes up space and raises the chance of damage to stock.
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popularised by Henry Ford in the early 20th Century, notably in his Ford Model T.
Mass production is notable because it permits very high rates of production per
worker and therefore provides very inexpensive products. Mass production is capital
intensive, as it uses a high proportion of machinery in relation to workers. With
fewer labour costs and a faster rate of production, capital is increased while
expenditure is decreased. However the machinery that is needed to set up a mass
production line is so expensive that there must be some assurance that the product is
to be successful so the company can get a return on its investment. Machinery for
mass production such as robots and machine presses have high installation costs.
One of the descriptions of mass production is that the craftsmanship is in the
workbench itself, not the training of the worker; rather than having a skilled worker
measure every dimension of each part of the product against the plans or the other
parts as it is being formed, there are jigs and gauge blocks that are ready at hand to
ensure that the part is made to fit this set-up. It has already been checked that the
finished part will be to specifications to fit all the other finished parts - and it will be
made quicker, with no time spent on finishing the parts to fit one another. This is the
specialized capital required for mass production; each workbench is different and
each set of tools at each workbench limited to those necessary to make one part.
Use of assembly lines in mass production
Mass production systems are usually organized into assembly lines. The assemblies
pass by on a conveyor, or if they are heavy, hung from an overhead monorail.
In a factory for a complex product, rather than one assembly line, there may be
many auxiliary assembly lines feeding sub-assemblies (i.e. car engines or seats) to a
backbone "main" assembly line. A diagram of a typical mass-production factory
looks more like the skeleton of a fish than a single line.
This is also used in food manufacturer to produce foods continuously.
Characteristics of mass & flow production
(A) Special purpose machines and product type layout:
Special purpose machines are used and the plant assembly stages are laid out on the
basis of product layout, the layout-by-sequence.
(B) Lesser flexibility in production schedules
Interruptions due to breakdowns and absenteeism seriously affect production as
stoppage of one machine usually disturbs the working of other machines. Systematic
maintenance and provisioning of stand-by operators are, therefore, two major
management functions.
Importance of Job production: -
41
This is because production can continue at night and over weekends and also firms
can benefit from economies of scale, which should lower the cost per unit of
production.
DISADVANTAGE
The main disadvantage is that with so much machinery it is very difficult to alter the
production process. This makes production inflexible and means that all products
have to be very similar or standardized and cannot be tailored to individual tastes.
However some variety can be achieved by applying different finishes decorations
etc at the end of the production line.
PROCESS PRODUCTION
Process production is characterized by tile manufacture of a single product produced
and stocked in the warehouses awaiting sales. The flexibility of such plants is almost
zero as only one type of product can be produced in such plants. Typical examples of
such plants are sugar, steel, cement, paper, coke, refineries, etc.
Characteristics of process production: (A) Special purpose machines with built-in controls
The layout of plant, shape and size of its buildings, location of services and storage
yards, position of cranes and conveyors is such that material flow is unidirectional
and at the steady rate. Special purpose machinery and equipment with built-in
controls to measure output and regulate input are employed to suit the needs.
(B) Highly mechanized materials handling
Materials handling is highly mechanized. Conveyor system and automatic transfer
machines move materials from one stage to another.
segment they were serving. In so doing, they recognized that there were trade-offs
involved. For example, you couldnt have both low cost and a high degree of
customization, or that there was a choice to be made between providing fast product
delivery and providing a highly customized product.
These traditional trade-offs are no longer valid for most businesses because
technology has raised the performance bar by allowing firms to compete on
several of these dimensions simultaneously. For example, firms using technology,
such as Dell Computer, can now produce and quickly deliver individually
customized products, and at a very competitive price. Technology now provides
firms with the opportunity to move to a superior performance curve
In moving from A1 to B1, a firm, for example, can achieve superior performance in
terms of both lower cost and also faster service. In comparison, a firm that doesnt
44
use technology must remain on Curve A and consequently must revert to the
traditional trade-off where improvement in one dimension is accomplished only at
the sacrifice of another dimension (for example, in going from A2 to A3 along Curve
A, where lower cost is achieved only by providing slower service).
Technology in Manufacturing
Automation
The term automation is familiar to all, but a commonly agreed-upon definition still
eludes us. Some authorities view automation as a totally new set of concepts that
relate to the automatic operation of a production process; others view it simply as an
evolutionary development in technology in which machinery performs some or all of
the process-control function. Automation
is a set of concepts, but it is also evolutionary in the sense that it is a logical and
predictable step in the development of equipment and processes.
Some major developments in manufacturing automation include machining
centers, numerically controlled machines, industrial robots, computer-aided design
and manufacturing systems, flexible manufacturing systems, computer-integrated
manufacturing, and islands of automation.
Machining centers not only provide automatic control of a machine but carry
out automatic tooling changes as well. For example, a single machine may be
equipped with a shuttle system of two worktables that can be rolled into and out of
the machine. While work is being done at one table, the next part is mounted on the
second table. When machining on the first table is complete, it is moved out of the
way and the second part is moved into position.
Note: machining centers Operations where machine tools are changed automatically
as part of the process.
Numerically controlled (NC) machines are under the control of a digital computer.
Feedback control loops determine the position of the machine tooling during the
work, constantly compare the actual location with the programmed location, and
correct as needed. This eliminates time lost during setups, and applies to both highvolume, standardized types of products as well as low-volume, customized products.
Note: numerically controlled (NC) machines Manufacturing equipment that is
45
Even though CAD/CAM systems are usually limited to larger companies because of
the high initial cost, they do increase productivity and quality dramatically.
More alternative designs can be produced, and the specifications can be more
exact. Updates can be more readily made, and cost estimates more easily drawn. In
addition, computer-aided process planning (CAPP) can shorten and, in some cases,
even eliminate traditional process planning
Note: computer-aided design and manufacturing system (CAD/CAM)
Integration of design and production of a product through use of a computer.
A flexible manufacturing system (FMS) actually refers to a number of systems that
differ in the degree of mechanization, automated transfer, and computer control and
are sufficiently flexible to produce a wide variety of products.
A flexible manufacturing module is a numerically controlled (NC) machine
supported with a parts inventory, a tool changer, and a pallet changer.
A flexible manufacturing cell consists of several flexible manufacturing
modules organized according to the particular products requirements. A flexible
manufacturing group is a combination of flexible manufacturing modules and cells
located in the same manufacturing area and joined by a materials handling system,
such as an automated guided vehicle (AGV).
A flexible production system consists of flexible manufacturing groups that
connect different manufacturing areas, such as fabrication, machining, and assembly.
A flexible manufacturing line is a series of dedicated machines connected by AGVs,
robots, conveyors, or some other type of automated transfer device
Note: flexible manufacturing system (FMS) Manufacturing facility that is automated
to some extent and produces a wide variety of products.
Computer-integrated manufacturing (CIM) integrates all aspects of production
into one automated system. Design, testing, fabrication, assembly, inspection, and
materials handling may all have automated functions within the area. However, in
most companies, communication between departments still flows by means of
paperwork. In CIM, these islands of automation are integrated, thus eliminating the
need for the paperwork. A computer links all sectors together, resulting in more
efficiency, less paperwork, and less personnel expense.
Note: computer integrated manufacturing (CIM) Integration of all aspects of
manufacturing through computer.
47
48
(b) supply chain management (SCM): Supply Chain Management (SCM) These
software systems primarily focus on how firms interact with the suppliers that are
part of their overall supply chain. Depending on where the firm is in its supply
chain, this also can involve customers.
(c) new product development (NPD): New product development software focuses
on linking the engineering function with the operations function within a firm to
facilitate the 128 Chapter 4 transfer of new product drawings and models into
manufactured products. These software systems include CAD/CAM, which was
discussed earlier in this chapter. Some software packages, such as that offered by
Parametric Technology, also provide similar links with vendors who are directly
involved in a firms new product development process.
(d) customer relationship management (CRM): Customer relationship
management software, such as that provided by Siebel Systems, focuses on the
interface between the firm and its customer. In addition to having order entry
capability, these systems collect customer-specific data, which allow the firm to
provide customer-specific solutions. These software systems are typically addressed
in marketing.
These software packages, as the exhibit suggests, have significant overlap in
terms of their capabilities and what they provide.
49
the entire enterprise (Tadjer, 1998). ERP systems are computer-based systems
designed to process an organizations transactions and facilitate integrated and realtime planning, production, and customer response (OLeary, 2001).
EVOLUTION OF ERP SYSTEMS
The evolution of ERP systems closely followed the spectacular developments in the
field of computer hardware and software systems. During the 1960s most
organizations designed, developed and implemented centralized computing systems,
mostly automating their inventory control systems using inventory control packages
(IC). These were legacy systems based on programming languages such as COBOL,
ALGOL and FORTRAN. Material requirements planning (MRP) systems were
developed in the 1970s which involved mainly planning the product or parts
requirements according to the master production schedule. Following this route new
software systems called manufacturing resources planning (MRP II) were introduced
in the 1980s with an emphasis on optimizing manufacturing processes by
synchronizing the materials with production requirements. MRP II included areas
51
2000
1990
1980
1970
1960
Extended ERP
Enterprise Resource Planning
(ERP)
Manufacturing
Resources
Planning (MRP II)
Material
Requirements
Planning (MRP)
Inventory Control Packages
How
52
Easy adaptability
Improved scalability
Improved maintenance
Global outreach
E-Commerce, e-business
organizational decisions.
Changes in business processes easy to
adapt and restructure.
Structured and modular design with
addons.
Vendor-supported long-term contract as
part of the system procurement.
Extended modules such as CRM and
SCM.
Internet commerce, collaborative culture.
Disadvantages:
Disadvantage
Time-consuming
Expensive
Vendor dependence
Features and complexity
How to overcome
Minimize sensitive issues, internal
politics and raise general consensus.
Cost may vary from thousands of dollars
to
millions.
Business
process
reengineering cost may be extremely
high.
The architecture and components of the
selected system should conform to the
business processes, culture and strategic
goals of the organization.
Single
vendor
vs.
multi-vendor
consideration, options for best of
breeds, long-term committed support.
ERP system may have too many features
and modules so the user needs to
consider carefully and implement the
needful only.
Look for vendor investment in R&D,
long term commitment to product and
services,
consider
Internet-enabled
systems.
Consider middle-ware add-on facilities
and extended modules such as CRM and
SCM.
53
54
55
Demand Forecasting
Patterns of demand
Factors affecting demand
Methods of forecasting
DEMAND FORECASTING
Forecasts are needed to aid in determining what resources are needed, scheduling existing
resources, and acquiring additional resources. Accurate forecasts allow scheduler to use machine
capacity efficiently, reduce production times, and cut inventories.
Forecasting methods may be based on mathematical models using historical data available,
qualitative methods drawing on managerial experience, or a combination of both.
Forecasting demand in such situations require uncovering the underlying patterns from available
information.
