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Production and

Operations
Management
Production & Operations
Management
Course Outline: MB202
 Operations Management
 Product Design and Development
 Process Selection
 Facility Location
 Facility Layout
 Capacity Planning
 PPC
 Work Study & Method Study
 Plus …….
What is Operations
Management?

The business function responsible for planning,


coordinating, and controlling the resources needed
to produce a company’s products and services
Operations Management

 The field of management that


specializes in the physical
production of goods or services and
uses quantitative techniques for
solving manufacturing problems
Operations Management Flow
Chart
Production System

Inputs Outputs
•Materials •Goods
•Capital Organization •Services
•Labor
•Manag. Res.
Operations Management
Operations Management is the
conversion of inputs into outputs,
using physical resources, so as to
provide the desired utility/utilities of
form, place, possession or state or a
combination there of to the customer
while meeting the other organizational
objectives of effectiveness, efficiency
and adaptability.
Ten Decision Areas of OM
 Goods & service design
 Quality
 Process & capacity design
 Location selection
 Layout design
 Human resource and job design
 Supply-chain management
 Inventory
 Scheduling
 Maintenance
A Process Management
Perspective
 We all manage processes...
Process
Information Management
structure

Network of
Activities and Buffers
Inputs Outputs
Flow units Goods
(customers, data,
material, cash, etc.) Services

Labor & Capital


Resources
Process Management
 A business process is a network of
activities performed by resources that
transforms inputs into outputs…

 Process Management is a set of


managerial policies specifying how a
process should be operated over time...
Typical Organization Chart
Typical Manufacturing
Organization
The Organization as an
Operations Management
System
Feedback

Operations Strategy

Operations Management
Inputs
Raw materials Outputs
Human Products
resources Services
Land, buildings Products & Facilities Structure Control Processes
Information Product design Reporting relationships Inventory management
Technology Facilities layout Teams Productivity
Capacity planning Quality
Facilities location

The Technical Core


Business Information Flow
Differences between
Manufacturers and Service
Operations
 Services:  Manufacturers:
 Tangible product
 Intangible product
 Product can be
 Product cannot be inventoried
inventoried  Low customer contact
 High customer  Longer response time
contact  Capital intensive
 Short response time
 Labor intensive
Service and Manufacturers
 All use technology
 Both have quality, productivity, & response
issues
 All must forecast demand
 Each will have capacity, layout, and location
issues
 All have customers and suppliers
 All have scheduling and staffing issues
Products
 Products are the desired set of process
outputs
 Product Types
 Goods versus Services
 Product Attributes
 Cost
 Delivery response time
 Variety
 Quality
Inputs-Outputs
 Tangible Inputs
 People
 Raw material
 Intangible Inputs
 Information
 Time
 Tangible Outputs
 Buildings
 Cars
 Intangible Outputs
 Outgoing patient (hospital)
 Delivered message (advertising company)
Transformations
 Physical--manufacturing
 Locational--transportation
 Exchange--retailing
 Storage--warehousing
 Physiological--health care
 Informational--telecommunications
All Managers are Ops
Managers!
 All managers must transform inputs into
outputs
 Example: Accounting Manager
 Inputs: data, information, labor
 Transformation: application of accounting principles and
knowledge
 Outputs: accounting reports, knowledge of
performance, ...
 Therefore, all managers are in some sense
Operations managers
 All managers have an “operation” to run
Operations Management
Value Proposition System Design Planning & Control

Operations Product/Service Aggregate


Strategy  Design Planning
Operation Process Inventory
Priorities Selection Systems
Cost TQM Project
Quality Facility location Management
Delivery Scheduling
Facility Layout
Flexibility MRP
JIT
Innovation  Statistical
Service Process Control
Manufacturing and Service
Organizations
Operational Concerns for Manufacturing
and Service Organizations

 Scheduling
 Must obtain materials and supplies
 Both must be concerned with quality
and productivity
Functions of Operations
Management
 Materials
 Methods
 Machines and Equipments
 Estimating
 Loading and Scheduling
 Routing
Functions of Operations
Management
 Dispatching
 Expediting or Follow up
 Inspection
 Evaluation
OM Decisions
Operations Management
Decisions
 Strategic:  Tactical:
 Product/Service  Quality Control
Design  Demand Forecasting
 Process Selection  Supply Chain
 Capacity Planning Management
 Facility Location
 Production Planning
 Inventory Control
 Facility Layout
 Scheduling
 Job Design
Product Design and
Development
Product Design
Product design deals with its
form and function. Form
implies the shape and
appearance of the product
while function is related to the
working of the product.
Product Design Objectives
1 Producibility

