Production and Operation Managment

Amity Global Business School MUMBAI
Sem II
AMITY GLOBAL BUSINESS SCHOOL

MUMBAI
Notes on Production & Operations Management SEMESTER II
Compiled By: Santosh Pathak
Santosh Pathak
Sem II
MODULE 1
Production/operations management is the process, which combines and transforms various resources used in the production/operations subsystem of the organization into value added product/services in a controlled manner as per the policies of the organization. Therefore, it is that part of an organization, which is concerned with the transformation of a range of inputs into the required (products/services) having the requisite quality level. The set of interrelated management activities, which are involved in manufacturing certain products, is called as production management. If the same concept is extended to services management, then the corresponding set of management activities is called as operations management
Nature and Scope of Operations Management

Operations management is often used along with production management in literature on the subject. It is therefore, useful to understand the nature of operations management .Operations management is understood as the process whereby resources or inputs are converted into more useful products .A second reading of the sentence reveals that, there is hardly any difference between the terms produ7ction management and operations management .But, there are a least two points of distinction between production management and operations management .First, the term production management is more used for a system where tangible goods are produced .Whereas ,operations management is more frequently used where various inputs are transformed into tangible services .Viewed from this perspective, operations management will cover such services organization as banks ,airlines ,utilities ,pollution control agencies super bazaars, educational institutions ,libraries ,consultancy firm and police departments, in addition ,of course ,to manufacturing enterprises. The second distinction relates to the evolution of the subject. Operation management is the term that is used
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Sem II
now a days .Production management precedes operations management in the historical growth of the subject The two distinctions not withstanding, the terms production management and operations management are used interchargeably .
Scope of Production and Operation Management

The scope of production and operations management is indeed vast .Commencing with the selection of location production management covers such activities as acquisition of land, constructing building ,procuring and installing machinery ,purchasing and storing raw material and converting them into saleable products. Added to the above are other related topics such as quality management ,maintenance management ,production planning and control, methods improvement and work simplification and other related areas.
PRODUCTION SYSTEM
The production system of an organization is that part, which produces products of an organization. It is that activity whereby resources, flowing within a defined system, are combined and transformed in a controlled manner to add value in accordance with the policies communicated by management. A simplified production system is shown above. The production system has the following characteristics: 1. Production is an organized activity, so every production system has an objective. 2. The system transforms the various inputs to useful outputs. 3. It does not operate in isolation from the other organization system. 4. There exists a feedback about the activities, which is essential to control and improve system performance.
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Sem II
Production systems can be classified as Job Shop, Batch, Mass and Continuous Production systems.
Project Vs Operations
Projects are always used to bring about something new, some change! Operations are used for - routine, ongoing and repetitive undertakings in an organization. - sustain the existing business of the organization - Make the existing operations more and more efficient. In practice, both operations and projects have many characteristics that are common to each other although they are undertaken to fulfill different aims and objectives. Some common characteristics between projects and operations are that they are both: Performed by people Both have limited resources at their disposal To be successful both operations and projects must be properly planned, executed and controlled Differences between a project and operations: Though projects and operations have many features in common there are many differences between them. A key difference between projects and operations is in their objectives, the aims for which they are performed.
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Sem II
Projects Unique Temporary Aim is to achieve the objectives of the project and then to close the project Future orientation Creation of new things
Operations Ongoing Repetitive Objective of operation is to sustain the business Present Orientation Maintenance of existing things
Productivity
Productivity is a measure of the effective use of resources, usually expressed as the ratio of output to input .Also called Efficiency at times Productivity ratios are used for Planning workforce requirements Scheduling equipment Financial analysis Productivity Partial measures is output/(single input) Multi-factor measures is output/(multiple inputs) Total measure is the output/(total inputs)
Productivity Growth = Current Period Productivity Previous Period Productivity
--------------------------------------------------------------Previous period productivity
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What is the multifactor productivity MFP? if 7500 Units Produced and Sold for Rs.10/unit with Cost of labor of Rs.10,000, Cost of materials: Rs.5,000 and Cost of overhead: Rs.20,000.
Factors Affecting Productivity

Productivity stands tall on four important pillars of Capital, Quality, Management and Technology. These pillars are also responsible for positively as well as negatively affecting the Productivity of the Organization.
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1. CAPITAL An existing machine or facility if it is not functioning up to full capacity or turning out products which are not acceptable can lower productivity. A new machine or repair of existing machine would require capital input. 2. QUALITY Poor quality products would not meet customer requirements and would need repairs and reworks on the product to meet the standards. 3. MANAGEMENT With better scheduling, planning, coordinating and controlling activities of management the machine operations can be carried to improve productivity. 4. TECHNOLOGY Technological improvements have increased productivity. A machine of today would outperform machine of yesterday but may not withstand machines of tomorrow. CAUTION: Without careful planning technology can reduce productivity as it often leads to increased costs, inflexibility or mismatched operations. All leads to reduction in value.
How is productivity Improved? Achieving more output for the same input Achieving the same output from less input Achieving much more output for slightly more input Getting slightly less output for much less input Six lines of attack to improve the productivity ratio of an organization
Improve basic process by research and development (long term) Improve and provide new plant, equipment, and machinery (long term) Simplify product and reduce variety (medium term) Improve existing methods and procedures (short term) Improve the planning of work and the use of manpower (short term) Increase the overall effectiveness of employees (short term)
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Sem II
The fundamentals of productivity improvement Applicable for all types of organizations. Productivity is a state of mind More involvement of employees, greater will be the success. Productivity is a continued program; there is no end. Concentration should be made on controlling the controllable. Historically, Productivity has come by improved methods and improved equipments Improving productivity is the real key to organizational and national wealth. Productivity leadership flows from top to down. Improving productivity requires resourcefulness, creativity and enthusiasm.
Lack of proper planning, keeping workers waiting between jobs or waiting for material Failure on the supervisor's part to thoroughly understand orders and instructions received Lack of knowledge of what constitutes a full day's work Failure to make orders and instructions clear to workers Failure to insist that tools supplies, and portable equipment be kept in proper places Ordering overtime work that could be avoided Not seeing that workers are supplied with proper tools and equipment for every job Allowing workers intentionally to do less work than they can Failure to inform human resources department when more labor is required Keeping too many workers Failure to write records and requisitions intelligibly Failure to question and correct workers who lay off Allowing workers to get habit of talking, visiting, killing time
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Sem II
Failure to get workers to start on time, slack supervision Delay in making decisions Unnecessary absenteeism or tardiness on the supervisor's part Being late with reports Not investigating immediately when repairs are needed Unnecessary visiting and conversation on the job Failure on the supervisor's part to organize his / her time and work Lack of proper planning, keeping workers waiting between jobs or waiting for material Ignoring Potentially Good Ideas Failure to listen and comment when workers offer suggestions. Failure to encourage workers to offer suggestions. Not asking workers advice on problems. Failure to read and study about the work and about business methods. Failure to get from new employees helpful ideas which they may bring from previous employment. Not consulting enough with other departments, such as engineering, etc. Failure to consider or refer to the proper person all usable suggestions no matter where they come from. Failure to take proper interest in meetings. Failure to benchmark performance of organization with other similar organizations and the sector as a whole.
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Module 2
Facilities Location and Planning
Factors to be considered in plant location:

Nearness to sources of raw materials Proximity to markets Availability and cost of transportation Availability and cost of power, water, fuel. Availability and cost of skilled labor, productive labor Availability and cost of capital for investments Nearness to related and ancillary industries Cost of land and construction costs Local topography, climate, living conditions Taxes Regulations on pollution, waste disposal.
Factors affecting the design of plant or premises

Size Number of floors Access Services Headroom required Loads to be carried Lighting Heating and ventilation Disposal of waste Special process requirements
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Transportation model imp