Patterns of Demand
The five basic patterns of the most demand time series are-:
1. Horizontal, or the fluctuation of data around a constant mean;
2. Trend, or systematic increase or decrease in the mean of the series overtime;
3. Seasonal, or a repeatable pattern of increase or decrease in demand, depending on the time
of day, week, month, or season;
4. Cyclic, or less predictable gradual increases or decreases in demand over longer periods of
time (years or decades); and
5. Random, or unforecastable, variation in demand
56
Four of the patterns of demands- Horizontal, Trend, Seasonal, and Cyclic- combine in varying
degrees to define the underlying time pattern of demand for a product or service. The fifth pattern,
random variations, results from chance causes and thus cannot be predicted.
Factors Affecting Demand
Generally such factors can be divided into main categories: - Externals and Internals.
External Factors. External factors that affect demand for a firms products or services are
beyond managements control.
Leading indicators. Such as the rate of business failures, are external factors with turning points
that typically precede the peaks and troughs of general business cycle. Coincident indicator, such
as unemployment figures, are the time series with turning points that generally match those of the
general business cycle.
Lagging indicators, such as retail sales, follow those turning points, typically by several weeks or
months.
INTERNAL FACTORS: internal decision about product or service design, price and advertising
promotion, packaging design, sales persons quotas or incentive and expansion and contraction of
geographic market, target areas all contribute to changes in demand volume. The term demand
management describes the process of influencing the timing and volume of demand or adapting to
the undesirable effects of unchangeable demand patterns.
Forecasting methods
The two general types of forecasting techniques used for demand forecasting are: Qualitative
methods and Quantitative methods
Qualitative Method:
Qualitative methods include judgment methods, which translate the opinions of managers, expert
opinions, consumer surveys and sales force estimates into quantitative estimates.
Quantitative Methods:
Quantitative methods include casual methods and time series analysis.
Casual Methods:
Use historical data on independent variables, such as promotional campaigns, economics
conditions, and competitors actions, to predict demand. Time series analysis is a statistical
approach that relies heavily on historical demand data to project the future size of demand and
recognize trends and seasonal patterns.
Judgement Methods
When adequate historical data are lacking, as new product is introduced or technology is expected
to change, firms rely on managerial judgment and experience to generate forecasts.
I
Sales Force Estimate
Sales force estimates are forecasts compiled from estimates of future demand made periodically by
members of a companys sales force. This approach has several advantages.
The sales force is the group most likely to know which products or services customers will
be buying in the near future, and in what quantities.
57
Sales territories often are divided by district or region. Information broken down in this
manner can be useful for inventory management, distribution, and sales force staffing
purposes.
The forecasts of individual sales force members can be combined easily to get regional or
national sales.
But it also has several disadvantages.
Individual biases of the sales people may taint the forecast; moreover, some people are
naturally optimistic, other more cautious.
Sales people may not always be able to detect the difference between what a customers
wants (a wish list) and what a customer needs (a necessary purchase).
If the firm uses individual sales as a performance measure, salespeople may underestimate
their forecasts so that their performance will look good when they exceed their projections
or may work hard only until they reach their required minimum sales.
II
EXECUTIVE OPINION
Executive opinion is a forecasting method in which the opinions, and technical knowledge of one
or more managers are summarized to arrive at a single forecast. As we will discuss later, executive
opinion can be used to modify an existing sales forecast to account for unusual circumstances,
such as a new sales promotion or unexpected international events. Executive opinion can also be
used for technical forecasting. This method of forecasting has several disadvantages. Executive
opinion can be costly because it takes valuable executive time. Although that may be warranted
under certain circumstances, it sometimes gets out of control. In addition, if executives are allowed
to modify a forecast without collectively agreeing to the changes, the resulting forecast will not be
useful.
III
MARKET RESEARCH
DELPHI METHOD
58
The Delphi method is process of gaining consensus from a group of experts while
maintaining their anonymity. This form of forecasting is useful when there are no historical data
from which to develop statistical models and when managers inside the firm have no experience on
which to base informed projections. A coordinator sends a question to each member of the group of
outside experts, who may not even know who else, is participating. The Delphi method can be
used to develop long-range forecasts of product demand and new product sales projections. It can
also be used for technological forecasting. The Delphi methods can be used to obtain a consensus
from a panel of experts who can devote their attention to following scientific advances, changes in
society, government regulations, and the competitive environment.
The Delphi method has some shortcomings, including the following major ones.
The process can take a long time (sometime a year or more). During that time the panel of
people considered to be experts may change, confounding the results or at least further
lengthening the process.
Responses may be less meaningful than if experts were accountable for their responses.
There is little evidence that Delphi forecasts achieve high degrees of accuracy. However,
they are known to be fair- to- good in identifying turning points in new product demand.
Poorly designed questionnaires will result in ambiguous or false conclusions.
CAUSAL METHODS:
I
LINEAR REGRESSION
In linear regression, one variable, called a dependent variable, is related to one or more
independent variables by a linear equation.
In the simple linear regression models, the dependent variable is a function of only one
independent variable, and therefore the theoretical relationship is a straight line:
Y=a + bX
Where
Y = dependent variable
X = independent variable
a = Y-intercept of the line
b = slope of the line.
The objectives of linear regression analysis is to find values of a and b that minimize the sum of
squared deviations of the actual data points from the graphed line.
The sample correlation coefficient, r, measures the direction and strength of the relationship
between the independent variable and the dependent variable. The value of r can range from 1.00
to + 1.00.
II
TIME SERIES METHODS
Simple Moving Averages. The simple moving average method is used to estimate the average of
demand time series and thereby remove the effects of random fluctuation. It is most useful when
demand has no pronounced trend or seasonal influences.
Specially, the forecast period t + 1, can be calculated as
Ft+1 = sum of last n demands
n
where
Weighted Moving Averages. In the simple moving average method, each demand has the same
weight in the average --namely, 1/n. In the weighted moving average method; each historical
demand in the average can have its own weight. The sum of the weight equal 1.0.
The advantage of a weighted moving average method is that it allows you to emphasize recent
demand over earlier demand. The forecast will be more responsive than the simple moving average
forecast to changes in the underlying average of the demand series. Nonetheless, the weighted
moving average forecast will still lag behind demand because it merely averages past demands.
This lag is specially noticeable with a trend because the average of the time series is systematically
increasing or decreasing.
III EXPONENTIAL SMOOTHING.
The exponential smoothing method is a sophisticated weighted moving average method that
calculates the average of a time series by giving recent demands more weight than earlier
demands. It is the most frequently used formal forecasting methods because of its simplicity and
the small amount of data needed to support it.
Ft+1 =(Demand this period) + (1-) (Forecast calculated last period)= Dt+(1-)Ft
Ft+1 =Ft + (Dt-Ft)
Larger values emphasize recent levels of demand and result in forecasts more responsive to
changes in the underlying average. Smaller values treat past demand more uniformly and result
in more stable forecasts.
Exponential smoothing requires an initial forecast to get started. There are two ways to get this
initial forecast: Either use last periods demand or, if some historical data are available, calculate
the average of several recent periods of demand. The effect of the initial estimate of the average on
successive estimate of the average diminishes over time because, with exponential smoothing, the
weights given to successive historical demands used to calculate the average decay exponentially.
Exponential smoothing has the advantages of simplicity and minimal data requirements. It is
inexpensive to use and therefore very attractive to firms that make thousands of forecasts for each
time period. However, its simplicity also is disadvantage when the underlying average is changing,
as in the case of a demand series with a trend.
60
Facilities location
FACILITIES LOCATION
Every organisation has to face location problem one or the other day . Before finding out those
reasons for location decision and the factors affecting thereof one would like to know the
following :-
61
TYPE OF ORGANIZATION:
The size of the firm also depends on the type of organization, e.g., sole trading business concern or
individual proprietorship, partnership firm, private companies that are managing business on small
and medium scale. Joint Stock Companies require capital on large scale.
Availability of inputs: The size can be larger if the inputs are available on a large scale. Where
the inputs will have to be transported from a distance and there is also some uncertainty, the size is
bound to be small.
Nature of product: In the case of processing of raw materials resulting in the production of joint
and by products, the scale is naturally more if the entrepreneur decides to process all the products.
In case of production of less standardized and more artistic products the size is bound to be small.
Laws of returns: But where increasing returns apply, large production will result in lower cost, so
that the firms can keep on growing larger in size provided the demand for the product is elastic.
Government regulation or licensing policy of government: The size of the firm depends on the
decision taken by the entrepreneur and on the attitude of the government.
Primary factors
Supply of
Raw-material
Supply
Of
Capital
to market
Transport
facilitities
Nearness
Availability
of power
Labour
Supply
62
2.
Secondary factors
Miscellaneous
Facilities
Factors
Personal
Factors
Initial start
& goodwill
Historical
& Religious
Factors
Natural
Factors
Political
Factors
Govt.
Subsidies &
Facilities
FACTORS OF LOCALISATION:
a)Primary factors
1.Supply of raw material: It is necessary to consider the adequate supply of raw materials and the
nature of raw materials. The cost of raw materials is an important element of the total cost of
production.
2.Nearness to market: Nearness to market is important from the point of view of control over the
market. In those industries where the raw materials are obtained from different source, nearness to
source of raw materials is not as important as nearness to the market.
3.Transport Facilities: Speedy transport facilities are needed for the regular and timely supply of
raw materials at low .
4.Supply of labour :The supply of labour at low cost is important .It should also be regular .
Nearness to source of labour supply is very important . Therefore , producers should have regular
labour supply by reducing absenteeism and strikes due to unsatisfactory working conditions .
63
5.Power: power may be electrical , diesel and atomic energy . All types of power required must
be in abundance in order to ensure smooth flow of production.
6.Supply of capital :Industries require huge capital hence capital market must be developed at
industrial centres . Not only this , industrial development banks and other financial services must
also be encouraged .
b)Secondary Factors
1.Natural factors--affect the location of those industries which require a particular climate or
weather conditions
2.Political factors-States with stable government attract more industries
3.Government Subsidies and Facilities- Government gives subsidies and good industrial
development facilities in backward areas . Industries reach these places to reap the benefits of such
facilities.
4.Historical and Religious Factors- some places have industrial importance and some have
religious importance e.g. Kohlapur, Benaras ,Agra ,Nasik etc. Industries grow because of these
important features.
5.Initial Start and Goodwill- Once one industry starts at a certain place other industries come
their. E.g. Jamshedpur became an industrial town in the following manner .
6.Personal Factor: Personal likeness for a place affects the establishment of business at a place .
7.Miscellaneous factorsa)sufficient water supply
b)Disposal of waste
c)Dangers of air-attacks
d)Community attitude
e)Ecological and environment considerations etc.
64
URBAN AREA
Due to certain typical advantages available only in the city area, promoters show preference for the
city area as the location of the industrial unit.
ADVANTAGES OF CITY AREA
1. Availability of good transportation facilities
2. Good and prompt postal and communication services
3. Banking and credit facilities.
4. Services of insurance companies.
5. Sufficient storing facilities.
6. Ample availability of skilled and unskilled workers.
7. Vicinity of the market.
8. Facility of the ancillary and service units.
9. Transport facilities by road and railways.
10. Development of the training institutes.
11. Educational, medical and recreational institutes increase the amenities of lives.
DISADVANTAGES OF URBAN OR CITY AREA
1.