2 Cost

3 Quality

4 Reliability
Service Design Objectives
1 Producibility
2 Cost

3 Quality

4 Reliability

5 Timing
Characteristics of Goods
 Tangible product
 Consistent product
definition
 Production usually
separate from
consumption
 Can be inventoried
 Low customer
interaction
Characteristics of Service
Intangible product

 Produced & consumed at same


time
 Often unique
 High customer interaction
 Inconsistent product definition
 Often knowledge-based
 Frequently dispersed
Goods Contain Services /
Services Contain Goods
Automobile
Computer
Installed Carpeting
Fast-food Meal
Restaurant Meal
Auto Repair
Hospital Care
Advertising Agency
Investment Management
Consulting Service
Counseling

100 75 50 25 0 25 50 75 100
Percent of Product that is a Good
Percent of Product that is a Service
Competitive Priorities- The
Edge
 Four Important Operations Questions:
Will you compete on –
Cost?
Quality?
Time?
Flexibility?
 All of the above? Some? Tradeoffs?
Competing on Cost?
 Typically high volume products
 Often limit product range & offer little customization
 May invest in automation to reduce unit costs
 Can use lower skill labor
 Probably use product focused layouts
Competing on Quality?
 High performance design:
 Superior features, high durability, & excellent
customer service

 Product & service consistency:


 Meets design specifications
 Close tolerances
 Error free delivery
Competing on Time?
 Fast delivery:
 Focused on shorter time between order placement
and delivery
 On-time delivery:
 Deliver product exactly when needed every time
 Rapid development speed
 Using concurrent processes to shorten product
development time
Competing on Flexibility?
 Product flexibility:
 Easily switch production from one item to another
 Easily customize product/service to meet specific
requirements of a customer

 Volume flexibility:
 Ability to ramp production up and down to match
market demands
Characteristics of a Good
Design
 Repairability
 Modular Design

 Redesigning Capability

 Miniaturization

 Wires and Tubing


Characteristics of a Good
Design
 Design by Computers
 Drawings and specifications

 Warranties

 Reliability

 Maintainability
Strategy and Issues during a Product’s Life

Introduction Growth Maturity Decline


• Best period to •Practical to •Poor time to change •Cost control
increase market change price or image, price or critical
share quality
quality image
•R&D engineering •Strengthen •Competitive costs
critical niche become critical
•Defend market Sales
position

Time
• Frequent product •Forecasting •Standardization - •Little product
and process changes critical minor product differentiation
•Short production •Products and changes •Overcapacity in
runs process reliability •Optimum capacity the industry
•High production •Increase capacity •Process stability •Reduce capacity
costs •Shift towards •Long production and eventually
•Limited models product focus runs prune line to
•Attention to quality •Enhance eliminate items not
distribution returning good
margin
Product Development
The aim of Product development is to
(i) provide the goods the market
demands with time,(ii) adjust with the
variation in quantity required and (iii)
charge the prices which the customer is
willing to pay as well as under
conditions that it may have net profit
also.
Strategy and Issues During
a Product’s Life
Introduction
Best period to
Growth
Practical to
Maturity Decline
Poor time to Cost
increase change price or change image, control
market share quality image price, or quality critical
R&D product Strengthen Competitive costs
engineering become critical
Strategy/Issues

critical niche
Defend market
Drive-thru position Fax
machines 3 1/2”
restaurants
Company

CD- Floppy
disks
Sales ROM
Station
Internet wagons
Color copiers

HDTV

Product design and Forecasting critical Standardization Little product


development critical Product and differentiation
Less rapid product
process reliability
Strategy/Issue

Frequent product changes - more Cost


and process design minor changes
Competitive minimization
changes product Optimum capacity
improvements and Overcapacity in
Short production options Increasing
runs the industry
stability of
Increase capacity process
OM