An example for Minimum Cost Method Step 1: Select the cell with minimum cost.
City 1
Plant 1
Rs 2
City 2
Rs 3
City 3
Rs 5
City 4
Rs 6
Supply
5L
Plant 2
Rs 2
Rs 1
Rs 3
Rs 5 10 L
Plant 3 Demand
Rs 3
Rs 8
Rs 4
Rs 6
15 L
12 L
8L
4L
6L
Step 3: Find the new cell with minimum shipping cost and cross-out row 2
City 1
Plant 1
2
City 2
3
City 3
5
City 4
6
Supply
5
Plant 2
2
2 8 3
5 X
Plant 3 Demand
10 X 4 6
15
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Step 5: Find the new cell with minimum shipping cost and cross-out column 1
City 1
Plant 1
5 2
City 2
3
City 3
5
City 4
6
Supply
X
Plant 2
2
2 8 3 5
5 X
Plant 3
10
Demand
Step 6: Find the new cell with minimum shipping cost and cross-out column 3
City 1
Plant 1
City 2
City 3
City 4
Supply
2 5
6 X
Plant 2
2 2 8 3 5
5 X
Plant 3 Demand
8 4
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Step 7: Finally assign 6 to last cell. X11=5, X21=2, X22=8, X31=5, X33=4 and X34=6
City 1
Plant 1
City 2
City 3
City 4
Supply
2 5
6 X
Plant 2
2 2 8 3 5
5 X
Plant 3
8 4
4 6 X X
Demand
PLANT LAYOUT
WHY PLAN FACILITIEWHY PLAN FACILITIES The primary causes that trigger new or altered facilities are: 1. Expanding production, based on increased demand. 2. Entering a new field of endeavor. 3. Replacing an obsolete or inadequate facility. 4. Reallocating or consolidating production facilities. 5. Improving service to market(s). LONG TERM STRATEGIC DECISIONS
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THE NEED FOR GOOD FACILITIES PLANTHE NEED FOR GOOD FACILITIES PLANNING 1. Plant facilities influence the costs of operating and therefore profits. 2. Planning allows facilities to comply with laws ad/or regulations. 3. Facilities involve high capital-cost expenditures. 4. Facilities are fixed investments, not readily convertible to money or resale. 5. Facilities are inflexible (i.e. physically fixed and have limited opportunities to be changed). 6. Facilities are long term commitments with protracted periods of financial return. 7. Facilities planning, design and construction require long lead times. 8. Sound plans for implementation can avoid disruptions in production, and discontinuities for shipping or delivery. 9. Operations often produce detrimental wastes that affect entire communities. The safety, convenience, appearance, and comfort of industrial facilities influence the attitudes of and the ability to attract suitable employees. 2. Industrial facilities must be planned to meet anticipated future requirements yet compete profitably today. 3. Facilities need to be planned for an appropriate degree of flexibility, expandability, versatility 4. Good planning buys time for making commitments; it minimizes being taken by surprise. 5. If plans are made, managements can react faster and take advantage of business opportunities that arise. 6. Good planning, especially if presented well visually, is an aid to obtain financing monies. 7. The single most important cause of high materials handling costs is ad hoc expansion of plant facilities in the absence of a strategic site-development plan.
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Sem II
Thus layout is disposition of various facilities and services of the plant within the specified area. It is arrangement of location of different machines and plants within the factory in such a way that there is minimum possible cost, the maximum output and the best quality product. In it all the requirements connected with production like the raw materials, machines, tools, fixtures etc. to be properly cared from the very beginning with the design of the factory. It is the agreement with the main focus that each operation is performed without the least inconvenience.
Types of layouts
1) Process or functional layout 2) Product or line layout 3) Project or fixed position layout
A) Process or functional layout Process layout also called layout by function is generally associated with batch production. The factory is divided into process units (or departments), and within these process units all similar facilities are grouped together. Process, for example, is kept at one place; milling machines are placed at another place; drilling machines are kept at third place; gear-cutting machines are located at fourth place; and so on and so forth.
Process type of layout is suitable when, 1) The products are non-standard, or 2) There are wide variations in the processing times of individual operations.
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Advantages:
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1. Lower capital investment on account of comparatively less number of machines and lower costs of general-purpose machines. 2. Higher utilization of available equipment. 3. Greater flexibility in regards to allocation of work to equipment and workers. 4. Breakdown of equipment, absenteeism of the workmen and/or non-availability of certain materials do not dislocate the manufacturing activity on the shop floor. 5. Workers attain greater skills since they have to attend to one type of machines and operations. 6. Imbalance of work in one section does not affect the working of the other sections. 7. New jobs with varying work content and different operations sequences can be taken up without any difficulty. 8. Variety of the jobs makes the work interesting to the workmen.
Disadvantages: 1. For the volume of production, space requirements are higher. 2. Materials handling cannot be mechanized which adds to the extra cost. 3. Work-in-progress inventory is higher since jobs have to queue up for each operation. 4. Routing and Scheduling is difficult since different jobs have different operation sequences. 5. Inspection requires to be done after each operation as material passes to the next department. This causes delays and results in high cost of inspection. 6. Setup costs are high because of frequent changes of jobs.
B) Product or Line Layout: Product layout is also called layout by sequence. The layout of plant, shape and size of its buildings, locations of services and storage yards, position of materials handling equipments is such that material flows unidirectionally and at the steady rate. Special purpose machinery and equipments with build in-controls to measure output and input are employed. The equipment, if necessary, is duplicated to avoid backtracking and to ensure that materials always flow in the forward direction towards stage of completion.
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Sem II
Suitability Product type of Layout is suitable when: 1. The products are standard and require to be produced in large quantities. 2. The products have reasonably stable demand. 3. The processing times of individual operations is more or less equal. 4. Uninterrupted supply of materials can be maintained.
Typical examples of product layout are: assembly line for automobiles, refrigerators, radios, televisions sets, transformers, motors, domestic appliances like food mixing machines, pressure cookers, etc. continuous or process production units, characterized by the manufacture of single product, such as sugar, steel, cement, paper, coke, refineries etc. also have product type of layout.
Advantages: 1. Manufacturing cycle is small which reduces work-in-progress. 2. Material handling is minimum and automatic. 3. Space required is small as the use of conveyors and gravity for material handling reduces the need for aisles. 4. The work is simplified by breaking into elemental tasks, which are mechanized wherever possible. Consequently, labour costs are lowered. 5. Quality control is easy to exercise and more effective. SQC practices can be used to control quality of the process. 6. Production control is simplified due to lesser product variety, simpler routings, easier progressing and lower work-in-progress. 7. Delivery commitments to customers are more reliable and easy to conform. 8. Material requirements can be scheduled easily and more accurately.
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Disadvantages:
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1. The changes in products and work contents necessitate the change in the layout of the machinery. 2. All machines may not be used to their full capacity. 3. Manufacturing cost is heavily dependent upon volume of production. 4. Breakdown of any one of the machines in the line renders other machines idle till it is repaired. 5. Expansion of the capacity by addition of machines is not possible. 6. Specialization creates monotony and reduces labour turnover as workers can not find jobs in their industries.
COMPARISION BETWEEN PRODUCT LAYOUT AND PROCESS LAYOUT The relative characteristics of product and process layout are : (1) Plant investment : product layout requires higher initial investment than process layout as a special purpose machines are costly and a times requires to be duplicated to balance the production line. (2) Requirement of space : process layout requires comparatively more space than product layout since additional space is required to keep the jobs which queue up before each time. accumulate jobs until they are moved next work station. This is because unlike in product layout material flow is discontinuous. (3) Manufacturing time : Under process layout, it takes comparatively more time in manufacturing goods. Higher manufacturing time results on on account of formation of queues at different machines due to different cycle times, batch sizes and sequence of operations. Manufacturing cycle time under product layout is small since machines capacities are intermediate activities like travel, storage and inspection are reduced. Product layout for continuous or process production may be looked upon as one large machine wherein raw material enter at one end and emerge as finished product at other end. (4) Material handling: process type of layout results in more handling than product layout because: Flow of materials between different stages of manufacturing is highly discontinuous due to imbalance in operation wise work content while
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flow of material in product layout is continuous and there is little and no queuing at any stage of processing. Distance between departments in the process layout is large which increases transport distance and raises the cost of material handling. On the contrary, in the product layout materials move through a short distance between stages. Materials, components and parts in a process layout are handled either singly or are placed in trolleys or in bins and are transported as unit loads by fork lift trucks. Material handling in a product layout is highly mechanized. Conveyors system automatic transfer machines moves material from one stage to another.
(5) Flexibility: process layout offers a very high flexibility as alteration in operation Sequence can be made when they are required. Also , new job, each having different routing than other and varying content can be taken up without any difficulty . However, such flexibility does not exist in a product layout. Only jobs having the same routing and equal work content can be accommodated. It also rather difficult to adjust proportionately in accordance with change in demand.
(6) Adaptability in the event of absenteeism/ breakdown / shortage etc. Process layout offers flexibility in production schedule since disturbance due to machine breakdown, absenteeism of key operators and non-availability of raw material do not seriously affect production as another machine can be used or another operator from another machine can be shifted or another job can be taken up. Flexibility in production schedules in case of product layout is seriously affected due to interruptions due to breakdown and absenteeism as stoppage of one machine usually disturbs the working of other machine. Shortage of materials also affects the production line. Systematic maintenance and provisioning of standee operators are therefore two major management functions. (7) Function of production control: production control activity in a product type of Layout is comparatively simple and limited. Materials control function is of crucial importance and needs to be on scientific inventory control system.
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Sem II
Process planning function is almost absenr since the plant decides the route Tools control function is either absent or is drastically simplified. Tools control function in an engineering firm is limited to replenishments of consumable tools, which can be simplified adopting the scientific inventory control and replacement of worn out jigs & fixtures. And tools control function in a continuous or process industries is almost absent due to nature of the plant. Scheduling activity is very simple and is merely restricted either to sequencing of production or limited to final targets. Progressing and expanding functions are extremely simplified and are merely limited to recording of the final production at end of the shift. Production control is bit complicated in case of process layout. Materials require to be intended and purchased on receipt of customer order except in case of batch production where material requirement can be planed in advance. Tools control functions needs to be more detailed and more elaborate. Loading and scheduling chart need to be prepared, one for each machine. Progress of different components need to be recorded each day. Separate progress cards need to be maintained for different items of manufacture. (8) Inspection: inspection under process layout is necessary at each stage. The work from the previous operation is routed to the inspection bay before being forwarded to the next operation. This involves material handling, production hold ups and interruptions at the succeeding operations. The rejection at certain stages requires re-routing of rework on the faulty part back to same machine or department, which causes unnecessary material handling and confusion. Under product layout, inspection is performed at some critical point in production line. (9) Skill of labourers: the skill of labour forces in a process type of layout is usually higher than in the product type of layout since the workmen are expected to operate number of general purpose machines capable of performing wide variety of jobs. In fact labour force in project or jobbing production is expected to be highly skilled. Highly qualified trade apprentices are employed who are expected to work for minimum instructions. Instruction regarding what to make are issued in form of specifications while instruction as to hoe to manufacture are usually oral. The workman be highly skilled are expected to work independently and display a great deal of initiative and judgment. They are required to set their own special tools or production aids to further of a part or an assembly. The skill production in batch production units (another group of firms which employ process layout) is expected to be skilled in one specific manufacturing
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process; turning. Milling, welding, grinding, hobbing, fitting etc. the simple machine setups are performed by the operator but those involving complex operations are done by the separate machine setter. 10 Supervision: supervisor in process type of layout is the reservoir of job knowledge. In a project and jobbing production, the supervisor besides being able administrator is expected to improvise and determine best work methods, determine tool requirements, select best process and provide management with reliable estimates of labour and materials for specific order. The span of control is kept low because of technical nature of job. In batch production unit employing process layout, supervisor is supposed to have considerable knowledge of specific process. Supervisor in the grinding section, for example, may not know about turning and drilling but is expected to posses fund of knowledge of different type of grinding operations. Similarly, a supervisor in the gear shop is expected to have good knowledge of different types of gear shaping, gear hobbing and gear shaving machines.
C) Project or Fixed Position Layout: Project type of industries such as manufacturers of aeroplanes, ships, locomotives, large turbines, heavy machinery, pressure vessels and others, which involve heavy materials and sub-assemblies have this type of layout. The heavy materials, components or sub-assemblies, under this layout remains fixed at one place. Men, machines and tools are brought to the location to complete the job. Minor components and sub-assemblies are also brought to the site for assembly. Suitability This type of layout is suitable for: 1. When or few pieces of an identical product are to be manufactured. 2. When assembly consists of a large number of heavy parts, the cost of transportation of which is very high.
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Advantages :
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1. This layout method is useful because in it there is less handling of material and thus the time wasted in material movement and also the labour involved in that can be saved. 2. Since both labour cost is less and there is time saving, therefore, there is less production cost, which enables the management to earn more profits and conveniently compete the competitors. 3. Since there is no possibility of delays in the supply of materials, therefore continuity of operations is ensured. 4. As only few machines are needed therefore, capital cost too is not high.
Disadvantages: 1. Only high skilled workers are needed. They are not only in short supply but are to be paid well. Their salaries and other benefits add to cost of production. 2. In fixing jobs and tools complicated fixtures are needed which again add to the production cost. 3. Bulky and heavy machines are required to be taken to the work place. This take a very long time to reach their destination.
Factors affecting layout decision a) Factory building: The nature and size of the building determines the floor space available for layout. While designing the special requirements, e.g. air conditioning, dust control, humidity control etc. must be kept in mind. b) Nature of product: product layout is suitable for uniform products whereas process layout is more appropriate for custom-made products. c) Production process: In assembly line industries, product layout is better. In job order or intermittent manufacturing on the other hand, process layout is desirable. d) Type of machinery: General purpose machines are often arranged as per process layout while special purpose machines are arranged according to product layout
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e) Repairs and maintenance: machines should be so arranged that adequate space is available between them for movement of equipment and people required for repairing the machines. f) Human needs: Adequate arrangement should be made for cloakroom, washroom, lockers, drinking water, toilets and other employee facilities, proper provision should be made for disposal of effluents, if any. g) Plant environment: Heat, light, noise, ventilation and other aspects should be duly considered, e.g. paint shops and plating section should be located in another hall so that dangerous fumes can be removed through proper ventilation etc. Adequate safety arrangement should also be made. Thus, the layout should be conducive to health and safety of employees. It should ensure free and efficient flow of men and materials. Future expansion and diversification may also be considered while planning factory layout.
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Quality of a good Layout Plant layout is an important decision as it represents long-term commitment. An ideal plant layout should provide the optimum relationship among output, floor area and manufacturing process. It facilitates the production process, minimizes material handling, time and cost, and allows flexibility of operations, easy production flow, makes economic use of the building, promotes effective utilization of manpower, and provides for employees convenience, safety, comfort at work, maximum exposure to natural light and ventilation. It is also important because it affects the flow of material and processes, labour efficiency, supervision and control, use of space and expansion possibilities etc.
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Module IV
BENEFITS TO SMALL ENTREPRENEUR
Production planning and control can facilitate the small entrepreneur in the following ways (1) Optimum Utilisation of Capacity: With the help of Production Planning and Control [PPC] the entrepreneur can schedule his tasks and production runs and thereby ensure that his productive capacity does not remain idle and there is no undue queuing up of tasks via proper allocation of tasks to the production facilities. No order goes unattended and no machine remains idle. (2) Inventory control: Proper PPC will help the entrepreneur to resort to just- in- time systems and thereby reduce the overall inventory. It will enable him to ensure that the right supplies are available at the right time. (3) Economy in production time: PPC will help the entrepreneur to reduce the cycle time and increase the turnover via proper scheduling. (4) Ensure quality: A good PPC will provide for adherence to the quality standards so that quality of output is ensured. To sum up we may say that PPC is of immense value to the entrepreneur in capacity utilization and inventory control. More importantly it improves his response time and quality. As such effective PPC contributes to time, quality and cost parameters of entrepreneurial success.
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STEPS OF PRODUCTION PLANNING AND CONTROL