2.
3.
4.
5.
6.
7.
RURAL AREA
The following are its advantages and limitations.
Advantages of Rural Area
1.
2.
3.
4.
5.
6.
Suburban area
The city area as a location of industrial unit has got many negative aspects. The other extreme is a
rural area, which again is not free from many limitations. The better compromise in the decision is
in the selection of suburban area as the location of the industrial unit. Suburban area is the area
located on the outskirts of the city area. Suburban area matches the advantages of the rural area
with those of city area which is located at a short distance, e.g. Odhav, narol, kathawada, naroda,
and vatva are the suburban areas of the ahmedabad city.
Advantages of suburban area
1.
2.
3.
4.
5.
66
The traditional factors like nearness of sources of materials, motive power, nearness of markets,
labour supply etc. have no longer remained the effective pulling forces for location of industries.
The location trends have changed substantially due to the development of substitute raw materials,
network of electrification and transportation by roads and railway, mobility of the labour and
persuasive and compulsive policies of the government for balanced regional development.
The recent trends in the selection of industrial locations can be described as under.
1. Priority for the sub urban areas: the industrialist shows their preference of the sub urban
area as the sight for establishment of a new unit or relocation of the existing one. The
industrial policy of the government does not permit the establishment of a new unit or
expansion of an existing one in city areas.
2. Industrial development in the notified backward areas: in order to have balanced
regional development, the central government as well as the state government has notified
certain backward areas; example punch mahals, bharuch and sunder nagar are the centrally
notified backward district of gujarat state. Similarly, gujarat state government has also
notified certain backward talukas. Different types of incentives like cash subsidy, tax
relieves, concessional financial assistance, cheaper land and power supply etc. are
provided. So, many such areas have been developed substantially in recent times. An
illustration can be cited for the industrial development of dhabol in punch mahals,
ankleshwar in bharuch and sunder nagar.
3. Establishment of industrial estate: industrial estate is a piece of vast land divided into
different plots wherein factory shades are constructed. The government of India has
planned a national policy for the development of industrial estate. It has assigned a
responsibility of the development of the industrial estate to state governments. In each
state, the state development corporation (sdc) has developed many industrial estates
practically in all the districts of the state. Industrial estates have also been developed by
private entrepreneurs and chambers of commerce. The plots of land along with factory
shades and infrastructure facilities are developed in the industrial estates and are sold to the
prospective promoters. The establishment of industrial states has greatly affected the
location of industry.
4. Decentralization of industries: under the conscious industrial policy of the government,
concentration of industrial units is prevented through licensing policy. New units are not
permitted to be started and certain industrially congested areas. Similarly, existing units are
established in additional plants in a less developed areas or sometimes relocate the whole
unit in such areas.
5. Increased role of the govt in the decision of location of industries: government through
persuasive and compulsive methods greatly affects the location decisions in recent times. It
provides certain attractive incentives to the promoters to establish their units in less
developed areas, at the same time it does not permit excessive industrialization in certain
developed areas.
67
Capacity planning
Meaning of capacity
Measures of capacity
68
Capacity Planning
The long-range operations strategy of an organization is expressed by capacity plans. Following
issues must be considered in capacity planning: 1. Market trend in terms of market size, location, & technology innovation.
2. Effect of new product.
3. Variation (seasonal) in demand.
4. Review of existing policies for using overtime & multiple shifts.
5. Should we expand existing facilities or build new capacities.
6. Should we add small units or big units?
The above issues should be resolved as a part of capacity planning.
In assessing alternatives, the revenues, capital costs, & operating costs may be compared, but
managers should strike a trade off between possible effects of the strategic issues against economic
advantages & disadvantages.
Measures of capacity: -
When outputs are relatively homogenous, capacity units are rather obvious. For e.g .an Auto
plant uses number of autos, beer plant uses cases of beer etc.
When the output units are diverse, it is common to use the measure of the availability . For
e.g.- airlines use seat available i.e. seat miles as a measure instead of seats.
When different types of equipment are used for performing a wide variety of machinery
operation, & the output may be unique parts. The value of the labor & material of the output
could vary widely. Thus the capacity of the shop is normally stated as the capacity of the
limiting resources, e.g., the labour hours.
Measure of capacity of different organizations
Type Of Org.
Capacity Measures
Auto Plant
Beer Plant
Power Plant
Airlines
Hospital
Restaurant
Number Of Autos
Cases Of Beer
Mw
Available Seat Miles
Available Bed Days
Available Seat Turns
Industry capacity & competitive dynamics: Should any capacity be added with in the industry . is an important question. In answering this
question, one has to take care of long-term projections of demand & competitors capacity too.
69
For further discussion we assume decision to add capacity already taken for industry & in principle
for organisation.
Capacity decision for mature products with stable demand: Many products enjoy mature stable markets e.g. steel, aluminum, and fertilizer, cement, and airline
services, health care services.
Many products & services are also affected by recession but their trend in demand is relatively
stable. The casual/normal sales forecasting methods are used for these products are common
methods for estimating future demands. In addition to formal perspective methods, executive
opinion & extrapolation are also used.
Given long-range predictions of demand, we must generate capacity requirements. First of all we
find out individual capacity of each sub-unit. e.g. M/C shop, assembling, shipping etc.
identifying the size & timing of projected capacity gaps provides input for the generation of
alternative plans. We may plan to meet demand either by providing the expected required capacity
or by partially utilizing alternative sources or we may enlarge existing facilities, establish new
producing; locations for the additional capacity, or relocate the entire operation.
Economies of scale
For a given facility there should be an optimum output that minimizes fixed plus variable costs.
Optimum output for a given facility.
TOTAL COST/UNIT
70
Cost/un
it
VARIABLE COST/UNIT
FC
Units
The above diagram indicates the optimum output for a given facility. Optimum output is that
output for which the total cost/unit is minimum.
In the above figure variation in variable cost is due to overtime otherwise variable cost remains
same for each unit.
COST/UNIT
SMALLER SIZE
71
In above figure there is variation in cost curve due to successive increase in size of plant.
There are economies of scales that may come from two basic sources: lower fixed cost/unit &
variable cost/unit.
The lower fixed cost accrues because plant & equipment costs of larger plants are lower in
proportion to capacity. Larger plants are likely to have a better balance of sub units with less slack
capacity in sub units.
Lower variable cost may also accrue with the larger plant because larger volume may justify more
mechanization and automation. The result is that minimum unit costs are less for larger plants.
Economic evaluation of capacity: 1. Mature products with stable demandCapacity plan alternative may involve various size units that differ in their productivity
reflecting economies to scale.
Capacity plan alternative may include different size (different investment) & locations.
All the costs involved in capacity planning are future costs & the time span may be long, a
discounted cash flow (DCF) analysis is appropriate for comparing alternatives. DCF is
based on investment & operating costs.
2. New products & risky situations.
Capacity planning in case of new products requires an assessment of risks. The effect of
the probability that risky events will occur must be accounted for. If the market is
uncertain a probabilistic prediction of the market provides basic data. Suppose that we are
planning future capacity for a product that is in the rapid development phase.
The probability of optimistic demand = 0.25
The probability of expected demand = 0.50
The probability of pessimistic demand = 0.25
Alternatives of capacity expansion are: existing capacity 17000 items
- Install 15000 units
- Install 5000 units every year for three years.
- No capacity addition.
The above e.g. can be represented in the form of decision tree.
$1,778,150
$ 1,588,800
72
$1,588,800
$ 2,459,300
$595,800
Install 5000 Units in
1989,1990 and 1991
$595,800
$ 2,749,000
$819,400
$ 261,350
= 1778150+1588800+1588800
= 4955750
= 2459300+595800+595800
= 3650900
= 2749000+819400+261350
= 3829750
1.Structuring alternatives.
Capacity expansion involves extremely important strategic issues that must be addressed before
the balance of the planning process can proceed. These issues involve existing industry capacity,
where it is located, the nature & strength of competition, the status of the technology in the
industry including the potential for influence on whether or not to pursue an expansion at all as
well as on the structuring for alternatives for expansion.
Given a go signal for the capacity planning process, alternatives need to be structured around
different locations that may have the competitive advantages, the process technology that can be
used, & the nature of the product & its market. One of the outcomes will be in terms of the
riskiness of the situation, with regard to both the product & its markets (mature or new & risky) &
the anticipation of chance occurrences or developments usually involving technological choices.
73
74
UNIT II
Chapter III
Plant layout
Meaning of plant layout
Objectives of plant layout
Types of layout
Costs associated with layout
Techniques of plant layout
machinery, tools, fixtures, workers etc. are given a proper place. In the words of James Lundy, It
identically involves the allocation of space and the arrangement of equipment in such a manner
that overall cost are minimized. According to MoNaughton Waynel, A good layout results in
comforts, convenience, appearance, safety and profit. A poor layout results in congestion, waste,
frustration and inefficiency.
Plant layout is very complex in nature as it involves concept relating to such fields as engineering,
architecture, economics and business administration. Hence a plant layout, with proper design,
encompasses all production and service facilities and provides for the most effective utilization of
men, with materials and machines constituting the process, is a master blue print for coordinating
all operations.
2)
3)
4)
5)
6)
7)
8)
9)
10)
11)
12)
There is the proper utilization of cubic (i.e. length, width and height). Maximum use of
volume available should be made. For example, conveyors can be run above head
height and used as moving work in progress or tools and equipments can be suspended
from the ceiling. The principle is particularly true in stores where goods can be stored at
considerable height without inconvenience.
Waiting time of the semi-finished products is minimized.
Working conditions are safer, better (well ventilated rooms etc.) and improved
Material handling and transportation is minimized and efficiently controlled. For this ,
one has to consider the movement distances between different work areas as well as the
number of times such movements occur per unit period of time.
The movements made by the worker are minimized.
Suitable spaces are allocated to production centers.
Plant maintenance is simpler.
There is increased flexibility for changes in product design and for future expansion.
It must be capable of incorporating, without major changes, new equipment to meet
technological requirement or to eliminate waste.
A good layout permits material to move through the plant at the desired speed with
the lowest cost.
There is increased productivity and better product quality with reduced capital cost.
Boosting up employee morale by providing employee comforts and satisfaction.
The work should be so arranged the there is no difficulty in supervision, coordination
and control. There should be no hiding-places into which goods can be mislaid.
76
Goods raw materials and ready stocks must be readily observed at all times. It
will reduce the pilferage of material and labour.
It should be noted here that the above stated objectives of plant layout are laudable in themselves;
it is often difficult to reconcile all of them in a practical situation. And as such, the highest level of
skill and judgment are required to be exercised. For this, close association between the
entrepreneurs and experienced engineers is a must.
(b)
Shipping
Surface
Lathe
Milling
Deptt
Deptt
Packaging
Finishing
Assembling
F I
C E
inspection
Advantages:
1)
77
2)
3)
4)
5)
6)
7)
easily be made as and when required without upsetting the existing plant layout
plan.
