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Certificate in Manufacturing Concepts

Confidentiality Statement This document should not be carried outside the physical and virtual boundaries of TCS and its client work locations. Sharing of this document with any person other than a TCS associate will tantamount to violation of confidentiality agreement signed by you while joining TCS.

Certificate in Manufacturing Concepts

TCS Business Domain Academy

Chapter-1 Introduction to Manufacturing
Introduction Manufacturing is defined as the conversion of raw materials into finished goods using tools. Manufacturing is applicable to different industries such as automobile, aerospace, chemical, and pharmaceutical, computers, and so on. The extent of manufacturing varies from a small scale manufacturer to a large scale one. For example, Honda being the world’s largest motorcycle manufacturer using more number of tools than a company called Electrotherm Limited, which is a small scale manufacturer in India, who builds electric bikes. Learning Objectives After completing this chapter, you will be able to: • • • • • Understand the definition of manufacturing Understand the different types of manufacturing classifications Know the essence of manufacturing Identify the different processes involved in value chain analysis Identify the business process and its classification

Topics covered 1.1 Manufacturing – Definition and Objectives .............................................................. 4 1.1.1 Definition .............................................................................................................. 4 1.1.2 Objectives of Manufacturers ................................................................................. 4 1.2 Types of Goods .......................................................................................................... 5 1.3 Manufacturing Classification ..................................................................................... 5 1.3.1 Based on End Product ...................................................................................... 6 1.3.2 Based On Strategy ........................................................................................... 7 1.3.3 Based on Variety and Volume .......................................................................... 7 1.3 Classification of Manufacturing based on Industry................................................... 8 1.4 Value Chain Analysis.................................................................................................. 9 1.5 Business Processes .................................................................................................. 11 1.6 Changing World Competition.................................................................................. 13 Summary ....................................................................................................................... 16

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consumer goods and industrial goods. Consumer Goods: Consumer goods are finished goods which are available at retail stores for personal or household use. these goods can be used either directly or indirectly. A few examples of industrial goods are tyres. Page 5 of 17 . such as a fan.3 Manufacturing Classification Manufacturing can be classified based on various aspects such as end product produced. On the other hand. Perishable goods have shorter life time and are meant for single use. Goods are classified into two types. expense items are those which are generally consumed within a year. semiconductors and so on. these goods are again subcategorized into three types: • • • Convenience goods Shopping goods Specialty goods. Based on their usage. Durable goods have long life and can be used more than once.2 Types of Goods The classification of physical goods is important to a business since it helps in formulating the marketing strategies depending upon the usage of the product. 1.Certificate in Manufacturing Concepts TCS Business Domain Academy 1. a television and a laptop. Industrial goods can further be classified as capital items and expense items. Consumer goods are classified into durable goods and perishable goods. such as all food items. Capital items are durable industrial goods that are procured for long term use. strategy used. Based on the buying behavior of the consumer. industrial goods are classified into the following five categories: • • • • • Installation equipment Accessory equipment Raw materials Fabricated parts and materials Industrial supplies. Industrial Goods: Industrial goods are used as components for manufacturing finished goods or final products. and variety and volume of the production. Unlike consumer goods.

1 Based on End Product Based on the end product produced.2 Manufacturing Classifications 1. Process manufacturing involves the movement of materials among operations such as screening. by dissembling a finished automobile. mixing. chemical. Process manufacturing produces multiple products in different stages of the process. discrete manufacturing is the manufacturing of finished product using dissimilar items that can be counted.Certificate in Manufacturing Concepts TCS Business Domain Academy Figure 1. evaporating and distilling. blending. For instance. paper. Process manufacturing is widely applied in the cement. It results in irreversible changes to the raw materials that take an entirely new form. 4. Process Variety and Volume 1. 2. the Oil and Gas industry applies process manufacturing to manufacture petroleum. 3. fermenting. 2. stage by stage. 3. milling. in a reverse order. Manufacturing Classification End Product 1. touched and seen. plastic.3. cooking. most of the raw materials that have gone into the manufacturing of the automobile can be recovered. crushing. It is a reversible process. For instance. manufacturing is classified into two types: 1) Discrete Manufacturing: In the industrial terminology. Project Job Repetitive / Batch Continuous / Flow Strategy 1. Page 6 of 17 . 4. it is possible to get back the raw materials by disassembling the finished product. 2) Process Manufacturing: Process manufacturing produces multiple products in different stages of the process. Discrete 2. In discrete manufacturing. steel and brewing industries. storing. MTS ATO MTO ETO Fig 1.2 illustrates the classification of manufacturing based on these aspects.

3) Made to Order: In this type of manufacturing. for instance paper and pulp machinery.3. the manufacturing can be broadly classified into four types. the components will be customized according to customer specifications and availability of components in the factory or in the market. The quantity of the product produced in a project is usually single or at the most in a single digit. 4) Continuous / Flow: Page 7 of 17 . 4) Engineered to order: This type of manufacturing is undertaken to fulfill a unique order given by specific customers.3. 2) Assemble to Order: In this type of manufacturing. 3) Repetitive / Batch: This method is used in process manufacturing.Certificate in Manufacturing Concepts TCS Business Domain Academy 1. 2) Job: In this type of manufacturing. the products are manufactured against a sales forecast and these products are sold from the stock of finished goods. For instance: a missile or a bridge. Here production is done in small to large batches based on variety and volume. manufacturing is classified into four types: 1) Made to Stock: In this type of manufacturing. 1) Project: In this type of manufacturing. the number of items produced in terms of quantity and volume are higher when compare to a project. each product produced is unique. Engineers start designing the product according to requirements of the customer or when product is ordered by the customer.3 Based on Variety and Volume Based on item variety and volume produced. 1. However. the basic components or the raw materials that are necessary to assemble the product are procured and stored by the manufacturer.2 Based On Strategy Based on strategy used. the underlying design of the product will be standardized for all products. for instance pharmaceutical products. The product is then assembled to suit the specifications of the customer.

heavy machines like presses. skilled labor and managers has always been a cumbersome task. 5. except that the scale of work is large. Governing a factory has been one of the main concerns of senior management since years. Companies have now started using scientific methods to govern factories. i. either for immediate consumption or for further use. 3. The work carried out is similar to that of a light industry. and are not intermediate goods to be used for further production. Factory – It is a place (also called plant) where the workers manufacture goods. Mass production is also capital-intensive and may use robots. for instance vehicle assembly line. Production of soft drinks and medicines are examples of mass production.e. shoes. 1. Construction of a large building. The categories are: 1.Certificate in Manufacturing Concepts TCS Business Domain Academy This method is used in discrete manufacturing and is used for large scale production. It is consumer oriented in the sense that its end products are used by the consumer. and so on. furniture. chemical plant. 2. semi-skilled. 4. The two main resources used in a factory are manpower and capital. household appliances. These categories establish the most important features of manufacturing. and so on fall under the light industry category. Clothes. and is more consumer-oriented rather than being business oriented. production of cranes and bulldozers and so on are examples of heavy industry. Page 8 of 17 . Production line – It is a combination of a series of operations to convert a raw material into a finished good. Mass production – It refers to production of large amounts of some standardized product/good.3 Classification of Manufacturing based on Industry The quality and nature of manufacturing that identifies it and gives a distinct identity can be broadly divided into five major categories. Managing the hierarchy involving unskilled. It is also called as flow production or series production. Light industry – A light industry uses a moderate amount of resources and capital. convert the raw material to finished product. Heavy industry – It is a word used for capital-intensive industries or the tasks requiring greater resources.

DID YOU KNOW? The concept of mass production was first popularized by Henry Ford in the early 20th century in his Ford model. .

6. 8. 11. raw materials are converted into finished goods. such as bringing the raw materials into a manufacturing unit. 7. 10. Inbound Logistics: It includes all the activities involving the procurement of raw materials. These are stored and then dispatched them to the customer. 9. Manufacturing: In this. It holds them for further processing in factory. Marketing and Sales: Marketing advertises the product to boost the demand. Introduction of New Product: Both the prototype and the pilot should be approved before launching the new product into market. 3.Certificate in Manufacturing Concepts TCS Business Domain Academy Any product is developed based on the market research and the customer needs. Outbound Logistics: It includes all the activities involved in transporting the finished goods from the manufacturing unit to dealers. Warehouse: It is a place were finished goods are stored till the goods reach the customer. retailers. Changes to the product features are made depending upon customer/service feedback and market requirement. Supplier: Raw materials and other components are sourced from suppliers to the organization. Order completion: It is final stage in the process. 2. 4. 5. After Sales Services: Page 10 of 17 . 12. Customer receives the goods according to the purchase order placed. storing them and maintaining relationships with the suppliers. Store: It receives and accounts components / raw materials after inspection. retailers and finally to the customer. Price of the product is based on actual selling activity to till the product is sold. Distributor and Retailers: Goods are received by the distributors.

5 Business Processes It is defined as any function within an organization that enables the organization to successfully deliver its products and services. 1.com/datproc. Procure to Pay It is the process of obtaining goods and services by processing requisition through receipt and matching of the vouchers for the payment to suppliers. tactical and operational levels considering sales forecast and sales orders and validating the plan against the capacity. Source: http://www. It represents the actual process of transforming the raw materials using components and sub assemblies into a final product. The major procurement functions are supplier selection. Manufacturing Execution It is the transformation of raw materials. The major functions are processing production orders at given time for give item and quantity. 2. Briefly it represents the transactions that take place between the suppliers and manufacturer before and after purchase of raw materials.Certificate in Manufacturing Concepts TCS Business Domain Academy It resolves customer complaints and collects feedback from them to enhance product. issuing inventory. price negotiations. 3. components and sub assemblies. It also includes activities to keep the product or service work effectively. Business processes are divided into the following two types: core process and supporting process. Plan to produce represents transactions linking demand and supply of product at various levels. Order to Cash Page 11 of 17 .htm Core Processes They are central to the functioning of a manufacturing organization and are of the following four types: 1. The major functions are planning at strategic. validating the plan with available capacity to produce items. subassemblies and mechanical or chemical processes in different stages. processing of purchase order. and receipt of item and supplier payments. components and purchased items into a saleable product using assembly. Plan to Produce It is the complete process of planning at various time horizons as per sales forecast and sales orders.benchnet. 4. booking hours and completing order.

pilot lot. Product Development It is an ongoing process of identifying and articulating market requirements that define the features of a product. Logistics It is the management of the flow of goods. These activities are undertaken to guarantee customer satisfaction using online support. Market Planning It is the process of developing and implementing a plan to identify. generating sales advice and collecting payment from the customer. product mix. It represents activities by the service functions to ensure proper product functioning and Page 12 of 17 . receiving orders. and collecting payment from the customer. prototype. After Sales-services It is a series of activities undertaken to maintain the promised level of quality of goods and services. and to establish marketing objectives and decide product mix. between the point of origin and consumption. and outbound logistics. The sequence of activities would be. warranties and return policies. The major function are creating sales order. It represents transactions between the manufacturer and the customer that take place before designing the product and services.Certificate in Manufacturing Concepts TCS Business Domain Academy Complete processes of selling of goods and services. The major functions are product concept. The major functions are market research. updating inventory. and customer. that include the movement of goods from manufacture to retailer. testing. 3. allocating items. 2. invoicing and receipt of payment. involving order entry. promotion and budgeting. It represents the transactions between the marketing and design functions to convert a concept to a product. The following are the eight support processes: 1. design. warehousing. delivering goods. information and other resources. that include the movement of materials between supplier and manufacturer. anticipate and satisfy customer demand. Support process They enable the smooth flow of the core processes. dispatch. It represents transaction between delivery functions for moving materials between supplier. manufacture and customer. on delivery. final design and product enhancement till product obsolescence. The major functions are: inbound logistics. It represents the transactions between the manufacturer and customer. 4.

calibration and certification. Finance A branch of economics concerned with resource allocation and management. The major functions are monitoring all transactions from supplier.6 Changing World Competition Today’s competition in manufacturing industry has led to invention of new strategies like lean manufacturing. Human Resources It includes activities like recruitment. appraisal and career planning. Quality Management This support process is a Collection of policies. The major functions are resolving complaints regarding manufacturing plant and machines. practices and supporting infrastructure aimed to reduce and eliminate non-conformance to specification.Certificate in Manufacturing Concepts TCS Business Domain Academy minimal customer dissatisfaction. providing benefits and retention. and undertaking annual and preventive maintenance. talent acquisition. plans. acquisition and investment. Lean manufacturing reduces wastage from procurement stage to delivery stage. assigning technician. 6. Plant and Equipment Maintenance It covers the activities necessary for retaining or restoring an equipment. This strategy has the ability to reduce the production cost but puts Page 13 of 17 . The major functions involved are receiving customer complaints. orientation & training of current employees. 8. It represents activities within the maintenance functions to ensure the dissatisfactory functioning of the plant and equipment in use. 7. 1. standards and customer expectations in a cost effective and efficient manner. to ensure that the products being manufactured meet the product design specifications. machines and human resources. resolving and testing and receiving product feedback too. It represents transactions between various accounting sections covering all cores and supporting processes. It represents transactions by quality assurance functions. 5. The major functions are incoming and in process inspection. machine or plant to specified operable condition to achieve maximum useful life. materials. The major functions are managing the employee life cycle from recruitment to retirement. quality control. customers.

E-manufacturing has become a core competency.Certificate in Manufacturing Concepts TCS Business Domain Academy tremendous pressure on employees to improve the responsiveness and efficiency in every stage of lean manufacturing. Internet is a major platform for communication. EManufacturing meets the demands of the customers and improves the responsiveness and efficiency of the product. E-Manufacturing. E-Manufacturing helps to: • • Cut the lead times to meet the demands of the customers. Today. and Customer Relation Management (CRM) systems to meet the customer demands from different regions of the world. a new strategy in manufacturing. near-zero downtime Supply Chain E-Manufacturing Product Development Fig 1. plant floor and product development departments.4 E-Manufacturing Information Flow Plant Floor E-Manufacturing integrates Supply Chain Management (SCM). For organizations relying on e-business to reach to a large customer base. E-manufacturing aims to complete the gaps in the traditional manufacturing systems. Traditional manufacturing was not transparent due to lack of information sharing between the supply chain. and product development • Achieve predictive. Enterprise Resource Planning (ERP). Advantages of E-Manufacturing: Page 14 of 17 . Promote efficient flow of information flow between customers. manufacturer. overcomes this by reducing the total life-cycle cost of the product with a transparent sustainable value. By integrating all the business functions including suppliers. product development and plant floor. supply chain.

capacity and avoids uncertainties. At this instant. the production starts. customers can get updated information about the order at any time. As this process is transparent. This process reduces the excess inventory. the information regarding this order is passed across the supply chain. information will be updated dynamically.Certificate in Manufacturing Concepts TCS Business Domain Academy In E-Manufacturing. So when a customer places an order. Page 15 of 17 .

and customer relation management (CRM) systems to meet the customer demand from different regions of the world. it can be broadly classified into four types: Project. • The classification of physical goods is important to business because. variety and volume. it is classified into four types: made to stock. Light industry. Page 16 of 17 . • Value chain analysis describes the main activities that take place in an organization to have better competitive strength for the organization. • E-Manufacturing has tightly integrated supply chain management (SCM). • Fabrication is the process of designing a circuit or manufacturing a device. • Consumer goods are the finished goods which are available at retail store for personal or household use. Based on item variety and volume produced out of process. enterprise resource planning (ERP). • Based on strategy. strategy. These are Factory. marketing strategies are formulated. • By integration of all the business functions including suppliers. and Production line. Goods are classified into two types. • The quality and nature of manufacturing that identifies it and gives a distinct identity can be broadly divided into five major categories. Mass production.Certificate in Manufacturing Concepts TCS Business Domain Academy Summary • Manufacturing is defined as the transformation of raw materials. consumer goods and industrial goods. Continuous / Flow. product development and plant floor to meet the demands of the customers and also to improve responsiveness and efficiency of the product. that act as component parts / fabricated goods that is used for manufacturing the final product. made to order. supply chain. Value chain estimates what each activity adds the value to the overall productivity of the organization. and engineered to order. mechanical and chemical. These categories establish the most important features of manufacturing. Job. it is classified into two types of manufacturing: discrete manufacturing and process manufacturing. • Classification of Manufacturing is done on various aspects like end product. depending on the usage of the product. Industrials goods are used as components for manufacturing finished goods or final products. components and purchased items into a sealable product (or) finished product using different processes at different stages like assembly. Repetitive / Batch. Based on end product. Heavy industry. assemble to order.

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Chapter -2 Role of Management in Manufacturing Version4.0 For Associates Certificate in Manufacturing Concepts Page 1 of 16 .

.Confidentiality Statement This document should not be carried outside the physical and virtual boundaries of TCS and its client work locations. Sharing of this document with any person other than a TCS associate will tantamount to violation of confidentiality agreement signed by you while joining TCS.

.......................................................4 Role of the Operating Force ....................1 Corporate Mission .................................................1 Manufacturing Management........................................................... coordination and communication among the manufacturing and the other functions of the company.................... 8 2......... 8 2..........2 Operating ............ Learning Objectives After completing this chapter..................................................... 9 2....................Certificate in Manufacturing Concepts TCS Business Domain Academy Chapter-2 Role of Management in Manufacturing Introduction During the days of Industrial Revolution.............. Different facets of manufacturing management are planning............. 8 2... It was found that there were always barriers in cooperation...... 6 2..................2.. vision and strategy for an organization Activities related to planning and operations The role of the management in manufacturing planning Topics covered 2........................................................3 Corporate Strategy ............3................... The main function of manufacturing in an organization was to take the designers’ blueprint of the product and produce it......................................... 6 2........................................2.....4 Key Points to Consider Before Formulating Strategy ....3...... operating and controlling..................................... manufacturing was almost an isolated function in many organizations..................7 Changing Concept of Manufacturing Management.......................................5 Type of Managerial Decisions ...........................................................................2 Corporate Mission................................................................................ 9 2...... 6 2........................ you will be able to understand: • • • • The basic principles of management Importance of mission....................................................................2...................5 Manufacturing Policies .....2..................................................................................... 10 2...................1 Planning.............................................6 Business Process Reengineering ............................... 14 Summary ........ 11 2.......... Role of management is very important in formulating the corporate mission and strategy.................................................... 15 Page 3 of 16 ...................... 4 2................. Manufacturing management has gained advantage in the recent years......... 13 2.................................................................. 11 2....... Objective and Strategy ............3...................................... 10 2......2 Manufacturing Objective ......3 Controlling .......................2..................................3 Manufacturing Functions...........

These activities have to be in the sequence as shown in figure 2. dispatching the product. Daimler formed the Daimler Motor Company in the year 1890. the first stage is prerequisite of material.Certificate in Basics of Manufacturing TCS Business Domain Academy 2. In the case of manufacturing machine parts. DID YOU KNOW? Daimler can be considered as the founder of automobile industry. It comprises strategies.1. lower unit cost. Ford Henry created the first assembly line for automobiles. philosophies. Different processes that fall under the ambit of Manufacturing Management are performed by different divisions in a company. tactics. then procurement of material. which operate independently.1 Stages in Manufacturing of Machine Parts Page 4 of 16 . and finally receiving payment for the parts. Manufacturing Management builds on the concept of quality and the philosophy of continually striving to achieve the highest possible organization-wide standards. greater flexibility and innovation. invoice management. packaging the final product. methods and techniques which enable the management to achieve higher quality. vendor selection for purchasing the material. Management plays a vital role in integrating all the activities performed in a company. Manufacturing Management plays a vital role in achieving this. Prerequisite of material Work assignment Packaging Dispatching Invoice management Cash management Fig 2. assigning the work to different machine shops. It is important that people performing these activities work coherently.1 Manufacturing Management It is the process of performing and managing different tasks in an organization.

next step is coordination of the manufacturing activities between the organization and the suppliers. and also can be rectified completely. Distributors also lose money due to decrease in customers. This will result in losses for the company in terms of business. Once the bottlenecks are found in the manufacturing cycle. it places an urgent order for more raw materials. The distributor who has placed the order with company X will have to wait for the shipments. Meanwhile company X is facing the risk of running into loss due to the unavailability of the raw material. In turn. The above problem can be sorted out by implementing a five-step approach: Elimination Co-ordination Co-operation Integration Communication Fig 2. Since the supplier company is not prepared for the order. emergency order will become normal. and credibility in market. determining what needs to be done to reduce the time of the manufacturing cycle. money. Consider the scenario given below: Company X produces machine parts which require raw material from their suppliers.2 Activities involved in Manufacturing of Machine Parts Elimination phase involves analysis of operating cycle or manufacturing cycle. By doing this. the customers also have to wait for the product. Page 5 of 16 . it will force its workers to work overtime in order to meet the order. It also controls all the aspects of the manufacturing process from product design to product distribution and also minimizes the risk in the process.Certificate in Basics of Manufacturing TCS Business Domain Academy Manufacturing Management is often misunderstood by the decision-makers in the organization. As company X keeps very less inventory. The purpose of Manufacturing Management is to ensure efficient use of all the resources.