Production Planning and Control (PPC) is a process that comprises the performance of some critical; functions on either side, viz., planning as well as control.
Production planning: Production planning may be defined as the technique of foreseeing every step in a long series of separate operations, each step to be taken at the right time and in the right place and each operation to be performed in maximum efficiency. It helps entrepreneur to work out the quantity of material manpower, machine and money requires for producing predetermined level of output in given period of time. Routing: Under this, the operations, their path and sequence are established. To perform these operations the proper class of machines and personnel required are also worked out. The main aim of routing is to determine the best and cheapest sequence of operations and to ensure that this sequence is strictly
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followed. In small enterprises, this job is usually done by entrepreneur himself in a rather adhoc manner. Routing procedure involves following different activities. (1) An analysis of the article to determine what to make and what to buy. (2) To determine the quality and type of material (3) Determining the manufacturing operations and their sequence. (4) A determination of lot sizes (5) Determination of scrap factors (6) An analysis of cost of the article (7) Organization of production control forms. Scheduling: It means working out of time that should be required to perform each operation and also the time necessary to perform the entire series as routed, making allowances for all factors concerned. It mainly concerns with time element and priorities of a job. The pattern of scheduling differs from one job to another which is explained as below: Production schedule: The main aim is to schedule that amount of work which can easily be handled by plant and equipment without interference. Its not independent decision as it takes into account following factors. (1) Physical plant facilities of the type required to process the material being scheduled. (2) Personnel who possess the desired skills and experience to operate the equipment and perform the type of work involved. (3) Necessary materials and purchased parts. Master Schedule: Scheduling usually starts with preparation of master schedule which is weekly or monthly break-down of the production requirement for each product for a definite time period, by having this as a running record of total production requirements the entrepreneur is in better position to shift the production from one product to another as per the changed production requirements. This forms a base for all subsequent scheduling acclivities. A master schedule is followed by operator schedule which fixes total time required to do a piece of work with a given machine or which shows the time required to do each detailed operation of a given job with a given machine or process.
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Manufacturing schedule: It is prepared on the basis of type of manufacturing process involved. It is very useful where single or few products are manufactured repeatedly at regular intervals. Thus it would show the required quality of each product and sequence in which the same to be operated Scheduling of Job order manufacturing: Scheduling acquires greater importance in job order manufacturing. This will enable the speedy execution of job at each center point. As far as small scale industry is concerned scheduling is of utmost importance as it brings out efficiency in the operations and s reduces cost price. The small entrepreneur should maintain four types of schedules to have a close scrutiny of all stages namely an enquiry schedule, a production schedule, a shop schedule and an arrears schedule out of above four, a shop schedule is the most important most suited to the needs of small scale industry as it enables a foreman to see at a glance. 1. The total load on any section 2. The operational sequence 3. The stage, which any job has reached. Loading: The next step is the execution of the schedule plan as per the route chalked out it includes the assignment of the work to the operators at their machines or work places. So loading determines who will do the work as routing determines where and scheduling determines when it shall be done. Gantt Charts are most commonly used in small industries in order to determine the existing load and also to foresee how fast a job can be done. The usefulness of their technique lies in the fact that they compare what has been done and what ought to have been done. Most of a small scale enterprise fail due to non-adherence to delivery schedules therefore they can be successful if they have ability to meet delivery order in time which no doubt depends upon production of quality goods in right time. It makes all the more important for entrepreneur to judge ahead of time what should be done, where and when thus to leave nothing to chance once the work has begun. Production control: Production control is the process of planning production in advance of operations, establishing the extract route of each individual item part
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or assembly, setting, starting and finishing for each important item, assembly or the finishing production and releasing the necessary orders as well as initiating the necessary follow-up to have the smooth function of the enterprise. The production control is of complicated nature in small industries. The production planning and control department can function at its best in small scale unit only when the work manager, the purchase manager, the personnel manager and the financial controller assist in planning production activities. The production controller directly reports to the works manager but in small scale unit, all the three functions namely material control, planning and control are often performed by the entrepreneur himself production control starts with dispatching and ends up with corrective actions. Dispatching: Dispatching involves issue of production orders for starting the operations. Necessary authority and conformation is given for: 1. Movement of materials to different workstations. 2. Movement of tools and fixtures necessary for each operation. 3. Beginning of work on each operation. 4. Recording of time and cost involved in each operation. 5. Movement of work from one operation to another in accordance with the route sheet. 6. Inspecting or supervision of work Dispatching is an important step as it translates production plans into production. Follow up: Every production programme involves determination of the progress of work, removing bottlenecks in the flow of work and ensuring that the productive operations are taking place in accordance with the plans. It spots delays or deviations from the production plans. It helps to reveal detects in routing and scheduling, misunderstanding of orders and instruction, under loading or overloading of work etc. All problems or deviations are investigated and remedial measurer are undertaken to ensure the completion of work by the planned date. Inspection: This is mainly to ensure the quality of goods. It can be required as effective agency of production control. Corrective measures: Corrective action may involve any of those activities of adjusting the route, rescheduling of work changing the workloads, repairs and
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Sem II
maintenance of machinery or equipment, control over inventories of the cause of deviation is the poor performance of the employees. Certain personnel decisions like training, transfer, demotion etc. may have to be taken. Alternate methods may be suggested to handle peak loads. Hierarchical Planning 1. Overall Manufacturing Planning 2. Detailed Materials and Capacity Planning 3. Execution of Plans 1.Overall Manufacturing Planning Demand Management Forecasting Order Promising Order Processing Order Entry Spare parts Production Planning Monthly Plans for Product Families Master Production Scheduling (MPS) Weekly Plans for Individual Products MPS must sum up to Production Plan
Resource Planning Long-Range Capacity Requirements Number of Machines Number of Employees Overtime Shifts Plants
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Amity Global Business School MUMBAI Rough-Cut Capacity Planning Capacity Requirements for Master Production Scheduling Capacity Bills Resource Profiles 2.Materials & Capacity Planning
Sem II
Detailed Capacity Planning Labor Hours Required Machine Capacity Required In an MRP environment, this task is accomplished by using the Capacity Requirements Planning (CRP) technique. 3Execution of Plans Shop Floor Control Recent Trend, Manufacturing Cells Similar parts are grouped into families Corresponding machine cells are formed Use production rates Use schedules to control production (Family Sequencing, Product Sequencing, Cell Loading, Cell Scheduling, etc.) Use Kanban System (Pull, Just-in-Time) to control production
Purchasing Purchasing Plan Vendor Search Quotation Order Release Order Follow-up Vendor Capacity
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Amity Global Business School MUMBAI Matching PPC with the Needs of the Firm Flow-Oriented Manufacturing Systems Very short time between successive units A few components needed Flow rate is the measure Ex: Chemical, food, petroleum 2. Repetitive-Nature Manufacturing Systems Short time between successive units Assemble similar products Flow Rate or Assembly Rate is the measure Ex: Televisions, Radios, Watches, Cars 3. Just-in-Time High production volume Low Product Variety Reduced Inventory and Leadtime Ex: Cars, Computers, Jewelry, Copy Machines 4. Materials Requirements Planning (MRP) Batch production High product variety Low production quantity Ex: Electric Motors, Fans
Sem II
1.
5. CPM/PERT Long leadtimes Low production quantity Ex: Airplanes, ships
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Sem II
Number of Subparts Just-in-Time Repetitive Flow
MRP
CPM/PERT
Seconds
Minutes
Days
Weeks
Months
Time between successive units Examples: Oil, food, drugs, watches, TV, trucks, planes, houses, ships
PPC Class Notes-Chapter1
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Sem II
Module V
Basic Types of Production Processes Intermittent Production System Production is performed on a start-and-stop basis, such as for the manufacture of made-to-order products.
Mass Production
A special type of intermittent production process using standardized methods and single-use machines to produce long runs of standardized items.
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Amity Global Business School MUMBAI Mass Customization Designing, producing, and delivering customized products to customers for at or near the cost and convenience of mass-produced items. Mass customization combines high production volume with high product variety. Elements of mass customization: Modular product design Modular process design Agile supply networks Continuous Production Processes A production process, such as those used by chemical plants or refineries, that runs for very long periods without the start-and-stop behavior associated with intermittent production. Enormous capital investments are required for highly automated facilities that use special-purpose equipment designed for high volumes of production and little or no variation in the type of outputs. Mass Production System (Flow) Continuous Production Anticipation of demand May not have uniform production Standardized Raw material Big volume of limited product line Standard facility- high standardization. Fixed sequence of operation Material handling is easier High skilled operator not required More Human problem is foreseen Huge investment. High raw material inventory. Processing Production System Extended form of mass production system F.G of one stage is fed to next stage More automatic machines One basic raw material is transferred into several products at several