Better quality product, because the supervisors and workers attend to one type
of machine and operations.
Variety of jobs, coming as different job orders make the work more interesting
for workers.
Workers in one section are not affected by the nature of operations carried out in
another section. E.g. the rays of welding do not affect a lathe operator, as the
two sections are quite separate.
Like product layout, the breakdown of one machine does not interrupt the entire
production flow.
This type of layout requires lesser financial investment in machines and
equipments because general-purpose machine, which are usually of low cost,
are used and duplication of machine is avoided. Moreover, general-purpose
machine do not depreciate or become obsolete as rapidly as specialized
machines. It results in lower
investment in machines.
Under process layout, better and efficient supervision is possible because of
specialization in operation.
Disadvantages:
1) Automatic material handling is extremely difficult because fixed material handling
equipment like conveyor belt is not possible to use.
2) Completion of same product takes more time.
3) Raw material has to travel larger distances for getting processed to finished food.
This increases material handling and the associated costs.
4) It is not possible to implement the group incentive schemes on the basic of quantity
of the product manufactured.
5) This type of layout requires more floor space than the product layout because a
distinct department established for each operation.
6) Compared to line layout inventory investment are usually higher in case of process
layout. It increases the need of working capital in the form of inventory.
7) Under process layout, cost of supervision is high because (i) the number of
employees per supervisor is less that result in reduced supervisory span of
control, and (ii) the work is checked after each operation.
c) Product Layout: it is also known as line (type) layout. It implies that various operations on
a product are performed in a sequence and the machine are placed along the product flow line
i.e. machines are arranged in the sequence in which a given product will be operated upon.
This type of layout is preferred for continuous production i.e. involving a continuous flow inprocess material towards the finished product stage.
78
IN
OUT
Operation1
operation2
operation3
operation4
operation4
Advantages:
i)
ii)
iii)
iv)
v)
vi)
Automatic material handling, lesser material handling movement, times and cost.
Product completes in lesser time. Since material is fed at one end of the layout and
finished product is collected at the other end, there is no transportation of raw material
backward and forward. It shortens the manufacturing time because it does not require
any time-consuming interval transportation till the completion of the process of
production. Line balancing may eliminate idle capacity.
Smooth and continuous flow of work- This plant ensures steady flow of production
with economy because bottlenecks or stoppage of work at different point of production
is got eliminated or avoided due to proper arrangement of machine in sequence.
Less in-process inventory- The semi-finished product or work-in-progress is the
minimum and negligible under this type of layout because the process of production is
direct and uninterrupted.
Effective quality control with reduced inspection points -It does not require frequent
changes in the machine set-up. Since production process is integrated and continuous,
defective parts can easily be discovered and segregated. This makes inspection easy
and economical.
Maximum use of space due to straight production flows and reduced need of interim
storing.
Disadvantages:
i)
ii)
iii)
iv)
v)
vi)
vii)
Since the specific product determines the layout, a change in product involves major
changes in layout and thus the layout flexibility is considerably reduced.
The pace or rate of working depends upon the output rate of the slowest machine. This
involves excessive idle time for other machines if the production line is not adequately
balanced.
Machines being scattered along the line, more machines of each type have to be
purchased as stand by, because if one machine in the line fails, it may lead to shut
down of the complete production line
It is difficult to increase production beyond the capacities of the production lines.
As the entire production is the result of the joint effort of all operation in the line, it is
difficult to implement individual incentive schemes.
Since there is no separate department for various types of work, supervision is also
difficult.
Under this system, labour cost is high because
79
(a)
(b)
(c)
It is now quite clear from the above discussion that both the systems have their own merits and
demerits. Advantages of one type of layout are generally the disadvantages of other type. Thus
with a view to securing the advantage of both the systems a combined layout may be designed.
and
IN
IN
OUT
OUT
81
(5) Type of industry process: This is one of the most important factors influencing the choice of
type of plant layout. Generally the types of layout particularly the arrangement of machines and
work centers and the location of workmen vary according to the nature of the industry to which the
plant belongs. For the purpose of lay out, industry may be classified into two broad
categories:
(i) Intermittent and (ii) continuous. Intermittent type of industries is those, which manufacture
different component or different machines.
Such industries may manufacture the parts, when required according to the market needs.
Examples of such industries are shipbuilding plants. In this type of industry functional layout may
be the best. The second type of industry in continuous industry. in this type of industry raw
material are fed at one end and the finished goods are received at another end. A continuous
industry may either be analytical or synthetic . A analytical industry breaks up the raw material into
several parts during the course of production process or changes its form, e.g. oil and sugar
refineries. A synthetic industry on the other hand mixes the two or more materials to manufacture
one product along with the process of production or assembles several parts to get finished
product. Cement and automobiles industries are the examples of such industry. Line layout is more
suitable in continuous process industries.
6. Types of methods of production: Layout plans may be different according to the method of production proposed to be adopted. Any
of the following three methods may be adopted for production- (1) Job order production, (2) batch
production, and (3) mass production. Under job production goods are produced according to the
orders of the customers and therefore, specification vary from customer to customer and the
production cannot be standardized. The machines and equipment can be arranged in a manner to
suit the need of all types of customers. Batch production carries the production of goods in batches
or group at intervals. In this type of manufacturing the product is standardized and production is
made generally in anticipation of sales. In such cases functional or process layout may be adopted.
In case of mass production of standardized goods, line layout is most suitable form of plant layout.
7. Nature of machines:Nature of machines and equipment also affects the layout of plants. If machines are heavy in
weight or create noisy atmosphere, stationery layout may reasonably be adopted. Heavy machines
are generally fixed on the ground floor. Ample space should be provided for complicated machines
to avoid accidents.
7. Climate:Sometimes, temperature, illumination and air are the deciding factors in the location of machines
and their establishments. For example, in lantern manufacturing industry, the spray-painting room
82
is built along the factory wall to ensure the required temperature control and air expulsion and the
process of spray painting may be undertaken.
9.Nature of material: Design and specification of materials, quantity and quality of materials and combination of
materials are probably the most important factors to be considered in planning a layout. So,
materials storage, space, volume and weight of raw materials, floor load capacity, ceiling height
,method of storing etc. should be given special consideration. This will affect the space and the
efficiency of the production process in the plant. It will facilitate economic production of goods
and prompt materials flow and soundly conceived materials handling system.
10. Type of machine: Machines and equipment may be either general purpose or special purpose. In addition certain
tools are used. The requirements of each machine and equipment are quite different in terms of
their space; speed and material handling process and these factors should be given proper
consideration while choosing out a particular type of layout. This should also be considered that
each machine and equipment is used to its fullest capacity because machines involve a huge
investment. For instance, under product layout, certain machines may not be used to their full
capacity so care should be taken to make full use of the capacity of the machines and equipment.
12.Human factor and working conditions:Men are the most important factor of production and therefore special consideration for their
safety and comforts should be given while planning a layout, specific safety items like obstructionfree floor, workers not exposed to hazards, exit etc. should be provided for. The layout should also
provide for the comforts to the workers such as provision of rest rooms, drinking water and other
services etc. sufficient space is also to be provided for free movement of workers.
13. Characteristics of the building: Shape of building, covered and open area, number of storeys, facilities of elevators, parking area
and so on also influence the layout plan. In most of the cases where building is hired, layout is to
be adjusted within the spaces available in the building. Although minor modification may be done
to suit the needs of the plants and equipment. But if any building is to be constructed, proper care
should be given to construct it according to the layout plan drawn by experts. Special type of
construction is needed to accommodate huge or technical or complex or sophisticated machines
and equipment.
Costs Associated With Plant Layout
The costs associated with a decision on plant layout are:
Cost of movement of material from one work area to another.
Cost of space.
Cost of production delay, if any, which are indirect costs.
83
Cost of spoilage of material, if any, when the materials are staged or stored in condition which
determine the quality of the material
Cost of labor dissatisfaction and health risks
Cost of changes required, if the operational conditions changed in the future. This is the longterm cost.
A good layout should minimize all these costs put together.
important technique because (i) it eliminates unnecessary handlings, (ii) minimize backtracking of
materials, (iii) it makes the mechanical handling possible, (iv) it provides a visual picture of
proposed or existing plan of layout at one place, (v) it offers flexibility to meet future changes in
the production requirements.
(4) Scale models: Though the two-dimensional templates are now in extensive use in the fields of
layout engineering but it is not much use to executives who cannot understand and manipulate
them .One important drawback of template technique is that it leaves the volume, depth, height and
clearance of the machines to the imaginations of the reader of the drawing. These drawbacks of the
template technique have been removed through the development of miniature scale models of
machinery and equipment cast in metal.
With scale models, it has now become possible to move tiny figures of men and machines around
in miniature factory .The miniature machines and models of material handling equipment are
placed in a miniature plant and moved around in pawn on a chessboard.
(5) Layout drawings: Completed layouts are generally represented by drawings of the plant
showing wall, columns, stairways, machines and other equipments, storage areas and office areas.
The above techniques and tools are used for the planning of layout for the new plant.
UNIT II
Chapter V
Material handling system
Factors & principles of material handling system
Types of material handling equipment
85
Least movement
Type of each move should be minimized
Distance of each move should be short route
Movement in lots rather than on individual basis
Gravity should be used
86
Types of equipment1.
2.
3.
4.
5.
6.
7.
Overhead systems
Conveyor systems
Tractor transfer system
Fork-lift truck and pallet truck system
Industrial truck system
Underground truck system
Manual System
Mechanized or automated system
Job Shop handling system
Mass-production handling system
88
89
1. Graves are devices mounted on overhead rails or ground level wheels or rails.
2. Elevator are a type of graves that lift material usually between floors of building
3. Hoists are devices, which move materials vertically and horizontally in a limited area.
Industrial Trucks
These devices are used for moving mined or uniform loads intermittently over variable paths. They
are electric, diesel, gasoline or liquefied petroleum, gas-powered vehicle equipped with lead,
forklift truck, pallet trucks, tractor with trailers, hand trucks and power trolleys.
UNIT III
Chapter I
Aggregate planning
Meaning
Characteristics and objectives
Linear programming model
Transportation model
H.M.M.S MODEL
90
Aggregate Planning
Production planning in the intermediate range of time is termed as Aggregate Planning . It is
thus called because the demand on facilities and available capacities is specified in aggregate
quantities e.g. aggregate quantities of thousands of litres of paint , or tons of fabrication work ,
or number of automobiles etc.
Aggregate planning is made within the broad framework of the long-range plan. Usually the
planning horizon for such plan is from a month to a year . The physical plant and equipment
capacity would be fixed over this planning horizon . Therefore the sales orders have to be met
by strategies like : 1. Overtime
2. Additional temporary workers .
3. Inventory .
4. Sub- contracting .
5. Having backlog of orders .
6. Smoothening of demand .
7. Turning down some sales orders .
Each of these strategies has a cost associated with it . The marginal cost of overtime is easy to
estimate , whereas the costs of undertime are not easy to determine . The hiring costs include
the costs of selection , the costs of training and the cost of maintaining additional records .
There are also costs associated with learning on the job of a newly hired employee.
