MB 0044 - PRODUCTION AND OPERATION MANAGEMENT

Que.1
What is value engineering? List the main benefits of value
engineering?
Ans. Value Engineering is a fuction oriented, systematic team approach and study to
provide value in a product, system or service. Often, this improvement is
focused on
cost reduction; however other important areas such as customer
perceived quality
and performance are also of paramount importance in the
value equation.
Value Engineering techniques can be applied to any product process procedure
system
or service in any kind of business or economic activity including health
care, governance, construction, industry and in the service sector.
Value Engineering focuses on those value characteristics which are deemed most
important from the customer point of view.
Value Engineering is a powerful methodolgy for solving problems and/or reducing
costs while maintaining or improving performance and quality requirements.
Value Engineering can achieve impressive savings, much greater than what is
possible
through conventional cost reduction exercise even when cost reduction is
the objective of the task.
Value Engineering helps your organization in :

Lowering O & M costs

Improving quality management

Improving resource efficiecy

Simplifying procedures

Minimizing paperwork

Lowering staff costs

Increasing procedural efficiency

Optimizing construction expenditures

Developing value attitudes in staff

Competing more sucessfully in marketplace

Value Engineering helps you to learn how to :

Improve your career skills

Separate "Symptoms" from "problems"

Solve "root cause" problems and capture opportunities

Become more competitive by improving "benchmarking" process

Take command of a powerful problem solving methodology to use in any situation

Que.2

Case study: SABMiller revamps supply chain management .

Ans. SABMilller, the $24bn global brewing giant, is revamping its supply
chain management system to reduce stock-outs caused by an increasingly
complex and
hard to predict market.
The firm is developing and testing the new system in South Africa with an
eye on
rolling it out to
group companies worldwide, says SABMiller
programme manager Rudi
van Schoor.
The trigger for the revamp came when the company's customers ran out of
stocks of
popular SABMiller brands during peak periods in two consecutive
years, 2007 and 2008. The shortfall on some brands was as high as 22%. "That
had a direct impact on the bottom line," Van Schoor says.
Given SABMiller's ambition to be the world's most efficient producer, such a
gap was
never going to be tolerated. But instead of addressing the symptom,
it called in management consultancy McKinsey to look at the entire supply chain
system to see
where it could be improved and future stock-outs avoided.
The study revealed a complex situation, one that wasn't susceptible to a
"quick fix", Van Schoor says.

Demand factors
The ethnically and demographically diverse South African market is one of
the world's most complex and fast-changing. Van Schoor cites economic growth,
more disposable income in new hands, changing and upgrading tastes, new
product development and new routes to market among the factors that influence
demand for SABMiller's products.
Add to that big events such as the British Lions tour and the 2010 World Cup, and
climate change, and the picture becomes more complex.
"Our brands are the same as any other brand, especially those at the luxury
end," says Van Schoor. "If the customer comes into the shop and can't find our
product, he or she has the disposable income and self-confidence to substitute
our brand for our competitors'. That's dangerous."
Van Scoor says the group has a average stock availability target of 98%. "But for
some premium brands the target is 100%," he says. That means it will live with
excess stocks of some products, just to ensure that a thirsty customer can get his
or her favourite drink, every time.
Maximise profitability
But SABMiller also wants to maxmise its profitability. To do all this it must
integrate information from a lot of sources. These include sales forecasts for
about 2,600 sku locations or depots for the brewing division and 3,100 for the
soft drinks division, as well as planned promotions data from the marketing and
promotions division, as well as cost and production data, among others.
These data must then be converted into raw material purchases, manufacturing
scheduling, distribution and stockholding plans for 12 factories (seven breweries
and five soft drink plants) and three tiers of distributors, broken down into
between 70 and 80 stock-keeping units (skus) for the brewing division and around
270 for soft drinks.
And all this must be optimised for profit.
"There is inherent volatilty of demand in the soft drinks business because of
seasonal change, but less in the beer market," Van Schoor says.
Even so, improving the accuracy of demand forecasts and schedules and
integrating them to boost profitability was too complex for SABMillers's demand