Sem II
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Amity Global Business School MUMBAI stages. Less highly skilled workers required More human problems foreseen Highly standardized system
Sem II
BATCH PRODUCTION Batch production is defined by American Production and Inventory Control Society (APICS) as a form of manufacturing in which the job passes through the functional departments in lots or batches and each lot may have a different routing. It is characterised by the manufacture of limited number of products produced at regular intervals and stocked awaiting sales. Characteristics Batch production system is used under the following circumstances: 1. When there is shorter production runs. 2. When plant and machinery are flexible. 3. When plant and machinery set up is used for the production of item in a batch and change of set up is required for processing the next batch. 4. When manufacturing lead time and cost are lower as compared to job order production. Advantages Following are the advantages of batch production: 1. Better utilisation of plant and machinery. 2. Promotes functional specialisation. 3. Cost per unit is lower as compared to job order production. 4. Lower investment in plant and machinery. 5. Flexibility to accommodate and process number of products. 6. Job satisfaction exists for operators. Limitations Following are the limitations of batch production: 1. Material handling is complex because of irregular and longer flows. 2. Production planning and control is complex. 3. Work in process inventory is higher compared to continuous production. 4. Higher set up costs due to frequent changes in set up.
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Sem II
JOB SHOP PRODUCTION Job shop production are characterised by manufacturing of one or few quantity of products designed and produced as per the specification of customers within prefixed time and cost. The distinguishing feature of this is low volume and high variety of products. A job shop comprises of general purpose machines arranged into different departments. Each job demands unique technological requirements, demands processing on machines in a certain sequence. Characteristics The Job-shop production system is followed when there is: 1. High variety of products and low volume. 2. Use of general purpose machines and facilities. 3. Highly skilled operators who can take up each job as a challenge because of uniqueness. 4. Large inventory of materials, tools, parts. 5. Detailed planning is essential for sequencing the requirements of each product, capacities for each work centre and order priorities. Advantages Following are the advantages of job shop production: 1. Because of general purpose machines and facilities variety of products can be produced. 2. Operators will become more skilled and competent, as each job gives them learning opportunities. 3. Full potential of operators can be utilised. 4. Opportunity exists for creative methods and innovative ideas. Limitations Following are the limitations of job shop production: 1. Higher cost due to frequent set up changes. 2. Higher level of inventory at all levels and hence higher inventory cost. 3. Production planning is complicated.
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Amity Global Business School MUMBAI 4. Larger space requirements.
Sem II
Santosh Pathak
Sem II
Module VI
Forecasting Definition: Forecasting is a statement about the future. It is estimating future event (variable), by casting forward past data. Past data are systematically combined in predetermined way to obtain the estimate. Forecasting is not guessing or prediction. Forecasting help managers to: Plan the system Plan the use of system
Forecasts affect decisions and activities throughout an organization Accounting, finance Human resources Marketing MIS Operations Product / service design
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Sem II
Common features of forecasting: 1 Forecasting is rarely perfect (deviation is expected). 2 All forecasting techniques assume that there is some degree of stability in the system, and what happened in the past will continue to happen in the future. 3 Forecasting for a group of items is more accurate than the forecast for individuals. 4 Forecasting accuracy increases as time horizon increases. Elements of good forecast: 1 Timely: Forecasting horizon must cover the time necessary to implement possible changes. 2 Reliable: It should work consistently. 3 Accurate: Degree of accuracy should be stated. 4 Meaningful: Should be expressed in meaningful units. Financial planners should know how many dollars needed, production should know how many units to be produced, and schedulers need to know what machines and skills will be required. 5 Written: to guarantee use of the same information and to make easier comparison to actual results. 6 Easy to use: users should be comfortable working with forecast. Types of forecast by time: Short-range (days weeks months): Job scheduling, work assignments o Time spans ranging from a few days to a few weeks. o Cycles, seasonality, and trend may have little effect. o Random fluctuation is main data component. Medium term (1-2 years): Sales, production Long range forecast (> 2years): change location o Time spans usually greater than one year. o Necessary to support strategic decisions about planning products, processes, and facilities.
Santosh Pathak
Sem II
Forecast accuracy: Total absolute deviation (TAD)= 14 Mean absolute deviation (MAD)= (Actual-forecast)/n = 14/5 = 2.8 Total Squared Error (TSE) = 44 Mean Square Error (MSE)= 44/5 = 8.8 Steps in forecast development: 1 Determine purpose of forecast. 2 Establish a time horizon: time limit, accuracy decreases with shorter durations. 3 Select forecasting technique. 4 Gather and analyze data. 5 Prepare the forecast 6 Monitor forecast. Methods of forecast: 1. Quantitative (based on time series data): Time series data: a time ordered sequence of observation taken at regular intervals over time. Patterns resulting from plotting of these data are: a. Trend: A long-term upward or downward movement in data. b. Seasonality: Short-term regular variations related to calendar or time of day. c. Cycle: Wavelike variation lasting more than one year. d. Random variations: residual variations after all other behaviors are accounted for. e. Irregular variations: caused by irregular circumstances, not reflective of typical behavior.
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Sem II
Nave forecast: The forecast for any period equals the previous periods actual value. Simple to use. Virtually no cost. Quick and easy to prepare (no data analysis required). Easily understandable. Cannot provide high accuracy. Can be a standard for accuracy and cost. Q: is the increased accuracy of another method worth the additional cost? Can be applied in stable demand (moving around average), seasonal, and trend Examples: 1 Sales of air conditioning units next July, will be the same as the sales in last July. (Seasonal) 2 Highway traffic next Tuesday will be the same as last Tuesday (stable, moving around average). 3 If the last 2 actual values were 50 and 53, the next will be 56 (trend).
2. Qualitative methods: (based on judgment and opinion) 1 Jury of executives: opinions of high level executives 2 Sales force composite: estimates from sales individuals are reviewed for reasonableness (may tend to make under estimates), then aggregated.
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Sem II
3 Consumer market survey: Asking the customers may give best forecasts but it is higher in cost, difficult to apply. 4. Delphi method: (a) Panel of experts queried. (b) Chosen experts to participate should be of a variety of knowledgeable people in different areas (finance, marketing, production etc). They are unknown to any one, except for the coordinator. (c) Through questionnaire the coordinator obtains estimates from all participants. (d) Coordinator summarizes results and redistributes them to participants along with appropriate new questions. (e) Summarize again and refine forecasts and develop new question. Differences between qualitative and quantitative
Linear regression analysis: Establishes a relationship between a dependent variable and one or more independent variables. In simple linear regression analysis there is only one independent variable. If the data is a time series, the independent variable is the time period. The dependent variable is whatever we wish to forecast. (e.g. sales)
Santosh Pathak
Sem II
Y = dependent variable (example: Company Sales) X = independent variable (example: time periods, sales of other related company) a = Y-axis intercept b = Slope of regression line = delta Y/ delta X
oOnce the a and b values are computed, a future value of X (time, or sales of other elated product) can be entered into the regression equation and a corresponding value of Y (the forecast) can be calculated. Example: College Enrollment At a small regional college enrollments have grown steadily over the past six years, as evidenced below. Use time series regression to forecast the student enrollments for the next three years.
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Sem II
Santosh Pathak
Sem II
Seasonalized Time Series Regression Analysis Select a representative historical data set. Develop a seasonal index for each season. Use the seasonal indexes to deseasonalize the data. Perform linear regression analysis on the deseasonalized data. Use the regression equation to compute the forecasts. Use the seasonal indexes to reapply the seasonal patterns to the forecasts.
Santosh Pathak
Sem II
Seasonalized Times Series Regression Analysis An analyst at CPC wants to develop next years quarterly forecasts of sales revenue for CPCs line of Epsilon Computers. She believes that the most recent 3 quarters of sales (shown on the next slide) are representative of next years sales. Representative Historical Data Set
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Sem II
Santosh Pathak
Sem II
Santosh Pathak
Sem II
Santosh Pathak
Sem II
Santosh Pathak
Sem II
Module VII
Capacity Decision Major considerations in capacity decisions are: a)What size of plant? How much capacity to install? b)When capacity is needed ? When to phase-in capacity or phase-out capacity? c)At what cost? How to budget for the cost? Determination of capacity Capacity decisions are important because: a)They have a long-term impact b)Capacity determines the selection of appropriate technology, type of labour and equipments, etc. c)Right capacity ensures commercial viability of the business venture. d)Capacity influences the competitiveness of a firm. Factors affecting Capacity decision 1.Market demand for a product/service 2.The amount of capital that can be invested 3.Degree of automation desired 4.Level of integration (i.e., vertical integration) 5.Type of technology selected 6.Dynamic nature of all factors affecting determination of plant capacity, viz., changes in the product design, process technology, market conditions' and product life cycle, etc. 7.Difficulty in forecasting future demand and future technology. 8.Obsolescence of product and technology over a period of time. 9.Present demand and future demand both over short-range, intermediate-range and long-range time horizons. 10.Flexibility for capacity additions.
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Sem II
Production Planning Horizons