Costs of inventory include the cost of capital for carrying the inventory , the cost of
obsolescence , taxes and insurance etc.
Stock- out costs are cost due to loss of goodwill and loss of sales of the customer . The cost of
sub- contracting is the amount by which
the subcontracting costs is greater than the
manufacturing cost at the higher level of production .
Characteristics of aggregate planning:
91
Possible to influence both supply and demand by adjusting production rates, workforce
levels, inventory levels, etc., but facilities cannot be expanded.
92
Subcontract production
Mixed strategy:
H.M.M.S Model
The H.M.M.S. model , (C.C. Hold , F. Modiglani , J.Muth, H.Simon ) uses quadratic functions
for the different costs such as overtime , inventory , hiring and lay-off , backlog etc. For this
model the following costs are considered :
1. Costs relating to production level with optimal workforce .
2. Hiring costs
3. Layoff costs
4. Overtime costs .
5. Undertime costs .
6. Inventory holding costs.
7. Back- order costs.
Finding Optimal Solutions Using Linear Programming
- Aggregate planning problems can be solved optimally using linear programming (LP).
- Given the constraints on requirements, production capabilities, allowed workforce changes,
overtime and subcontracting limits plus all relevant costs LP will find an optimal solution to the
problem which minimizes total costs.
93
UNIT III
Chapter II
Production planning and control
Meaning and objectives of production planning
Production planning an integral part of corporate plan
Meaning of production control
Objectives of production control
Production planning and control(PPC)
PPC for shop production
PPC for mass production
94
Sequencing or prioritisation
Production planning
Production planning is concerned with deciding in advance what is to be produced, when to be
produced, where to be produced and how to be produced. It involves foreseeing every step in the
process of production so as to avoid all difficulties and inefficiency in the operation of the plant.
Production planning has been defined as the technique of forecasting or picturing ahead every step in
a long series of separate operations, each step to be taken in the right place, of the right degree, and
at the right time, and each operation to be done at maximum efficiency. In other words, production
planning involves looking ahead, anticipating bottlenecks and identifying the steps necessary to
ensure smooth and uninterrupted flow of production. It determines the requirements for materials,
machinery and man-power; establishes the exact sequence of operations for each individual item and
lays down the time schedule for its completion.
It also aims to make all necessary arrangement so that the production targets as set in the
production budget and master schedules are reached. While attaining these targets,
adjustments are made for the fluctuations in the demand.
95
For an effective planning of production activities, the executives concerned must have
complete information regarding the following:(i)
96
various operations. Then the sequences of work elements involved in each operation are
planned. Specifications about each transfer, work centers, nature of tools required and
the time necessary for the completion of each operation are prescribed.
Production Control
All organizations irrespective of size, use production control to some degree. In small organizations,
the production control may be performed by one person; but in large complex industries the
production control department is normally well-organised and highly specialized. Production
control presupposes the existence of production plans, and it involves the use of various control
techniques to ensure production performance as per plans. Co-ordinating men and materials and
machines is the task of production control.
Production control may be defined as the process of planning production in advance of operations;
establishing the exact route of each individual item, part of assembly; setting and finishing dates for
each important item, assembly and the finished products, and releasing the necessary orders as well
as initiating the required follow-up to effectivate the smooth functioning of the enterprises.
According to Henry Fayol, production control is the art and science of ensuring that all which occurs
is in accordance with the rules established and the instructions issued. Thus, production control
regulates the orderly flow of materials in the manufacturing process from the raw material stage to
the finished product.
Production control aims at achieving production targets, optimum use of available resources,
increased profits through productivity, better and more economic goods and services etc. An
effective production control system requires reliable information, sound organization structure, a
high degree of standardization and trained personnel for its successful operation.
A sound production control system contributes to the efficient operation of plant. In terms of
manufacturing customers orders, production control assures a more positive and accurate
completion and delivery date. Delivering an order on time is obviously important to the customer
and to the development of customer goodwill. Production control also brings plan and order to
chaotic and haphazard manufacturing procedures. This not only increases the plant efficiency but
also makes it a more pleasant place in which to work. Most people recognize that employees prefer
to work and do better work under conditions of obvious control and plan. Morale may be
considerably improved.. Effective production control also maintains working inventories at a
minimum, making possible a real saving in both labour and material investment. Thus, good
production control helps a company operate and produce more efficiently and achieve lowest
possible costs.
(v)
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production and control should be considered an integrated function of planning to ensure the most
efficient production and regulation of operations to execute the plans successfully.
Production planning and control may be defined as the direction and coordination of the firms
material and physical facilities towards the attainment of pre-specified production goals in the
most efficient available way .It is the process of planning production in advance of operations,
establishing the exact route of each individual item, part or assembly, setting starting and finishing
dates for each important item or assembly and finished products, and releasing the necessary
orders as well as initiating the required follow up to effectuate the smooth functioning of the
enterprise. Thus, production planning and control involves planning, routing, scheduling,
dispatching and expediting to coordinate the movements of materials, machines and manpower as
to quantity, quality, time and place. It is based upon the old adage of first plan your work and
then work your plan.
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
99
individuals and workshops and taking suitable corrective measures if there is any
deviation between planned and actual operations.
100
(vii) Good public image: A proper system of production planning and control is helpful in keeping
systematized operations in an organization .Such an organization is in a position to meet its orders
in time to the satisfaction of its customers. Customers satisfaction leads to increased
sales,increased profits ,industrial harmony and, ultimately, good public image of the enterprise .
(viii)
Lower capital requirements: Under a sound system of production planning and control ,
everything relating to production is planned well in advance of operations.
Where, when and what is required in the form of input is known before the actual production process
starts .Inputs are made available as per schedule which ensures even flow of production without any
bottlenecks .Facilities are used more effectively and inventory levels are kept as per schedule neither
more nor less .Thus ,production planning and control helps, in minimizing capital investment in
equipment and inventories.
Sequencing Or Prioritization
After assignment it is also necessary to decide on the sequence in which the jobs are to be processed
in a work center. This relative prioritization determines the actual time schedule of the individual
jobs.
OBJECTIVE OF SEQUENCING- completing by the due date, or with as little delay as possible, as many work orders as
possible. (this has three components: one is completing , another is on- time and third is
minimum delay which could be expressed as delay or a range of delay.
- Utilizing the machinery and such other capital investment to the maximum extent possible
- utilizing the manpower capacity to the maximum extent possible.
- Minimizing the working capital investment in inventories of semi- processed materials.
- Sequencing decides the actual time schedule of each job.
- Imagine there are 2 machines and 2 jobsJOB1
JOB2
LATHE
10 HRS
12 HRS
MILLING
15 HRS
14 HRS
101
We can conclude from above that there will be a queue. In an actual factory, a job involves a no: of operations
with use of machines. Therefore the priority rules will have a significant effect on the shop performance.
A job shop can be thought of a complex queuing s system with probabilistic times multiple channels, multiple
servers, with different set of servers, the priority rule or queue discipline has a very important role to play in a
queuing system.
VISUAL AIDSOne of the simplest methods /approaches to scheduling is through the use of various visual aids,
facilitating the planning of jobs through work centers and depicting the progress of jobs against
what is planned. The earliest of these charts was developed by Henry L. Gantt during the early part
of the 20 th century. The gnat chart shows how each machine or work center is planned for work
on diff job orders- the scheduled start or finish times the extent of actual completion of various
jobs every day. Gnat chart is useful for control & corrective actions.
Johnsons rule
S. M Johnson presented a sequencing rule for a situation where there are n jobs to be processed
through two machines/ work centers. The rule results in min total completion time for there
n jobs by minimizing the total idle- times of the machines could be any no: of machines.
UNIT III
Chapter III
Production scheduling
Meaning of scheduling
Techniques of scheduling
102
Scheduling
In this Chapter , we will discuss methods of scheduling tasks or operations on available resources
so as to achieve some objectives . An example of a scheduling problem is to determine the order in
which jobs in a manufacturing plant will be completed so that the number of on time deliveries
are maximized . other examples of scheduling include the running of programs at a computing
center the processing of loan applications by a bank , the landing of procedure aircraft at an
airstrips , and performing medical tests on a default , an arbitrary , such as first come first served to
a companys objectives we hope to demonstrate that demonstrate that , by using scientific
procedures for scheduling ,a scheduling , a company can achieve significantly better performance
on started objectives.
There are many situations where an entire plant can be viewed as a single processor , as is
the case in chemical manufacturing , paint manufacturing , and the manufacturing of
products in automated plants .
.In plants that employ multiple processor , there is often a bottleneck processor that control the output
of the plant because of its limited capacity . The analysis of this bottleneck processor may determined
the decision for the entire plant .The analysis of a single processor illustrates many important problem
103
that arise in more complex scheduling situation , therefore , it serves as a building block for
understanding the decision problem in these more complex situations.
Product
-Prodution time , days
Due date , days
1
4
6
2
3
4
7
2
8
9
19
17
Notation &definitions
Each job in the single processor-scheduling model is described by two parameters:
Pi = processing time for job i
di =due date for job i
In addition, in some cases, ri, the ready time, release time, or arrival time of job I may be useful. In
the models discussed here, all jobs are available for processing at time zero and hence ri = 0 for all
jobs.
The definition of Pi includes set-up time for job i. If job I is defined as a lot of several
identical pieces then Pi will denote the time required to process the complaining considerations.
We will consider the due date to be the time by which a job must be completed ;otherwise the job
will be deemed late.
Several variables determine the solution of a scheduling decision. Some of the more
important of these are
Wi= waiting time for job i
Ci = completion time of job i
Fi= flow time of job i
Li= lateness of job i
Ti = tardiness of job i
Ei=earliness of job i
Wi is the amount of time job I has to wait before its processing begins. The first job on the
schedule will have zero waiting time, and the second job on the schedule will have to wait by the
amount of the processing time of first job. Ci is simply the time at which the processing of job I is
completed. Fi is the amount of time a job spends in the system; thus Fi = Ci-Ri. Since in our case
ri=0, Fi =Ci... Lateness Li, is the amount of time by which the completion time of job I exceeds its
due date. Thus Li =Ci-di. Note that Li can be either positive or negative. A positive lateness
represents the completion of a job before its due date and is called tardiness, Ti.similarly a nagative
lateness represents the completion of a job before due date and is called earliness Ei., Thus, the
three measures of schedule, Li,,Ti ,Ei measures the deviation of the completion time from the due
date. Since there is often a penalty associated with not meeting due dates, the tardiness measure is
usually used. However in some case there may be a penalty for being either or too late (e.g., crop
harvesting), so both tardiness &earliness measures may be useful.