2 Corporate Mission.Certificate in Basics of Manufacturing TCS Business Domain Academy Cooperative attitude of the organization towards the vendor and distributor is essential in ensuring efficient supply chain management. DID YOU KNOW? China is the world’s fourth largest producer of manufacturing products. Integration of all the activities carried out in the organization is the most challenging job in any management. Objective and Strategy A firm’s corporate mission and corporate strategy are about ends and means for a firm. intended markets and products. Of the 500 top companies in world. 2.2. For example: Enterprise Resource Planning (ERP). There are many software packages available in the market which can help in integrating organizational activities. broad goals and objectives.2 Manufacturing Objective An organization’s manufacturing objective is to manufacture a quality product. • Ensure some necessary plans are taken. 2. Communication of the company with its vendors and distributors should be regular and clear to update them about the level of inventory in the company.2. Manufacturing objective may be classified into: Page 6 of 16 . on time and at the lowest possible cost with maximum utilization of resources to achieve customer satisfaction. and strategic capabilities.1 Corporate Mission Corporate mission outlines a firm’s corporate values. The main objectives of developing manufacturing strategy are: • The competitive dimensions are typically obtained from the marketing team and are converted into specific performance requirements for operations. 400 have either invested or manufactured goods in China. This will help them in planning their activities accordingly. core competencies. so as the operations and enterprise capabilities are sufficient to accomplish them. 2.

cost. Intermediate goals: These goals can be stated as the utilization targets of manufacturing inputs. methods engineering. productivity per man-hour are some of the measures of intermediate goals. tool engineering etc. facilities. including energy. work measurement. finance. machinery. working capital needed for manufacturing activities. and availability of the product.9 %. It is nearly 2/3rd of USA's total export. specified characteristics of quality and within the defined time frame. percentage of stock outs. materials. paint and clean up of the processing area for shops within 10 days etc.Certificate in Basics of Manufacturing TCS Business Domain Academy • • • • • Ultimate goals Intermediate goals Functional goals Restrictive goals Integrated goals Ultimate goals: These are product focused goals associated with manufacturing operations. Utilization of machines. maintenance. and distribution operations. rejections. Inventory turnover rate. number and rate. Restrictive goals: These represent manufacturing manager’s commitments towards other functions in the organizations. Integrated goals: These are inherent in all organizations and are increasingly imposed to optimize effort DID YOU KNOW? National manufacturing growth of USA (2001-06) was 16. machine capacity growth. Manufacturing organizations normally commit themselves to goals associated with or imposed by sales and marketing. Variable cost per unit. methods. money and manpower. wage incentives. total cost. material yield percentage and so on are some of the measures of ultimate goals. These goals are defined in terms of quality. inspection. Page 7 of 16 . Functional goals: These are related to the effectiveness of the auxiliary and support departments such as production control. machine utilization. cost of holding inventories are some of the measures of functional goals. Few examples of restrictive goals are reducing number of written customer complaints by 30 %. operating cost and rates. Primary responsibility of the manufacturing manager is to produce a product with preestablished costs. equipment. product design.

Certificate in Basics of Manufacturing

TCS Business Domain Academy

2.2.3 Corporate Strategy This states how a firm will achieve its goals and objectives. Formulating a corporate strategy is an iterative process that requires the input of all functional areas. Functional strategies must support each other, as well as the corporate strategy. DID YOU KNOW? The mission statement of Ford Motors Ltd. in early 1900's was "Ford will democratize the automobile.”

2.2.4 Key Points to Consider Before Formulating Strategy Management should focus on the following aspects before formulating a strategy: 1) The strategy should be customer oriented. 2) Competing on simultaneously cost, quality, flexibility, dependability, time, and service. 3) It should provide for investment in R & D and advanced technology. 4) It should enable integration of the system with the people. 5) It should enable continuous improvement of the firm, its products and its processes. 2.2.5 Manufacturing Policies The manufacturing policies that organizations follow are: 1) Selecting suitable, capable and experienced employees and continuously improving their skills by providing training and advancement opportunities. 2) Carrying out full-time, continuous manufacturing developments in each division and deriving benefits from the latest improvements in equipment techniques and methods. 3) Providing new facilities to each employee. 4) Minimizing the product cost by implementing new technologies. 5) Expecting all employees to comply with the daily output standards . 6) Administering wage payment plans to reward employees fairly for skill, effort and time. 7) Increasing production capacity by balancing various manufacturing operations to minimize bottlenecks and thereby improving the production process. 8) Planning the layout of all plants based on products manufactured, and dividing the facilities into self contained integrated units wherever possible.

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Certificate in Basics of Manufacturing

TCS Business Domain Academy

9) Controlling product quality to meet product specifications and to ensure the delivery of a reliable product to the consumers. 10) Planning and controlling material, manpower and facilities. 11) Providing healthy working conditions to employees. 12) Maintaining and safeguarding company assets to maximize the return over the life of the asset. 2.3 Manufacturing Functions The three basic functions of manufacturing are: 1) Planning 2) Operating 3) Controlling 2.3.1 Planning It is one of the major activities performed by the management in manufacturing organizations. Planning includes finalizing plant layout, processes, methods, machines and tools to be used. Planning also includes project management, estimation of costs, aggregate sales and operational planning, plant location decision, capacity requirement planning, Material Requirement Planning (MRP), material management etc. Expansion is a major decision for managers as they have to decide whether to set up a new plant or upgrade the existing facilities. These are high risk decisions, but are critical in gaining competitive advantage.. Manufacturing Planning: This offers the opportunity for large scale innovations, whether that task is about replacing machines, upgrading an old plant or planning a new one. It requires a careful appraisal of what is economically practical and justifiable. Most of all, however, planning requires an attitude that will inspire men to look beyond the traditional ways of doing things, with the knowledge and judgment to blend the traditional with the new. Tremendous gains are possible through intelligent planning. By implementing the planning actively a company can increase its sales up to 200 to 300 percent, and inventory can be reduced to as minimum as 25 percent. Much of this improvement can be attributed to very effective manufacturing planning. Example: For metal cutting operation, many organizations use Computer Numerically Controlled machines (CNC), which save time and reduce chances of errors.

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Certificate in Basics of Manufacturing

TCS Business Domain Academy

DID YOU KNOW? Ireland is number one in high technology exports. Over 50% of Ireland’s manufacturing exports are high end products.

2.3.2 Operating At the fundamental level, operations management is about getting day-to-day activities done quickly, efficiently, without errors and at low cost. The critical tasks of a manufacturing operations manager are training, motivating, and improving the morale of the work force. Operating functions include activities involved in the actual manufacturing of the products such as operational control, production standardization, benchmarking, setting work standards, supervision, plant maintenance etc. All the day-to-day activities are performed by the middle and lower management. Consider the following scenario: The foreman of a section or a plant has been replaced, and within a short duration, the plant has become more productive. This is an indication that the attitude and morale of the employees has improved drastically. These changes occur with little or no change in physical assets. A highly skilled first-line supervisor is the backbone of any manufacturing operation. Thus, it is critical that there technical knowledge is in line with the industry standards. Also decentralization, streamlining and simplification make the job critical for an operations manager. 2.3.3 Controlling The control functions of any manufacturing organization ensure that the product is of consistent quality, and manufactured in time and in an efficient manner. Monitoring the quality standard is a major part of controlling activities. Controlling activities also include industrial engineering, production control, reliability and quality control. In controlling functions, technological advancements inspire and sometimes force more advanced technologies. In production control, data processing and computer equipment are showing new and improved methods. Faster response levels and shorter manufacturing cycles are the requirements of modern manufacturing industry.

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.5 Type of Managerial Decisions The management has to take decisions on the following aspects of the manufacturing activity 1) Finance-budgeting and investment: a) Cash flow analysis. Add to this the increasing complexity of the equipment used. Corporate organizations depend on their operating force to implement a manufacturing plan. and the need for stringent quality control in manufacturing. DID YOU KNOW? Total quality management’s basic concept came from a chapter titled total quality control” in the book “Quality control: Principles. Practices and Administration by Armand Feigenbaum’s. Operating force is the human resource and may also be the final controller of the physical resources like raw material. operations of the manufacturing sector have become more capital intensive and less labor intensive.4 Role of the Operating Force Operating force is the last and the most important link between the organization’s objective and results. and investment portfolio. reliability is no longer merely desirable. The operating force must be deployed in a way such that it conducts the activities in a feasible and effective manner. In recent years.Certificate in Basics of Manufacturing TCS Business Domain Academy Note: Manufacturing cycle is defined as the time taken by a process or system to take the raw material from the supplier and produce the finished product. Smooth functioning of the operating force requires and effective communication link between the individual and the manager or the concerned executive. Thus. 2. Page 11 of 16 . but essential. it is important that the organization’s objectives are understood and accepted by the operating force. Change in technology will require re-deployment and training. Communication between managers and the operating force about resource utilization has become more important. Reliability and quality control are also assuming entirely new dimensions. 2. machinery etc. automobile and paper. In companies such as those of electric utilities and various process industries – like steel. long-term capital requirements. dividend policy.

b) Facilities planning i) Number of location of factories. layoffs and optimum product mix. credit risk and delinquent account procedures. c) Manufacturing i) Production scheduling and sequencing. c)Claim and complaint procedure 2) Purchasing. procurement and exploration: a) Policies for buying. warehouse and hospitals.Certificate in Basics of Manufacturing TCS Business Domain Academy b) Credit policies. b) Determination of quantities and timing of purchases. 3) Production management a) Physical distribution i) Location and size of the warehouse. ii) Stabilization of production and employment training. c) Bidding policies d) Strategies for exploration and exploitation of raw material sources e) Replacement policies. ii) Loading and unloading facilities for railroads and trucks determining the transport schedule. distribution centre and retail outlets. d) Maintenance and project scheduling Page 12 of 16 . ii) Distribution policies. supplying and stabling or varying prices.

c) Selection of Advertising media with respect to cost and time. frequency of calling on accounts per cent. ii) Maintenance of crew sizes iii) Project scheduling and allocation of resources. b) Determination of Mix of age and skills. and time spent on prospectus. 5) Personnel management a) Selection of suitable personnel on minimum salary. Page 13 of 16 . b) Determination of number of salesmen.6 Business Process Reengineering The need to become lean and remain competitive during the global economic recession in the 1990s pushed companies to seek innovations in the process used to run their operations. 6) Research and development a) Determination of the areas for research and development. 2. Business process reengineering is taking a fresh look at what the organization is trying to do in all its business processes.Certificate in Basics of Manufacturing TCS Business Domain Academy i) Maintenance policies and preventive maintenance. c) Determination of Recruitment policies and assignment of jobs. and then eliminating the non-value-add steps and computerizing the remaining ones to achieve the desired outcome. b) Project selection. 4) Marketing a) Product selection. timing and competitive actions. d) Determination of reliability and alternative design. c) Determination of time-cost trade off and control of development projects.

Certificate in Basics of Manufacturing TCS Business Domain Academy DID YOU KNOW? Michael Hammer was the first consultant to advocate eliminating nonvalue-add steps and reengineering processes. The machine operators constantly upgrade their skills to keep pace with the complexity of the constantly upgraded manufacturing machinery. often can suggest changes in design that will make the product simpler and easier to manufacture. design engineers. However. The manufacturing manager of the past tended to be insulated from other functions of the company despite knowledge of shop problems. in contrast. it is less likely unless the possibility seems even more remote in future. Personnel from manufacturing or purchasing may contribute design ideas. In controlling product costs. with their knowledge of machines and work force. including engineering. Page 14 of 16 . and even disappearing. for example. know and work along with all the other functions that relate to manufacturing. and the purchasing executives are working as a team. The net effect of all the changes discussed here is increased professionalism in all areas of manufacturing. in today’s organizations. manufacturing engineers. However. The manufacturing manager of the present must be aware of all the new techniques available in the market and possess the necessary interpersonal skills to inspire people constantly to seek better ways of doing things.7 Changing Concept of Manufacturing Management In earlier days a hard working young machine operator could work up the ladder of manufacturing to become a manufacturing manager. Example: Purchasing personnel may well be able to suggest the use of less expansive bolts or a substitute material with which the design engineer may not be familiar with. The traditional barriers between functions such as engineering and manufacturing are breaking down. 2. The manufacturing personnel. purchasing and marketing. the manufacturing managers of today and tomorrow must.

Restrictive goals.Certificate in Basics of Manufacturing TCS Business Domain Academy Summary • Manufacturing management is defined as performing and managing different tasks in an organization. • The three manufacturing functions are planning. and eliminates the non-value-add processes and computerizes the remaining to achieve the desired outcome • The manufacturing manager of the present must be knowledgeable in all the new techniques that are available in the market. Different processes that fall under Manufacturing Management are performed by the different divisions in the company. and integrated goals. methods. • Corporate mission. • Operating force (the human resource) is the final controller of the physical resources like raw material. • Integrating all the activities of the organization is the most challenging job for any management. Intermediate goals. operating and controlling Planning includes actions required to assure the use of the best plant layout. machines and tools. Page 15 of 16 . objective and strategy are the ends and means of the organization. • Control functions ensure that the product will be of consistent quality and manufactured on time and in the most efficient manner. • Operating functions include all activities involved in the actual manufacturing of the products. • Manufacturing objective may be classified as: Ultimate goals. These departments operate independently. • Business Process Reengineering takes a fresh perspective of the organization’s business processes. machinery and so on. Functional goals. processes. • Corporate organizations depend on their operating force to implement their manufacturing plan.

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0 For Associates Certificate in Manufacturing Concepts Page 1 of 20 .Chapter-3 Manufacturing Systems Version4.

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...........2.................................................................3.2... 9 3...............1...................................2.. 15 3............................................................. 11 3.................2 Fabrication ...... 5 3.......... 16 3................. Manufacturing system is a broad function that includes planning........................2 Make to Order (MTO) .................................3 Other Manufacturing Systems ....................................................2 Manufacturing Systems Classification ............... 16 3.............................................. and utilization of the company resources used to convert raw materials into stable products at optimum cost...............................................................3............1 Mass Production ...............2 Total Quality Control.........................................................................5 Design of Manufacturing Systems ...4 Installation of the Manufacturing Process ..............2................. 6 3.............. 15 3..................................... Topics covered 3.........1 Processing ........................6 Ordered Fulfillment ........................3 Assemble to Order (ATO) ..............................6.............. 10 3............2.................................................3.17 Summary .....................3........... 16 3....... 9 3............................................1 The Concept of JIT System ................................................................................................ 12 3...............................Certificate in Manufacturing Concepts TCS Business Domain Academy Chapter-3 Manufacturing Systems Introduction A broad understanding of presently used manufacturing systems is helpful to the manager interested in improving the excellence of his operations.... 13 3........ 14 3........... 14 3....... assembly................1............................................1 Engineer to Order (ETO) ..........................2 Just In Time ...............................5 Mass Customization ..6.................................................................................................................................................................... It helps in solving problems that are new to one’s competitors or one’s own industry...................................................... 18 Page 3 of 20 .................. 4 3.......1 Manufacturing Systems-Purpose ...................1 People Involvement........................ you will be able to understand: • • • Manufacturing system and its components Types of manufacturing systems prevalent today Optimal utilization of the different manufacturing systems............3.......... 5 3..................... 9 3...............3 Lean Manufacturing ............................ 11 3.................................6.................6.................................................................................... analysis..........4 Flexible Manufacturing .................................................................................. selection..............................3..............4 Make to Stock (MTS) ................... Learning objectives After completing this chapter........3.......................3...........................

but it also channels the future progress of the company.1 Manufacturing Systems-Purpose Manufacturing systems is a broad function that includes planning. material composition and intended function. and utilization of the company resources to convert raw materials into salable products at optimum cost. order frequencies. experimental developments which are still on trial and exciting new ideas which hold great promise. the subsystems are: • • • • Types of production Manufacturing processes Installation of the manufacturing processes Production management Each subsystem is interdependent on the others. assembly. • The present system and subsystem used by the company. • The product marketing objectives comprising order quantities. The system is not readily analyzed in detail because of the system’s uniqueness and complexity and it is not readily accepted because of the high investment costs. The manufacturing system extends into and overlaps the boundaries of other business systems. analysis. selection. This issue can be resolved by reviewing the industry classifications and the four key interdependent subsystems that are the essence of any manufacturing system.Certificate in Manufacturing Concepts TCS Business Domain Academy 3. and the selection of each is also influenced by the following major considerations: • The design of the products comprising size. The customer needs and the product design are influenced by the manufacturing system. especially those of marketing and engineering. It not only embodies past achievements and presents goals. • The typical systems and subsystems of the industry comprising those typically used new ones which are being generally adopted. delivery responsiveness and product line configuration. shape. and is the cumulative creation of many people under the general guidance of top manufacturing management. The manufacturing system is designed to usually evolve with over a span of time as a key segment of the business system used by the company. Page 4 of 20 .

in turn. and roll or form the steel into semi finished or finished stock products. use heavy processing manufacturing systems. These new materials. where if you once put it together. The fabrication subdivisions are heavy fabrication. Processing refers to an act of taking something from a usually identified and established set of activities and converts it from one form to another.2. such as sulfuric acid and heavy alkalies. and the general Page 5 of 20 . smelt the pig iron. you can’t take it back. the raw materials are physically reshaped into parts. citric acid and other ingredients if it once processed. serve as raw materials for further processing or for fabrication. About 90 percent of the total steel-making capacity is controlled by fully integrated companies which mine the raw materials like iron ore. The processing classification is further subdivided into heavy processing and light or fine processing. and the heavy chemicals industries. Processing 2. the extent of material handling mechanization.Certificate in Manufacturing Concepts TCS Business Domain Academy There is no ranking implied by the order of any of the above. such as steel and copper. For example.1 Processing Processing is an irrevocable activity. light fabrication. and limestone. In fabrication. It is divided into two types: (a) Heavy processing: Both primary metals industries. they are: 1. coal. the raw materials are chemically and physically changed into new materials with different compositions and forms. these parts are combined with others to make a final product assembly. It is obvious that the instantaneous relative importance of each is determined by dynamically changing conditions. a cool drink cannot be converted back to its basic components such as carbonated water. 3. refine the steel.2 Manufacturing Systems Classification Manufacturing systems are broadly classified based on the material conversion techniques into two types. The steel industry is an excellent example and can be used to illustrate the general system design. Fabrication In processing. Labor is comparatively less costly because of the tremendous batch sizes. The significant cost factors in the heavy process industries are the basic raw materials and the energy for heat and power. and bench operations. 3. Usually.

The equipment for heating. and titanium.Certificate in Manufacturing Concepts TCS Business Domain Academy overall simplicity of the processes. The growth in light processing resulted from the concept of the unit process. It usually deals with the cutting. an individual step involving a single physical change. The small-scale pilot plant is used to test the process design. welding and assembly aspects of manufacturing. and metals like boron. (b) Light processing: Most light processing is done by the industry the fine chemical industry. he constructs a pilot plant which replicates the planned production system but with the smallest equipment available. After the chemical engineer has first tested his process sequence in the laboratory. detect the corrosion and maintenance problems. 3.2 Fabrication Fabrication is the process of building structures. Page 6 of 20 . The chemical engineer also supervises the skilled laborers who later operate the manufacturing equipment. even though they are produced in very large volume. the heavy process industries are usually located near their customers. Chemical engineers who have studied these unit procedures construct flow sheets which show the coordinated sequence required to manufacture the desired product and by-products. analytical chemicals. they are frequently located on large rivers or lakes or at ocean harbors where seagoing ships can bring in the necessary raw materials and take away shiploads of finished product. These materials are carefully made to specification for special uses at high unit price and in relatively small volume. shaping. drugs. machines or equipment for further work. and evaluate plant efficiency. and the unit operation.2. It produces the more intricate chemical compounds. These materials may be classified as products of the fine chemical industry owing to their relatively high price. an individual step involving a single chemical reaction. and train foremen and other skilled labor. and moving heavy products result in correspondingly large fixed capital investments. Geographically. lithium. In addition.

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Figure3.1 A Steel Fabrication Shop

Fabrication is of two types. They are: (a) Heavy fabrication: The products of the heavy fabrication manufacturing industries are large heavy parts or assemblies, mostly made of iron and steel. The companies tend to specialize either by making roughly formed shapes such as castings, forgings, weldments, and parts from plate stock or by making large machinery or equipment. The facilities and equipment used by each are essentially dissimilar. In many instances, the larger formed steel shapes are made by a division of the primary steel producer, because the primary producer already has the furnaces and metalworking and material handling equipment in addition to the starting material. On the other hand, the assemblies are most often complex power-driven machines of unique size and are custom built as a single order or as part of a fairly standard product line. Examples of such products are railroad locomotives and cars, large farm machinery and construction equipment, electric power generating equipment, and a wide variety of industrial production equipment such as large machine tools and the huge Fourdrinier papermaking machine. The industry is characterized not only by the large, heavy products but also by the correspondingly large plant facilities, production machines, and material handling equipment. The manufacturing system is comparatively simple, because each job order is usually treated as an entity, and little or no manufacturing action is taken until the customer’s order is received. Heavy machinery and equipment are ordered singly or in small quantities because individual pieces are expensive and because their solid long-lasting construction makes replacement orders infrequent.

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Large parts for heavy machinery and equipment are made from castings, forgings, and weldments whose bulk, weight, and rough irregular form make finishing operation setup difficult and time consuming. The facilities used for the fabrication machine assemblies are more extensive and varied. Emphasis is on general purpose manufacturing equipment like horizontal and vertical boring mills, planers, shapers, radial drills, and large-size lathes and milling machines. (b) Light fabrication: There are significant differences between light and heavy fabrication that are difficult or impractical to express. There is no defined size or weight that classifies a product as being specifically either light or heavy. In seeking such boundaries, it rapidly becomes apparent that the variations present in light fabrication make any general discussion full of exceptions. In brief, there are hundreds of different products for nearly every single material made by a process industry, the work force ranges from the one-man shop to industrial giants with over a quarter of a million employees, and the facilities and equipment numbers correspond in proportion to workforce. The equipment itself ranges from small, simple hand tools to very large, complex, fully automated process systems. A review of light fabrication may only be made if one keeps both the variety and host of exceptions in mind. (c) Bench operations: In bench operations, the product is small and light enough for the manufacturing personnel to stand or sit at a bench or table while working. The essential similarity in all the products is the very high proportion of hand labor, particularly assembly. In most instances, the bench worker stays at the work station. All needed parts and materials are arranged within easy reach. Work functions include both making parts and placing them in the assembly. The kinds of products that are frequently made in this fashion are tools and dies, instruments, electronic assemblies, typewriters, and watches. It is obvious that there is a wide range of worker skills in the various companies using this manufacturing technique so that in many instances bench work is done in a single, small internal company department. The tool-anddie maker will use several machine tools away from his bench, and he is one of the most highly skilled and highly trained industrial workers. In many companies, he designs as well as builds special tools. On the other hand, a worker assembling an electric toaster has a relatively simple repetitive task, uses a few tools, and needs little skill or training.