Long-Range Capacity Planning Aggregate Planning Master Production Scheduling Long-Range (years) Medium-Range (6-18 months) Short-Range (weeks)
Production Planning and Control Systems

Pond Draining Systems Push Systems Pull Systems
Very-Short-Range (hours - days)

Focusing on Bottlenecks
4
Capacity Planning, Aggregate Planning, Master Schedule, and Short-Term Scheduling

Capacity Planning 1. Facility Size 2. Equipment Procurement
Long-term
Aggregate Planning 1. Facility Utilization 2. Personnel needs 3. Subcontracting Master Schedule 1. MRP 2. Disaggregation of master plan Short-term Scheduling 1. Work center loading 2. Job sequencing
Intermediate-term
Intermediate-term
Short-term
6
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Sem II
Aggregate Planning:
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Sem II
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Sem II
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Sem II
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Sem II
Need for Aggregate Capacity Planning

1.It facilitates fully loaded facilities and minimizes overloading and under-loading and keeps production costs low. 2.Adequate production capacity is provided to meet expected aggregate demand. 3.Orderly and systematic transition of production capacity to meet the peaks and valleys of expected customer demand is facilitated. 4.In times of scarce production resources, getting the maximum output for the amount of resources is enhanced. 5.To manage change in production/operations management by planning for production resources that adapt to the
Santosh Pathak
Amity Global Business School MUMBAI changes in customer demands.
Sem II
Steps in Aggregate capacity Planning

1.Prepare the sales forecast for each product that indicates the quantities to be sold in each time period (usually weeks, months or quarters) over the planning horizon (6 to 18 months) 2.Sum up the individual product or service forecast into one aggregate demand for the factory. 3.Transform the aggregate demand for each time period into labour, materials, machines and other elements of production capacity required to satisfy aggregate demand. 4.Develop alternative resource schemes for supplying the necessary production capacity to support the cumulative aggregate demand. 5.Select the capacity plan from among the alternatives considered that satisfy aggregate demand and best meets the objectives of the organization
Approaches to Aggregate Planning