104
Scheduling Procedures
We will now illustrate several scheduling procedures using the example in table 10-1
Shortest Processing Time (SPT) Procedure.. A schedule obtained by sequencing jobs in nondecreasing order of processing times is called a shortest processing time (SPT) schedule. This
105
schedule minimizes mean flow time, F. In addition, the SPT rule also minimizes mean lateness and
mean waiting time. In the example in Table 10-1, the SPT schedule is
<3,1,2,4, >
This shows that the job 3 is processed first, followed by jobs 1,2, and 4, in that order. In table 10-2,
the calculations for obtaining the flow time for each job are shown. Job 3 is first in the sequence;
hence, its completion time is 2 days. Job 1 is started after job 3 is finished and takes 4 days. Thus
the completion time for job 1 is 6 days. The completion times for the remaining jobs are similarly
computed. Since all the jobs are available at time zero, the flow time for each job is identical to its
completion time. The mean flow time is computed by simply adding the flow time for each job and
dividing by 4.
(F1+F2+F3+F4)
(6+13+2+21)
F=
--------------------- = ----------------- = 42/4 =10.5
4
4
It can be checked that no other sequence can produce a better mean flow time than the sequence
obtained by the SPT rule. The optimality of the SPT rule can be mathematically proved. By
finishing the shorter jobs first, both the turnaround time &the work-in-process inventory are
reduced. The SPT procedure is simple to implement and provides good results even in the more
complex scheduling situations discussed later.
Due date (DD) Procedure. In the due date procedure, jobs are sequenced in the order of nondecreasing due dates. In our example, job 1 will be sequenced in first because it has the earliest
due date. The sequence obtained by this rule is
<1, 2, 4, 3>
:
The due date procedure minimizes the maximum tardiness. In the Table 10-3, the computations for
individual job tardiness, T, for the due date sequence are shown. The maximum tardiness is 2 days.
No other schedule can produce a tardiness of less than 2 days. For comparison, the maximum
tardiness for the SPT schedule is 4 days as shown in Table 10-2.
COMPUTIONS USING THE SPT PROCEDURE FOR THE DATA IN TABLE 10-1
Job
Processing
Time (pi)
Due
(di)
1
2
3
4
4
7
2
8
6
9
19
17
date Completion
Time
For SPT
Schedule
(Ci)
6
13
2
21
Flow
(Fi)
6
13
2
21
time Tardiness
(Ti)
0
4
0
4
MOORE PROCEDURE. The number of job tardy for the SPT schedule is 2 & for the DD
schedule, it is 3. The Moore procedure minimizes the total number of tardy jobs. This procedures
is described in the following steps.
106
Step 1. Arrange the jobs in no decreasing order of their due dates (DDSchdule). If this sequence
yields one or zero tardy jobs, then the DDSchedule is optimal & procedure stops. In our example,
3 jobs are tardy in the DDSchdule, so we proceed to step 2.
Step 2. Identify the first tardy job in the DDSchedule. In our example, the first tardy job in the
DDSchdule is job 2, which is marked by an asterisk (*) in the following schedule:
DD Schedule
Completion time
Due date
<1
4
6
2*
11
9
4
19
17
3>
21
19
Step 3.identify the longest job from among the jobs including & to the left of the job marked with
the * in the schedule in step 2. That is, we pick the longest job among the jobs that are completed
no later then the completion time of the first tardy job in step 2. In our example, job 1 & 2 are
candidates, & since3 job 2 longer processing time of the two, it is identified.
COMPUTIONS USING THE DD PROCEDURE FOR THE DATA IN TABLE 10-1
Job
1
2
3
4
Completion time
Due date
Processing
Time (pi)
Due
(di)
< 1
4
6
4
12
17
3 >
14
19
We now repeat step 2. In our example, all the jobs now on time, so we terminate the procedure.
The Moore schedule is
< 1, 4, 3, 2 >
which is obtained by simply putting the jobs removed in step 3 at the end of the schedule.
Weighted Shortest Processing Time (WSPT) Procedure. If jobs are not of equal importance,
then it may be more appropriate to minimize the weighted flow time
n
wiFi
I =1
107
Where wi is the weighted associated with the flow of job i. The weights reflect the relative
importance of individual job flow time. For example, if w1 = 1 and w2 = 2, it is as desirable to
reduce the flow time of job 1 by 2 days as it is to reduce the flow time of job 2 by 1 day.
Considerations of the relative costs of each job, the importance of the customer requiring a job,
and so forth will influence the determination of wis.
A simple procedure to minimize the weighted flow time is to compute the weighted
processing time, pi/wi, for each job. Now, the job with the smallest pi/wi is scheduled first in the
sequence. From the remaining jobs, the job with the lowest pi/wi is selected and is placed in the
second position in the schedule. The procedure is repeated until all of the jobs are scheduled.
Essentially, the schedule is obtained by arranging the jobs in order of no decreasing pi/wi ratios.
Other Procedures. Several other procedures for optimizing a specified criterion are available in
the literature. However, even for single processor scheduling, optimization for some criteria is
quite difficult. For example, no simple procedure exists for minimizing mean tardiness, T. In such
cases, a manager has the choice of using either a simpler procedure that produces good results but
cannot guarantee an optimal solution (called a heuristic) or a complex procedure utilizing
techniques of combinatorial optimization, which will require the use of a computer and may be
expensive to implement but will guarantee optimal results.
Several extensions of the basic single processor-scheduling model have been
examined in the literature. These include the no simultaneous arrival of jobs, the incorporation of
dependence among jobs (e.g., a precedence constraint, such as job i. must be completed before job
j), and the allowance for set-up times that depend on the sequence (e.g., the processing of beige
paint after black paint may require a higher set-up time than the processing of beige paint after
white paint). In addition,
Probabilistic situations, where the arrival of jobs is uncertain or jobs have random processing times
or due dates, have also been examined.
108
of such a process is furniture manufacturing where the front end is a flow shop and customization
for upholstery, paint , and like accomplished at the back end of the manufacturing process .
Figure 10-1
Schematic of flow shops:(a) pure flow shop;(b) a general
Flow shop.
------------------------------------------------------------------------------------------------------------
In
Machine 1
Out
Machine 2
Machine 3
Out
Job 1
Job 2
Example of such a process is furniture manufacturing, where the front end is a flow shop and
customization for upholstery, paint and the like is accomplished at the back end of the
manufacturing process.
To demonstrate scheduling procedures for flow shops, consider the example problem in table
10-4.In this example; there are two machines & five jobs.
If we schedule the jobs on machine 1&2 in order of the job numbers, we obtain the schedule
shown in figure 10-2a .the shaded area show the amount of time during which a machine is idle.
The completion time of last job determines the makespan of the schedule, which measures
machine utilization. In figure 10-2a, the makespan is 33 units of time.
For the special case of a two - machine flow shop, Johnsons procedure minimizes the
makespan. This procedure works as following;
Step 1.Determine the minimum processing time on either machine. In our example, it is 2 for job 3
machine1.
Step 2a. If the minimum processing time occurs on machine 1,place the associated job in the first
available position in the sequence. In our example, job 3 is placed in the first position. Proceed to
step 3.
Step 2b. The job sequenced by either Step 2a or Step 2b is removed from consideration. The
process is repeated, starting with Step 1, until all the jobs are sequenced. Ties can be broken
arbitrarily.
In our example, once job 3 is removed, the minimum processing time occurs for job 2 on machine
2; hence, by step 2 b, job is placed last in sequence. For remaining machines 1,2&5, the minimum
109
processing time occurs for job 5 on machine 2 ; using stero 2b again , job 5 is placed in the sole
available position , the third position the sequence obtained is <3,1,4,5,2> .As shown in figure 102b, this sequence gives a make span of 30 units.
FLOW SHOP SCHEDULING EXAMPLE (ALL JOBS MUST BE PROCESSED FIRST
MACHINE 1 AND THEN ON MACHINE 2)
Job
Time
0
Machine 1
Machine 2
Time 0
JO
B3
13
Time
JOB1
Machine1
JOB
Machine2
3
5
Time
JOB
Job1
4
JOB
1
13
21
JOB5
Job2
JOB
4Job1
20
27
10
JOB2
Job3
12
19
Job4
JOB5
Job2
11
27
Job5
JOB2
Job3
Job4
14
17
30
Job5
26
33
Two- machine flow shop, few results are available for other criteria . In fact for scheduling a flow
shop with m machines, one has to rely on combinatorial techniques or heuristic procedure. This
shows the difficulty in scheduling and the combinatorial nature of problem for even a wellstructured environment like a flow shop.
110
of available jobs waiting to be processed on the same machine at a given point in time. Some
commonly employed rules are
Earliest Due Date First (EDD)
Priority is given to the job with the earliest due date.
TABLE 10-5
GENERAL JOB SHOP EXAMPLE
Job
1
2
3
4
5
6
Due Date
10
13
12
18
14
15
First In System First Served (FISFS) : Priority is given to the job that arrived in
the shop (not on the machine) First.
Least Slack First (LSF): Priority is given to the processing of the job that has least slack. Slack is
the difference between the due date and the work remaining on the job. At time zero the
slack for job 1 is 10 (3+3+2) = 2 days in our example.
Shortest Processing Time (SPT)
: Priority is given to the job with the shortest processing time
on the machine under consideration.
Least Work Remaining (LWR)
: Priority is given to the job with the least
amount of
total processing remaining to be done.
Several other rules can be devised to select a job from a set of waiting jobs for
scheduling on a machine. The managerial objectives are the simplicity of implementation
of a rule as well as the attainment of some desired performance, such as reducing the
congestion in the shop, improving machine utilization, and meeting job due dates.
Figure 10-3 contains Gantt Charts that show the schedules developed using the
aforementioned rules. A Gantt chart is prepared by determining the set of jobs waiting for
each machine. If more than one job is waiting for a machine, a rule is used to choose a job
to be processed next. When the processing of a job on one machine is completed, that job is
added to the waiting list for the machine it needs to be processed by next. The procedure is
repeated each day (or unit of time) until all the jobs are scheduled.
111
It is clear from Figure 10-3 that different rules produce different schedules. In Table
10-6, the performance of these rules on the criteria number of jobs tardy total tardiness,
mean flow time, and makespan is evaluated. The relative performance of a rule may change
if the problem data are modified. In a static situation where all jobs are available
simultaneously, it is possible to compare the perform.
112
UNIT IV
Chapter I
Inventory control
Meaning and objectives of material management
Purpose of inventories
Purchasing process
Vendor development
Economic order quantity
Selective inventory control
INVENTORY
Inventory are those stocks or items which are used to support production (raw materials and workin-process items), supporting activities (maintenance, repair, and operating supplies), and customer
service (finished goods and spare parts).
113
The purpose of inventory management is to determine the amount of inventory to keep in stockhow much to order and when to replenish, or order.
Types of inventories
Inventories include
Raw materials: purchased items or extracted materials that are converted via the manufacturing
process into components and products.
Work-in-process: a product or products in various stages of completion throughout the plant.
Finished-goods:
Items
ready
for
sale
to
customer
114
115
C ITEMS: C are those great many items with low individual usage and or low unit value in total
and account for only 5% of the value of usage.