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3.3 Other Manufacturing Systems
3.3.1 Mass Production

Fig 3.2 A typical mass production system

It is the process of producing large volumes of standardized products on the production line. Generally, mass production is also called as flow production or repetitive production or series production. Mass production uses the concept of moving belts or conveyors to move the semi- finished product to the next stage. Another noticeable thing in mass production is the use of robots and machine presses. One of the major advantages of mass production is considerable reduction in non productive efforts. DID YOU KNOW? Mass production was popularized by Henry Ford in the early 20th century for his Ford model.

3.3.2 Just In Time

The Just-In-Time (JIT) manufacturing system is a planning system that controls the availability of material inventories at the manufacturing site to only what, when & how much is strictly necessary. The JIT system is an integrated set of activities designed to achieve high-volume production using minimal inventories, raw materials, work-in-process, finished goods and other consumable goods. Now-a-days, many firms are successful in implementing the JIT philosophy to improve their productivity by reducing unnecessary inventory and avoiding delays in the execution of operations. According to the JIT system, all components and other inventory items arrive when required (i.e. just before the start of an operation). Items are picked up by the worker and fed directly

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DID YOU KNOW? A series of signals called Kanban is used in JIT. several major companies such as Hewlett-Packard. work-in-progress. Thus. Organizations should consistently maintain high quality in their products and processes. 3. Firms can achieve such quality and coordination only with the active participation.2. assigning responsibilities to workers and organizing work. Harley-Davidson and General Motors use the JIT system and are enjoying its benefits. and finished goods. Today.Certificate in Manufacturing Concepts TCS Business Domain Academy into the production process. This is a Japanese term. Firms produce finished goods only when they are required for sale. The JIT system emphasizes the elimination of inventory of raw materials. General Electric. Implementation of the JIT system requires the total transformation of the methods of designing products and services.1 The Concept of JIT System The concept of Just-In-Time states nothing is produced until it is required. which includes two important and mutually supporting components: • • People involvement Total quality control Page 10 of 20 . 3M Corporation. and is used to tell production processes when to make the next part. the system always keep work-inprocess inventory as low as possible. and cooperation of all its employees. firms should achieve and maintain high performance levels in all their operational areas. thereby reducing production lead times. Even though it is sometimes difficult to put into practice. In order to ensure smooth flow of materials in JIT system. and in the same way the sub-assemblies are made just before products are assembled. firms target the elimination of waste by the timely scheduling of inventory. involvement. This is possible only when the organization's various production processes are coordinated well. and components are fabricated just before the sub-assemblies are made. The practice of Just-In-Time aims at assembling finished products just before they are sold.3. Just-In-Time manufacturing is based on the concept of continuous improvement.

It is not just the quality control department of the firm that is responsible for ensuring product quality. This information is useful for designing the features of products in such a way that they fulfill customer needs. the JIT system encourages employees and suppliers to be innovative and make use of their creative talents. the purchasing department works in coordination with the quality control department and purchases only those supplies that meet the quality requirements. The concept of the immediate customer followed by JIT firms helps them achieve the required levels of quality. Firms look for the following three essential elements for the successful implementation of a JIT program: • • • Teamwork Discipline Supplier involvement 3. Therefore it is the responsibility of the worker to ensure the product is processed to meet certain specifications and quality Page 11 of 20 .Certificate in Manufacturing Concepts 3. A customer is considered as a person outside the firm who buys the products for consumption.1.2. For instance. The JIT system aims at the continuous improvement of the Program flexibility (or underutilization) of human capital.3.3. High quality can be attained only through the collective and coordinated effort of all the departments of the firm.2. They use a concept known as immediate customer in which each worker in the firm considers the next worker (who continues the process of production) as the customer. coordinating their goal-directed efforts and motivating them. assigning them appropriate responsibilities. Firms impart the required skills to their workforce by training them in the JIT philosophy.2 Total Quality Control The quality of product is its ability to serve and satisfy the needs of its customers.1 People Involvement TCS Business Domain Academy A JIT manufacturing system requires a strong human resources management component for its successful implementation. But JIT firms view customers in a different way. To produce high quality products. Therefore. JIT firms conduct surveys. The personnel department trains and motivates its workers to produce products of the required specifications and quality.1. deploying their marketing workforce to understand their customer needs and requirements.

In JIT manufacturing systems. lean production system demands strong merchant relationships.3. JIT firms do not maintain separate departments for correcting defects. work-in-process and finished goods to attain high production volume. they will pull order from the next station and so on back to the release of raw materials. so the parts will come to the work station when they are needed i.3 Page 12 of 20 . which finally leads to high levels of quality at each stage of the process.e. The system was developed to improve quality and productivity and is predicated upon two philosophies that are central to the Japanese culture: elimination of waste and respect for people. and a fairly predictable demand for the end product. When an item is sold. where a worker then pulls another unit from an upstream station in the flow to replace the unit taken. Only items of acceptable quality are delivered to the immediate customer. This generates an order to the factory production line. Production need is created by actual demand for the product.Certificate in Manufacturing Concepts TCS Business Domain Academy requirements before passing it to the next worker. i. Workers are made fully responsible for the work they carry out at their workstation and they are entrusted with the job of inspecting their own work. the worker who identifies the defect is authorized to stop the process and take necessary actions thereafter. The features of lean manufacturing are shown in fig 3. This system is also based on the principle nothing is produced until it is needed. “Just-In-Time” and move through the process quickly. Lean manufacturing was developed in Japan and it is used by the Toyota Production System – the benchmark for lean manufacturing. the immediate customer. 3. the retailer pulls a replacement order to replace the item.3 Lean Manufacturing The lean manufacturing or lean production system is defined with set of activities comprising using least amount of inventories such as raw materials.e. From this station. The employees have to identify and correct their own mistakes and send the products to their immediate customers. Every worker analyzes the types and sources of errors and then develops methods to prevent them in the future. To allow this pull process flow to work smoothly. In case a worker delivers a defective item or an improperly finished item to the worker's immediate customer. each worker is trained in quality principles and testing procedures.

inventory. with other production activities.Certificate in Manufacturing Concepts TCS Business Domain Academy What it is Management philosophy “Pull” system through the plant What it does Attacks waste (time. 3. These systems are designed to produce a family of parts and can produce different parts simultaneously and in random order. Firms such as Allen-Bradley are linking their manufacturing systems to each other.3 Features of lean manufacturing DID YOU KNOW? The philosophy of Lean manufacturing is derived from Toyota Production System. scrap) Exposes problems and bottlenecks Achieves streamlined production What it requires Employee participation Industrial engineering / basics Continuous improvement Total quality control Small lot sizes What it assumes Stable environment Fig 3.3.4 Flexible Manufacturing A Flexible Manufacturing System (FMS) is a group of workstations (such as CNC machines) integrated by automated materials handling equipment and controlled by a central computer. and even with other departments. Integrating these islands can magnify the strategic benefits advanced technology offers. Page 13 of 20 . The benefits of this system are: • • • • • improved product quality and consistency increased productivity reduced work-in-progress and finished goods inventories reduced labor costs reduced floor space requirements Flexible manufacturing systems and other applications of advanced technology are simply islands of automation.

it is common practice to make the plant layout decisions and treat them as a purely technical specialist task. process flexibility and product flexibility. routing flexibility. production flexibility and market flexibility. expansion flexibility. The second is the product market plan: Checking whether the mass-production product is at a low price. A creative and imaginative management. the global market for semiconductor chips. It is a fairly new concept that is being recognized as the ultimate way to derive benefit from the flexibility inherent in advanced technologies. However. flexible manufacturing processes are giving a tough competition to the concept of mass customization.Certificate in Manufacturing Concepts TCS Business Domain Academy There are three types of flexibilities in manufacturing: 1. two are particularly important to plant layout planning. Firms pursuing a strategy of mass customization lower the cost of specialized products to a point where conscious purchasers of the commodity product become value conscious purchasers of the differentiated product. 3. 3. 2. Of the management decisions that should be made. Aggregate flexibilities – Program flexibility.5 Mass Customization Mass customization is the mass production of customized goods and services. material handling flexibility and operation flexibility.4 Installation of the Manufacturing Process Once the technical manufacturing process is complete and operation decisions are made. DID YOU KNOW? The Japanese dominate the world market in mass customization with their high-volume production of commodity chips sold in millions. The first is to define company growth objective: Checking whether the company size is going to increase or decrease or stay the same. the next step is to plan the implementation of these decisions. In the fabrication industries. will recognize the need for careful planning of manufacturing strategy in order to achieve company objectives.3. For example. Basic flexibilities – Machine flexibility. 3. however. System flexibilities – Volume flexibility. a premium Page 14 of 20 .

and manufacturing is carried out accordingly. For some business requirements. They are released when there is sudden increase in demand or shortage of raw material. The production management system provides this means by cross-linking the manufacturing system components into a useful. Organizationally. 3. companies manufacture for inventory and store the products. If the order fulfillment process is efficient. process. production problems. or a product line at different quality and price levels. 3. production management is divided into production planning and production control. It is customary in the fabrication industries to designate three types of layout as line production. effective unit. the steps to finish the process and the cost to achieve the fulfillment will be less. Although the need for these decisions is evident. it is often erroneously assumed that the plant layout specialist has all this information and has made the necessary provisions in the layout.Certificate in Manufacturing Concepts TCS Business Domain Academy product at a high price. Depending upon the customers’ specifications. Manufacture for inventory – In this system. and corrective actions with production personnel. depending upon some special requirements of the customers. Manufacturing management is usually well aware of the utility of production control and normally takes an active part in frequently reviewing production status. depending on the elemental consideration of how material moves through the plant during product manufacture. the order fulfillment process might also end up with a high cost. Orders are taken from the customers. one of the following methods will be implemented by the firm: Page 15 of 20 . low-cost production. Depending upon the customers or business requirements. Order fulfillment process is mostly used to describe the logistics and distribution functions.5 Design of Manufacturing Systems Design of the manufacturing system must include some means of steering it toward the goal of efficient. the order fulfillment process might be complex as well as challenging for the firms to supply the customized products. Alternatively. Manufacture for custom order – Products is customized in this system. the order fulfillment strategies are formulated.6 Ordered Fulfillment Oder fulfillment is the process of how a manufacturing firm services its customers from the sale touch points to final delivery of product. and fixed position.

it allows the customer to have more customization when compared to the ones available with retailers. For instance. When the customer places the order. 3. Though it makes the customer wait for the product. For engineer to order products. This strategy is mostly used when technology is the major constituent in the process of manufacturing. For example.6. the design will be standardized to all the customers. The raw materials may be procured and stored. For instance. based on the order specifications the components are assembled and given to the customer quickly. engineers start designing the product according to customer’s requirements (or) when product is ordered by the customer. In Make to Order. BHEL manufacturers heavy electrical products for companies such as NTPC. but the components will be customized according to the customer specifications and availability of components in the factory or in the market. In manufacturing. where the manufacturer specifies a modular product architecture that allows for the final product to be configured in this way.1 Engineer to Order (ETO) Make to Order (MTO) Assemble to Order (ATO) Make to Stock (MTS) Engineer to Order (ETO) Engineer to Order is a unique order given by specific customers and these are mostly business to business orders. Page 16 of 20 .6. customers emphasize their involvement from the start of design till the product is finished. and routings which are complex and takes long lead times. this strategy is mostly used for Dell's approach to customizing its computers. this strategy is mostly used for high-end motor vehicles and aircrafts.3 Assemble to Order (ATO) In assemble to order. the basic components or raw materials which are necessary to assemble the product are procured and stored by the manufactures.2 Make to Order (MTO) Make to order is also called as Bill to Order. bill of material. but will not be assembled unless the customer’s order is placed because the product may require a unique set of item numbers.Certificate in Manufacturing Concepts TCS Business Domain Academy • • • • 3. 3.6. This strategy is used where assembly is a major activity.

This strategy is based on push-type production.6. Here the demand forecasting should be done accurately to avoid excess inventory and stock outs.Certificate in Manufacturing Concepts 3. For instance. this approach is common in the grocery and retail stores. which depends on demand forecasting.4 Make to Stock (MTS) TCS Business Domain Academy In Make to Stock. the products are manufactured against a sales forecast and these products are sold-out from the stocked finished goods. Page 17 of 20 .

• Design of the manufacturing system must include some means of steering it toward the goal of efficient.e. Processing is further classified as heavy and light processing respectively. It is a fairly new concept that is being recognized as the ultimate way to derive benefit from the flexibility inherent in advanced technologies. This system is also based on the principle nothing is produced until it is needed. repetitive production or series production. so the parts are delivered to work station when they are needed i. assembly. • Mass production is the process of production of large volumes of standardized products on the production line. • The Just-In-Time (JIT) manufacturing system is a planning system for manufacturing processes that minimizes the availability of material inventories at the manufacturing site to only what. analysis. In manufacturing. light and bench operations. It is also called flow production. work-in-process and finished goods to attain high production volume. engineers start designing the Page 18 of 20 . • Manufacturing systems are broadly classified as either processing or fabrication. The concept of just-in-time states nothing is produced until it is required. • Oder fulfillment is the process of how a manufacturing firm services its customers from the sale touch points to final delivery of product to the customer. low-cost production. The production management system provides this means by cross-linking the manufacturing system components into a useful. when and how much is strictly necessary. “just in time” and move through the process quickly. • The lean manufacturing or lean production system are defined with set of activities which use least amount of inventories such as raw materials. • Mass customization is the mass production of customized goods and services. and utilization of the company resources used to convert raw materials into saleable products at optimum cost. selection. • A Flexible Manufacturing System (FMS) is a group of workstations (such as CNC machines) integrated by automated materials handling equipment and controlled by a central computer.Certificate in Manufacturing Concepts TCS Business Domain Academy Summary • Manufacturing system is a broad function that includes all the planning. and fabrication into heavy. • Engineer to Order is a unique order given by specific customers and these are mostly business to business orders. effective unit.

when the customer places the order. • In Make to Stock the products are manufactured against a sales forecast and these products are sold-out from the stocked finished goods. • In Assemble to Order. Page 19 of 20 . where the manufacturer specifies a modular product architecture that allows for the final product to be configured in this way. based on the order specifications the components are assembled and given to the customer quickly.Certificate in Manufacturing Concepts TCS Business Domain Academy product according to customer’s requirements (or) when product is ordered by the customer. but the components will be customized according to the customer specifications and availability of components in the factory or in the market. • Make to Order is also called as Bill to Order. In Make to Order the design will be standardized to all the customers.

Chapter-4 – Product Life Cycle
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.....................................2 Cycle-Recycle Pattern ................................................................................3... 10 4................... 8 4.1 Strategies for the Decline Stage .....3. 6 4..................3.................. 9 4........................ 11 4...... 7 4........ 12 4........................ maturity and decline.....................3..................... 7 4................................. 9 4............1 Product .1.....................................................................3............................................. Product Life Cycle (PLC) covers the different phases in the life of a product.......................................................... namely introduction........................................................ 14 Page 3 of 15 ......................................4 4...2 Classification of Product ...............................................4 4.............2..........................1 Strategies for the Growth Stage ................................................................3 Product Life Cycle (Plc) ......... Every new product goes through certain phases.........5 Limitations of Plc ................3 Maturity Stage ..............................................................................4............. Learning Objectives After completing this chapter............................................................................................................................................ it is necessary for organizations to update their product portfolios and improve the quality of their existing products..........................................................4....................... growth.....1 Growth-Slump-Maturity Pattern .1 Introduction Stage .4 Decline Stage ................................3.......3 Scalloped Plc ..............4........................................................... you will be able to understand: • • • The different phases in the life of a product The strategies adopted by management in different phases of PLC The limitations of the PLC Topics covered 4.................4 4....4......2 Growth Stage ........................................3.........................6 Role of Technology in Plc ..................................1 Strategies for The Introduction Stage ...............................3..................................3...... 8 4............Certificate in Manufacturing Concepts TCS Business Domain Academy Chapter-4 Product Life Cycle Introduction With the invention of new technologies............ 8 4........................ 13 Summary ...... 11 4............................................ 10 4.1 Strategies for the Maturity Stage ....................................4 Common Alternative Patterns of Product Life Cycle ...............................................

1 Product A product can be a good.edu/alex/chapt11. Source: http://www.1 will explain in detailed about the product classification.3 Product Life Cycle A new product typically goes through a sequence four stages in its life.udel.html 4. an idea or a combination of all these. a service. Classification of Products Durability and Tangibility (a) Non durable goods (b) Durable Goods (c) Services Usage Consumer Goods (a) Convenience goods (b) Shopping goods (c) Specialty goods (d) Unsought goods Industrial Goods (a) Material and parts (b) Capital items (c) Supplies and business services Figure 4. which are as follows: a) Introduction b) Growth c) Maturity d) Decline Page 4 of 15 . tangibility and usage. for example.1 Classification of products 4.2 Classification of Products Products are generally classified on the basis of their characteristics.Certificate in Manufacturing Concepts TCS Business Domain Academy 4. durability. The Figure 4. It consists of a bundle of tangible and intangible attributes that satisfy consumers and is received in exchange for money.

thus impacting the marketing strategy and the marketing mix. equipment or space. while eliminating the unprofitable ones. The degree of participation of manufacturing versus R&D at any point in a new product life cycle almost exactly follows the quantity of that item produced. marketers try to evaluate and adjust strategies for promoting. This may be due to a marketing desire to revitalize a product approaching obsolescence in its present form. the product moves from one stage of its life cycle to another. This requires Page 5 of 15 . This means that there has been little or no coordination between the R&D and manufacturing units in the determination of requirements for personnel. Product Life Cycle (PLC) analysis can be a very valuable tool in the hands of manufacturing companies to gain a better understanding of how to better managing their profitable products. a manufacturing desire to reduce the cost of a product or a marketing desire to vary the product for competitive reasons. from the inception of the idea to the point at which it is decided to remove the product from the market. pricing and distributing the product. Fig. As shown in the figure 4.2. which is linked with changes in the marketing situation. Many a time the manufacturing manager is faced with the need to revise an already established product.Certificate in Manufacturing Concepts TCS Business Domain Academy This sequence of four stages is known as the product life cycle. 4. Serious problems can arise when the R&D phase of a product finishes before manufacturing begins.2 Different Phases of Product Life Cycle Both the manufacturing and R&D units of a company need to be aware of the progress on a project from the day it is initiated.

Should new capabilities be required. This knowledge can be most helpful in guiding R&D personnel towards a design approach.Certificate in Manufacturing Concepts TCS Business Domain Academy the manufacturing unit to be closely connected with the R&D so that the changes suggested by the R&D unit do not affect the design objective of the product.3. Fig. the product is introduced to the customer. Introduction of a new product is difficult for the following reasons: Page 6 of 15 . 4.1 Introduction Stage In the introduction stage. The contribution of R&D in such instances can occur at any point during the marketing phase of a given product. Properly coordinated marketing strategy would institute the need for such a change in sufficient time to achieve this goal.3 PLC of a Manufacturing Industry Product Role of Manufacturing Engineers The manufacturing engineer is the one to consult for the techniques and processes used in an organization. The manufacturing engineer would know the capacities and capabilities of the available equipment. the manufacturing engineers should be notified in due time so that a thorough investigation of what can be purchased or what needs to be developed can be made. 4.

uses and advantages to potential customers. and the unit manufacturing costs comes down with the company’s scale of production. By using this strategy firms builds brand preference in the customers’ minds. In this stage the firm generally sees a growth in sales. This strategy is mostly successful when the potential market is not aware of the product. • Slow penetration: In this strategy. they are more pricesensitive. Marketers resort to this strategy when the market size is large. the firm launches the new product at a lower price and a high promotional level.3. the firm launches the new product at a higher price with a higher promotional level to skim the market quickly. heavy Page 7 of 15 .2 Growth Stage The introduction stage is followed by the growth stage. • Slow skimming: In this strategy. competition is not intense and customers are ready to pay a higher price for the product. the firm launches the new product at a lower price and low level of promotion. they are pricesensitive. there is a strong competition among firms. 4.1.Certificate in Manufacturing Concepts TCS Business Domain Academy • • The high advertising and other costs The high risk of new product failure The company needs to • • • Inform the customer about the product Induce product trial Secure distribution in retail outlets Advertising is one of the most effective tools at this stage of the PLC because marketers must communicate their product’s features. 4. • Rapid penetration: In this strategy. customers are highly aware of the product. the firm launches the new product at a higher price and a low promotional level. The growth stage is crucial for the product’s survival in the market because the reactions of the competitors to the product’s success will affect its longevity. This strategy is most successful when the market is aware of the product. the market size is limited.3. and there exists some potential competition in the market.1 Strategies for the Introduction Stage Following are the strategies for the introduction stage: • Rapid skimming: In this strategy. customers are unaware of the product. This strategy is applied when the market size is large.

The profit of the firm increases initially as • • The promotional costs are spread over a larger volume.1 Strategies for the Maturity Stage Marketers may adopt the following strategies during the maturity stage of a product Page 8 of 15 . and The unit manufacturing cost is less. Weaker competitors and smaller firms are squeezed out of the market. forcing the lowering of prices and heavy spending on promotion. Finally the sales start declining and customers start trying out new products and substitutes. At a later phase in the growth stage. the profits begin to decline as competition increases. the distribution channels get worn out and the growth rate of sales starts slowing down. They introduce new product features and a wider distribution network.3.Certificate in Manufacturing Concepts TCS Business Domain Academy demand for the product and a peak in the profits. There is fierce competition at this stage as several brands try to compete with each other. flavors and so on.1 Strategies for the Growth Stage Marketers may adopt the following strategies during the growth stage of a product: • Re-establishing aggressive pricing. lowering prices to attract price-sensitive customers • Highlighting the product’s benefits in order to create a competitive niche it in the market. Other changes to the product may include making it available in different sizes. Companies increase their promotional expenditure to meet the competition. Then the sales tend to flatten or stabilize on a per capita basis.2.3.3. product quality and models. 4. • • Introducing new distribution channels Entering new markets 4. As the market reaches its saturation.3. 4.3 Maturity Stage This stage is marked by a steady decline in sales and a corresponding one in profits. new firms are attracted to enter the market in the growth stage. Seeing these promising opportunities in the market. • Improving / adding features.