Two types of approaches a.Top- down approach b.Bottom up approach. c. Top down approach: 1.Working at highest level of consolidation of product 2.Plan disaggregated to the product families. 3.Relay on proper amount of total capacity is available Bottom Up Approach: Also called as Resource Requirement Planning(RRP) or Rough cut capacity planning. 1.They are done with Master Production Schedule 2.Ensures no over load occurs for any department. 3.Quick and in-expensive way to find and correct the raw materials available and required for MPS.
Santosh Pathak
Sem II
l l l
Inputs A forecast of aggregate demand covering the selected planning horizon (618 months) The alternative means available to adjust short- to medium-term capacity, to what extent each alternative could impact capacity and the related costs The current status of the system in terms of workforce level, inventory level and production rate
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Sem II
Outputs A production plan: aggregate decisions for each period in the planning horizon about l workforce level l inventory level l production rate Projected costs if the production plan was implemented Medium-Term Capacity Adjustments Workforce level l Hire or layoff full-time workers l Hire or layoff part-time workers l Hire or layoff contract workers Utilization of the work force l Overtime l Idle time (undertime) l Reduce hours worked Inventory level l Finished goods inventory l Backorders/lost sales Subcontract
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Sem II
Santosh Pathak
Sem II
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Sem II
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Sem II
Material Resource Planning (MRP I) Material Requirements Planning (MRP) is a software based production planning and inventory control system used to manage manufacturing processes. Although it is not common now-a-days, it is possible to conduct MRP by hand as well. An MRP system is intended to simultaneously meet three objectives: Ensure materials and products are available for production and delivery to customers. Maintain the lowest possible level of inventory. Plan manufacturing activities, delivery schedules and purchasing activities. When to Use MRP I systems are usually employed when 1 or more of following conditions exist:
Santosh Pathak
Sem II
When usage (demand) of materials is discontinuous or highly unstable during a firms normal operating cycle (intermittent manufacturing or job shop operation as opposed to a continuous-processing or mass-production operation)
MRP Processing Gross requirements: (Forecasted)Demand period by period Net requirements(t) =Gross requirements(t)-Projected inventory(t-1) -Scheduled receipt(t) If Net requirement(t) > 0 set Planned order receipts(t)>=Net requirement(t) Planned-order receipts is the production planned Projected inventory(t) =Projected inventory(t-1)+Scheduled receipt(t) +Planned order receipts(t)-Gross requirements(t) Planned order release(t-LT)=Planned-order receipts(t)
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Sem II
MRP at Plant Level The system adds together stocks from all of the individual storage locations, with the exception of individual customer stock, to determine total plant stock. Individual storage locations can be planned separately or be excluded from planning. MRP at Area Level Only the stocks from the storage locations or subcontractor assigned to the respective MRP area are taken into account. This enables you to plan material requirements specifically for certain areas.
MRP Planning
MRP Outputs Planned orders - schedule indicating the amount and timing of future orders.
Santosh Pathak
Sem II
Order releases - Authorization for the execution of planned orders. Changes - revisions of due dates or order quantities, or cancellations of orders. Performance-control reports Planning reports Exception reports The Benefits of MRP Inventory reduction, Reduction in production & delivery time Increased efficiency. Faster response to market changes Improved labor & equipment utilization Better inventory planning & scheduling Reduced inventory levels without reduced customer service
SALES & OPERATIONS PLANNING OBJECTIVES SUPPORT THE PROFIT PLAN SUPPORT THE CUSTOMER INSURE REALISTIC PLANS LEAD CHANGE MANAGE INVENTORY MAKE DECISIONS -RESOLVE ISSUES MEASURE PERFORMANCE BUILD TEAM WORK!
Manufacturing Resource Planning (MRP II) Expanded MRP with and emphasis placed on integration Financial planning Marketing Engineering Purchasing
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Amity Global Business School MUMBAI Manufacturing
Sem II
Manufacturing Resource Planning (MRP II) Feedback: feedback from the shop floor on how the work has progressed, to all levels of the schedule so that the next run can be updated on a regular basis. Resource Scheduling: scheduling capability of the resources Batching Rules 'Lot for Lot' means batches that match the orders. Economic Batch Quantity (EBQ) is calculated to minimize the cost through balancing the set up cost against the cost of stock. 'Part Period Cover' means making batches whose size cover a fixed period of demand.
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Sem II
Software Extensions Rough Cut Capacity Planning (RCCP), an initial attempt to match the order load to the capacity available, Sales Order Processing Cost accounting Data Accuracy
Enterprise Resource Planning (ERP) Enterprise resource planning (ERP): An expanded effort to integrate standardized record keeping that will permit information sharing throughout the organization Strategic considerations High initial cost High cost to maintain Future upgrades Training
Santosh Pathak
Sem II
Santosh Pathak
Sem II
Module VIII
Reffer PPT of Prof. AMOL MULEY
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Sem II
Module IX
WORK MEASUREMENT Application of a set of techniques intended to establish amount of work to be done by an operator in a given time under specified conditions at the defined level of performance. This helps in identifying correct manpower and machine requirement. This helps in fixing number of machines to be operated by each worker. Helps in proper planning of delivery schedules. Helps in estimating production cost. Helps in cost control and reduction in labour cost and idle costs. Helps in improvement of method by identifying deviations from standard. Helps to fix incentives. Identifying sub-standard workers, their progress and training needs.
TECHNIQUES OF WORK MEASUREMENT TIME STUDY - Suitable for short cycle repetitive jobs PRODUCTION STUDY WORK SAMPLING - long cycle jobs, heterogeneous operations / team work jobs. ANALYTICAL ESTIMATING - short cycle non repetitive. SYNTHETIC DATA - Short cycle repetitive jobs PRE-DETERMINED MOTION AND TIME STUDY (PMTS) MTM - manual operations
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Sem II
TIME STUDY Establish time for a worker to carry out a specific job under specified conditions at the defined level of performance. Time study steps Select the task to be timed - bottleneck jobs, repetitive jobs, Labourious jobs, jobs with longer cycle time, sections having higher over-time. Standardise the method using method study. Select the operator having necessary physical attributes, possesses required intelligence and education, has acquired necessary skill and knowledge to carry out the work to satisfactory standard of safety, quantity and quality. Record details including Item name , part number, machine , speed, material , operator and supervisor. Record type of material, shape of job, tolerances. Environment & Working Conditions surrounding the job Break the task into parts / or elements. Measure the duration of each element and assess the pace of performance to obtain rating which is a ratio of observed time and the normal time. Time taken for the job may vary due to variation in material, tool conditions, tool locations and workmen performance hence enough cycles should be timed and average is determined. Convert the observed time into normal time using performance rating. Assess relaxation and other allowances for: Personal needs ( Relaxation Allowance ) Stoppage of alternate machine ( multiple machines attended by same operator ) ( Interference allowance ) Unavoidable delays and interruptions.( contingency allowance ) opportunity to workers to increase the earnings (Policy allowance ) Calculate Standard Time
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Sem II
WORK SAMPLING Statistically competent number of instantaneous observations are taken, over a period of time, of a group of machines, processes or workers. Each observation records what is seen to happen and percentage of observations recorded for a particular activity or delay is a measure of percentage of time absorbed by the occurrence. Large number of observations are made as to state of each member of the group working or idle. The data is amplified for the reasons for being idle. Used for cost reduction and cost control, Assessment of allowances for output standards, fixation of output standards, Testing the accuracy of the output standards. Compared to time study, the observer need not be extensively trained. More than one task can be studied simultaneously The workers would have less objection as the study is not specifically measuring the skill timing of each job.
STEPS FOR WORK SAMPLING STUDY Decide on the objective of the study Explain the purpose to the supervisors and the workers. Fix up work and delay elements: Machine under set up Machine working Want of tools ( idle time for replacement, non availability, sharing, repairing ) Want of work ( No work, Hold up for inspection, machine waiting for previous activity to get over, Machine set up for job not yet received, Movement of material. Want of Inspection ( waiting for the result ) Want of transport Want of instructions Away from work place ( personal needs, official work, collection of pay/incentives, Union / society activities ) Interference ( machine maintenance, cleaning, simultaneous stoppage, testing of jobs, tools , material )
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Sem II
Manufacturing difficulties ( defects, supervisor not available ) Absenteeism Machine break down Power failure Early close and late start Decide on the duration of study based on number of observers, accuracy desired, frequency of occurrence of the activity, cyclical work patterns Fix the desired accuracy (2-5 %) and confidence level ( 95 % ) Make a preliminary estimate of percentage occurrence ( Activity percentage - p ) of the activity or delay to be measured based on past experience or pilot study. p = observations of idle activity / Number of observations. Design the study : Number of observations - N = C ( 1 - p ) / A p C = Confidence level , A = limits of accuracy Total number of rounds - R = N / m (number of subjects) Rounds per day - r = R / S ( Number of study days ) Computation of average time between the rounds T = Total time available per shift / r Fixation of time require to make ( complete ) a round - Tr depends on distance, number of stations to be covered Comparison of T and Tr. T should be at least 2-3 times Tr Preparation of the schedule for the rounds ensuring randomisation Design of observation data sheet to facilitate easy recording and understanding Make observations ensuring that all the members are clearly visible, Observe what is happening and not what has happened or what will happen. Summarise results in the form of each activity number ( code ) description , number of observations and %ge of observations. Prepare report with conclusions / recommendations
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Sem II