forecast and supply system. The in-house system, developed over years, had
most of the usual problems associated with legacy systems: it was inflexible,
complex, hard to communicate with, and hard to integrate with newer systems,
Van Schoor says.
Integration with SAP system
After a global search, SABMiller settled on Infor's advanced supply chain
management system, in particular Infor's demand forecasting system. This takes
information from modules of SABMiller's SAP enterprise resource management
system, integrates them with sales forecasts from the field, and feeds back to the
manufacturing resource planning system and finacial systems to generate
production schedules, raw materials orders and volume and financial forecasts.
This will let SABMiller make any of its products in the most cost-effective location,
given the local demand, manufacturing, transport and inventory costs.
It will also increase its flexibility in responding to changes in demand. Products
will no longer be made only in a single plant to optimise production runs, but,
based on more holistic data, in the plants that optimise overall profitability.
This flexibility also gives the company greater cover to handle factory downtime
and to meet rapid changes in demand.
But some parts of the legacy system will still be around. "We are keeping it to
manage the return and reuse of empty bottles," Van Schoor says.
But even that data will go into the Infor system so that it can create production
schedules down to tank, line and minute accuracy.
This attention to detail is part of the SABMiller ethos. Measurement and numbers are
integral to the company culture. Van Schoor says the Infor system will be tested in
three ways: on its "theoretical" answers, against actual results, and against causal
factors that may have influenced demand and supply.
Van Schoor says the $1.2m the firm spent on Infor licences was about 60% of the total
project cost. But this could be a drop in the ocean if the company adopts it worldwide.
And interest from group firms is high.

"We have used expertise from all around the group," Van Schoor says. "One of the best
people on the project came from our European division, and we have lots of others
keen to know how we do."
About SABMiller

SABMiller owns more than 200 brands on six continents, including international
premium brands Grolsch, Miller Genuine Draft, Peroni Nastro Azzurro and Pilsner
Urquell. It owns leading local brands such as Aguila (Colombia), Castle (Africa),
Miller Lite (USA), Snow (China) and Tyskie (Poland).

It is also one of the largest bottlers of Coca-Cola products in the world.

It operates 139 breweries and 35 bottling plants that produce some 230 million
hectolitres of beer a year with some 60,000 staff.

It is listed on the London and Johannesburg stock exchanges and its current
market value is around 17.2bn

Que.3 Write short notes on:

Ingredients of a business process

Acceptance sampling
Work Breakdown Structure
Productivity

Ans. (a) The ingredients of Business Process:The ingredients that might be used in a business process can be briefly outlined
as follows:
The data which accomplishes the desired business objective
Acquisition, storage, distribution, and control of data which undertakes the
process across tasks
Persons, teams, and organizational units which helps to perform and achieve the
take
Decisions which enhance the value of data during the process we, also have
some behavioral aspects of the business process, mainly the decision making process
where humans are involved. Decision failures are common and research has shown
that, the failure of decisions due to:
Bases in perception and fallacies in reasoning
Tendency to bring out of memory the facts that reinforce easily for verification or
confirmation
Tendency of bring out of memory the facts that reinforce our assumption and
based evaluation

Tendency to accept evidence or facts as absolute which support our hypothesis

These listed factors result in faulty decision making. Being aware and avoiding
them consciously
improves the processes of the business
(b) Acceptance sampling
Acceptance sampling is also known as end of line inspection and
categorizing the products based on sample based inspection. In acceptance
sampling method of quality control, the supplier and customer agree upon
accepting a lot, by inspecting a small number taken randomly from the bulk
supply. Out of the sample, if a small number as agreed upon by the parties or as
validated by a sampling scheme, is determined as defective, the lot is accepted.
If the number of defectives is more than the agreed size, the entire lot is
rejected; obviously, risks for the producer and buyer exist. As the sample size
increases and the number of acceptable defectives decreases, the risk for the
buyer decreases. And the converse is true. That is the reason these numbers
cannot be foxed as they depend on the customers requirements.
(c) Work breakdown structure (WBS)
The entire process of a project may be considered to be made up on number of
sub process placed in different stage called the work breakdown structure (WBS).
WBS is the technique the content of work and cost by breaking it down into its
component parts. Project key stages form the highest level of the WBS, which id then
used to show the details at the lower levels of the project. Each key stage comprises
many tasks identified at the start of planning and later this list will have to be
validated.
(d) Productivity
Productivity is generally expressed as the ratio of outputs to inputs.While the
above ratio may imply efficiency is the value added for every unit of investment. Thus,
it is
value added upon cost. Enhancement of productivity is achieved by either
reducing the inputs for the same output or increasing the output by using the same
input.
Productivity can be calculated for:
A single operation
A functional unit
A department or division
A plant
Productivity is a measure of the efficiency of the system and looks at the
economies achieved during the processes. Every process will have a number of
contribution which help in achieving the maximum productivity. The processes are
people, machines,
facilitating goods, ancillary equipment, and technology. Each of
these elements attempts to enhance the contribution of other elements.