Low Consumption Value
Low Control
High safety stock
Bulk ordering once in 6 months
Quarterly control statement
Only Two source of supply
Minimum value Analysis
Rough estimate for planning
Annual review
Minimum clerical efforts
Inventory costs
There are three basic costs associated with inventory: Carrying (or Holding), cost Ordering Costs;
and Shortage Costs
Holding costs: associated with keeping stock over time
Storage costs
Rent/depreciation
Labor
Theft/insurance
Transport costs
Handling costs
Shortage or Stock out Costs: A stock-out occurs when we have insufficient stock to supply
customers. Usually stock outs occur in the order lead-time, the time between placing an order and
the arrival of that order.
Given a stock-out the order may be lost completely or the customer may choose to backorder, i.e.
to be prepared to wait until we have sufficient stock to supply their order
116
UNIT IV
Chapter II
Quality assurance
Meaning
Aspects of quality
Importance of quality
How does management decide quality
Quality insurance system
Quality control through statistical techniques
117
Quality Assurance
What is Quality?
1. Is it customer satisfaction?
2. Is it fitness for use?
3. Is it attributes or properties of the product?
4. Does it mean the lowest price?
5. What is perfect from customers point of view?
6. Is honoring the commitment made to the customer?
7. Is it influenced by purchasing power of the customer?
8. Is it excellence in every thing you do?
9. Is it minimization of chances of poor quality or defectives?
10. Does it affect goodwill of the firm?
All the above questions reveal the meaning of quality. Quality is fitness for use whether for a
product or a service.
C. D. Lewis defined quality as the degree to which a specific product satisfies a particular
class of consumers or consumers in general or the degree to which it confirms to a design
specification or the distinguishing feature of a products taste, colour, appearance etc.
Product quality has entered the consciousness of the managers with a vengeance. It has become
crystal clear that high quality products have a distinct advantage in the marketplace, that market
share can be gained or lost over the quality issue. Therefore quality is the competitive priority.
The top management sets basic quality standards and goals based on corporate and market
inputs, engineering and R&D express
these standards in terms of detailed specifications,
purchasing and incoming inspections attempt to ensure that meet specifications, the production
system must be designed so that it is capable of meeting quality standards and must then
produce the requisite quality; inspection and quality controls establish the procedures to ensure
that quality is actually produced maintenance keeps equipment capable of producing the
requisite quality and so on.
The slogan, Quality is everyones job is really true. In order to produce quality products
everyone should be in on the act. Quality assurance is designed to maintain reliability of the entire
productive system to do what it was designed to do.
118
The following are the typical quality measures of the output of the productive
systems: TYPE OF SYSTEM
Manufacturing
Medical service
Postal service
Banks
MEASURE OF OUTPUT
Dimensions, tolerances on dimensions, chemical composition,
surface finish, performance tests
False positive diagnosis, false negative diagnosis
Waiting time at post office, errors in delivery, overall delivery
time.
Waiting time at windows, clerical errors
Aspects of quality
1. Quality of design
2. Quality of conformance
Quality of design refers to properties and characteristics acquired by the product at the design and
development stage. These properties depend on the type of material used, safety factors allowed,
knowledge and skill of design, personnel employed etc. . Quality of design is the fundamental
requisite.
Quality of conformance is adherence to the quality of design while the product is being actually
produced.
Howsoever successful the production is in achieving quality of conformance; it cannot go beyond
quality laid down by design. Design itself should consider the type of manpower available and the
equipment used. If design is blind to these aspects, the quality of conformance is likely to drop.
Quality is a collaborative effort of the designer and the production engineer.
Importance of quality
Existence of manufacturing organization depends on the quality of the product or services it
manufactures or supplies.
Employees feel proud to be associated with a producer of quality product and service.
119
Departments and branches in the same organization also feel proud when appreciated for
higher quality.
3)
It should be noted that on the basis of strict specifications, materials parts, and tools etc. may not
be available continuously. In such circumstances, if a slight difference in specifications does not
affect the quality of the final product or the performance of the product materials or parts or
tools should not be rejected. Considerable judgement should be applied while taking decision of
acceptance or otherwise.
Processes
Outputs
121
Breakdowns
Monitor quality and quantity of
output
Standards
Readjust processes
to conform to
standards
Interpret
results
Figure 1 suggests the nature of control loops for quality and maintenance control However it is
local in nature and great deal unsaid We must ask where did the standards come from? What is the
nature of productive system, and is it appropriate for the quality tasks?
122
Inspection and
control of
incoming
materials
Information
for revision of
quality
standards
Production of
goods and services
Maintenance and
preventive maintenance
systems
123
Control Charts
Control charts are used to routinely monitor quality. Depending on the number of process
characteristics to be monitored, there are two basic types of control charts. The first, referred to as
a univariate control chart, is a graphical display (chart) of one quality characteristic. The second,
referred to as a multivariate control chart, is a graphical display of a statistic that summarizes or
represents more than one quality characteristic.
124
The control limits as pictured in the graph might be .001 probability limits. If so, and if chance
causes alone were present, the probability of a point falling above the upper limit would be one out
of a thousand, and similarly, a point falling below the lower limit would be one out of a thousand.
We would be searching for an assignable cause if a point would fall outside these limits. Where we
put these limits will determine the risk of undertaking such a search when in reality there is no
assignable cause for variation.
125
Let w be a sample statistic that measures some continuously varying quality characteristic of
interest (e.g., thickness), and suppose that the mean of w is w, with a standard deviation of w.
Then the center line, the UCL and the LCL are
UCL = w + k w
Center Line = w
LCL = w - k w
where k is the distance of the control limits from the center line, expressed in terms of standard
deviation units. When k is set to 3, we speak of 3-sigma control charts.
Historically, k = 3 has become an accepted standard in industry.
The centerline is the process mean, which in general is unknown. We replace it with a target or the
average of all the data. The quantity that we plot is the sample average, . The chart is called the
chart.
We also have to deal with the fact that is, in general, unknown. Here we replace w with a given
standard value, or we estimate it by a function of the average standard deviation. This is obtained
by averaging the individual standard deviations that we calculated from each of m preliminary (or
present) samples, each of size n. This function will be discussed shortly.
It is equally important to examine the standard deviations in ascertaining whether the process is in
control. There is, unfortunately, a slight problem involved when we work with the usual estimator
of . The following discussion will illustrate this.
Sample Variance
If 2 is the unknown variance of a probability distribution, then an unbiased estimator of 2 is the
sample variance
However, the sample standard deviation is not an unbiased estimator of . If the underlying
distribution is normal, then s actually estimates c4 , where c4 is a constant that depends on the
sample size n. This constant is tabulated in most text books on statistical quality control and may
be calculated using C4 factor
To compute this we need a non-integer factorial, which is defined for n/2 as follows:
Fractional Factorials
126
With this definition the reader should have no problem verifying that the c4 factor for n = 10 is .
9727.
Mean and standard deviation of the estimators
So the mean or expected value of the sample standard deviation is c4 .
The standard deviation of the sample standard deviation is
What are the differences between control limits and specification limits ?
Control limits vs. specifications
Control Limits are used to determine if the process is in a state of statistical control (i.e., is
producing consistent output).
Specification Limits are used to determine if the product will function in the intended fashion.
How many data points are needed to set up a control chart?
How many samples are needed?
Shewhart gave the following rule of thumb:
"It has also been observed that a person would seldom if ever be justified in
concluding that a state of statistical control of a given repetitive operation or
production process has been reached until he had obtained, under presumably the
same essential conditions, a sequence of not less than twenty five samples of size
four that are in control."
It is important to note that control chart properties, such as false alarm probabilities, are generally
given under the assumption that the parameters, such as and , are known. When the control
limits are not computed from a large amount of data, the actual
General rules for detecting out of control or non-random situations
WECO stands for Western Electric Company Rules
Any Point Above +3 Sigma
--------------------------------------------- +3 LIMIT
2 Out of the Last 3 Points Above +2 Sigma
--------------------------------------------- +2 LIMIT
127
Consider a wafer with a number of chips on it. The wafer is referred to as an "item of a product".
The chip may be referred to as "a specific point". There exist certain specifications for the wafers.
When a particular wafer (e.g., the item of the product) does not meet at least one of the
specifications, it is classified as a nonconforming item. Furthermore, each chip, (e.g., the specific
point) at which a specification is not met becomes a defect or nonconformity.
So, a nonconforming or defective item contains at least one defect or nonconformity. It should be
pointed out that a wafer can contain several defects but still be classified as conforming. For
example, the defects may be located at no critical positions on the wafer. If, on the other hand, the
number of the so-called "unimportant" defects becomes alarmingly large, an investigation of the
production of these wafers is warranted.
Control charts involving counts can be either for the total number of nonconformities (defects) for
the sample of inspected units, or for the average number of defects
Acceptance Sampling
A lot acceptance-sampling plan (LASP) is a sampling scheme and a set of rules for making
decisions. The decision, based on counting the number of defectives in a sample, can be to accept
the lot, reject the lot, or even, for multiple or sequential sampling schemes, to take another sample
and then repeat the decision process.
Types of acceptance plans to choose from
LASPs fall into the following categories:
Single sampling plans:. One sample of items is selected at random from a lot and the
disposition of the lot is determined from the resulting information. These plans are usually
denoted as (n,c) plans for a sample size n, where the lot is rejected if there are more than c
defectives. These are the most common (and easiest) plans to use although not the most
efficient in terms of average number of samples needed.
Double sampling plans: After the first sample is tested, there are three possibilities:
1. Accept the lot
2. Reject the lot
3. No decision
If the outcome is (3), and a second sample is taken, the procedure is to combine the results
of both samples and make a final decision based on that information.
Multiple sampling plans: This is an extension of the double sampling plans where more
than two samples are needed to reach a conclusion. The advantage of multiple sampling is
smaller sample sizes.
Sequential sampling plans: . This is the ultimate extension of multiple sampling where
items are selected from a lot one at a time and after inspection of each item a decision is
made to accept or reject the lot or select another unit.
Skip lot sampling plans:. Skip lot sampling means that only a fraction of the submitted lots
are inspected.
129
EXERCISE 1
Fill up the blanks in the following statements with appropriate words,
phrases or short sentences:
130
EXERCISE 2
State whether the following statements are True (T) or False (F)
1. A forklift can be used for horizontal as well as vertical movements
2. Mobile cranes cannot move from one place to another.
131
CASE I
PART EMPORIUM
Its June 6, Sue McCaskeys first day in the newly created position of materials manager for parts
Emporium. A recent graduate of a prominent business school, McCaskey is eagerly awaiting her
132
first real-world problem. At approximately 8:30.It arrives in the form of status reports on inventory
and orders shipped. At the top of an extensive computer printout is a handwritten note from Joe
Donnell, the purchasing manager: Attached you will find the inventory and customer services
performance data. Rest assured that the individual inventory levels are accurate because we took a
complete physical inventory count at the end of last week. Unfortunately, we dont keep compiled
records in some of the areas as you requested. However, youre welcome to do so yourself.
Welcome aboard!
A little upset that aggregate information isnt available, McCaskey decide to randomly select a
small sample of approximately 100 items and compile inventory and customer service
characteristics to get a feel for the total picture. The results of this experiment reveal to her why
Parts Emporium decided to create the position she now fills. It seems that the inventory is in all the
wrong places. Although there is an average of approximately 60 days of inventory, a customer
service is inadequate. Parts Emporium series to backorder the customer orders not immediately
filled from stock, but some 10 percent of demand is being lost to competing distributorships.