Typical barriers to exit include highly specialized assets.3. Firms which have high exit barriers stay on in the market. new packaging and even product re-launches.asp#ixzz1lyNvOrNF 4.1 Strategies for the Decline Stage To tackle the decline stage.investopedia. introducing fresh advertising campaigns. some declining faster than others. and inter-related businesses.Certificate in Manufacturing Concepts TCS Business Domain Academy • Concentrating on products which are profitable and abandoning the ones that are not • Increasing advertising and sales promotion. 4.3.4 Decline Stage Eventually the sales and profits of all products and brands tend to decline. such as asset write-offs and closure costs. The size of the exit barriers influences the capacity of the firms to withdraw to a great extent. huge exit costs. The reason for decline in sales could be • • • Technological advances Increase in competition Shift in consumers’ tastes and preferences etc. Firms tend to leave the industry when the exit barriers are low and vice versa. especially those that are not earning any profits • • Cutting promotional budgets and prices Ultimately withdrawing from the market or from the weaker segments and trade channels A company can adopt any of the following five strategies when its product is facing the decline stage: Page 9 of 15 . Exit barriers: Obstacles or impediments that prevent a company from exiting a market. using it as an opportunity to attract the withdrawing firm’s customers. firms start withdrawing their products from the market. making it infeasible to sell a part of it Source: http://www.com/terms/b/barriers-to-exit. As the sales begin to dwindle. which may be difficult to sell or relocate. most firms indulge in strategies like: • Reducing the number of products in a product line.4. • Investing more in R&D to improve the existing product and extend product line.

• Investment is utilized in a correct way by dropping the unprofitable customer groups and strengthening the firm’s investment in profitable niches.Certificate in Manufacturing Concepts TCS Business Domain Academy • Firms tend to increase the investment to increase its competitive position and lead the market. • Firms tend to maintain constant investment level until the market reaches stability. 4. The sale of this product is sustained by the late adopters and laggards while the early adopters of the product switch to newer products.1 Growth-Slump-Maturity Pattern In this type of sales pattern. • • Harvest the firm’s investment to recover the cash quickly.4 Common Alternative Patterns of Product Life Cycle There are three common alternative patterns of product life cycle that exist. These are: • • • Growth-slump-maturity pattern Cycle recycle pattern Scalloped pattern 4. Divest the business through disposal assets. DID YOU KNOW? Maruti 800 is at decline stage of product life cycle. 4.4. Fig. the product sales are high in the introduction stage subsequently declining drastically.3 Growth-slump-maturity pattern Page 10 of 15 .

3 Scalloped PLC In this cycle. When a new drug is introduced it is promoted aggressively to capture the market. and automobile tires . hosiery.2 Cycle-Recycle Pattern Generally these sales patterns occur in the pharmaceutical industry. Fig. 4.5 Scalloped product life cycle Example 1: The sale of nylon show a scalloped pattern because of the many new uses of itparachutes.4 Cycle recycle pattern 4. When the sale of this product too starts declining an innovation is again introduced to retain market share.Certificate in Manufacturing Concepts TCS Business Domain Academy 4. 4.that continued to be discovered over time. boat sails. Fig.4. whenever the sale of a new product begins declining an innovation to the product is made to recapture the market. shirts. The promotional push that is subsequently required to increase / sustain the sales of the drug is called another cycle. This is called the first cycle. carpeting. Page 11 of 15 .4. This cycle is repetitious in nature.

However some products may continue at the same stage for long. The policy of liberalization by the government and the changes in the competitive landscape transformed the market for scooters. but it needs to be implemented with care. so that they are not misled by its prescriptions. and scooters with the typical family vehicle for the urban middle class. the economic progress of the country. 4. gradually made Maruti 800 a substitute / replacement for the scooter. Some of the limitations of the PLC are: • The sales of some products may rise and decline at the same rate. Further. the company introduced technologically superior products. and the rising aspiration of the middle class.Certificate in Manufacturing Concepts TCS Business Domain Academy Example 2: Bajaj has been synonymous with scooters in India. This took place at a time when motorcycles were becoming the “cool” vehicle for the urban Indian youth. The adoption of this approach helped the brand remain contemporary. The four stroke engine and sleeker models introduced by the company helped to slow down the decline in the demand for scooters. There was a time when the demand for Bajaj scooters far outstripped the supply. Page 12 of 15 . which improved the income level of the people. • Increase in marketing activities such as promotion may alter the shape of the PLC sales curve to a considerable extent. • The PLC outlines the phases but does not give any indication of the duration of the stages (introduction.5 Limitations of PLC The concept of PLC helps in manufacturing decision-making. and the brand enjoyed a near monopoly. Example: Increase in advertising at the maturity or decline stage may increase the duration of these phases. Example: Cadbury’s Dairy Milk chocolate has survived for decades in the mature stage of the PLC. The company also introduced an array of motorcycles. This limits the use of PLC as a forecasting tool since it is not possible to predict when maturity/decline will begin. In order to buckle the trend in the market for scooters. growth. maturity). Manufacturing managers need to be aware of these limitations.

integrating people. • Product life cycle management reduces the product’s risks. technology has played a critical role in product life cycle management in many ways. The benefits of PLM software focus around time. To sustain oneself in the fierce competition and meet the customer’s expectations. data.Certificate in Manufacturing Concepts TCS Business Domain Academy 4.html Advantages of Technology in PLC • Product life cycle management improves the management of product at each stage of PLC. cost and quality. • Product life cycle management helps in the achieving of realistic business benefit. Page 13 of 15 . • Product life cycle management allows the business to respond quickly to the customer’s demand.product-lifecycle-management. processes and business systems and providing a product information backbone for companies and their extended enterprise. For example. So.info/what-is-plm/plm-benefits.6 Role of Technology in PLC In recent years many software have been developed to manage the product life cycle. Source: http://www. Product Life cycle Management Software supports the product development process. it is necessary to manage the product portfolio. It increases the revenue. and leads to faster product production and enhanced profit margins.

a service. • There are three common alternative patterns of product life cycle. maturity and decline. Strategies adopted by management in introduction stage are rapid and slow skimming. growth. • • • In the introduction stage. • The sales and profits of all products and brands tend to decline in the decline stage of the PLC.Certificate in Manufacturing Concepts TCS Business Domain Academy Summary • • A product can be a good. Page 14 of 15 . • In maturity stage. The stages that a typical product goes through are introduction. then reach a point of stability. the sales tend to grow at first. the product is introduced into the market. and then begin to decline. a heavy demand for the product and a peak in the profits. • The growth stage is characterized by an increase in sales. The sale of the product is low at the time of its introduction into the market. and high and low penetration. Cycle Recycle and Scalloped PLC. an idea or a combination of all these. namely GrowthSlump-Maturity.

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Chapter-5 Capacity Requirement Planning Version4.0 For Associates Certificate in Manufacturing Concepts Page 1 of 14 .

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................................ The factors to be considered while selecting capacity additions for manufacturing are (a) effects of economies of scale (b) impact of changing facility focus (c) balance among production stages (d) degree of flexibility of facilities and the workforce....................................4 Capacity Focus ................................... 5 5............. 11 Summary ...... you would be able to • • • Capacity management in manufacturing sector Capacity planning concepts Determining capacity requirement Topics covered 5........................................................Certificate in Manufacturing Concepts TCS Business Domain Academy Chapter .....................................1 Capacity... 7 5................7 Determining Capacity Requirements ...............................................6 5.............................4 5......................................................6 Capacity Planning ........................................................... The purpose of capacity planning is to match resource capabilities of the factory with its long-term demand forecast................................3 Economies and Diseconomies of Scale .................8 Using Decision Trees to Evaluate Capacity Alternatives ...5 Capacity Requirement Planning Introduction Capacity planning is one of the most important investment decisions... 13 Page 3 of 14 ......4 5....................... 5 5.................................................................................... Learning objectives After completing this session....................................................2 Capacity Planning Concepts......................................... 4 5...................................5 Capacity Flexibility ...................

computer equipment. 5. “Best Operating Level” concept is used. whenever a plant gets larger.3 Economies and Diseconomies of Scale The basic idea of this concept is. defect rates.Certificate in Manufacturing Concepts TCS Business Domain Academy 5. For instance an automobile industry is able to produce 300 cars per day. The objective of capacity planning is to provide an approach for determining the overall capacity level of capital intensive resources like facilities. Difficult task is to find this minimum cost because it entails a complex trade-off between the allocation of fixed overhead costs and the cost of overtime.2 Capacity Planning Concepts The term capacity means. because a piece of equipment which has twice the capacity of another typically does not cost either to purchase or to operate. an attainable rate of output. Capacity utilization rate is an important measure. and administrative support personnel. Capacity is a relative term: in manufacturing operations management context. and labor force size. Source: Operations supply chain Management by chase Example: In manufacturing. This is a process designed for finding the level of capacity and this is the volume of capacity at which average unit cost is minimized. Capacity utilization rate= Capacity used/ Best operating level Normally. equipment. Whenever plants gets bigger it also gains efficiency to fully utilize the dedicated resources for tasks such as material handling. it automatically increases the volume of output and decreases the average cost per unit. and other costs. capacity can be the number of products that may be produced in a single shift. but the company didn’t mention how long that rate can be sustained.1 Capacity Capacity implies an attainable rate of output. It partially happens due to lower operating cost and capital cost. 5. Thus. it may be defined as the amount of resource inputs available relative to output requirements over a particular period of time. so it requires that the numerator and denominator must be measured in the same units and time approach. So to avoid this ambiguity. Page 4 of 14 . capacity utilization rate is disclosed in percentage. which discloses how close a firm is to its best operating point. equipment wear. we don’t understand whether it is manufacturing 300 cars per day is a one-day or a six month average.

was twice as productive as Jaguar building 1. Sweden. about 14 cars per employee. quality and flexibility etc.466 cars with just 5472 workers. where in. working in tandem with engineers and management. The factory was designed with input from the industrial staff. This type of flexibility is achieved only by following the strategies that use the capacity of other organization. BMW AG’s mini unit has produced 1.000 vehicles at a single British plant with just 4500 workers or 39 cars per employee. At the same time. To deal with these contradictions. But with increase in technology. This in turn helps to focus on different operating objectives at different level for each department and thereby still carrying the Capacity focus concept in each level. each plant may have several sub organizations having their own objectives and policies made under the same roof.4 Capacity Focus The capacity focus concept epitomizes the production concept of an organization which focuses on a limited set of production objectives like cost.26. The capacity focus concept can also be operationalized using a plant within plant strategy. 5.58. Page 5 of 14 . rather 29 cars per employee. Alternatively. 5.5 Capacity Flexibility Capacity flexibility has a great advantage over production. instead of excelling in all the aspects. 74. there is a need for all aspects of production to do well and give a competitive advantage to the organization. In this concept the organization selects those set of production activities which fulfill most of the objectives. a firm can justify its selection of objectives and capabilities based on its level of operation. they had too many plants and therefore employed 8560 workers in three plants that produced 1. Volvo’s plant in Torslanda.Certificate in Manufacturing Concepts TCS Business Domain Academy Example: Jaguar is the luxury automobiles producer which recently found that. DID YOU KNOW? The XEROX focused factory creates a flexible and efficient work environment where teams of employees are responsible for the end to end manufacturing or specific products. it has the ability to either increase or decrease the production levels drastically and it also has the great flexibility to shift the production capacity quickly from one product to another product or service.122 cars.

and also by using these technological approaches there are advantages like low cost switching from one product line to another. knockdown walls. For example. and the use of external capacity. It is not possible to achieve such “perfect” design in practice because of two reasons. where it is simple to set up the equipment. they can work on any type of machinery and also they can easily switch from one kind of job to another. These workers need boarder training than specialized training and for adapting the quick changes these people need managers. The second reason is Page 6 of 14 . easily accessible and re-routable utilities. supporting staff. Where their abilities are. department 1 may operate at their best over a range of 100 to 120 units per month. Flexible processes Flexible process is characterized by flexible manufacturing systems. the output of department 1 should provide the exact input requirements for department 2 and so on.6 Capacity Planning While adding capacity to the factories there are many issues to be considered. This is sometimes referred to as economies of scope.Certificate in Manufacturing Concepts TCS Business Domain Academy Flexible plants A flexible plant has an advantage that it can maintain zero-changeover-time. etc. For instance. Three important issues are maintaining system balance. frequency of capacity additions. the first reason is that the best operating levels will always differ from department to department. Source: Operations supply chain Management by chase Flexible workers These flexible workers have different skills sets. economies of scope exist when multiple products can be produced at a lower cost in combination than they can separately). whereas the next stage in the process or department 2 might operate at best over a range 80 to 95. in a circus it is easy to install and easy to tear down and move. For instance. Maintaining System Balance A perfectly balanced plant should always maintain exact input and output requirements at all the stages. (By definition. 5. A plant can quickly adapt to changes by using these methods like movable equipment.

delay-in subsequent methods can be removed. 5. it is necessary to identify the demands for individual product lines. Airlines are best example for sharing capacities. try to keep bottleneck process always in working stage or zero downtime even by using buffered stock. Few of the measures taken are scheduling overtime. Frequency of capacity addition While adding capacities to the factory. The first type of cost is upgrading capacity too frequently. Instead. These airline companies use the two flights in same route sharing the demand for that season. Whenever new equipment is purchased additional cost is incurred over selling price of old one. individual plant capabilities. and allocation of production through the plant network. In final method. External source of capacity Sometimes.7 Determining Capacity Requirements While determining capacity requirements. This excess capacity must be carried until it is utilized. To avoid this process imbalance there are three methods. In the first method. when there are two routes one is frequently used and the other is not. whenever there is a bottleneck in the process add capacities to the process. this type of capacities are also expensive because capacities are purchased in large amounts. two types of cost should be considered. Typically this is done according to the following steps: • Implement forecasting techniques to forecast sales for individual products within each product line.Certificate in Manufacturing Concepts TCS Business Domain Academy “variability in product demand” and if the production lines are not automated they might lead to process imbalance. Page 7 of 14 . leasing equipment or purchasing additional capacity through subcontracting. it is better not to add capacities at all. Outsourcing and sharing capacity are the two common strategies used by the most of organizations. by duplicating the process in which there is bottleneck. use some external source of capacities to manage the demand. this type of capacities are too expensive because it includes removing and replacing the old equipment with new one and also training the workers on that equipment. In the second method. By using these methods. The second type of cost is upgrading capacity too infrequently. Finally some more costs are incurred like cost of ideal time of the plant during changeover period.

These detergents are available in both bags and single serving pouches. Sometimes firms also decide to maintain a negative capacity cushion. For this factory. Capacity cushions can be defined as an amount of capacity in excess of forecasted demand. • Direct and indirect cost should be planned for a period of time.Certificate in Manufacturing Concepts TCS Business Domain Academy • To forecast product depth.7 percent of the demand. the marketing department has provided data for the forecast demand values (in thousands) for the next five years and this campaign is going to continue for the next two years. Example of determining the capacity requirements A detergent company produces two varieties of detergents: Surf and Surf-Ex. This 20 percent of excess capacity is called as capacity cushion. Sometimes firms decide to maintain capacity cushions between the projected requirements and actual capacity. if a company has forecasted the demand of the product would be around 12 million per year and they produced the capacity for 10 million per year. They produced only 16. For instance. Negative capacity cushions can be defined as produced capacity less than the forecasted demand. approximate measure of the equipments and labor requirements. which is called as negative capacity cushion. management is willing to forecast the equipment and labor requirements for the next five years. Solution Step 1: Implement forecasting techniques to forecast sales for individual products within each product line. if a company has forecasted the demand of the product would be around 10 million per year and they designed the capacity for 12 million per year. Page 8 of 14 . For instance. For running the promotional campaign for Surf-Ex.

Surf-Ex bags and pouches Year 1 Surf 60 Bags (000s) 100 150 200 250 2 3 4 5 Pouches (000s) 100 200 300 400 500 Surf-Ex 75 bags (000s) Pouches (000s) 200 400 600 650 680 85 95 97 98 Step 2: To forecast product depth.000 bags per machine per year and each machine requires two operators to produce both bags of Surf and Surf-Ex. it is easy to calculate the forecast of total product line just by adding the yearly demand of bags and pouches as follows: Page 9 of 14 . From the preceding table. Presently there are three machines that can package up to 150. Currently. approximate measure of the equipments and labor requirements are made. 20 pouching machine operators are available. There are five machines that can package up to 250.Certificate in Manufacturing Concepts TCS Business Domain Academy Table 5.1: Forecasted demands for the Surf.000 pouches per machine per year and each machine requires three operators to produce both pouches of Surf and Surf-Ex. Six bag machine operators are available.

Page 10 of 14 .Certificate in Manufacturing Concepts TCS Business Domain Academy Table 5.9 bag machine* 2 operator= 1. From the table.2 machines. In the same way.3*3= 0. we will need 300/1250= 0.9 machine. or 0. The operator requirement for year 1’s bag operation is 0.24*5= 1.24 of the available capacity for pouches bags for the current year.2 pouch machine* 3 operators= 3. The number of operators required to maintain our forecasted demand for the first year will consist of the operators required for the bags and the pouch machines. we will be using 135/450= 0.3 of the available capacity for the current year.000 each).2: Forecasted demands for the bags and pouches Year 1 2 3 4 5 Bags 135 185 245 297 348 Pouches 300 600 900 1050 1180 Now it is easy to calculate equipment and labor requirements for the year 1. the total available capacity for bags is 450.6 operators Step 3: Direct and indirect cost should be planned for a period of time. Repeat the previous calculation for the remaining years.8 operators 1.000 per year (3* 150. or 0.

46 3.6 4.98 2. The detergent Company can now begin to develop the intermediate.3: Represents direct and indirect cost occurred Year 1 2 3 4 5 POUCH OPERATIONS Percentage capacity utilized Machine requirement Labor requirement 24 48 72 84 94 1.2 4.6 14.2 10.62 1.4 3.Certificate in Manufacturing Concepts TCS Business Domain Academy Table 5.31 1. A decision tree is a sequential Page 11 of 14 .24 3.96 4. 5.6 7.8 12.62 There is a positive capacity cushion for all five years because the available capacity for both operations is always exceeding the expected demand.8 2.23 1.sales and operations plan for the two production lines.8 Using Decision Trees to Evaluate Capacity Alternatives Decision tree is an easy way to solve the capacity planning problem.1 BAG OPERATIONS Percentage capacity utilized Machine requirement Labor requirement 30 41 54 66 77 .9 1.7 3.2 2. It helps not only in understanding the problem but also in finding a solution.

Page 12 of 14 . Expected values are calculated at each step keeping in mind. The process of solving the decision tree problem starts from the last branch and gradually moving towards the start of the tree in reverse order. Circles show the probability of occurrence of an event and squares represent decision point. recently many software packages have been developed.Certificate in Manufacturing Concepts TCS Business Domain Academy problem solving method in which each step gives the conditions and the consequences of the problem. To analyze the decision tree. the time value of money. Decision trees consist of nodes and branches represented by squares and circles respectively. there is a flow of information from the branches to the node or visa versa. It is important to consider the time value of money while planning for long term. Generally.

data availability. Therefore. • These strategies are related to flexible plants. By predicting the most probable future value of a variable. the average cost per unit of output drops. • A convenient way to lay out the steps of a capacity problem through the use of decision trees. and cost & accuracy. and allocation of production through the plant network. Such flexibility is achieved through strategies that use the capacity of other organizations. • The objective of selecting the right method is to maximize accuracy and minimize biases. Capacity is a relative term: in manufacturing operations management context. The basic notion of economies of scale is that as a plant gets larger and volume increases. the suitability of a forecasting method should be verified before it is selected. flexible processes. and flexible workers. • • The factors to be considered are time span. individual plant capabilities. The tree helps not only in understanding the problem but also in finding a solution. managers take effective decisions and carry out planning activities. • The concept of the capacity focused factory holds that a production facility work best when it focuses on a fairly limited set of production objectives.Certificate in Manufacturing Concepts TCS Business Domain Academy Summary • Capacity implies an attainable rate of output. we must address the demands for individual product lines. Page 13 of 14 . In determining capacity requirements. or to shift production capacity quickly from one product or service to another. • Capacity flexibility means having the ability to rapidly increase or decrease production levels. • Forecasting seeks to predict what is most likely to happen in future. it may be defined as the amount of resource inputs available relative to output requirements over a particular period of time. A decision tree is a schematic model of the sequence of steps in a problem and the conditions and consequences of each step. • • The term capacity implies an attainable rate of output.

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Chapter-6 Product Design and Development Version4.0 For Associates Certificate in Manufacturing Concepts Page 1 of 16 .