Que.4 Collaborative Forecasting Running Smoothly at Brooks Sports.

Ans. Profile-Brooks Sports designs and develops high-performance running footwear,
appareland accessories which are sold in 80 countries worldwide. In 2001, when
the company shifted from a broad product line to focus on high-performance products
targeted at serious runners, it was clear that the forecasting process needed to change
to support the strategic direction of the company.
The existing forecasting process, based entirely on the judgment of the sales
team, was limiting the companys ability to grow challenges.
The strategy shift created a number of forecasting challenges for Brooks
including:
Inconsistent style growth: the new line of products experience growth rates
anywhere from 0 to 50 percent annually.
Long production planning horizon coupled with short product life:
production and capacity decisions are typically made 18 months before a style is
launched, average lead time for a style is 6 months and the product life of
Brooks styles range from 6 to 24 months. This means that planners must
sometimes set the entire demand plan for a style prior to ever receiving a
customer order, underscoring the importance of accurate forecasts.
Increasing at-once orders: at once orders, which are placed for immediate
shipment, historically accounted for less than 20 percent of total sales. Since
2001, however, at once orders have increased to nearly 50 percent of total
sales.
Evolving size curves: with its new focus on serious runners, the standard
footwear size
curve would not adequately reflect distribution of sales by sizes.
No exposure to retail sell-through: the high-performance products are sold
primarily
through independent specialty stores who dont have the capability to share sales
data with vendors.
Solution
With a corporate mandate from senior management emphasizing the importance
of creating accurate and timely forecasts, Brooks completely revamped its
forecasting process. An independent forecasting group, reporting directly to the
COO and CFO, was established to coordinate input from various groupssales,
marketing, product development and productionand to remove bias from the
forecasting process.
The forecasting group established a collaborative forecasting process with three
primary steps:
Step 1: Produce monthly statistical forecasts at the SKU level to capture level,
trend, seasonality and the impact of events based on historical data. Brooks
chose Forecast Pro to create these forecasts due to a number of features
available in the software:

Ability to create accurate forecasts

Flexibility to choose forecast models or let software automatically select
models
Capability to model events (particularly important for predicting spikes in
demand with new product launches)
Support for multiple-level models to produce consistent forecasts at all
levels of aggregation
Powerful override facility to enable collaborative forecasting
Forecast Pro has been a great solution for Brooks, says Tom Ross, Financial
Analyst.
Implementing Forecast Pros event modeling is very simple, which is an essential
feature for us because of our moving product launches. We also use event
models to address the challenge of forecasting events that dont occur on a
regular basissuch as raceswhich can have a dramatic impact on the sales of
specific products.
Another powerful feature of Forecast Pro is the ability to forecast a product
hierarchy. This helps us to serve our multiple constituents within Brookswe
review higher-level forecasts with management and easily generate detailed
forecasts at the SKU level for demand planning.
Step 2: On a quarterly basis, get sales management and sales reps to forecast
sales for a 12-month horizon, focusing on major accounts. This input is gathered
via the Web and then aggregated by the forecasting group.
Step 3: Compare the statistical and judgmental forecasts, and make adjustments
to create the final monthly forecast. Ninety percent of the final forecasts are the
same as the statistical forecastschanges are most commonly made to the
forecasts for new styles where the sales organization has important knowledge to
add. These final forecasts are then automatically fed into Brooks ERP system.
Forecast Pro allows us to easily apply judgmental overrides, which is critical for
us, notes Ross. We now can systematically track changes, giving us a better
understanding of our forecasting performance.
Results
The commitment to forecasting has paid off at Brooks. Forecast accuracy has
improved on average by 40 percent, unfulfilled demand has been lowered from
approximately 20 percent to less than 5 percent, and closeouts have been
reduced by more than 60 percent. The improved forecasting has also helped to
smooth out production, resulting in lowered costs and better margins.
Que.5 Explain the risk management and its various components.
Ans. Risks are those events or conditions that may occur and whose occurrence has a
harmful or negative impact on a project. Risk management aims to identify the risks
and then take actions to minimise their effect on the project. Risk management entails
additional cost. Hence risk management can be considered cost-effective only if the

cost of risk management is considerably less than the cost incurred if the risk
materialises.
2.7.1 Components
Important components in risk management are shown in figure

