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Notes -POM Module 3

Notes -POM Module 3

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Production and Operations Management
Module 3: Facility, capacity, location and layout
Forecasting
\u2022 Estimating future demand for products and service
Need for forecasting
\u2013 New facility planning
\u2013 Production planning
\u2013 Work force scheduling
\u2013 Material planning
\u2013 Financial planning
Types of Forecasts
\u2022 Long range ( years)
\u2013 Factory capacity, new product development,
\u2022 Intermediate range ( months)
\u2013 Purchasing, inventory management
\u2022 Short range( weeks)
\u2013 Cash out flow, production planning, labour planning
Forecasting methods
\u2022 Quantities methods
\u2013 Based on previous data
\u2013 Appropriate for shot period
\u2022 Qualitative methods
\u2013 Based on judgment of experts
\u2013 Long periods in future
\u2022 Demand patterns

\u2013 Constant
\u2013 Linear
\u2013 Seasonal

Models for forecasting:

\u2022 Simple moving average ( SMS)
\u2022 Weighted moving average( WMA)
\u2022 Exponential smoothening model ( ESM)
\u2022 Regression analysis (identifying the variables and developing a model for

forecasting)
\u2022 Delphi Method ( taking views of experts from inside and outside the organisation)
\u2022 Field expectation method
\u2022 Customer expectation method

SMS example : If the demand for a product was 100, 120, 120 for the months of Jan,
Feb. and March, fore cast for April would be ( 100+120+120)/ 3 = 113.33 rounded off
to 114.
WMA example : demand forecast for above example with weightage of 4, 2, 1 for
previous months would be ( 100 x 1 + 120 x 2 + 120 X 4 ) / 7 = 117.44 rounded off to
118
ESM example
Formula: smoothened forecast = forecast + smoothening factor ( Actual demand last
period-forecasted demand for last period)

Example : a company fore casts a demand of 400 units every month but would like to
smoothen forecast based on previous month actual demand by factor 0.25. if the demand
for April was 375 what is the forecast for May?

Forecasted demand = 400 + 0.25 X ( 375-400) = 400- 6.25 =393.75 rounded off to 394
Plant Location ( Facility Location)
Consists of identifying location:
1. Within the country or outside
a. Political stability
b. Exchange rates
c. Closeness to consumption
d. Human resources and skills

2. Selection of the region
a. Availability of Raw materials
b. Nearness to market
c. Availability of power

d. Transport facilities
e. Climate
f. Governmental policy
g. Competition between regions

3. Selection of locality
a. Availability of labour
b. Amenities for workers
c. Existence of competitors

d. Finance facilities
e. Local taxes
4. Selection of the exact site.
a. Topography, size
b. Disposal of wastes
c. Land cost
Location Models

1. Factor Rating method
2. Point rating method
3. Break even analysis
4. Quantitative factor analysis

Factor rating method
Point rating method
Factor
Max. points
Location A
Location B
Availability of Fuel
300
200
150
Water supply
200
200
200
Topography
200
150
175
Other factors
Total
X
Y
Break even analysis

1. Determine all relevant costs
2. Categorize as fixed cost and variable cost
3. Total cost=fixed cost + variable cost X quantity produced
4. Compare total cost for all locations and determine the most suitable location

A graph can also be drawn which helps analysis over different production outputs
Factor
Factor
rating
Location rating
Location rating X Factor
rating
Location
A
Location
B
Location A Location B
Tax advantage
4
8
6
32
24
Closeness to Customer 3
2
3
6
9
Closeness to suppliers
5
8
10
40
50
Factor 4
Factor n
Total
X
Y

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