SETTING PERFORMANCE STANDARDS The observations are made at random interval whether the subject is working or idle and reasons for delays and interruptions are noted. Production activity ( working ) is split into machine working and hand working. Operators performance rating is recorded for hand working. Individual ratings are averaged to get rating index Production quantity is noted. Overall time per unit ( To ) is calculated by dividing production time ( study time ) by production quantity. Effective time per unit ( Te ) = To X Np ( Production activity ) / N ( Total number of observations ) Np = Nm ( machine observations ) + Nh ( hand Observations) Breakdown of effective time Te = Tm( machine ) + Th ( Hand ) Tm = Te X Nm / ( Nm + Nh ) Th = Te X Nh / ( Nm + Nh ) Normal time per piece = ( Th X R ) / 100 + Tm Standard time per piece = Normal time per piece + allowance.
WORK SAMPLING Vs TIME STUDY Work sampling is more economical as Time study engineer not require at the site for long time and more than one operator can be studied at a time. Team work activities can be studied by work sampling. Less trained personnel can also conduct work sampling study. Work sampling study can be stopped at any time. It gives unbiased results since workmen are not under close observation. Work sampling is not economical for short cycle jobs and for single workman. Work sampling does not permit finer breakdown of activities and delays. Work sampling does not record method being used by operator.
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Sem II
Workmen may change their normal pattern of working on seeing the observer making the study fruitless. Insufficient observations and lack of randomisation may produce inaccurate results. It does not normally account for the speed of working of the workman.
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Sem II
MODULE X
MEANING AND NATURE OF INVENTORY The dictionary meaning of inventory is stock of goods, or a list of goods. The work Inventory is understood differently by various authors, in accounting language it may mean stock of finished goods only. In a manufacturing concerns, it may include raw materials, work in process and stores, etc. a. Raw Material: The quantity of raw materials required will be determined by the rate of consumption and the time required for replenishing the supplies. The factors like the availability of raw materials and government regulations, etc. too affect the stock of raw materials. b. Work-in-Progress: The work-in-progress is that stage of stocks which are in between raw materials and finished goods. The greater the time taken in manufacturing, the more will be the amount of work in progress. c. Consumables: These materials do not directly enter production but they act as catalyst, etc. There can be instances where these materials may account for much value than the raw materials. The fuel oil may form a substantial part of cost. d. Finished Goods: These are the goods which are ready for the consumers. The stock of finished goods provides a buffer between production and market. The purpose of maintaining inventory is to ensure proper supply of goods to consumers. In some concerns the production is undertaken on order basis, in these concerns there will not be a need for finished goods. The need for finished goods inventory will be more when production is undertaken in general without waiting for specific orders. e. Spares: Spares also form a part of inventory. Some industries like transport will require more spares than the other concerns. The costly spare parts like engines, maintenance spares etc. are not discarded after use, rather they are kept in ready position for further use. All decision about spares are based on the financial cost of inventory on such spares and the costs that may arise due to their non-availability.
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Sem II
PURPOSE / BENEFITS OF HOLDING INVENTORIES Although holding inventories involves blocking of a firms funds and the cost of storage and handling, every business enterprise has to maintain a certain level of inventories to facilitate uninterrupted production and smooth running of business. There are three main purpose or motives of holding inventories. i. The Transaction Motive which facilitates continuous production and timely execution of sales orders. ii. The Precaution Motive which necessitates the holding of inventories for meeting the unpredictable changes in demand and supplies of materials. iii. The Speculative Motive which induces to keep inventories for taking advantage of price fluctuations, saving in re-ordering cost and quantity discount, etc. RISK AND COSTS OF HOLDING INVENTORIES The various costs and risks involved in holding inventories are as below: i. Capital Costs: Maintaining of inventories results in blocking of the firms financial resources. The funds may be arranged from own resources or from outsides. In the former case, there is an opportunity cost of investment while in the later case, the firm has to pay interest to the outsides. ii. Storage and Handling costs: The storage costs include the rental of the godown, insurance charges, etc. iii. Risk of Price Decline: This may be due to increased market supplies, competition or general depression in the market. iv. Risk of Obsolescence: The inventories may become obsolete due to improved technology, changes in requirements, change in customers tastes, etc. v. Risk Deterioration in Quality: The quality of the materials may also deteriorate while the inventories are kept in store.
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Sem II
TOOLS AND TECHNIQUES OF INVENTORY MANAGEMENT AND CONTROL The following are the important tools and technique of inventory management and control. 1. Determination of stock levels. 2. Determination of safety stocks. 3. Selecting a proper system of ordering for inventory. 4. Determination of economic order quantity. 5. A.B.C. Analysis. 6. V.E.D. Analysis. 7. Inventory turnover ratios. 8. Aging schedule of inventories 9. Classification and codification of inventories 10. Preparation of inventory reports.
1. Determination of stock levels: Carrying of too much and too little of inventories is detrimental to the firm. If the inventory level is too little, the firm will face frequent stock-outs involving heavy ordering cost and if the inventory level is too high it will be unnecessary tie-up of capital. Therefore, an affective inventory management requires that a firm should maintain an optimum level of inventory where inventory costs are the minimum and at the same time there is no stock-out which may result in lost of sale or stoppage of production. Various stock levels are discussed as such. a. Minimum Level: This represents the quality which must be maintained in hand at all times. If stocks are less than the minimum level then the work will stop due to shortage of materials. Following factors are taken into account while fixing minimum stock level: Lead Time: The time taken in processing the order and then executing it is known as lead time. It is essential to maintain some inventory during the period. Rate of Consumption: It is the average consumption of material in the factory. Nature of Material: If a material is required only against special orders of the customer than minimum stock will not be required for such materials. Minimum stock level can be calculated with the help of following formula: Minimum stock level = Re-ordering level (Normal consumption) Normal Re-order period)
Santosh Pathak
Sem II
b. Re-ordering Level: Re-ordering level or ordering level is fixed between minimum level and maximum level. Re-ordering level is fixed with the following formula: Re-ordering Level = Maximum Consumption Maximum Re-order period. c. Maximum Level: It is the quantity of material beyond which a firm should not exceed its stocks. If the quantity exceeds maximum level limit then it will be overstocking. A firm should avoid overstocking because it will result in high material costs. Overstocking will mean blocking of more working capital, more space for storing the materials, more wastage of materials and more chances of losses from obsolescene. Maximum Stock Level = Re-ordering Level + Re-ordering Quantity (Minimum Consumption Minimum Re-ordering period). d. Danger Level: It is the level beyond which materials should not fall in any case. If danger level arises then immediate steps should be taken to replenish the stocks even if more cost is incurred in arranging the materials. If materials are not arranged immediately there is a possibility of stoppage of work. Danger level is determined with the following formula: Danger Level = Average Consumption Maximum re-order period for emergency purchases. e. Average Stocks Level: The average stock level is calculated as such: Average Stock Level = Minimum Stock Level + of re-order quantity. 2. Determination of Safety Stocks Safety stock is a buffer to meet some unanticipated increase in usage. The usage of inventory cannot be perfectly forecasted. It fluctuates over a period of time. The demand for materials may fluctuate and delivery of inventory may also be delayed and in such a situation the firm can face a problem of stock-out. The stock-out can prove costly by affecting the smooth working of the concern. In order to protect against the stock out arising out of usage fluctuations, firms usually maintain some margin of safety or safety stocks. The basic problem is to determine the level of
Santosh Pathak
Sem II
quantity of safety stocks. Two costs are involved in the determination of this stock i.e. opportunity cost of stock-outs and the carrying costs. The stock outs of raw materials cause production distruption resulting into higher cost of production. Similarly, the stock-out of finished goods result into the failure of the firm in competition as the firm cannot provide customer service. If a firm maintain low level of safety frequent stock-outs will occur resulting into the large opportunity costs. On the other hand, the larger quantity of safety stocks involve higher carrying costs.
3. Ordering systems of Inventory The basic problem of inventory is to decide the re-order point. This point indicates when an order should be placed. The re-order point is determined with the help of these things: (a) average consumption rate, (b) duration of lead time, (c) economic order quantity, when the inventory is depleted to lead time consumption, the order should be placed. There are three prevalent system of ordering and a concern can choose any one of these: a. Fixed order quantity system generally known as economic order quantity (EOQ) system; b. Fixed period order system or periodic re-ordering system or periodic review system; c. Single order and schedule part delivery system. 4. Economic Order Quantity (EOQ) Economic order quantity is the size of the lot to be purchased which is economically viable. This is the quantity of materials which can be purchased at minimum costs. Generally, economic order quantity is the point at which inventory carrying costs are equal to order costs. In determining economic order quantity it is assumed that cost of managing inventory is made up solely of two parts i.e., ordering costs and carrying costs. Ordering costs: These are the costs which are associated with the purchasing or ordering of materials. These costs include: Costs of staff posted for ordering of goods. A purchase order is processed and then placed with suppliers. The labour spent on this process is included in ordering costs. Expenses incurred on transportation of goods purchased.
1.
2.
Santosh Pathak
Amity Global Business School MUMBAI 3. Inspection costs of incoming materials. 4. Cost of stationery, typing, postage, telephone charges, etc.
Sem II