a) Risk Assessment Identify the possible risks and assess the consequences by
means of checklists of possible risks, surveys, meetings and brainstorming and reviews
of plans, processes and products. The project manager can also use the process
database to get information about risks and risk management on similar projects.
b) Risk Control Identify the actions needed to minimise the risk consequences. This
is also known as risk mitigation. Develop a risk management plan. Focus on the highest
prioritised risks. Prioritisation requires analysing the possible effects of the risk event in
case it actually occurs. This approach requires a quantitative assessment of the risk
probability and the risk consequences. For each risk, determine the rate of its
occurrence and indicate whether the risk is low, medium or of high category. If
necessary, assign probability values in the ranges as prescribed based upon
experience. If necessary assign a weight on a scale of 1 to 10.
c) Risk Ranking Rank the risk based on the probability and effects on the project; for
example, a high probability, high impact item will have higher rank than a risk item
with a medium probability and high impact. In case of conflict, use judgment.
d) Risk Mitigation Select the top few risk items for mitigation and tracking. Refer to
a list of commonly used risk mitigation steps for various risks from the previous risk
logs maintained by the project manager and select suitable risk mitigation step. The
risk mitigation step must be properly executed by incorporating them into the project

schedule. In addition to monitoring the progress of the planned risk mitigation steps,
periodically revisit the risk perception for the entire project. The results of this review
are reported in each milestone analysis report. To prepare this report, make fresh risk
analysis to determine whether the priorities have changed.
Que. Why redesign of layouts may be necessary? List the differences between
product
and process layout.
Ans. In factory,we need to arrange machines & also space to store materials,
tools, & also provide support services like dining, parking &
space to interact with buyers.Such arrangement is called layout means floor
plan etc.It is physical arrangement of work centers.A floor plan means length
&breadth for different functional need but layout is 3 dimensional need as it also
looks for utilization of volumetric space.L raise productivity
via i)Reducing work-in-process ii) Shortening manufacturing time iii) supervising
better iv) adjusting as per changing conditions v)minimizing material handling
costs vi) raising throughput etc
b) Types of L may be 4 as
i) Process L or functional L ii) Product L or line L iii) Group technology L
iv) Fixed position L
Process L or functional L:It deals with grouping of machines, process, or
services as per their function. This grouping of machines by function
ischaracteristic of job shops & batch type production facilities.Here we group
general purpose machines that can be changed over rapidly to new O for
different product designs.e.g, car service and repair centre may have many
departments or functional areas which are arranged based on space andtechnical
need as number of persons working, machines installed,number of vehicles
coming on an average, and other needs. Each car entering into the service centre
will follow below steps:
i)Arrival at office
ii) Customer informs about the type of problem
iii) Front office guides the customer to drive the car to required departments
iv) Car is given the necessary service v) Customer returns to front office & makes
payment

vi) Car exits from the service centre.

ii) Product L or line L: focuses on sequence of production or assembly
operations required for manufacturing or assembling a part or a product. These
are used in mass or continuous production. E.g,automobile assembly, cement
manufacturing, oil refining.These are not flexible as they are specifically designed
for making or assembling one product. These layouts typically use special
machines that are set up once to perform a specific O fora long period of time on
one product.
List the main advantages and disadvantages of product layouts and process layouts:
a) Product Layouts
b) Advantages:
i.

high output

ii.

low unit cost due to volume

iii.

labor specialization reduces training costs and time

iv.

high utilization of labor and equipment

v.
routing and scheduling are part of initial design, therefore not requiring
much time once the operation has begun.
vi.

Accounting, purchasing, and inventory control are fairly routine

Disadvantages:
i.

intensive division of labor

ii.

poorly skilled workers show little interest in maintaining equipment.

iii.

System is inflexible

iv.

System is highly susceptible to shutdowns

v.
Preventative maintenance quick repairs and spare parts inventories
are necessary expenses.
vi.

Incentive plans cause variations among outputs of workers

b)

Processes Layouts

Advantages:
i.

Systems can handle a variety of processing requirements

ii.

Systems are not vulnerable to equipment failures

iii.

General-purpose equipment is less costly than specialized equipment

iv.

It is possible to use individual incentive plans

Disadvantages:
i.

In-process inventory costs can be high if batch processing is used

ii. routing and scheduling pose continual challenges

iii.

equipment utilization rates are low

iv.

material handling is slow and inefficient

v.

job complexities often reduce the span of supervision and result in

higher supervisory costs.

vi.

Special attention necessary for each product or customer

vii.

Accounting, inventory control and purchasing are much more involved