Because stockouts are costly relative to inventory holding costs, McCaskey believes that a cycleservices level of at least 95 percent should be achieved.
Parts Emporium, Inc., was formed in 1967 as a wholesale distributor of automobile parts by two
disenchanted auto mechanics, Dan Block and ED sprigs. Originally located in Blocks garage, the
firm showed slow but steady growth until 1970, when it relocated to an old, abandoned
meatpacking warehouse on Chicagos South Side. With increased selection, combined with the
trend toward longer car ownership, led to an explosive growth of the business in the mid to late
1970s. By 1991, Parts Emporium was the largest independent distributor of auto parts in the North
central region.
In 1993, Part Emporium relocated in a sparkling new office and warehouse complex off interstate
55 in suburban Chicago. The warehouses space alone occupied more than 100,000 square feet.
Although only a handful of new products have been added since the warehouse was constructed,
its utilization has increased from 65 percent to more than 90 percent of capacity. During this same
period, however, sales growth has stagnated. These conditions motivated Block and sprigs to hire
the first manager from outside the company in the firms history.
Sue McCaskey knows that although her influence to initiate changes will be limited, she must
produce positive results immediately. Thus she decides to concentrate on two products from the
extensive product line: the EG151 exhaust gasket and the DB032 drive belt. If she can demonstrate
significant gains from proper inventory management for just two products, perhaps Block and
sprigs will give her the backing needed to change the total inventory management system.
The EG151 exhaust gasket is purchased from an over seas supplier, Haipei, Inc. actual demand for
the first 21 weeks of 1994 is shown in the following table
Week
1
Actual Demand
104
Week
12
133
Actual Demand
97
2
3
4
5
6
7
8
9
10
11
103
107
105
102
102
101
104
100
100
103
13
14
15
16
17
18
19
20
21
99
102
99
103
101
101
104
108
97
A quick review of past orders, shown in another document, indicates that a lot size of 150 units is
being used and that the lead-time from Haipei is fairly constant at two weeks. Currently, the end of
week 21, no inventory is on hand; 11 units are backordered, and there is a scheduled receipt of 150
units.
The DB032 drive belt is purchased from the Bendox Corporation of Grand Rapids, Michigan.
Actual demand so far in 1994 is shown in the following table.
Week
11
12
13
14
15
16
Actual Demand
18
33
53
54
51
53
Week
17
18
19
20
21
Actual Demand
50
53
54
49
52
Because this product is new, data are available only since its introduction in week 11. Currently,
324 units are on hand; there are no backorder and no schedule receipts a lot size of 1000 units is
being used, with the lead-time fairly constant at three weeks.
The wholesale price that part Emporium charges their customers are $ 12.99 for the EG151
exhaust gasket and $8.89 for the DB032 drive belt. Because no quantity discount are offered on
these two highly profitable items, gross margins based on current purchasing practices are 32
percent of wholesale price for the exhaust gasket and 48 percent of the wholesales price for drive
belt.
Parts Emporium estimates its cost to hold inventory at 21 percent of its inventory investment. This
percentage recognizes the opportunity costs of tying money up in inventory and the variable costs
of taxes, insurance, and shrinkage. The annual report notes other warehousing expenditures for
utilities and maintenance and debt services on the 100,000- square-foot warehouse, which was
built for $1.5 million. However, McCaskey reasons that these warehousing costs can be ignored
because they wont change for the range of inventory policies that she is considering.
Out-of-pocket costs for Part Emporium to place an order with suppliers are estimated to be $20 per
order for exhausts gaskets and $ 10 per order for drives belts. On the outbound side, there can be
134
delivery charges. Although most customers pick up their parts at parts Emporium, some orders are
delivered to customers. To provide this services, Parts Emporium contracts with a local company
for a flat fee of $21.40 per order, which is added to the customers bill. McCaskey is unsure
whether to increase the ordering costs for parts Emporium to include delivery charges.
Questions
1. Put yourself in sue McCaskeys position and prepare a detailed report to Dan Block and Ed
Spriggs on managing the inventory of the EG151 exhaust gasket and the DB032 drive belt.
Be sure to present a proper inventory system and recognize all relevant costs.
2. By how much do your recommendations for these two items reduce annual cycle inventory,
stockout, and order ering costs?
Source: Professor Robert Bregman, university of Houston, provided this case.
CASE II
Fitness Plus, Part A
135
Fitness Plus, Part B, explores alternatives to expanding a new downtown facility and is include in
the Instructors Manual. If youre interested in this topic, ask your instructor for a preview.
Fitness Plus is a full-service health and sports club in greenboro, North Carolina. The club
provides a range of facilities and services to support three primary activities: fitness, recreation,
and relaxation. Fitness activities generally take place in four areas of the club: the aerobics room
equipped with free weights; a workout room with 24 pieces of Nautilus equipment; and a large
cardiovascular workout room containing 29 pieces of cardiovascular equipment. This equipment
includes nine stairsteppers, six treadmills, six life-cycle bikes, three airdyne bikes, two crossaerobics machines, two rowing machines, and one climber. Recreational facilities comprise eight
recquetball courts six tennis courts, and a large outdoor pool. Fitness Plus also sponsors softball,
vollyball, and swim teams in city recreation leagues. Relaxation is accomplished through yoga
classes held twice a week in the aerobics room, whirlpool tubs located in each locker room. And a
trained message therapist.
Situated in a large suburban office park, fitness Plus opened its doors in 1988. during the first two
years, membership was small and use of the facilities was light. By 1992, membership had grown
as fitness began to play a large role in more peoples lives. Along with this growth came increased
use of club facilities. Record indicates that, in 1992, an average of 15 members per hour checked
into the club during a typical day. Of course, the actual number of member per hour varied by both
day and time. On some days during a slow period, only 6 to 8 members would check in per hour.
At a peak time, such as Mondays from 4 :00 P.M to 7:00 P.M, the number would be as high as
40per hour.
The club was open from 6:30 A.M. to 11:30 P.M. Monday through Thursday. On Friday and
Saturday the club closed at 8:00 P.M., and on Sunday the hours were 12:00 noon to 8:00 P.M.
As the popularity of health and fitness continued to grow, so did fitness Plus. By may 1997, the
average number of members arriving per hour during a typical day had increased to 25. The lowest
period had a rate of 10 members per hour; during peak periods 80 members per hour check in to
use the facilities. This growth brought complaints from members about overcrowding and
unavailability of equipment. Most of these complaints centered on the Nautilus, cardiovascular,
and aerobics fitness areas. The owners begin to wonder whether the club was indeed too small for
its membership. Past research has indicated that individuals work out an average of 60 minutes per
visit.Data collected from member survey showed the following facilities usage pattern: 30 percent
of the members do aerobics, 40 percent use the cardiovascular equipment, 25 percent use the
Nautilus machines, 20 percent use the free weights 15 percent use the racquetball courts and 10
percent use the tennis courts. The owners wondered whether they could use this information to
estimate how well existing capacity was being utilized.
If capacity levels were being stretched, now was the time deciding what to do. It was already May,
and any expansion of the existing facility would take at least four months. The owners knew that
January was always a peak membership enrollment month and that any new capacity needed to be
ready by them. However, other factors had just received a major facelift, and many new offices and
business were moving back to it, causing resurgence in activity.
With this growth came increased competition. A new YMCA was offering a full range of services
at a low cost. Two new health and fitness facilities had opened within the past year in locations 10
to 15 minutes from fitness Plus. The first, called the Oasis, catered to the young adult crowd and
restricted the access of children under 16 years old. The other facility. Golds Gym provided
excellent weight and cardiovascular training only.
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As the owners thought about the situation, they had many question: were the capacities of the
existing facilities constrained, and if so, where? If capacity expansion was necessary, should the
existing facility be expanded? Because of the limited amount of land at the present site, expansion
of some services might require reducing the capacity of others. Finally, owing to increased
competition and growth downtown, was now facility would take six months to renovate, and the
financial resources were not available to do both.
Questions
1. What method would you use to measure the capacity of fitness Plus? Has fitness plus
reached its capacity?
2. Which capacity strategy would be appropriate for fitness Plus? Justify your answer.
3. How would you link the capacity decision being made by fitness plus to other types of
operating decision?
ASSIGNMENTS
Guidelines for attempting the assignments
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and in a good
Unit 1
Chapter1
Nature and scope of Production Management
1.Define production. Give a brief history of the development of production management .
2. Define production management and discuss its scope .
3. Production management deals with decision making related to production processes so that the
resulting goods or services are produced according to the specifications , in the amounts and by
the schedules demanded and at a minimum cost. Discuss.
Chapter II
Demand Forecasting
1.What do you mean by demand forecasting ? Explain various techniques of demand forecasting.
Unit 2
Chapter I
Facilities location
1.What factors affect the choice of a suitable place for location of a plant ?
2.Discuss the importance of facilities location decision in operations planning .
3.Why are some industries located near the source of raw materials, whereas some
industries are located near the markets for their finished goods ?
Chapter II
Capacity planning
1.What do you mean by capacity ? State various ways of defining capacity .
2. How do you do capacity planning in following situations :
a) New projects .
b) Existing projects requiring expansion.
Chapter III
Plant layout
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other
1. What is plant layout ? What are the objectives which management desires to attain through
the efficient plant layout ?
2. What are the different types of layout ? What are the advantages and disadvantages of each
type of layout ?
3. What are the factors to be borne in mind while deciding upon plant layout ?
4. Write short notes on the following :
(a) Techniques of plant layout .
(b) Factors affecting construction of plant building.
(c) Line balancing .
Chapter IV
Production system
1.What are the important types of production systems ? Explain
2.Make a comparative study of different types of production systems .
Chapter V
Material handling system
1.What is material handing ?Explain its importance .
2.How does plant layout affect material handling ?Explain
3. Explain the principles of material handling .
4. Explain various types of material handling equipment ?
UNIT 3
Chapter I
Aggregate planning
1.What is aggregate planning ? Explain various models of aggregate planning
2.What are the objects and advantages of aggregate planning ?
Chapter II
Production planning and control
1.What do you understand by production planning and control ? What is its need and importance
to a manufacturing organisation?
2.What does PPC aim for ? Discuss the steps involved in the same .
3.State the requirements of an effective system of PPC.
4.Discuss the production planning and control under different production systems .
Chapter III
Production scheduling
1. What is scheduling ?Why is it necessary ?
2. Explain the fundamentals of scheduling with reference to various production systems .
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UNIT 4
Chapter I
Inventory control
1.What is inventory .Why is it called a necessary evil for an organisation?
2.What do you favour --inventory depletion or inventory accumulation ? Explain.
3.Explain various methods of inventory control with a special stress on ABC analysis .
4. Explain selective inventory control and its techniques ?
Chapter II
Quality assurance
1.Explain the meaning of quality ? How does a manufacturer determine it.
2. Define quality control and tell how does it differ from inspection ?
3.In quality control what is meant by a process being in control?
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