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Certificate in Manufacturing Concepts

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Chapter - 6 Product Design and Development
Introduction Increased competition in the global business environment is compelling operations managers of from manufacturing industry to streamline their operations, and to develop innovative products and designs. Product design is the description of the specific stages in the production process and the relationships among the stages. Learning objectives After completing this chapter, you will be able to understand the: • • • • need for product design and its development different steps taken in the development process concept of prototyping various tools and technologies used for the design process

Topics covered

6.1 Product Design and Development – An Overview ....................................................4 6.2 Factors Affecting Product Design Decisions .............................................................4 6.3 The Product Development Process ........................................................................... 5 6.4 Rapid Prototyping .....................................................................................................6 5.5 Automation in Design ................................................................................................ 7 6.5.1 Computer Aided Design ........................................................................................ 7 6.5.2 Computer Aided Manufacturing ...........................................................................8 6.5.3 Flexible Manufacturing System .............................................................................9 6.5.4 Computer Integrated Manufacturing .................................................................. 10 6.6 Industrial Design ...................................................................................................... 11 6.7 Measuring Product Development Performance ..................................................... 11 6.8 Variants of Development Products ......................................................................... 12 Summary ........................................................................................................................ 15

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Certificate in Manufacturing Concepts

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6.1 Product Design and Development – An Overview Product design refers to the description of the specific stages in the production process and the relationship among the stages that enable the production system to produce products or services. The products or services should meet the desired quality standards, and should also be produced at the right time (when the customer wants them) and within the budgeted cost. New product development (NPD) is the process of bringing a new product to the market. NPD is the first phase in product life cycle management. New products can be of the following types: • • • • • • Changes in the existing product Entire revision of the core product Line extension New product line Repositioning Completely new product

6.2 Factors Affecting Product Design Decisions Operation managers take the following factors into consideration before deciding on a product design.

Nature of demand – The main objective of any production system is to fulfill customer requirements. Therefore, an organization should schedule its production to meet requirements and estimated future demand levels.

Degree of vertical integration – Vertical integration refers to the extent to which the production and the distribution chain (extending from the suppliers of raw materials and components to the delivery of finished products) are brought under the ownership of the organization. The degree of vertical integration determines the extent to which a product and its components are produced internally.

Flexibility – A flexible organization responds quickly to changing customer needs and market conditions. Flexibility is essential for organizations to increase and maintain their market shares, both in terms of product as well as in terms of volume.

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Degree of automation – If automation is not made a strategic weapon, it will be a limitation for the operations. By automating their operations, organizations can produce products/services of high quality within a short period and can also shift to other products/services easily.

Quality level and degree of customer contact – The product’s competitive position in the market depends on its quality. Decisions taken on the desired quality level of products/services affect the design of the product as well as its production process. The desired level of quality has a direct implication on the degree of automation in the production process.

6.3 The Product Development Process A firm follows the below mentioned activities to conceive, design, and bring a product to the market. The following are the six activities involved in the product development process: 1. Planning – This is the initial activity or phase zero which gives approval to launch the actual product development process. This activity starts with formulation of corporate strategy and evaluation of technology developments and market objectives. The output of this phase is the product mission statement that explains the products’ target market, business goals, limitations and assumptions about the product. 2. Concept development –This stage includes identification of the target market, assessment of various product concepts, selection of a product concept for further development and testing. The product concept describes the product’s form, function, features and specification. This is followed by an analysis of competitive products and the economic justification of the product. 3. System level design –This stage defines the architecture of the product and the product is broken down into subsystems and components to define the assembly scheme for the production system. 4. Design detail – This phase includes the design specification of the product like geometry, materials, and tolerances of all the unique parts in the product. At this stage suppliers are also identified for purchasing standard raw materials. A process plan is prepared and tooling is also designed for the production system. 5. Testing and refinement –This stage involves assessment and construction of a prototype of the original product. This prototype is usually built with the same

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model) built to test a concept/process or to act as a thing to be replicated or learned from or standard for later stages. early sample. The main purpose of the production ramp up is. The speed with which a company can design and develop new products is a critical element in its ability to introduce new products into the marketplace. Rapid prototyping is building a model of the short-listed ideas to enable an understanding of the idea. Right. 6. Rapid prototyping. combined with Design for Manufacturing and Assembly (DFMA) tools. DID YOU KNOW? When a design consultancy group called IDEO designed a phone.4 Rapid Prototyping A prototype is an original type. and product use). 6. can determine if a product will perform its desired functions. and Right. The process consists of three Rs: Rough. assembly. the product is made and ready to be produced in-large quantities at the factory. but the procedure followed in the production may not be the same. or (form instance. and production people to provide their input and test the design early in the development cycle. they cut out dozens of pieces of foam and cradled them between their heads and shoulders to find the best shape for a handset. in the early stages. It also tells how well and for how long rapid prototyping will work. when the new product is designed by R&D.Certificate in Manufacturing Concepts TCS Business Domain Academy materials and dimensions. they have to train the factory personnel and also resolve the problems faced by them during the actual production. Production ramp up – At this stage. Rapid. The first two Rs state that the models must be made roughly rapidly since. The models developed with three-dimensional prototype. A three-dimensional prototype can help in identifying the problems. Page 6 of 16 . The third attribute. allowing the design. a model need not be perfect. refers to building a lot of small models until a solution is reached. engineering. Use of DFMA in the early stages of rapid prototyping can reduce the expenses in the later stages (manufacture. results in higher quality products and lower development costs.

The physical attributes of the process or products can be illustrated using computer graphics while computer-aided engineering systems can highlight the operational capabilities of the proposed design. evaluating and presenting a design for a product). Some of the benefits of using CAD include: • • • Increase in productivity Improvement in the quality of product or process design More standardized products and design documentations Page 7 of 16 . structure. part. The use of CAD systems in product design enables production engineers and marketing personnel to view the items and suggest changes in the design before the commencement of production. Once the design procedure is completed. Using a CAD system. etc. modification. By introducing CAD. Several models such as the wire frame model (illustrates the outline of the product structure in 3D space) are used to represent the parts in desirable forms. the CAD system generates detailed drawings required to create a product or process.5 Automation in Design The use of computers can improve the speed and simplify the design process of a product.) and stores this model in the computer database. Computer systems assist in the creation. 6. A CAD system provides comprehensive tools for improving design process. Source: Operation Supply Management by Chase CAD system incorporates computer graphics and computer-aided engineering systems. A few of the topend CAD packages allow testing at the drawing stages thus eliminating the need for costly prototype testing at the initial stages of the product design. an organization can improve the quality and functionality of a design. The design process includes analyzing.Certificate in Manufacturing Concepts TCS Business Domain Academy 5. The designer working with a CAD system creates the lines and surfaces that form the object (product. analysis and optimization of a design. a designer can generate various views of an assembly and its components.1 Computer Aided Design Computer Aided Design (CAD) is a technique used for designing product and process on a computer terminal.5.

a variety of operations are performed by automated machines.5.wikipedia.2 Computer Aided Manufacturing In Computer Aided Manufacturing (CAM). Computer programs can be stored in a database and can be retrieved. For example. inventory control. purchasing. They can also be transmitted electronically in-house or externally by satellite to other divisions and facilities. 6. updated. and revised as components are added / redesigned.1 A digital multi-CAD view of a crane Source: http://en. It involves capturing data regarding the flow of items through automatic means such as bar coding.Certificate in Manufacturing Concepts TCS Business Domain Academy Fig 5. Computer Numeric Controlled (CNC) machines store operational instructions on their on-board computers which control their operations. Direct CAM links computers directly to one or more machines such that the production processes are monitored and controlled by computer signals. Page 8 of 16 . Operation managers generally apply indirect CAM for activities such as capacity planning. and using this information in planning and scheduling production activities. computers are used either directly to control the processing equipment or indirectly to support manufacturing operations. Based on the sequential instructions given by the computer within operational specifications. quality reporting and so on.org/wiki/CAD DID YOU KNOW? The first milestone in the history of CAD was in the field of mathematical work on curves developed by Robert Issac Newton in 1940s. The use of computers to indirectly support manufacturing operations is often referred to as indirect CAM.

It is a form of flexible automation in which several machine tools are linked to the material-handling system.org/wiki/Image:Ugs-nx5-mold-tooling. The conveyor moved the parts to each workstation where the machines performed a predetermined task. 6.Certificate in Manufacturing Concepts TCS Business Domain Academy Benefits of using CAM are: • • • • • Reliable information inputs Consistent product quality Reduction in labor costs Better control and management of equipment materials Improvement in production rate Fig 5.2 An exploded view of CAM generated moulding and tooling box Source: http://en.5. A central computer controls all the aspects of the system. The components that make up a typical FMS are: • An automated loading system to load materials Page 9 of 16 . which were involved in the production of large volumes of a single product or similar products. which was a fixed-path conveyor with single-purpose equipment installed on either side of it. Flexible Manufacturing Systems (FMS) was introduced in production lines.wikipedia. This system is effective in producing different items that have similar processing requirements. To overcome these inefficiencies.3 Flexible Manufacturing System Early automation systems consisted of a transfer line. This automation was economical only for those organizations.jpg DID YOU KNOW? Dassault Systems and UGS Corporation (now owned by Siemens) are the world’s largest CAM software companies.

they are employed only by those production organizations in which all the products produced utilize similar components or different products manufactured are variations of the same basic design. Table 5. and customer billing) of a firm. Table 5. In many ways. FMS requires huge capital investments in equipment.5. shorter response time. design review materials planning. All operational and information-processing functions help the company in fulfilling the customer service.1 illustrates the components of CIM.4 Computer Integrated Manufacturing Computer integrated manufacturing (CIM) integrates all the functions of CAD/CAM and also includes the business functions (order entry.1 Components of CIM Computer Integrated Manufacturing (CIM) Business activities CAD CAM Planning drafting Capacity Control planning. consistent quality of products and better control over the manufacturing processes. Hence. inspection Page 10 of 16 . computer technology is applied from customer orders through design and production (CAD/CAM) to product shipment and customer service. and planning and control systems. order Engineering entry. fabrication. analysis. which are automated to change tools by themselves • • • A system to move materials in between machining centers An unloading system A central computer to integrates the whole process In comparison with the traditional automated systems. assembly. cost accounting. maintenance of employee. billing and so on. CIM is considered as an upgraded technological progression for an organization. For a normal CIM system. However. Process controls. CIM represents the highest level of integration in manufacturing. the FMS offers advantages such as reduced direct labor. shop-floor computer-aided process planning computer-aided inspection Manufacturing activities: Materials handling. payroll. 6. Procurement. time records and payroll.Certificate in Manufacturing Concepts TCS Business Domain Academy • Two or more machining centers. control.

In the US automobile market.6 Industrial Design Industrial design is an art where the aesthetics and usability of the products being manufactured or to be manufactured can be improved for marketability and production. 6. the growth of models and market segments over the last 25 years indicates that an auto firm must increase its development projects to 4 times more than their current projects to maintain its market share. the definition of industrial design has been changed. working on the car or adjusting a computerized furnace thermostat. Companies should concentrate on the changing customer needs and activities of their competitors to identify the opportunities and growing needs of the customer and bring the new product and processes quickly into action. firms need to have much more development projects than previously. most of the customers have complaints regarding the use of the product or service. companies are coming up with the more advanced technological features in their product which are not fully operated by customers. But smaller volumes per model and Page 11 of 16 . sales & marketing. The role of an industrial engineer is to create and implement the design solutions to the problems of engineering. In the present scenario. with fewer resources.Certificate in Manufacturing Concepts TCS Business Domain Academy 6. and brand development.7 Measuring Product Development Performance Many studies reveal that continuous development of new products is important to sustain in the competitive environment. who use only a small number of the available features. with the negligible costs of computer chips. It mostly happens in the field of electronics. Note: IDEO is one of the most successful industrial design firms in the world. With the fast growing competition and varying model life styles . Companies concentrate much on developing their technology in-order to compete in the market. For example: Setting the VCR. DID YOU KNOW? Quality function deployment is an approach for including the opinion of the customer into the design specification of a product. This is actually deviating from the consumers end benefits.

and customer service are taken into consideration. 6. is an example of technology push.8 Variants of Development Products There are several variants of product development strategies existing today which have been / can be developed by different techniques. chemicals. manufacturing. foods. i. and productivity. Process intensive products – These are mostly produced in large quantities because it follows standard production procedure as the production process has an impact on product. an expanded Teflon sheet manufactured by W. the technology pushes development. along other activities like sales. Page 12 of 16 . 2. 3. and development activities.Certificate in Manufacturing Concepts TCS Business Domain Academy shorter design lives mean resource requirements must drop dramatically. Gore-Tex. Instant film used in Polaroid cameras. time.L. when there is an opportunity and a need. that is.e. Remaining in the competition requires efficient engineering. To determine the market impact of the product and its profitability. For example. Gore Associates. and paper. Platform products– A product with more additional features to the existing product technology is considered to be a platform product. quality. Measures of product development success can be categorized into: • • • Speed and Frequency of bringing new products or introducing to the market. advertising. and the Apple Macintosh Operating system. These are: 1. Technology push products –A firm begins with a new proprietary and looks for an appropriate market to apply this technology.. the firm begins the product development strategies with all the requirements to satisfy the market needs. Productivity of the actual development process. 4. Hence the product design cannot be separated from the production process design. tape transport mechanism in Sony walkman. Market pull products – The market pulls the development decisions. Quality of the actual product introduced. design. Few examples of process intensive products are semiconductors.

Evaluation of the risk should be done at regular basis without delay. As each of these processes is executed in parallel. low priority features are also incorporated into the evolving product. batteries. hence it is divided into subsystems and the subsystems are further divided into components. Customized products– These products are developed to meet customer specific order request and are modified versions of the standard products. Examples: switches. Quick build products– In the present scenario. Complex systems– While developing a complex system. While considering the architecture of the entire system. and containers. These subsystems are. a modification in the generic product deals with a number of system level issues. The testing and Page 13 of 16 . In most cases. building a highly uncertain technical product requires that its key features are tested in the earlier stages of the process to avoid risk in the later stages. High risk products– These products are entailed with large risk related to technology and market. and then combined into the overall system. the product’s features are disintegrated into high. 7. build. motors. The risks can be avoided by completing the required design and test activities earlier in the process. do not allow the incorporation of the low priority features in the next generation of the product. Each of these components is managed by different teams and special teams are assigned to integrate these components into subsystems. building and testing prototype models has become a rapid process. For example. the lack of budget or time. This is possible by addressing the biggest risk in the initial stages of the product development. and test activities. This is followed by several cycles of design. To further speed up the development process. the entire system level becomes critical.Certificate in Manufacturing Concepts TCS Business Domain Academy 5. For example. Hence. the product development process is planned to face risk. it is often referred to as concurrent engineering. beginning with the highest priority to medium priority features and if time and budgets do not overrun. integrate. electronics and software products of recent times use the design-builttest cycle which can be repeated many times. 6. medium and low priority in the design phase. This process explores multiple solutions simultaneously and ensures that one of the solutions succeeds. 8. Due to this. a number of subsystems architectures may be considered as competing concepts for the overall system. The interactions across the components and subsystems are managed by system engineering specialists.

Page 14 of 16 . all large scale products such as automobiles and airplanes comprise many complex interacting subsystems and components.Certificate in Manufacturing Concepts TCS Business Domain Academy refinement phase includes not only system integration but extensive testing and validation of the product. For example.

modification. concept development. testing & refinement.Certificate in Manufacturing Concepts TCS Business Domain Academy Summary • Product design refers to the description of the specific stages in the production process and the relationship between the stages that enable the system to produce products or services. The system incorporates all the engineering functions of CAD/CAM and the business functions of the firm. production • • New product development is the process of bringing a new product to the market. Page 15 of 16 . • Rapid prototyping can quickly produce three-dimensional prototypes allowing design. • Computer Integrated Manufacturing (CIM) is the next step in the technological progression of an organization. to the productivity of the actual development process. • Industrial design is an art where the aesthetics and usability of the products being manufactured or to be manufactured can be improved for marketability and production. The six phases of the generic development process are planning. • Measures of product development success can be categorized into those that relate to the speed and frequency of bringing new products online. and to the quality of the actual produced introduced. Computer systems assist in the creation. A central computer controls all the aspects of the system. and production teams to provide input and test the design early in the development cycle. engineering. analysis and optimization of a design. design detail. and production ramp up. system level design. • • CAD is a technique used for designing product and process on a computer terminal. • In Computer Aided Manufacturing (CAM). • Flexible manufacturing system (FMS) is a form of flexible automation in which several machine tools are linked to the material-handling system. A CAD system incorporates computer graphics and computer-aided engineering systems. computers are used either directly to control the processing equipment or indirectly to support manufacturing operations.

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Chapter-7 Manufacturing Processes Version 4.0 For Associates Certificate in Manufacturing Concepts Page 1 of 18 .

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.. so that the best fit can be used in his organization..................................................... 8 7.............................4 Selecting the Type of Process ............................................................................Certificate in Manufacturing Concepts TCS Business Domain Academy Introduction The term process structure has a broad perspective and includes issues like the plant capacity.........2....1 Assembly Charts ................................................................................................................ choice of equipment..........1 Manufacturing Process ......................................................2...2................. work force management.....................................2.............................. 11 7................ 10 7....................2 Process Charts .... The design of a manufacturing process is an important part of the structure of operations.................................1.......... process technology................................................5 Measuring Process Performance .......................3......................................... 4 7...........3........ 13 7.1 Discrete Unit Manufacturing ............................... Hence it becomes mandatory for an operations manager to be aware of various manufacturing processes possible..1.....................................................1 Variety and Volume ........................ 16 Page 3 of 18 ....................................... you would be able to • • • • • • Understand the need of manufacturing processes Types of manufacturing processes existing today Which type is best suitable for what kind of operations Degree of control in the process used Tools used for selecting and designing a process The procedure for selecting the process Topics Covered 7...........................................................4.................... Learning Objectives After completing this session.2 Process-Focused ................4.... 6 7................... 10 7......................... 14 Summary ..... etc.......................................................... 4 7............2 Process Manufacturing ...................3 Economic Analysis .............. 5 7............2 Types of Processes ..........................3 Group Technology .............. 4 7.... production control.......3 Delivery of Services ..............1 Cellular Manufacturing ...................................................................1............................................4........................................................................................ 11 7.......................2..............2 Investment ........................3................................................................. 9 7................................................................... 11 7.........................................3 Process Planning Aids .................................................................................................... 13 7...2....1 Product-Focused ...... 6 7......................................2.... 6 7..................

In this type of process. Items follow a similar production sequence. It takes input from the market environment and the organization’s own technological capabilities and convert them into an economically efficient and productive activity. which can be anything from a pipeline (for oil) to an assemble line (for televisions or radios). Product-focused systems offer many advantages like low unit costs. 7. This involves a series of discrete tasks or activities performed by an integrated set of people and equipment. linear and continuous paths in which raw materials.Certificate in Manufacturing Concepts TCS Business Domain Academy 7.2 Types of Processes The various types of processes that are generally used can be classified into three broad categories: • • • Product-focused Process-focused Group technology 7.1 illustrates the direct. on the type of process design that should be used to produce each product or service. they require higher initial investments because of the use of specialized and expensive fixed position processing equipment in the production process. products or services tend to flow along linear paths without backtracking or side tracking. Page 4 of 18 . sub assemblies. assemblies and finished products flow in the production of a hypothetical product. high volumes of production and ease of planning. this type of process is used mostly in production departments that are organized according to the type of product or service being produced. components. It is essential for an organization to decide. However.1 Manufacturing Process A manufacturing process is a set of activities that transform the resources and expertise of an organization into higher value goods and services. Figure 7.2.1 Product-Focused Product focused is also referred to as Line flow production system.

by disassembling the finished product stage by stage in exact reverse order. and delivery of services. touched and seen. like • • • Low labor skill requirements Reduced worker training Reduced supervision and ease of control A product-focused production system is generally designed for three forms of production: discrete unit manufacturing. In discrete manufacturing it is possible to get raw materials. For instance all the automobiles.2.1 Schematic layout of a product focused system Many managers prefer this system for the benefits it offer. process manufacturing.1.1 Discrete Unit Manufacturing Discrete manufacturing is reversible process.Certificate in Manufacturing Concepts TCS Business Domain Academy Raw materials Components (Made) Sub assemblies Assemblies Finished product Components (Procured) Sub assemblies Sub assemblies (Procured) Fig 7. In industry terminology discrete manufacturing is. Page 5 of 18 . Manufacturing of finished product using dissimilar items that can be counted. 7.

plastic. services are administered to customers while they move in a sequence or in a linear route. paper. steel and brewing industries. because products undergo an intermittent process of production.2 Process Manufacturing 7. 7. chemical. It is widely applied in the cement. this is also called as batch production. storing. Fig 7. Personnel are allocated according to their functions for processing the equipment and the products flows through the facilities on irregular paths as these are customized products. for instance. Process manufacturing involves the movement of materials between operations such as screening.2 Process-Focused In a process-focused system.Certificate in Manufacturing Concepts TCS Business Domain Academy 7.2. As the process focused systems produce different items in small quantities on general purpose machines. The system is also referred to as an intermittent production system.2 Process Manufacturing Process manufacturing produces multiple products in stages. crushing. cooking. as the products move from department to department in batches (jobs) that are usually determined by customers’ orders. In such a system.2. The system is also referred to as job shop. fermenting.2.3 Delivery of Services Delivery of services can also use a product-focused process. the petroleum industry.1. blending. It is leads to irreversible changes. mixing. evaporating and distilling. Page 6 of 18 . all the operations are grouped according to the type of process. milling. Services delivered by waiters in restaurants make use of this system.1.

in this type of production system.2 illustrates the zigzag type of routes followed by products in products flow. processfocused production systems require greater employee skill. As per their design requirements. Two or more jobs undertaken by a production organization may come to the same department at the same time. In large production organizations.Certificate in Manufacturing Concepts TCS Business Domain Academy Figure 7. On the plus side. in practice. This is a simple case where one job waits for its turn in one department. Product-focused and process-focused production systems represent two types of traditional approaches for organizing production activities. But. This system allows both sidetracking and backtracking in the product flow route.2 Process focused production – A schematic layout The system has its own merits and demerits. If the department cannot work on both the jobs simultaneously. Receiving raw materials storage Foundry Welding and soldering Lathe section Quality control Painting and packaging Job A Job B Fig 7. especially when major portion of production time actually comprises the time in which jobs are waiting to be processed in different departments. they are routed through different design departments to undergo different operations in different sequences. In the figure. many Page 7 of 18 . Job A and Job B represent two different product designs. They also require less initial investment since they use general-purpose equipment that is less expensive. several jobs are kept waiting in various departments. This system may lead to loss of time. one of them has to be kept waiting. Also. process-focused production systems are more flexible because of their ability to produce a wide spectrum of products in small batch sizes. more employees training. more supervision and complex production control.

dissimilar machines are grouped into work centers to work on products similar in shape and processing requirements. Whenever a new product is to be designed.2. A group technology layout is similar to both product layout and process layout because each cell is dedicated to a limited range of products and each cell is designed to perform specific set of processes respectively. a process-focused approach is used because of the great variety of component designs involved. Suppose an organization produces mild steel (MS) bolts of varying specifications. If all the bolts to be produced are processed on similar lathe machines. Hence. it is easy to route the parts in production. the codes of existing products can be accessed to identify similar parts present. Organizations draw the following benefits by implementing the coding system: • Coding gives a clear picture of the steps that are involved in producing a part. as the organizations put in greater efforts to cut production costs. similar parts are made on the same machines with similar tooling. This code has several digits. But in the downstream part of the factory that produces finished products. where components and sub-assemblies are prepared.e. a typical factory producing television sets uses a blend of the above two systems. A database can be maintained with the design details of old parts. Such practices have now become very common. thus simplifying the process of production. In the upstream part of the factory. 7.Certificate in Manufacturing Concepts TCS Business Domain Academy organizations use blends of these two approaches. • Parts with similar characteristics can be grouped into families as similar products are generally produced in similar ways. i. For instance. It is also referred to as the parts classification and coding system. Page 8 of 18 . each digit representing a physical characteristic of the part. In group technology. This simplifies the process of manufacturing new products. they can be grouped into a part family. each part manufactured is given a code. • Coding results in standardization of part designs. In this type of process. a product-focused approach is used because of the relatively small variety of designs involved.3 Group Technology Group technology is most widely used for metal working applications.