High production Prune line to


Shift toward
s

costs Long production eliminate items


product focused not returning
Limited models runs
Enhance good margin
Attention to quality distribution Product
improvement and Reduce capacity
cost cutting
Product Development Process (Technical)

Needs Advance product Advance design


Identification planning

Detailed engineering
design

Production process Product Product use and


design and evaluation and support
development implementation
Needs Identification

Once a product idea surfaces, it


must be demonstrated that the
product fulfils some consumer
need, and that existing
products do not already fulfill
that need.
Advance product planning
It includes preliminary market analyses;
creating alternative concepts for the
product; clarifying operational
requirements; establishing design criteria
and their priorities; and estimating logistics
requirements for producing, distributing,
and maintaining the product in the market.
Advance design
Promising design alternatives are
evaluated according to critical
parameters to determine whether
design support such as analytical
testing, experimentation, physical
modeling, and prototype testing
will be required.
Detailed engineering design
This stage is a series of
engineering activities to develop a
detailed definition of the product,
including its subsystems and
components, materials, sizes,
shapes, and so on.
Production process design and
development
Working with the detailed product
design, engineers and
manufacturing specialists prepare
plans for materials acquisitions,
production, warehousing,
transportation, and distribution.
Product evaluation and
implementation
Field performance and failure data,
technical breakthroughs in
materials and equipment, and
formal research all are used to
monitor, analyze, and redesign the
product.
Product use and support
Support systems might
1. Educate users on specific
applications of the product
2. Provide warranty and repair service
3. Distribute replacement parts; or
4. Upgrade the product with design
improvements.
Product Developments
Techniques
 Standardization
 Simplification
 Specialization
 Diversification
Standardization
Standardization means fixation of
some appropriate size, shape,
quality, manufacturing process,
weight and other characteristics as
standards to manufacture a
product of desired variety and
utility.
Simplification
Simplification in an enterprise
connotes the elimination of excessive
and undesirable or marginal lines of
product to hammer out waste and to
attain economy coupled with the main
object of improving quality and
reducing costs and prices leading to
increased sales.
Specialization
Specialization implies expertise in
some particular area or field.
Specialization implies reduction in
the variety of products
manufactured by the organisation.
Diversification
It implies policy of producing different
types of products by an enterprise.
Diversification can be adopted for the
purpose of
 Utilisation of idle/surplus resources
 Stabilisation of sales
 To cope with demand fluctuations and
 For survival of the organisation.
Process Selection
 Project
 Job Shop
 Batch
 Mass
 Process
Project
Project technology deals with one-of-a
kind products that are tailored to the
unique requirements of each
customer.Since the products cannot
be standardized, the conversion
process must be flexible in its
equipment capabilities, human skills,
and procedures.
Intermittent System
 Job Shop
 Batch
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
system are those where the
production facilities are flexible to
handle a wide variety of products and
sizes.
Job Shop
Job shop technology is appropriate for
manufacturers of small batches of
many different products, each of
which is custom designed and,
consequently, requires its own unique
set of processing steps, or routing,
through the production process. For
example, printing shop, restaurant,
etc.
Batch
This process is adopted when
batches or lots of items are to be
produced using the same set of
machines in the same
sequence.For example, Bakery,
Chemical industry, Printing press,
etc.
Continuous Production
System
 Mass
 Process
Continuous Production
System
 Continuous production system is
the specialized manufacture of
identical products on which the
machinery and equipment is fully
engaged. The continuous
production is normally associated
with large quantities and with high
rate of demand.
Mass (Assembly line)
Standardization is the fundamental
characteristic of this system.
Standardization is there w.r.t.
materials and machines. Uniform and
uninterrupted flow of material is
maintained through predetermined
sequence of operations required to
produce the product.
Process (Continuous Flow)
The product is highly standardized, as are
all of the manufacturing procedures, the
sequence of product buildup, materials,
and equipment. Continuous flow
technology affords high-volume, around-
the-clock operation with capital-intensive,
specialized automation.For example, Oil
refineries, Cement factory, Sugar factory,
etc.
Process Design
Customization at
High Process-focused high Volume
Job Shops Mass
(Print shop, emergency
Customization
(Dell Computer’s PC)
room , machine shop,
Repetitive (modular)
Variety of Products

fine dining
focus
Assembly line
Moderate (Cars, appliances, TVs,
fast-food restaurants)
Product-focused
Continuous
(steel, beer, paper, bread)