These costs are also known as buying costs and will arise only when some purchases are made. When materials are manufactured in the concern then these costs will be known as set-up costs. These costs will include costs of setting up machinery for manufacturing materials, time taken up in setting, cost of tools, etc. The ordering costs are totalled up for the year and then divided by the number of orders placed each year. B. Carrying Costs: These are the costs of holding the inventories. These costs will not be incurred if inventories are not carried. These costs include: 1. The cost of capital invested in inventories. An interest will be paid on the amount of capital locked-up in inventories. 2. Cost of storage which could have been used for other purpose. 3. The lost of materials due to deterioration and obsolescence. The materials may deteriorate with passage of time. The loss of absolescence arises when the materials in stock are not usable because of change in process or product. 4. Insurance cost. 5. Cost of spoilage in handling of materials. 6. The longer the materials kept in stocks, the costlier it becomes by 20 percent every year. The ordering and carrying costs have a reverse relationship. The ordering cost goes up with the increase in number of orders placed. On with the increase in number of units, purchased and stored. It can be shown in the diagram shown. 7. The ordering and carrying costs of materials being high, an effort should be made to minimise these costs. The quantity to be ordered should be large so that economy may be made in transport costs and discounts may also be earned. On the other hand, storing facilities, capital to be locked up, insurance costs should also be taken into account.
Santosh Pathak
Sem II
Assumptions of EOQ: While calculating EOQ the following assumptions are made. 1. The supply of goods is satisfactory. The goods can be purchased whenever these are needed. 2. The quantity to be purchased by the concern is certain. 3. The prices of goods are stable. It results in stabilising carrying costs. 4. When above-mentioned conditions are satisfied, economic order quantity can be calculated with the help of the following formula:
Where
A = Annual consumption in rupees. S = Cost of placing an order. I = Inventory carrying costs of one unit.
EOQ and Quality Discount: Customer is offered some discount for bulk purchase or if the size of a single order is large. Thus, the price per unit of an item may decrease for buying larger quantities. The quantity discount affect inventory cost in three ways: i. As the price per unit is reduced, the total price for the lot is reduced. ii. The lot size is increased, the number of offers is reduced and as a result the total ordering cost is reduced. iii. The average inventory holding increase and as a result the storage cost will increase. Thus, to decide whether to avail the quantity discount or not, first of all EOQ is determined and then its total cost without quantity discount and with quantity discount is determined. In case, the total cost is less due to quantity discount the offer is accepted, other wise it is rejected. The following example illustrates the point.
Santosh Pathak
Sem II
i.
ii.
Illustration 4. Economic Enterprises require 90,000 units of a certain item annually. The cost per unit is Rs.3, the cost per purchase order Rs. 300 and the inventory carrying cost Rs. 6 per unit per year. What is the Economics Order Quantity? What Should the firm do if the suppliers offer discount as below:
Order 4500-5999 6000 and above Discount 2% 3%
Solution. (i) EOQ
2AS I
Where, A = Annual Usage in units = 90,000 S = Cost of placing an order = Rs. 300 I = Inventory carrying costs of one unit. = Rs. 6 2 90,000 300 EOQ 90,000 3,000 units 6 As the supplier offers discount on order quantity, we shall calculate the total cost of 3000 units, 4500 units and 6000 units as below:
Santosh Pathak
Sem II
Order Size
Average Inventory
Annual requirements (units)
No. of orders (3 divided 1)
Price per unit
Cost of purchase (3) X (5) Rs.
Carrying cost at Rs. 6 per unit (Rs.)
Total ordering cost at Rs. 300 per order (Rs.)
Total Cost (6 + 7 + 8) (Rs.)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
3,000 45,00 6,000
1,500 2,250 3,000
90,000 90,000 90,000
30 20 15
3.00 2.94 2.91
2,70,000 2,64,600 2,61,900
9,000 13,500 18,000
9,000 6,000 4,500
2,88,000 2,48,100 2,48,400
Since the total cost at order of 4500 units is the lowest, the firm should place order for 4500 units and obtain 2% discount.
5. A-B.C Analysis The materials are divided into a number of categories for adopting a selective approach for material control. Under A-B-C analysis, the materials are divided into three categories viz, A, B and C. Past experience has shown that almost 10 percent of the items contribute to 70 percent of value of consumption and this category is called A Category. About 20 percent of the items contribute about 20 percent of value of consumption and this is known as category B materials. Category C covers about 70 percent of items of materials which contribute only 10 percent of value of consumption. There may be some variation in different organisations and an adjustment can be made in these percentages.
6. VED Analysis The VED analysis is used generally for spare parts. Spare parts are classified as Vital (V), Essential (E) and Desirable (D). The vital spares are a must for running the concern smoothly and these must be stored adequately. The non-availability of vital spare will cause havoc in the concern. The E type of spares are also necessary but their stocks may be kept at low figures. The stocking of D type of spares may be avoided at times. If the lead time of these spares is less, then stocking of these spares can be avoided. The
Santosh Pathak
Sem II
classification of spares under three categories is an important decision. The classification of spares should be left to the technical staff because they know the need urgency and use of these spares. 7. Inventory Turnover Ratios Inventory turnover ratios are calculated to indicate whether inventories have been used efficiently or not. The purpose is to ensure the blocking of only required minimum funds in inventory. The inventory turnover ratio also known as stock velocity is normally calculated as sales/average inventory or cost of goods sold/average inventory cost. Inventory conversion period may also be calculated to find the average time taken for clearing the stocks. Symbolically,
Inventory Turnover Ratio Cost of Good Sold Average Inventory at Cost Net Sales (Average ) Inventory
8. Aging Schedule of Inventories Classification of inventories according to the period (age) of their holdings also helps in identifying show moving inventories thereby helping in effective control and management of inventories. The following table shown aging of inventories of a firm. 9. Classification and Codification of Inventories The inventories of a manufacturing concern may consist of raw materials, work in process, finished goods, spares, consumable stocks, etc. All these categories may have their sub-divisions. The raw materials used may be of 3-4 types, finished goods may also be of more than one type, spares may be of a number of types and so on. For a proper recording and control of inventory, a proper classification of various types of items is essential. The inventories should first be classified and then code numbers should be assigned for their identification. The identification of short names are useful for inventory management not only for large concerns but also for small concerns. Lack of proper
Santosh Pathak
Sem II
classification may also lead to reduction in production. Generally, material are classified according to their nature such as construction materials, consumable stocks, spares, lubricants, etc. The coding class of materials is assigned two digits and then two or three digits are assigned to the category of materials in that class. The third distinction is needed for the quality of goods and decimals are used to note this factor. 10.Inventory Reports From effective control, the management should be kept informed with the latest stock position of different items. This is usually done by preparing periodical inventory reports. These reports should contain all information necessary for managerial action. On the basis of these reports management takes corrective action wherever necessary. The more frequently these reports are prepared the less will be the chances of lapse in the administration of inventories. JUST IN TIME (JIT) INVENTORY CONTROL SYSTEM The term JIT refers to a management tool that helps to produce only the needed quantities at the needed time. According to the official terminology of C.I.M.A., JIT is a technique for the organisation of workflows, to allow rapid, high quality, flexible production whilst minimizing manufacturing work and stock level. There are broadly two aspects of JIT (i) just in time production, and (ii) just in time purchasing. Just in time inventory control system involves the purchase of materials in such a way that delivery of purchased material is assured just before their use or demand. The philospohy of JIT control system implies that the firm should maintain a minimum (zero level) of inventory and rely on suppliers to provide materials just in time to meet the requirements. The traditional inventory control system, on the other hand, requires maintaining a healthy level of safety stock to provide protection against uncertainties of production and supplies.
Santosh Pathak
Sem II
1. 2. 3. 4. 5. 6.
Objective of JIt The ultimate goal of JIT is to reduce wastage and enhance productivity. The important objectives of JIT include: Minimum / zero inventory and its associated costs. Elimination of non-value added activities and all wastes. Minimum batch / lot size. Zero breakdowns and continuous flow of production. Ensure timely delivery schedules both inside and outside the firm. Manufacturing the right product at right time. Features of JIT It emphasises that firms following traditions inventory control system overestimate ordering cost and underestimate carrying costs associated with holding of inventories. It advocates maintaining good relations with suppliers so as to enable purchase of right quantity of material at right time. It involves frequent production / order runs because of smaller batch/lot sizes. It requires reduction in set up time as well as processing time. Purchase of produce in response to need rather than as per the plans and forecasts.
a.
b. c. d. e.
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Production and Operation Managment

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Amity Global Business School MUMBAI

AMITY GLOBAL BUSINESS SCHOOL

Notes on Production & Operations Management SEMESTER II

Compiled By: Santosh Pathak

Amity Global Business School MUMBAI

Nature and Scope of Operations Management

Amity Global Business School MUMBAI

Scope of Production and Operation Management

Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

--------------------------------------------------------------Previous period productivity

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Factors Affecting Productivity

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Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

Factors to be considered in plant location:

Factors affecting the design of plant or premises

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Transportation model imp

Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

STEPS OF PRODUCTION PLANNING AND CONTROL

Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

5. CPM/PERT Long leadtimes Low production quantity Ex: Airplanes, ships

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Number of Subparts Just-in-Time Repetitive Flow

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Amity Global Business School MUMBAI

Amity Global Business School MUMBAI 4. Larger space requirements.

Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

Amity Global Business School MUMBAI

Production Planning Horizons

Production Planning and Control Systems

Very-Short-Range (hours - days)