Certificate in Manufacturing Concepts TCS Business Domain Academy DID YOU KNOW? The concept of group technology was first used for production processes in the late 1940s in the Soviet Union. each cell consisting of a group of similar machines.3 illustrate an example of cellular manufacturing layout. products are similar to one another. and the flow of parts within the cell is more like a product-focused system.org/wiki/Cellular_manufacturing Cellular manufacturing offers many advantages for organizations.3. Japan. Later. Within each cell. a production organization can be divided into different cells such as lathe section. boring section. These cells can be used to produce those parts that are needed more often in moderate batch sizes. the United States and many European countries.3 A typical cellular manufacturing layout Source: http://en. it was studied and applied in India. Figure 7. For instance. drilling section. Fig 7. 7. Some of the advantages of cellular manufacturing are: Page 9 of 18 . grinding section and so on.1 Cellular Manufacturing Cellular manufacturing is a type of group technology in which the total production area is conveniently divided into cells.2. Here each product is manufactured in its own cell.wikipedia.

thereby increasing productivity. Moreover. This results not only in the increase of production capacity.1 Assembly Charts Assembly charts are used to obtain a general understanding of the entire process involved in producing products which involve assembly of a number of parts. their costs of training can be brought down significantly. but also in the reduction of production costs. Managers generally use assembly charts and process charts to redesign. update and evaluate their production processes. as compared to that in noncellular group technology.3 Process Planning Aids Process planning is essential for designing and implementing a work system that will produce the required quantity of goods and services. • The route of production through cells is more direct. as they are exposed to a smaller variety of machinery. the machine changeover times between batches of parts are considerable reduced. This results in a significant decrease in in-process inventory levels.3. 7. There are many advantages in this.Certificate in Manufacturing Concepts TCS Business Domain Academy • As similar parts to a particular cell. But all job shop production should not be converted to group technology production because this production system is economical only for those parts that possess a degree of standardization and are produced in moderate batch sizes. • Parts spend less time in waiting before they are processed. It also permits quicker shipment of products. DID YOU KNOW? Cellular manufacturing is an integral part of lean manufacturing. like reduction in material handling costs and simplified production planning and control (PPC). These advantages may lead to group technology and cellular manufacturing being adopted by many organizations in the future. 7. It is a continuous activity. They provide an overall macro view of the movement of components and sub-assemblies in the process of Page 10 of 18 . This improves the quality of output. workers gain specialized skills in production. • As the workers in a particular cell are made to work on a set of similar machinery. it being capable of managing the resources quite efficiently. as production volumes have to be continuously adapted to the changing demand for goods and services.

They also show the material requirements (i. delay. or modifying the tasks. the list of all major components). the distance traveled and so on. the time for each step. except that they include extra information like description of the various steps involved.4 demonstrates the effect of batch size and the diversity of product designs on an organization’s selection of product design. sub-assembly operations. In these charts. and the volume of demand for each product model. Some of these factors are: • • • Variety and volume Investment Economic analysis 7.1 Variety and Volume The type of process design that is appropriate for a production system depends greatly on the range of product i. 7.3. Thus.2 Process Charts Process charts are similar to assembly charts. combining tasks. Figure 7. quality checks and assembly operations that are involved in making a mechanical assembly. Process charts can be used for process planning when new products are being planned or when existing operations have to be improved. Page 11 of 18 . changing the sequence of tasks. Each activity can be reviewed by examining whether it can be improved by eliminating a task. their frequency of occurrence.e.4 Selecting the Type of Process Operations managers consider several factors before choosing a production process for an organization.Certificate in Manufacturing Concepts TCS Business Domain Academy producing a finished product. Non-productive activities like storage. Process charts are used to compare alternative way of performing operations. variety. these charts help the manager analyze the efficiency of operations.4.e. 7. it is a standard practice to indicate operations by circles and inspections by squares. and transport are also included.

As the product varieties decrease further and the batch size of the product increases at point R. with sometimes a batch containing just a single unit. As the product variety decreases and the batch size of products increases to point Q. as we move from point P to point S. In such a case. The other extreme. This production system helps managers reduce unit production costs to the lowest level. it is inflexible and impractical to alter the equipment to make it possible to produce other products. a product-focused production system that is dedicated to the production of a non-differentiated product is appropriate. cellular manufacturing for the production of parts in a job shop system becomes more appropriate.4 Influence of product diversity and batch size on process design decisions In the figure. represents a case where there is not much scope for product variety and the batch size is very large. unit production cost and product flexibility decrease. Point P represents a case in which a variety of products is manufactured. At this point. However.Certificate in Manufacturing Concepts TCS Business Domain Academy P D i v e r s i t Process focused Job shop system Cellular Manufacturing Q System Product focused Batch system Product focused Dedicated system R S Batch size Fig 7. point S. This system in relatively inflexible and necessitates special training for employees to shift their production activities between various products. a product-focused batch system can be implemented. Page 12 of 18 . Process-focused job shop production systems with very high flexibility are appropriate in such cases. similar products are produced in small batches.

The capital investment required also influences the decision maker’s choice of production system for the organization.4. Such a system consists of inflexible equipment that is specialized to the product. Hence. the greater are the fixed costs. The product-focused system is associated with high fixed costs. 7. These costs are related to the expensive machinery. a comparatively lower initial investment in fixed assets is required.3 Economic Analysis Each type of process design requires a different amount of funds for its implementation. it can be inferred that for the given product. If the availability of funds is not a major constraint. because fixed and variable costs tend to differ from one production system to another. a cellular Page 13 of 18 . Variable costs differ with the volume of products produced in each period. huge investments are required for setting up a product-focused production system that is dedicated to the production of a particular product. Many organizations adjust their business strategies to meet their production targets by using the limited funds available. In the case of process-focused job shop system. 7. The variable costs associated with this system are relatively low as compared to the other types of process design. and necessitates specific training of employees for producing the product. but there is a steep growth in variable costs when the production volume is increased. say one month. managers can select the process design on the basis of the targeted production volume of the product. automated controls and fixed-position material handling equipment. a process-focused job shop design is preferable if the annual production volume is less than roughly two lakhs of units.4.Certificate in Manufacturing Concepts TCS Business Domain Academy Thus. The fixed and variable costs of cellular manufacturing generally lie between these two process designs. If the production volume ranges between approximately two lakhs and three lakhs. The greater the investments in fixed assets.2 Investment In general. the number of product models that is to be produced and the volume of demand that is expected for each product model has a significant effect on the manager’s selection of process design.

partial factor productivity is measured based on an individual input. If during a shift the operators actually produce at a rate of 46 boxes per minute. These metrics tells not only about the firms’ progress but also suggest the improvements to be made for the firms’ progress. Though managers consider factors like the variety and volume of products and the amount of initial investment required while selecting the process design. labor. • Run time – It is the time required to produce a batch of parts. The setup time is the time required to prepare a machine to make a particular item. labor being the most common. and capital investment for producing the product. the utilization of machine resource in a factory or the utilization of a direct labor for producing the goods. • Efficiency – It is the ratio of the actual output of a process relative to some standard. Operations managers need to improve the performance of a process frequently or project the impact of a proposed change.Certificate in Manufacturing Concepts TCS Business Domain Academy manufacturing system is preferable. by taking the value of the goods and services sold and dividing by the cost of the material. 7. Machines that have significant setup time will typically run parts in batches.5 Measuring Process Performance There is a lot of variation in the way performance metrics are calculated in practice. Metrics like process performance gives details about the productivity of the process and also tells that the productivity is changing over time. Utilization is always measured in reference to some resource – for instance. a machine is used to package cereal at a rate of 40 boxes per minute. Total factor productivity is usually measured in monetary units. • Productivity – It is the ratio of output to input. For higher volume. The Page 14 of 18 . On the other hand. then the efficiency of the machine is 120 percent (46/40). For instance. an important factor that should be considered is the profitability associated with the selected process design. This is calculated by multiplying the time required to produce each unit by the batch size. a product-focused production system that is totally dedicated to the product is preferable. These are different types of metrics used to measure the performance of a process: • Utilization – It is the ratio of the time that a resource is actually being used relative to the time that it is available for use. dollars – for instance.

Value-added time is the time in which useful work is actually being done on the unit. The operation time to make a batch of 10000 12-ounce boxes is 21800 seconds (30 minutes * 60 seconds per minute + 2 seconds per box * 10000 boxes) or 363. which can be useful for calculating the total throughput time for a process.66 (8 minutes / 3 minutes). • Process velocity – It is also known as throughput ratio. These stations are placed one right after another and for every 30 seconds parts move from one station to other. The throughput rate is the output rate that the process is expected to produce over a period of time. is 2. throughput rate of the assembly line is 120 units per hour that is (60 minutes per hour * 60 seconds per minute / 30 seconds per unit). The process velocity of an assembly line with 10 additional buffer positions. according to cycle time (30 seconds * 6 stations – 60 seconds per minute). and the throughput time is 3 minutes because.Certificate in Manufacturing Concepts TCS Business Domain Academy operation time is the sum of the setup time and run time for a batch of parts that are run on a machine. which has 6 stations and runs with a cycle time of 30 seconds. and assuming the positions are used 100 percent of the time. • Little’s Law – It states a mathematical relationship between throughput rate. It includes the time that the unit spends actually being worked on together with the time spent waiting in a queue. To switch the machine from 16ounce boxes to 12-ounce boxes requires a setup time of 30 minutes. • Cycle time – It is the elapsed time between starting and completing a job.33 minutes. Little’s Law estimates the time that an item will spend in work-in-process inventory. It is the ratio of the total throughput time to the value-added time. Little’s Law is defined as follows: Throughput time = Work-in-process / Throughput rate Operations Management for competitive advantage by chase Page 15 of 18 . consider an assembly line. throughput time. The run time for each box is 2 seconds. Using the terminology. and the amount of work-in-process inventory. the throughput rate is the mathematical inverse of the cycle time. In this case. Consider the cereal-boxing machine which can produce at a rate of 30 boxes per minute. Another related term is throughput time. For instance.

update and evaluate their production processes. The system is also referred to as job shop as the products move from department to department in batches (jobs) that are usually determined by customers’ orders. • In a process-focused system. • Process planning is essential for designing and implementing a work system that will produce the required quantity of goods and services. Managers generally use assembly charts and process charts to redesign. • Operations managers consider several factors before choosing a production process for an organization. all the operations are grouped according to the type of process. • In group technology. each cell consisting of a group of similar machines. which can be anything from a pipeline (for oil) to an assemble line (for televisions or radios). Items follow a similar production sequence. Some of these factors are: o o o Variety and volume Investment Economic analysis Page 16 of 18 . It is of three types viz discrete unit manufacturing. products or services tend to flow along linear paths without backtracking or side tracking.Certificate in Manufacturing Concepts TCS Business Domain Academy Summary • A manufacturing process is a set of activities that transform the resources and expertise of an organization into higher value goods and services • The various types of processes that are generally used can be classified into three broad categories: o Product-focused o Process-focused o Group technology • In product-focused type of process. dissimilar machines are grouped into work centers to work on products similar in shape and processing requirements. process manufacturing and delivery of services. Cellular manufacturing is a type of group technology in which the total production area is conveniently divided into cells.

Page 17 of 18 .Certificate in Manufacturing Concepts TCS Business Domain Academy • Comparing the metrics of one company to another. efficiency. is an important activity. cycle time and process velocity. productivity. Metrics tell a firm if progress is being made toward improvement. Little’s Law gives a mathematical relationship to measure performance. run time. • Various parameters that can be used to measure performance of a process are utilization. often referred to as benchmarking.

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0 For Associates Certificate in Manufacturing Concepts Page 1 of 23 .Chapter-8 Supply Chain Management Version4.

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....... 13 8....................................8 Supply Chain Management Framework .........5 Principles of Supply Chain Management ...........................................................6 Forces Shaping Supply Chain Management ........................................ 13 8........................... 17 8..................9.......................... 14 8...........1 Facilities ..........................................................4..8...............................................................2 Inventory ................................4.................3 Transportation ..1 Supply Chain Management Components .................................................. The term supply chain is derived from a picture that depicts how different functions in an organization are linked together.... SCM applies a systems approach to managing the entire flow of information.............. 10 8...................................................................................1 Supply Chain Management – An Overview................. 9 8................................................ 18 8..............................2 Functions Involved in SCM ............................................................ materials........................................17 8..............................................................4..................3 The Value of Supply Chain Management .4 Business Drivers and their Respective Performance Metrics in SCM ................................................ Learning objectives After completing this chapter.. and services from raw materials suppliers through factories and warehouses to the end customer........6 Pricing ..............................Certificate in Manufacturing Concepts TCS Business Domain Academy Chapter-8 Supply Chain Management Introduction Supply Chain Management (SCM) is gaining importance in today’s business scenario.......................5 Sourcing..........................................9 Electronic Supply Chain Management ........ 5 8............................................... you would be able to understand: purpose of supply chain • • • strategies used in SCM problems faced while implementing SCM forces that shape a supply chain concept of Electronic Supply Chain Topics covered 8............... 19 Summary .................................... 9 8.... 8 8........................8...................................................................2 ESCM Implementation ......9.........................................................................................2 Supply Chain Management Enablers .....................................4...................................................................... 21 Page 3 of 23 ........................... 6 8...... 5 8......................................................7 Supply Chain Strategies .............................. 16 8.....4....................4 Information .....................1 ESCM Advantages ........................................................... 11 8................4.............. 18 8........9........ 15 8........................... 4 8.................. 4 8.............. 7 8...............................3 Issues Relating To ESCM..................................................................................10 Broad Trends and Misconceptions .....

and optimized inventory management and so on. SCM integrates procurement. distributors. SCM can provide both tangible and intangible benefits to an organization. customer satisfaction and customer and supplier relationships. tactical. manufacturing facilities. Coordination is important between these three decision Page 4 of 23 . Strategic Level: Includes activities like finalizing suppliers. through the coordination of different activities which transform raw materials into final products and services. These three decision making functions are spread across the supply chain. Effective management of the supply chain help organizations meet customer requirements in time. with the desired quality specifications. production levels and transportation routes in the supply chain network. warehouses. warehouses. and operational. in a cost-effective manner. and so on. Tangible benefits include revenue growth. operations and logistics to provide value added products or services to customers. warehouses to retailers who have their own share in the network. improved facility utilization. The three supply chain management functions are strategic. which describes various stages involved in providing value added goods or services to customers. manufactured into goods and finally delivered to customers. Operational Level: Executes plans of the previous levels. 8. Intangible benefits include improvement in quality. It includes not only suppliers and manufacturers.Certificate in Manufacturing Concepts TCS Business Domain Academy 8. The number of stages in the supply chain depends on customers’ needs. but also transporters. factories.1 Supply Chain Management – An Overview Supply Chain is a network. retailers. SCM should consider these three decision making functions before rescheduling or planning the activities in the supply chain. Tactical Level: Deals with planning and scheduling the supply chain activities to meet the actual demand.2 Functions Involved in SCM Supply chain is a network of activities in which raw materials are purchased. It involves different stake holders in the network from suppliers. and the role each stage plays in fulfilling those needs.

8. determines the efficient. The six key drivers that measure performance of the supply chain performance are: facilities. obsolescence and cash commitments. lower stock and lower unit costs of purchasing and manufacturing. 8. organizations are concentrating on cost efficiency and responsiveness. each responsible for one or more activities in the supply chain and each interacting with other agents in planning and executing their responsibilities. Value = (shorter times to market for new products or lower stock or obsolescence / cash commitments to lower unit costs of purchasing or manufacturing) There is immense pressure on the manufacturing industries to deliver a large variety of products through large distribution channels in quick responsiveness to market and at a low cost. only the prominence varies according to the marketplace they operate in. The value of SCM helps in providing indicators to tackle the above mentioned contradictory goals. for administrating the supply chain at the tactical levels and operational levels. which.Certificate in Manufacturing Concepts TCS Business Domain Academy making functions for optimizing the performance of the supply chain. information.4 Business Drivers and their Respective Performance Metrics in SCM Most organizations focus on supply chain management to reduce costs and improve efficiency of the production process. sourcing and pricing. to develop supply chain performance in terms of cost efficiency and responsiveness.3 The Value of Supply Chain Management The concept Value of Supply Chain Management has been developed to meet the needs of the customer at a low cost and within a short delivery time. organizations must pay attention to logistical and cross functional drivers of supply chain performance. This wish list is universal to all manufacturing industries. in turn. inventory. These drivers interact with each other to evaluate supply chain performance in terms of responsiveness and cost Page 5 of 23 . It views the supply chain as a set of intelligent (software) agents. Value of Supply Chain Management involves shorter time to market (for new product). So. To attract customers. The efficient management of tactical and operational levels of the supply chain is essential to achieve timely dissemination of information and accurate coordination of decisions. transportation. These activities pertaining to supply chain strategy provide competitive advantage to the organization. New software applications have emerged in recent years. coordinated achievement of enterprise goals.

1 Facilities Facilities are the places where raw material or products are stored. Similarly.umflint. Product sites 2. For example.Certificate in Manufacturing Concepts TCS Business Domain Academy effectiveness. Mangers are forced to choose between responsiveness and cost efficiency by considering these drivers within the supply chain.4.1 Supply chain decision-making framework Source:http://www. flexibility. a distributor who is well known for his cost efficiency would have fewer warehouses to reduce the cost of the product even if it reduces his responsiveness.pdf 8. a distributor who is known for his responsiveness has to maintain many warehousing facilities located within customer vicinity even though this practice increases the cost of the product.edu/~weli/courses/mgt581/project/driver. C om petitive Strategy Supply C hain Strategy E fficiency Supply chain structure Logistical D rivers F acilities Inventory Transportation R esponsiveness Inform ation Sourcing C ross Functional D rivers Pricing Fig 5. or fabricated in the supply chain. assembled. Page 6 of 23 . role and capacity have an important role in the performance of the supply chain. Storage sites Facility decisions like location. The two types of facilities are: 1.

Flow time efficiency measures the ratio of the hypothetical flow time to actual average flow time. Average Inventory measures the average amount of holding inventory. Actual average flow / cycle time computes the average time taken to produce all units over a period such as a month or a year. Average Replenishment Batch Size measures the average amount in each replenishment order. The unit of measurement varies depending on the type of the product. Ex: per unit/ case/ pound. Performance Metrics: Following are few metrics used by most of the organizations for measuring the effectiveness of their Supply Chain. Inventory Turns measures the number of times the order is placed (inventory turns) over in a year. financial value and days of demand. A large inventory. increases the cost. It is the ratio of average inventory to either the cost of goods sold or sales. Low values for flow time efficiency indicate that a large fraction of time is spent waiting. Large batch sizes reduce production cost but raises inventories in the supply chain.4. making it less cost efficient. 8. and finished goods within a supply chain. a shopkeeper can be more responsive by holding large amounts of inventory. The batch size should be calculated by Stock Keeping Unit Page 7 of 23 . This metric must be used while they are setting due dates for orders.Certificate in Manufacturing Concepts Performance Metrics: TCS Business Domain Academy Following are few metrics used by most of the organizations for measuring the effectiveness of their Supply Chain.2 Inventory Inventory is generally classified as raw materials. Average production batch size quantifies the average amount produced in each production batch. A series of inventory policies can significantly change the cost efficiency and responsiveness of a supply chain. Production cost per unit measures the ratio of total cost of production to the number of items produced / manufactured. The actual flow /cycle time includes the theoretical time and delays if any. however. work in progress. For instance. Average inventory should be calculated in units.