Low
Low Moderate High
Volume
Discrete vs. Continuous Flow and
Repetitive Manufacturing Systems
Operation Process Chart
for discrete part
manufacturing
A typical Organization of the
Production Activity in Repetitive
Manufacturing

Assembly Line 1: Product Family 1


S1,1 S1,2 S1,i S1,n

Raw Fabrication (or Backend Operations)


Finished
Material Dept. 1 Dept. 2 Dept. j Dept. k Item
& Comp.
Inventory
Inventory

S2,1 S2,2 S2,i S2,m

Assembly Line 2: Product Family 2


Product-Process Mix
Typical combinations of product-process
structures are illustrated in Figure.As the
product shifts to a different stage, the
manufacturing process structure also shifts,
and new manufacturing priorities emerge.
Whereas manufacturing flexibility and quality
are competitive priorities in earlier stages,
priorities shift toward dependable delivery and
competitive cost in later stages.
Low volume, Multiple Few major High volume,
Process structure low product products, high
process standardizatio s, low higher standardization,
life-cycle stages n, one of a volume volume commodity
kind products
Jumbled flow
Commercial Voi
printer d
(job shop)

Disconnected
line flow Heavy
equipmen
(batch) t

Connected
line flow Auto
(assembly assembly
line)

Continuous Sugar
flow Voi refinery
d

Product structure
Product life-cycle stages
Facility Location
A facility (plant) is a place where
men, materials, money, machinery
and equipment, etc., are brought
together for manufacturing
product.
Facility Location
 Cost-benefit analysis – most
common approach to selecting a
site for a new location
 New location scouting software is
helping managers turn facilities
location into a science
Importance of Facility
Location
 Competition
 Cost
 Hidden Effects
Location Factors
 Primary factors
 Secondary factors
Primary factors
 Availability of raw material
 Nearness to market
 Transport facilities
 Availability of labour
 Availability of fuel and power
 Availability of water
Secondary factors
 Soil and climate
 Industrial atmosphere
 Financial and other aids
 Availability of facilities like housing,
schools, hospitals and recreation clubs
 Momentum of an early start
Secondary factors
 Special advantage of the place
 Personal factors
 Historical factors
 Political stability
Comparison between
Urban and Rural area
Urban Rural
 Availability of local
market: Due to large The market place is far away
population the local demand from the industries, therefore
for the product is fairly high. cost of distribution of finished
products is more.
 Labour: Ample availability of It is rather difficult to get
diversified labour. skilled labour in rural areas.

 Transport facilities: Good Adequate transport facilities


transport facilities are are not available.
available. Absence of allied industries.
 Allied Industries: Proximity
to allied industries are
available.
Comparison between
Urban and Rural area
Urban Rural
 Availability of educational
facilities: Availability of There are fewer educational,
educational, recreational and social social and recreational facilities.
facilities. Sufficient land is available at
 Cost of land: The cost of land is cheaper rates.
high. Even at high cost sufficient
land is not available which puts
constraints on the arrangement of
plants and machines. There are few restrictions on
 Restrictions on construction of factory buildings.
constructions: There are greater
restrictions on the construction of Municipal facilities and public
factory buildings. utility services are not available.
 Municipal and public utility
services: Certain specific municipal
facilities and public utility services
Comparison between
Urban and Rural area
Urban Rural
 Postal and Communication
Services: Good and prompt postalPrompt postal and
and communication services are communication services are
available. not available.
 Rates of taxes: The rates of The rates of taxes are quite
taxes are relatively high. low.
 Cost of labour: Due to high
standard of living the cost of Labour is available at cheaper
labour is relatively high. rate.
 Availability of facilities:
Banking facilities, credit facilities
Absence of banking facilities,
and insurance facilities are
credit facilities and insurance
available.
facilities.
 Labour turnover: High labour
turnover because of large number
of industries. Labour force is more stable.
Comparison between
Urban and Rural area
Urban Rural
 Trade union movement: The Trade union movement is not very
trade union movement is very strong strong.
which often result in strikes, lockouts
etc. Absence of training facilities and
 Training facilities: Development management institutes.
of the training facilities for workers
and management institutes for
executives put the city area into Storing and warehouse facilities
privileged position. are not available.
 Storage facilities: Sufficient
storage facilities including cold- Problems of air pollution, water
storage are available. pollution, etc. are less and the
 Problems of pollution: rural environment is conducive to
Concentration of many industries in good health of workers.
urban areas creates problems of air
pollution, water pollution, sanitation
Comparison between
Urban and Rural area
Urban Rural
 Danger of bombardment in war Less danger of bombardment in
time: Industrial city areas become war time.
the target of air attacks in war time.
 Government Policy: To avoid Government provides financial
concentration of industries, assistance and land at cheaper
government imposes restrictions for rates to attract the entrepreneurs
starting new industries in urban to start industries in rural areas.
areas.
General Procedure for
Facility Location Planning
 The Preliminary Screening
 Detailed Analysis
 Factor Ratings
The Preliminary Screening
Resource
Resource Local
Local
 ss
Labor skills and Conditions
Conditions
Community receptivity
productivity to business
 Land availability and  Construction cost
cost  Organized industrial
 Raw materials complexes
 Subcontractors  Quality of life: climate,
 Transportation facilities housing, recreation,
 Utility availability and schools
rates  Taxes
Sources of Information
 After identifying key location
requirements, management
undertakes a search to find
alternative locations that are
consistent with these
requirements.
Detailed Analysis
 Once the preliminary screening
narrows alternative sites to just a
few, more detailed analysis begins.
Factor Ratings
Steps in using Factor Rating
 List the most relevant factors in the location decision
(column 1)
 Each factor is rated , say from 1 (very low) to 5 (very
high),according to its importance (column 2)
 Each location is rated, say from 1 (very low) to 10
(very high), according to its merits on each
characteristic (column 3)
 The factor rating is multiplied by the location rating
for each factor
 The sum of the product yields the total rating score
for that location
Factor ratings for each location alternative

Factor Factor Location Product of


Rating Rating Ratings

Tax advantages 4 8 32
Suitability of labor skills 3 2 6
Proximity to customers 3 6 18
Proximity to suppliers 5 2 10
Adequacy of water 1 3 3
Receptivity of community 5 4 20
Quality of educational 4 1 4
system 3 10 30
Access to rail and air 2 7
Total 14
Total Cost Analysis
Total Cost = Fixed Cost + Operational
Cost
Fixed cost include expenditure on
land, building, machines and other
equipments etc. Operational costs
are the expenditure incurred on
inputs, transformation process and
the distribution of output.
Comparative Cost Chart
5
5
4
4 5
5
Tota 3 3
l 4
4 2
2
cost 3
3
2
s 1 2 1
1 1

A B C D
Locations
Break-even Chart

Labor Transportation

Material

Costs
of
Total Fixed Costs
Facts

Volume of Units
Break-even Chart
EB
C
A
B D
Total A
Costs
D
E
C

Volume of
Output
Dimensional Analysis

MA [CA1] W
1 [CA2] W
[CA n] W
= ……….2 n

MB [CB1] [CB2] [CB n]

If MA Is more than one then location A will be better


MB than B.
Facility Layout
 Layout are concerned with
arrangement of production,
support, customer service and
other facilities used in operation.
Facilities Layout

 Process Layout
 Product Layout
 Cellular Layout
 Fixed-position
Layout
Factors affecting the Plant
Layout
 Product and material specification
 Location and site of the Plant
 Manufacturing process
 Material Handling
 Storage of in-process inventory
 Plant personnel and employee facilities
Factors affecting the Plant
Layout
 Service facilities
 Design of building
 Flexibility
 Work areas and equipment
 Working conditions
 Disposal of waste and dangerous
gases
Types of Plant Layout
 Process Layout
 Product Layout
 Group Layout
Capacity Planning
 Capacity is the rate of productive
capability of a facility. Capacity is
usually expressed as volume of
output per time period.
Capacity Planning