8. Average safety inventory should be calculated by SKU in both days of demand and units. each with its own performance characteristics. Average Outbound Transportation Cost measures the cost of transporting product out of a facility to customer. It may involve different combinations of modes (road.4. Performance Metrics Following are few metrics used by most of the organizations for measuring the effectiveness of their Supply Chain. It can be predicted by averaging over time the smallest inventory on hand in each replenishment cycle. this metric classifies the opportunities for better economies of scale in inbound transportation. and finished goods (inventory) from one point to other point in the supply chain. air and sea) and routes. Transportation preferences have a great impact on supply chain cost efficiency and responsiveness. For instance. Page 8 of 23 . Average Inbound Transportation Cost per Shipment measures the average transportation cost of each lot received.3 Transportation Transportation incorporates moving raw materials. this cost should be calculated per unit brought in a facility. The inbound transportation cost is usually included in COGS. It is useful to separate this metric by customer. Theoretically. They are able to satisfy customers with high level of responsiveness at high cost. Along with the shipment size (lot) received. Dell has planned its supply chain to meet customer orders with less lead time. Average Safety Inventory measures the average amount of inventory on hand when a replenishment order arrives. rail. Average Inbound Transportation Cost normally determines the cost of transporting the product into a facility as a percentage of sales or Cost of the Goods Sold (COGS). this cost should be calculated per unit shipped. It is helpful to separate this cost by supplier.Certificate in Manufacturing Concepts TCS Business Domain Academy (SKU) in terms of both units and days of demand. Normally. but it is frequently calculated as a percentage of the sales. It can be predicted by averaging over time the between the maximum and minimum inventory (measures in each replenishment cycle) on hand. but this can be difficult.

Forecast error determines the variation between the forecasted and actual demand. costs and customers across the supply chain.4. Variance from Plan recognizes the variation between the planned inventories /production and the actual values. 8. This also specifies the activities that are to be performed by the firm and the activities that are to be outsourced. Supply chain activities involve decisions related to production. this metric classifies opportunities for better economies of scale in outbound transportations. This is possible only when the information for previous months or years is available.4. Along with the outgoing lot or shipment size. inventory. or the management of information.Certificate in Manufacturing Concepts TCS Business Domain Academy Average Outbound Transportation Cost per Shipment determines the average transportation cost of outgoing lot. These decisions are made at the strategic level. The forecast must be updated more frequently than a decision re-examined. transportation. These variances are used to identify shortages and surpluses. For instance. a retailer will forecast the demand of the stock based on previous forecasts information. transportation. The forecast error assists in measuring the uncertainty related to safety inventory or excess capacity. storage.4 Information Information includes all data and analysis related to facilities. Accurate information allows management to make supply chain more responsive and cost efficient. which decides what functions to be performed by the firm and what functions should be Page 9 of 23 .5 Sourcing Sourcing is a means of designating the right roles and responsibilities to the right person(s)/department(s). 8. so that large changes can be identified and corrective action be taken. Performance Metrics Following are few metrics used by most of the organizations for measuring the effectiveness of their Supply Chain. Frequency of Update recognizes how frequently each forecast is updated. It is one of the important drivers in total supply chain because it directly affects the performance of other drivers. and will stock the inventory to meet the demand.

Average Order Size determines the average quantity per order. Page 10 of 23 .Certificate in Manufacturing Concepts TCS Business Domain Academy outsourced. Pricing affects the behavior of the buyer. The objective is to find out whether a sufficient level of aggregation is happening across locations when buying an order. incremental fixed cost per order. The average price is calculated by weighting the price with the quantity sold at that price. order size. a logistic company maintains different sets of prices for different customer requirements. Performance Metrics Following are few metrics used by most of the organizations for measuring the effectiveness of their Supply Chain. Supply Lead Time determines the average time elapsed between placing a stock order with the supplier and receiving it. The objective is to find out if the price is correlated to the quality purchased. which improved its efficiency but its responsiveness suffered because of the long distance.6 Pricing Pricing is the process of fixing a price for products or services.4. and incremental variable cost per unit help estimate the contribution from performing the supply chain activity. Range of Purchase Price determines the variation in purchase during a specific period. 8. Performance Metrics Following are few metrics used by most of the organizations for measuring the effectiveness of their Supply Chain. Days Sales Outstanding determines the average time elapsed between selling the product and receiving the cash for it. Sourcing decisions are considered very important as they affect both the responsiveness and efficiency of the supply chain. Nokia outsourced much of its production to contract manufactures in China. Average Sale Price determines the average price at which a supply chain activity is completed in a given period. Average Purchase Quantity determines the average quantity purchased per order. The average sale price. and consequently affects the performance of the supply chain. For instance. For instance.

cross functional drivers have become important in raising the supply chain surplus. However. fulfill their expectations and meet the organizations’ growth and profitability objectives. product or trade channel without differentiating their specific requirements. In recent years. logistics continues to be the major contributor. Supply Chain Management focuses on the three cross functional drivers to increase the supply chain surplus. Segment customers based on service needs – Most organizations segment customers based on the industry. organizations should segment markets based on the specific needs of customers. In order to serve customers properly. Once the market is segmented.Certificate in Manufacturing Concepts TCS Business Domain Academy Supply Chain Management should focuses on both logistics and cross-functional drivers in order to increase the supply chain surplus.V kalra. however.5 Principles of Supply Chain Management Managers focus on improving the effectiveness of the supply chain in order to service the needs of customers. both these approaches lead to poor resource utilization. For instance. whose lead times are significantly different. If an organization follows the principles of Supply Chain Management. Based on the segments. peter meindl and D. merchandising. it can attain a balance between customers’ expectations and its growth and profitability objectives. when they introduced a multi commodity logistics design model for optimizing annual finished product flows. An organizations’ supply chain is based on the following principles: 1. For more details about performance metrics and driver of SCM refer to “Supply chain management” by sunil chopra. DID YOU KNOW? The earliest work in the history of supply chains was done by Geoffrion and Graves in 1974. In Page 11 of 23 . an organization may need to follow two different logistics networks to service two different types of customers. distribution and other supply chain plans are developed and implemented. Customize the Supply Chain Management network – Companies usually design their logistics system either to meet the average service requirements of all customers or to satisfy the toughest requirements of a single customer. organizations can develop a supply chain plan that takes into account the specific requirements of the different segments. 8. 2.

manufacturers can decide how to approach suppliers – invite competitive biddings. and by using just-in-time techniques. Differentiate product closer to the customer – Organizations traditionally set their production goals on the basis of demand forecasts. organizations can predict Page 12 of 23 . Today. Organizations should maintain information technology system. 6. Manufacturers can gain competitive advantage if they reduce the lead-time along the supply chain and the conversion time (from raw material to finished product) and tailor their products to the requirements of specific customers. The process should foresee surges and slumps in demand. enter into long-term contracts. 5. and so on. They assumed that the lead time to convert raw materials into finished goods was constant. Strategically manage the sources of supply – Organizations can derive significant cost advantages if they maintain strong and long-term relationships with their suppliers. Therefore.Certificate in Manufacturing Concepts TCS Business Domain Academy order to meet specific requirements. Develop a technology strategy across the supply chain– Information is very important to any organization. if any. organizations have to customize their logistics network so that they can supply items to customers based on their specific requirements. Therefore. and so on. but they should not forget that their suppliers also play a significant role in reducing cost. from ordering patterns. make strategic alliances. They could also cut costs by reducing their set up time. They also kept a cushion of extra inventories of finished products to offset forecast errors. Such forecasts make the supply chain inefficient. 3. With the help of IT systems. their forecasts also vary widely. The organization should ensure that every link in the supply chain is involved in collaborative forecasting and should provide the required capacity for all operations. 4. each department in an organization makes demand forecasts for the same set of products independently. a process which can recognize the needs and demands of different functional groups is required. many manufacturers are recognizing the greater potential of using non-traditional strategies like mass customization. outsource. They are questioning the validity of assuming fixed lead-time for production. On the basis of market positions and industry structure. Monitor Demand Forecasts carefully and land Accordingly – Traditionally. But the assumptions and measures made by each department differ significantly from those of other departments.

invoices. accurate. Strategies like optimization techniques are used for production. They include: • • • • • • Consumer demand Globalization Competition Information and communication Government regulation Environment 8. and payments. mid-term and long term. Generally information systems are classified into three types: short term.7 Supply Chain Strategies The four broad types of supply chain strategies that exist today are: • Efficient supply chain – This supply chain strategy is aimed at creating highest cost efficiency. By establishing common measures. and cost-effective transmission of information across the supply chain to bring cost efficiency. As all the activities in the supply chain are interdependent and interrelated. from slashing transaction costs through electronic handling of orders. These information systems create opportunities to change the supply chain. Adopt channel-spanning performance measures – Instead of just having inward-looking performance measures. organizations can assure that all the supply chain entities are working towards common goals and objectives. organizations should develop a comprehensive system to overhaul performance of the supply chain system. Also. non-value added activities and economies of scale are achieved for increasing supply chain surplus. Further they can also minimize inventories through vendor-managed inventory programs. 7.6 Forces Shaping Supply Chain Management Various business and economic forces influence the effectiveness of a supply chain. 8. information linkages are established to ensure the most efficient. • Risk – hedging supply chain – this supply chain strategy is aimed at collecting and distributing resources in a supply chain so that the risks in supply disruption Page 13 of 23 .Certificate in Manufacturing Concepts TCS Business Domain Academy demand and satisfy the customers in time. nonperformance of one entity of the supply chain is reflected in the entire supply chain.

• Agile supply chains – This supply chain strategy is intended at being responsive and flexible to buyer needs. for example. This strategy is common in retailing. increase the safety stock of its key components to hedge against the risk of supply disruption.Certificate in Manufacturing Concepts TCS Business Domain Academy can be shared. DID YOU KNOW? The most commonly used supply strategy is Hub and spoke t in which materials are brought to one central location and then sorted for delivery to respective destinations. A single entity in a supply chain can be easily exposed to supply disruptions. A company may. then the risk of disruption is reduced. so that the cost of maintaining this safety stock can be shared. • Responsive supply chain – This supply chain strategy is intended at being responsive and flexible to the altering and varied needs of the customers. and by sharing the safety stock with other companies who also need this key component. 8. processes and best practices. These supply chains basically have strategies in place that join the strengths of hedged and responsive supply chains. The Supply Chain Management framework is mainly dependent on: Page 14 of 23 . Its framework involves several components and enablers which define key functions. They are agile because they have the ability to be responsive to the changing. Information technology is important for the success of these strategies since real-time information on inventory and demand allows for the most cost-effective management and trans-shipment of goods between partners sharing the inventory. and unpredictable demands of the customers on the front-end. Companies use build-to-order and mass customization processes as a means to meet the specific requirements of the customers. while the risks of supply scarcity or disruptions are hedged by gathering inventory and other capacity resources. but if there is more than one supply source or if substitute supply resources are available. diverse.8 Supply Chain Management Framework The supply chain network is a well integrated system which helps an organization in performing basic operational functions. while minimizing the back-end risks of supply disruptions. where different retail stores or dealerships share inventory.

• Operational planning – This component describes about the operational requirements for sustaining a supply chain. 8. They incorporate all the activities that are necessary for maintaining and developing relationships with suppliers. and designs and assists in deployment and improvement of the SCM system. Page 15 of 23 .8.Certificate in Manufacturing Concepts • • SCM components SCM enablers TCS Business Domain Academy SCM components and enablers helps in defining the overall supply chain performance. • Quality and performance management – The quality and performance component is concerned with the initiatives that organizations and suppliers take towards improving. • SCM strategy – A firm’s SCM strategy component focuses on how different entities of the supply chain perform as a group. accounts payable. financial and marketing information with their supply chain partners. receiving. • Order-to-delivery process – The order-to-delivery process defines how effectively an organization can direct the flow of products from suppliers to the company.1 Supply Chain Management Components SCM is mainly divided into seven components which represent business processes and practices. It includes certain processes such as order releases. and maintaining the quality standards. The firm’s resources are allocated to different supply chain operations and these resources are aligned with the firm’s strategies. Thus. keeping the organization’s marketing and financial objectives in focus. These requirements are specified in terms of tasks. resource requirements and measurements. The seven SCM components are: • SCM leadership – SCM leadership component provides SCM system direction. The nature of the communication varies depending on the organization’s relationship with its key suppliers. • Business relationship management – Organizations are dependent on the supply chain partners as much as these partners are dependent on them. it is important to have an environment conducive for communication and negotiation between the organization and its supply chain partners. In this way. trust develops between them. inspection of incoming material. Organizations normally share operational. and materials handling.

the health and well-being of the suppliers is critical to provide value to the customers. As the organizations function. design is the important thing that ensures their successfulness.2 Supply Chain Management Enablers The supply chain management enablers are responsible for the overall performance of the SCM. 8. defines the overall requirements both external and internal to the organization. Designs help organizations develop products. process and services. • Customer-supplier focus – The basic objective of the customer-supplier focus is to prepare an organization’s processes in such a way that they are able to understand and react quickly to customer requirements.8. after considering feedback from customers and suppliers. For organizations like Boeing. processes. systems and services. This ensures that stakeholders and business processes work towards consciously determined and mutually recognized goals and objectives. and performance dimensions of products. and decisions across the business units to support the supply chain management processes. Employees should understand the diverse supply chain activities and should be able to perform the activities competently. knowledge and attitudes that help enhance the performance of supply chain. • Design – For products. Page 16 of 23 . It also includes consistency in processes. The six SCM enablers are as follows: • Alignment – Alignment refers to the matching of corporate and business unit goals. These enablers are a group of well defined actions and techniques that encourages and supports firm’s commitment for high performance of SCM practices. actions.Certificate in Manufacturing Concepts • TCS Business Domain Academy Human resources management – The human resources component deals with the training of personnel in order to improve their skills. which largely depends on the suppliers for their requirements. it is of critical importance to have well-coordinated cross-functional and inter-company activities. outputs. Design is the comprehensive process that. It is a key organizational behavior within the supply chain management system. with the help of the coordinated efforts of different processes. services and business processes that satisfy the requirements of both customers and suppliers. • Measurement – Measurement refers to the quantification of information about inputs.

1 ESCM Advantages The advantages of ESCM include timely order-processing. and so on. • Participation involvement – Stakeholders must be involved in the decisionmaking process in order to ensure the success of products. • Periodic review – Evaluation of the performance of the processes. inventory levels are replenished as Page 17 of 23 . supports continuous improvement. improved inventory tracking and management. processes. Electronic Supply Chain Management (ESCM) is business-to-business integration through the internet. As a result. Internet has provided organizations the capability to integrate the entire supply chain. support for JIT manufacturing. 8. Oracle. As the ESCM integrates supply chain partners with the help of the Internet. the SCM’s core focus is to integrate its suppliers. 8. information technology has become a part of SCM. the cost and time involved in communicating with them is reduced significantly. Utilization of available resources in terms of the talents and energies of employees and external stakeholders improve organizational efficiency and performance. improved accuracy in order fulfillment. As with most other aspects of business. on a periodic basis. • Reduction in inventory levels – ESCM consequences in an extended organization that summarizes the activities of the suppliers. organizations can realize huge cost reductions. systems. The extended organization structure provides instant information about the status of inventory levels to the suppliers. and services. from raw material sourcing to delivery of the product to the customers.9. programs and systems. JDA and Manhattan Associates. Other advantages are: • Cost saving – By integrating different supply chain levels. DID YOU KNOW? Major SCM vendors today are SAP. the manufacturing process and its customers.Certificate in Manufacturing Concepts TCS Business Domain Academy Measurement is the tool used by organizations to evaluate the performance of different processes and supplier activities.9 Electronic Supply Chain Management In an organization.

Certificate in Manufacturing Concepts TCS Business Domain Academy and when required. second tier. • Constitute a team with representation from various functions within the organization and with representatives from suppliers and customers to plan and carry out the implementation. Determine the number of suppliers who have direct influence over the products or services that are delivered to the customers. This allows proper production planning based on actual requirements. resulting in reduced cycle time for production activities and reduction in stock-out costs. • Divide suppliers into different categories. Therefore. size. • Reduction in cycle time – ESCM ensures that the organizations get timely and accurate forecasts with regard to product or service demand. across the entire supply chain. the following activities should be undertaken: • • Understand and evaluate the level of integration within the organization. • Reduction in procurement costs – An organization can reduce its procurement costs significantly by providing its suppliers instant access to information. and so on. 8. • • Define the customer base in term of sales. profitability. Utilization of data relating to customers and suppliers Page 18 of 23 . Improve the information infrastructure within the organization to accommodate ESCM requirements. first tier. and so on. In today’s business arena. suppliers are electronically connected and get real time information about the inventory level ll.2 ESCM Implementation In order to improve the implementation of ESCM. 8. and managing relationships with vendors/suppliers.9. The purchasing department can reduce its involvement in minor transactions and focus on higher value activities like vendor selection. there is no need to carry high inventory. With this the supplier can access the information regarding inventory and procurement automatically. namely. • Identify leaders who are capable of guiding the implementation process competently. sourcing.9.3 Issues Relating To ESCM The purpose of ESCM is to allow effective sharing of information like forecasts and orders among the supply chain partners.

10 Broad Trends and Misconceptions of SCM When developing a demand chain.Certificate in Manufacturing Concepts TCS Business Domain Academy through internet technologies results in a virtual corporation that facilitates real time information flow between various supply chain partners. This may be true in most cases. forecasts. organizations in industrialized countries are looking for new markets and segments. Changes arise in the way companies deal with each other. Now consumers are actively looking for new sources to obtain products and services. organizations have to perform efficiently with few resources (time. Further.). due to the fall in the birth rate in industrialized nations. Therefore. supply chain partners need to change their operations and strategies. 8. As a result. An organization has to ensure that only the rightful recipient views the information. The first misconception is that customers will always buy from retailers. In order to tide over such apprehensions. due to increase in automation. For instance. but the trend is changing. All channel partners should be willing to exchange information such as inventory levels. thus bringing down the number of new consumers. there are issues that must be addressed to improve its efficiency. channel partners must be aware of broad demand trends in consumer markets. One way of doing this is to encrypt the data as this ensures that the data is secure and members of supply chain can view only that information which is relevant to them. money. production schedules. Sometimes. a culture of openness and trust should be developed between all the channel partners. These changes influence the way in which consumers purchase goods. the size of the workforce has also shrunk. In new markets. which are based on demographics. and so on. they are prepared to buy products and services from any channel Page 19 of 23 . human resources. Failure to acknowledge these changes lead to two common misconceptions about the working of the demand chain. • Changes to existing business processes – An electronic supply chain transforms a business process significantly. the size of the average family has shrunk. These issues include: • Security issues – Security is the most sensitive issue when information is shared or exchanged over the Internet. partners may be apprehensive of sharing too much information. Although ESCM has many benefits. and so on. promotion plans. lifestyle and other social factors. In their endeavor to get value for money.

consumers are now determining which supply chain entity would succeed and which would fail. Business-to-business customers will not order more parts if consumers are not buying their end products. they do not need to be concerned about them.Certificate in Manufacturing Concepts TCS Business Domain Academy member who can provide them with quality products. Therefore. solving your customers’ problems sometimes means solving your customer’s customers’ problems. they are affecting the whole supply chain. through their buying habits. In industrial or business-tobusiness organizations. In other words. Page 20 of 23 . Consumers’ investments in terms of time. All customer/industrial demand for products or services across the supply chain is derived from end-user demand. Channel partners should realize that if consumers select a particular retail outlet for fulfilling their needs and wants. timely delivery and a reasonable price. since they are not dealing directly with end-users. attention. and money on a particular business indicate which business will succeed in the future. All members of the supply chain must work in unison to improve the profitability and performance of all members. The second misconception about demand chains is that business-to-business companies need to monitor only their customers.

sourcing and pricing. globalization. The three supply-chain management functions are strategic. warehouses. competition. covering the various stages in the provision of products or services to customers. and environment. production levels. They include consumer demand. information and communication. warehouses. organizations must give attention to logistical and cross functional drivers of supply chain performance. Tactical Level: In the supply chain. and so on. inventory. Page 21 of 23 . manufacturing facilities. factories. and operational. So to improve the performance of the supply chain in terms of cost efficiency and responsiveness. • Strategic Level: It deals with the selection of suppliers. It includes not only manufacturers and suppliers. distributors. and retailers through which raw materials are purchased. responsive supply chains and agile supply chains. transportation. They are six key drivers which measures the supply chain performance are facilities. tactical level plans and programs are scheduled to meet actual demand.Certificate in Manufacturing Concepts TCS Business Domain Academy Summary • The supply chain is a network. tactical. retailers. and warehouses in the supply chain network. but also transporters. distribution centers. transformed. • The principles on which an organizations’ supply chain is based are: segment customers based on service needs customize the logistics network a) plan based on market demand b) enhance ability to meet customer requirements c) improve relationships with the suppliers d) devise a complete supply chain performance measure • Various business and economic forces influence the effectiveness of a supply chain. Operational Level: The operational level executes the plans of the strategic and tactical levels. • The supply chain is a network of suppliers. information. government regulation. and delivered to customers. risk-hedging supply chains. transportation routes. • The four broad types of supply chain strategies that exist today are: efficient supply chains. • The major goal of supply chain strategy is to have balance between responsiveness and cost efficiency that meets with the competitive strategy.

improved accuracy in order fulfillment. order-todelivery process. • Although ESCM has many benefits. business relationship management.Certificate in Manufacturing Concepts • TCS Business Domain Academy The SCM components represent business processes and practices. improved inventory tracking and management. SCM strategy. The six SCM enablers are alignment. design. quality and performance management. The SCM enablers are a group of carefully conceived and defined behaviors and approaches that allow. measurement. They incorporate all the activities that are necessary for maintaining and developing relationships with suppliers. • The advantages of ESCM are many. encourage and reinforce a firm’s commitment to high performance SCM practices. keeping the organization’s marketing and financial objectives in focus. participation/involvement. support for JIT manufacturing. Page 22 of 23 . issues related to security and changes to existing business processes must be addressed to improve the efficiency of ESCM. customersupplier focus. The seven SCM components are SCM leadership. etc. and human resources management. and periodic review. operational planning. • Enablers are responsible for the overall performance of the SCM. and include timely order-processing. • Electronic Supply Chain Management (ESCM) is business-to-business integration through the Internet.

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Chapter-9 Logistics Management Version4.0 For Associates Certificate in Basics of Manufacturing Page 1 of 20 .