 Determination and adjustment


of the organization’s ability to
produce products and services
to match customer demand
Capacity Planning
Decisions
 Assessing existing capacity
 Forecasting capacity needs
 Identifying alternative ways to modify
capacity
 Evaluating financial, economical, and
technological capacity alternatives
 Selecting a capacity alternative most
suited to achieving strategic mission
Strategies for Modifying
Capacity
 Short-term Responses
 Long-term Responses
Production Planning and
Control
 Production planning and control is the
organisation and planning of the
manufacturing process. It co-ordinates
supply and movement of materials and
labor, ensures economic and balanced
utilization of machines and equipment as
well as other activities related with
production to achieve the desired
manufacturing results in terms of quantity,
quality, time and place.
Functions of Production
Planning and Control
 Routing
 Scheduling
 Loading
 Programming
 Ordering
 Dispatching
 Progressing or Follow-up
 Inventory Control
Work Study
 Work study is simply the study of
work. It is the analysis of work into
smaller parts followed by
rearrangement of these parts to
give the same effectiveness at
lesser cost. It examines both the
method and duration of the work
involved in a process.
Components of Work
Study
 Method Study
 Work Measurement
Method Study
 Selection of the job
 Recording
 Examining
 Developing
 Implementing
 Maintaining
Work Measurement
 Select the task be studied
 Record the facts
 Analyze the facts
 Measure the tasks
 Define the methods and related time
 Maintain the work
Productivity
 Productivity is the ratio between
the amount produced and the
amount of resources used in the
course of production. The
resources may be any combination
of materials, machines, men and
space.
Productivity
 Measure of process improvement
 Represents output relative to input
Units produced
Productivity =
Input used
 Only through productivity increases
can our standard of living improve
Measuring Productivity
 Productivity = organization’s output of
products and services divided by its inputs

 Total factor
Output
 Productivity =
Labor + Capital + Materials + Energy

 Labor
Output
 Productivity = Labor dollars
Improving Productivity

1. Technological
productivity
2. Employee productivity
3. Managerial productivity
Major Productivity Variables and
their contribution to productivity
increase
 Labor
 Better basic education
 Better diet
 Better social infrastructure like transportation and sanitation
 Better labor utilization and motivation
 Capital
 Steady and well-planned investments on equipment and its
timely maintenance
 Research & Development
 Controlling of the cost of capital
 Management
 Exploitation of new (information) technologies
 Utilization of accumulated knowledge
 Education
Productivity

Outputs
P=
Inputs
Measuring Productivity
 Productivity is a measure of how efficiently inputs are
converted to outputs
Productivity = output/input
 Total Productivity Measure
Productivity relative to all inputs
 Partial Productivity Measure
Productivity relative to a single input (e.g., labor hours)
 Multifactor Productivity Measure
Productivity relative to a subgroup of inputs (e.g., labor and
materials)
Labor Productivity
Example:
 Assume two workers paint twenty-four tables in
eight hours:
 Inputs: 16 hours of labor (2 workers x 8 hours)
 Outputs: 24 painted tables

Outputs 24 tables
= = 1.5 tables / hour
Inputs 16 hours
Interpreting Productivity
Measures
 Is the productivity measure of 1.41
in the previous example good or
bad?
 Can’t tell without a reference point
 Compare to previous measures
(e.g.: last week) or to another
benchmark
Productivity Growth Rate
 Can be used to compare a
process’s productivity at a given
time (P2) to the same process’
productivity at an earlier time (P1)
P2 − P1
Growth Rate =
P1
Productivity Growth Rate
Example:
 Last week a company produced 150 units using 200 hours of labor
 This week, the same company produced 180 units using 250 hours of
labor
150 units
P1 = = 0.75 units / hour
200 hours
180 units
P2 = = 0.72 units / hour
250 hours
P − P 0.72 − 0.75
Growth Rate = 2 1 = = −0.04
P1 0.75
or a negative 4% growth rate
Productivity Example - An automobile manufacturer has
presented the following data for the past three years in its annual
report. As a potential investor, you are interested in calculating
yearly productivity and year to year productivity gains as one of
several factors in your investment analysis.

2007 2006 2005


2004 2006 2005

Unit car 2,700,000 2,400,000 2,100,000 Labor Productivity


sales
Unit Car Sales/Employee 24.1 21.2 18.3

Employees 112,000 113,000 115,000 Year-to-year Improvement 13.7% 15.8%

Total Productivity

Rs Sales Rs49,000 Rs41,000 Rs38,000 Total Cost Productivity 1.26 1.24 1.19

(billions Rs)
Year-to-year Improvement 1.6% 4.2%

Cost of Rs39,000 Rs33,000 Rs32,000


Sales
(billions)

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