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........................................................................5 Inventory. 12 9............... 9 9...................5......................................4 Controlling Inventory..........................................3 Factors Impacting Site Selection of a Warehouse ..........................................................................................2 Warehouse Functions ................................................................5 Warehouse Technology Enablement .........................4........... 7 9......4 Warehouse Operations................2 Inventory Management Objectives ................................... 14 9...................... 16 9................................................................ Logistics management deals with different functions such as warehousing.............................. storage of goods and related information from point of origin (Seller) to destination (Buyer) requirements..........5..........................3 Inventory System.............................................. 18 Page 3 of 20 ........................17 Summary ..............................4....................4...........................................6 Transportation....... Learning objectives After completing this chapter... 4 9............. 4 9...... implementing and controlling the effective flow...............................................Certificate in Manufacturing Concepts TCS Business Domain Academy Chapter-9 Logistics Management Introduction Logistics management is of pivotal importance in business today................................................................................................................................... 12 9...1 Logistics ...................................................4.........................2 The Logistic Goals..........................5....................................................... It plays a key role in planning................................................................1 Inventory Management ............................ 12 9...... 5 9....................7 Reverse Logistics ................................... transportation that are linked together in-order to gain profit in business........... 4 9............... 13 9..........................4 Warehouse ........5 Advantages of Warehouse:...................................................... 6 9.....................................5................................................................................4.......................... 14 9...................3 Logistics Framework ....... 10 9..................................................1 Needs of Warehouses .......... 9 9.................................................................4............... you will be able to understand: • • • • • • The purpose of Logistics management The various warehouse functions The warehouse technologies The concept of inventory The methodology to control inventory Different modes of transportation Topics covered 9...................

Source: http://www. materials. effective forward and reverse flow and storage of goods. service. information and capital flow. 1997).Certificate in Manufacturing Concepts TCS Business Domain Academy 9. Logistics is the business planning framework for management of material. services.1 Logistics .pdf 9.org/journals/plagiary/1657. and related information between the point of origin and the point of consumption in order to meet customers’ requirements. acquiring the capital. technologies. and utilizing the network to fulfill customer requests in a timely way (Tilanus. implementing and controlling the flow and storage of goods and related information from point of origin (Seller) to destination (Buyer) to conform to customer requirements. and information necessary to meet those needs and wants.Definition Council of Logistics Management (1991) defined Logistics as: part of the supply chain process that plans.or service-producing network to fulfill customer requests. accurately and satisfactorily To minimize the time between placing orders and receiving merchandise To coordinate shipments from various suppliers To hold enough merchandise to satisfy the customer demand and to avoid stockout situations • • • • • • To arrange merchandise on the sales floor efficiently To process customer orders efficiently To communicate and collaborate with other supply chain members To handle returns effectively and minimize damaged products To monitor logistics performance To arrange for backup plans in case of breakdown in the system 9.3 Logistics Framework Logistics is the process of planning. outbound.2 Logistic Goals The goals of logistics are as follows: • • • • • To complete the activities of logistics in an economical manner To place and receive orders easily. people. implements. The process of anticipating customer needs and wants. and controls the efficient. optimizing the goods. external and Page 4 of 20 .siam. The framework includes inbound.

As the methods of transportation began to evolve. Today the speed of reaching a customer has become Page 5 of 20 .Certificate in Manufacturing Concepts TCS Business Domain Academy internal movement and return of materials.4 Warehouse Management A warehouse is required to: • • • • stock products. ensure inventory availability enable consolidated bulk buying make distribution efficient and cost effective Earlier.1 Logistics Framework The term Logistics Management encompasses the total flow of materials starting from raw materials procurement to the delivery of finished products to consumer. right place and in a manner the consumer/buyer wants it. Figure No: 9. Its functions were limited to being a buffer between the production and actual demand. Logistics is a tool to bridge the gap between supply and demand where the origin and destination may be separated by long distance and deliver the right goods at right time. which ultimately led to a lot of inventory stocking at the warehouse. warehouse was just a storage location to stock and distribute products. organizations started viewing warehousing as a means of optimizing their businesses. making it a huge cost centre. The efficiency of Logistics depends on the following three concepts: • • • Warehouse Management Inventory Management Transportation 9.

Warehousing is essential for the following reasons: • Seasonal Demand Some products have demand only in some seasons.2 Warehouse Blueprint 9.1 Need for Warehouses Warehouses are used for storing of goods until a customer places an order. an organization has to produce goods throughout the year and these goods are stored in warehouses. Page 6 of 20 . To meet the seasonal demand of the product.Certificate in Manufacturing Concepts TCS Business Domain Academy a competitive advantage and hence. In order to maintain price stability. The need for a warehouse arises because. for example: air conditioners in summer. organizations store sufficient quantities of goods and raw materials in warehouses. the functions of distribution and storage are being used to improve customer service. Figure No: 9. • Price Stabilization Scarcity of raw materials or components may create price variations in the market.4. woolen wear in winter or raincoats in the rainy season. production and consumption of products do not happen simultaneously.

raw materials are procured beforehand and are stored in a warehouse. • Continuous Production To enable continuous production.4. • Replenishment The process of movement of goods from reserve storage to order picking location in a warehouse for achieving high levels of order fill and avoid stock outs in warehouse is replenishment of a warehouse. • Quick Supply Any product that is produced should be stocked in a warehouse.2 Warehouse Functions The various functions involved in warehousing are as follows: • Managing the in-flow of Goods The activities involved are checking. which is near to the place of consumption. performing quality control checks. recording of receipts. When goods are delivered. Order picking is a time consuming process as it involves splitting of large quantity into custom sizes to meet customers order requirements. the goods are selected from the order picking stock according to their required quantities and time. a systematic operation of work force has a major role in achieving higher warehouse performance in a cost effective way. unpacking and repacking. • Order Picking When customers place orders. For effective customer service. Page 7 of 20 . which occupies large space in most of the warehouses. 9.Certificate in Manufacturing Concepts TCS Business Domain Academy • Large-scale Production Manufacturers produce products in large scale to be cost-effective. these products are stored in a warehouse. In addition to this. they are moved into reserve storage and the location of the storage place is entered into warehouse information system. it is important to design and establish a mechanism of picking systems. • Reserve Storage Reserve storage is back-up storage in a warehouse. allotting storage space and depending on the type of the goods. so that it is easy to the supply to consumers at the time of their need.

the small orders are considered to be one order and are divided into individual orders before dispatch. For example. This secondary sorting is done to achieve better lead time. • Dispatch After completing the collate process. Recent developments in IT help in sorting the goods according to specific customers’ orders. Collate activities include packing the goods into dispatch outer case/cartons. and labeling them. immediately on arrival. • Collate After completing the picking process. Finally. It helps in keeping record of information such as stored goods. goods directly go to order collation.Certificate in Manufacturing Concepts TCS Business Domain Academy Figure No: 9. Page 8 of 20 . ordered goods and goods yet to be received. this type of approach is used for grocery produce by major supermarkets. goods are brought together and are combined as Completed Order (ready for dispatch to customers). sometimes by using highspeed sortation conveyors. goods are loaded into outbound vehicles for onward dispatch to the distribution centre. • Sortation Information Technology (IT) has a prominent role in warehousing. To meet the customers’ order in time.3 Warehouse Layouts • Secondary Sortation When there are many small orders under a good or pallet category. these are transported to customer.

It forms a part of outbound operations of the warehouse and involves a lot of manual labor and hence is considered an important activity. Available labor pool in the area. break pack and repalletization and cross-docking are carried out to reduce the distribution costs and increase supply chain efficiency. DCs and so on. 9. the unloading and unpacking operations are triggered. dimensions and so on. those which are to be stored and those which are to be cross-docked immediately. The goods to be stored are then sent to the storage area where they are stored depending on factors such as shelf life. Order picking is the method of recovering items from storage locations as a reply to the customer order.4.4 Warehouse Operations The presence of a warehouse in supply chain depends on forecasting at the store/ DC level. These goods are then put away in stocking area. • • • Infrastructure availability in terms of highways and rail. depending upon the origin of goods and preferred route of shipping goods for majority of importers. berths and so on) to cater to future demand. • Expenses associated with transportation costs for transporting goods between ports.4. Note: A Distribution Center (DC) is a warehouse where the products from various supply points are received and (value added) processes like consolidation. The warehouse personnel thereafter plan scheduling and once the goods are received. its main function is distribution rather than storage. In simple terms. Investments made by port authorities to improve the port infrastructure (available terminals.3 Factors Impacting Site Selection of a Warehouse The following factors are considered while selecting a site for a warehouse: 1 Dependency on imports: If the imports constitute a major chunk of the items stocked in the warehouse and are likely to grow in near future. Warehouses use different types of order Page 9 of 20 . Models such as Factor Rating model. terminals. • Political environment in the area. Goods received can be classified into two types. it is better to have a warehouse near a port along the coastline. Load-distance model. purchase order placement and generation of replenishment plan. Transportation model and so on are available to carry out location analysis.Certificate in Manufacturing Concepts TCS Business Domain Academy 9.

shorter product life cycles and increased quality requirements. mounting demands. There could also be goods which are cross docked and kept in storing area before being shipped.4. This has lead to the retailer moving from bulk ordering to small orderings and as a result the emphasis on DC has increased. MRP II systems added new functions such as scheduling and capacity planning. 9. Later. Earlier. customer and vendor management. Today. flexibility and accuracy. 9.Certificate in Manufacturing Concepts TCS Business Domain Academy picking systems based on their requirements. MRP was replaced with Manufacturing Resource Planning (MRP-II) incorporating all the crucial aspects. which comprised all the basics of MRP-II and added new functionalities such as full-fledged financials. ERP is spread in all the functions of management. productivity.5 Warehouse Technology Enablement Today. technology is not only being used to eliminate the paper work wherever possible. but is also being used to improve the information and goods flow.5. This in turn helps in improving service level. this Page 10 of 20 . a system was used to supervise warehouse operations and functions such as storage and movement of materials.4 Warehouse Operations The supply chain has altered into a network connecting various channels due to factors such as customer awareness.1 Warehouse Management System Initially. This section discusses the effect of technology enablement on warehouses. Soon after. Figure No: 9. Material Requirements Planning (MRP) was used for controlling and planning the raw material. MRP-II was replaced with Enterprise Resource Planning (ERP). Later.4.

antennas and battery with some protective shields.3 Barcode or Universal Product Codes Barcode is a machine readable code.2 Radio Frequency Identification Device Radio Frequency Identification Device (RFID) uses radio signals to transmit data between a tag or transponder and a device (which is commonly called either reader or writer). and complete accounting systems. desktop and smart phones. RTLS are a type of local positioning system that allows tracking and identifying the location of objects in real time.4. receiving. transportation management. put-away and slotting. They are scanned by special optical scanners called barcode readers and with the help of interpretive software. It is smaller in size and is less expensive than active tags. For example. packing and labeling and so on. Smart labels or passive tags are attached to cases and pallets of items. they are called active tags.5. items such as industrial solvents and other expensive machinery use active tags (with chips and antenna) to provide information of permanent asset and location identification. Passive Tags: A passive tag consists of an encoded label within the label material. 9.Certificate in Manufacturing Concepts TCS Business Domain Academy role was performed by Warehouse Management System (WMS) in all light manufacturing. However.4. This code consists of information about the item to which it is attached. with printed text and bar code to support legacy operations. It is used for Real-Time Location Systems (RTLS). split case or any other kind of shipment. Various components of WMS cater to all the activities within a warehouse. It can transmit data and also receive data with help of battery. which convey information about the items in the warehouse. The WMS is flexible to handle full case. Since barcodes are universally same for a Page 11 of 20 .5. hence. order management. to picking. alphabet and linear parallel lines. from appointment to scheduling. attached to the item that is to be identified. They are represented by numbers. RFID tags are of two types: • • Active tags Passive tags Active Tags: These tags consist of chips. RFID tags are used in warehouses and distribution centers depending on the importance of items and operations. 9. These tags are preferred for most supply chain applications. Value Added Services (VAS).

but also for inventory control in warehouses. at the right time. and work-in-process) with the intent of selling it or transforming it into a finished product.4. at right time. parts or intermediate items. The real challenge is to get right goods. The purpose of inventory is to meet customer demand by avoiding stock-out of materials which may cause stoppage of production. at right quantity and right place. practices and procedures for determining what items to order. policies.6 Advantages of Warehouse Warehousing offers the following advantages: • • • • • • • • Protection and Preservation of goods Regular flow of goods Continuity in production Convenient location Easy handling Facilitates sale of goods Availability of finance Reduces risk of loss 9. at the right place.5. for the right customer at the right cost. finished products. work-in-process or raw materials. supplies.Certificate in Manufacturing Concepts TCS Business Domain Academy product. when the items are needed. Retailers use barcodes not only for product identification and cost management. The Inventory system updates the database and captures the transactions whenever it happens.1 Inventory Management Inventory Management is a group of concepts. they are used for retail outlets.5 Inventory Management Inventory is the stock of any item or physical resource (raw materials. for Page 12 of 20 . these are called Universal Product Codes. 9. 9. component parts. The activities of Inventory Management are directed at getting right product in the right quantity and the right condition. Inventories may consist of finished goods ready for sale. how much to order. barcode came into use in warehouses. Hence. These barcodes were initially used to label railroad cars but today. when to order them and how to store them. It is easy to control the inflow and outflow of goods in warehouses and to identify types of goods present through barcodes.

Figure No: 9.5 Inventory Management 9.2 Inventory Management Objectives • Maximizing Customer Service By increasing the percentage of orders shipped on schedule By increasing the percentage of line items shipped on schedule By reducing the idle time due to material and component shortages • Increasing Production Efficiency Maintaining buffer stock for smooth production flow Maintain a level work force for smooth production flow Allow longer production runs and quantity discounts • Minimize Inventory Related Investments Marinating good inventory turnover Weeks (or days) of supply Page 13 of 20 . Daily. weekly and monthly reports are generated based on the transaction activity.Certificate in Manufacturing Concepts TCS Business Domain Academy reporting and audit purposes.5.

2. With proper planning and forecasting. financial and managerial needs provide material tracking capabilities process engine assembly build-up and charge-off activity process components and sub-assembly build up develop interfaces with other systems to provide synchronization of files 9. inventory can be controlled to increase the profit of the organization.5. aggregate shipping costs.Certificate in Manufacturing Concepts TCS Business Domain Academy 9. By applying the principle of Economic Order Quantity.4 Controlling Inventory Controlling inventory is the primary objective of today’s competitive retailing because inventory involves the majority of the finances of the organization. it is critical to identify these cycles to avoid running out of products in the middle of a busy season. Such situations might result Page 14 of 20 . Inventory system is used to: • • • • • provide inventory reports to support shop floor. cost of preparing an order and so on can be reduced. and how large the orders should be. The following five step process has been designed to help businesses use the resources optimally: 1. A customized system should be designed for different businesses to include items critical to the organization. Plan Inventory Inventory includes raw materials. and to reduce the amount of time goods spend in shipment. On the other hand. when the stock should be replenished. Economic Order Quantity helps in availing discounts from the manufacturer. goods in transit or goods stored in the plant that are to be sold. if the business has seasonal demand.3 Inventory System Inventory System is the set of policies and controls that monitor the levels of inventory and determine what levels should be maintained.5. The best way to plan inventory is to find out the Economic Order Quantity and Reorder Point for a product so that the next lot arrives only after the last item has been used or sold. Establish Order Cycles Demand can be predicted when the ordering of quantities can be accurately forecasted by deciding on regular ordering levels to avoid stock-outs and to minimize total costs.

Inventory levels of seasonal goods or fad merchandise must be maintained in a planned manner such that excess is not left stuck with the retailer. 4. it indicates that the stock needs to be changed as it is not catching the attention of the target customers whereas too frequent inventory turns indicate overwork with a limited capital. as the product turns into a common product. It is the stock turnover that gives profit to a business as it is an estimate of the sales on regular basis. Review Stocks Shelf space is very valuable and hence obsolete inventory or inventory which is not in demand should be avoided. Stock turns or inventory turnover can be calculated using the following equation: Stock Turn = (Cost of Goods Sold /Average Inventory at Cost) Page 15 of 20 . selling these goods will save shelf space by avoiding storing of obsolete inventory. the retailer must pay constant attention to the market trends. However. Usually. In order to avoid inventory piling up. it is important that establishing these order cycles have seasonable implications that must be built into the planning process in order to support an effective inventory management system. If the inventory turnover is too irregular. Inventory turnover ratio or stock turnover ratio is the rate at which the inventory is replaced or turned over. The inventory should be maintained such that products are available to customers when needed to stop customers from switching to competitors. Balance Inventory Levels Balancing the inventory levels is one of the major factors which determine a healthy profit and efficient management of a business. Obsolete merchandise should in general be removed from inventory at any cost. This can be done by mark down of the merchandise. Hence suppliers offer attractive deals to induce forward buying.Certificate in Manufacturing Concepts TCS Business Domain Academy in extreme costs for both the supplier and the customers. The ideal quantity of inventory meets the demand requirements which results in profitable sales and justifies the investment. This leads to a shift of carrying costs and leads to substantial savings for the supplier. Even though the margins are reduced. throughout a pre-defined standard operating period. a novel product is marked up to generate more profits. the sellers mark down their merchandise drastically to avoid losses. 3. Therefore. Turnover ratios act as an effective benchmark to compare with the business in question.

Carefully planned inventory will serve the dual purpose of higher inventory turnover and lower investment. This type of transportation is best suited for small goods with high-value and emergency shipments which have to travel a long distance. Follow-up and Control Inventory reviews must be done on a regular basis to detect the obsolete and slow moving stock and to keep up with the latest market trends. Sometimes it may end up with equal cost of TL. There are different modes of transportation such as road. and at a right cost. Trucking industry is mainly divided into two types: Truck Load (TL) and Less than a Truck Load (LTL).6 Transportation Management Transportation is one of the important sub functions of logistics. Transportation time by rail is long but cost effective for goods like coal. However it is the slowest of all the modes and needs further support from other transport modes to get the goods to destination. Trucking is little expensive than rail but it offers door to door delivery service with shorter delivery time. Water: Water transportation is appropriate for carrying very large loads at low cost. high-density products. thus adding to the organization’s profits. It is the backbone of the entire supply chain that ensures the right product in the right quantity and the right condition. Page 16 of 20 . at the right time. which are too big to parcel. Whereas less than a truck load is appropriate for small lots. Road: The road transportation is mostly done by trucks. rail. Air: This transportation mode offers a fast delivery of goods but is expensive.Certificate in Manufacturing Concepts TCS Business Domain Academy 5. A well operated transportation system will provide benefits such as increased logistics efficiency. Rail: This mode of transportation is ideal for heavy shipment. Stock should be properly measured and maintained to prevent stock outs and to avoid stock piling. This mode should further be supported by other transport modes to get the goods to destination. reaches the right customer at the right place. 9. The truck load is appropriate for large shipment (full truck) with low cost. water and air. reduced operation cost and improved service quality.

all the returned material could either be moved to a separate Return DC or to the same DC from which the store was supplied. Categories of Reverse Logistics Reverse Logistics can be classified into the following two categories: • • Activities involved in bringing back Returnable Packaging material Activities involved when there is wastage and returns There could be returns from the store to the warehouse for reasons such as excess stock and damages.7 Reverse Logistics Reverse Logistics can be defined as the process of planning. Page 17 of 20 . implementing and controlling the efficient and cost effective flow of raw materials. packaging and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal. in process inventory. the items need to be segregated and stored in a separate area before they can be sent back to the warehouse. finished goods.Certificate in Manufacturing Concepts TCS Business Domain Academy 9. Depending on the Reverse Logistics Strategy of the retailer. In each of these cases.

and information necessary to meet those needs and wants. technologies. right from appointment scheduling. • The role of a warehouse in supply chain starts with forecasting at the store/ DC level. packing and labeling and so on. acquiring the capital. replenishment. reserve storage. • Various components of a WMS should cater to all the activities within a warehouse. to picking. implements. optimizing the goods. secondary sortation. effective forward and reverses flow and storage of goods. split case or any other kind of shipment. materials. The various factors that make warehousing a vital activity are: Seasonal Production. • The functions of warehouses include managing inflow goods. its function was limited to just being a buffer between the production and actual demand.Certificate in Manufacturing Concepts TCS Business Domain Academy Summary • Logistics is “part of the supply chain process that plans. implementing and controlling the efficient. Page 18 of 20 . and related information between the point of origin and the point of consumption in order to meet customers’ requirements”. and controls the efficient. effective flow and storage of goods and related information from point of origin (Seller) to destination (Buyer) to conform to customer requirements. put-away and slotting. • ”The process of anticipating customer needs and wants. Price Stabilization. collate and dispatch. sortation. The warehouse thereafter plans scheduling and once the goods are received.or service-producing network to fulfill customer requests. receiving. The WMS should be flexible to handle full case. Large-scale Production. • The need for a warehouse arises because. • Warehouse is a storage location to stock and distribute products. order picking. the unloading and unpacking operations are triggered. Quick Supply and Continuous Production. Traditionally. purchase order placement and generation of replenishment plan. people. services. VASs. and utilizing the network to fulfill customer requests in a timely way” • Logistics is the process of planning. • Radio Frequency Identification Device (RFID) uses radio signals to transmit data between a tag or transponder and a device (which commonly called either reader or writer). production and consumption of products do not happen simultaneously. Seasonal Demand. Generally RFIDS are two types: Active tags and Passive tags.

alphabet and linear parallel lines. The steps to control inventory are Plan Inventory.Certificate in Manufacturing Concepts TCS Business Domain Academy • A barcode is a machine readable code. Page 19 of 20 . practices and procedures for determining what items to order. how much to order. • Inventory management is group of concepts. when to order them and how to store them. rail. when the items are needed. Establish Order Cycles. • With proper planning and forecasting. Review Stocks and Follow-up and Control. for the right customer at the right cost. Component parts. policies. and how large orders should be. at the right time. This code consists of information about the item to which it is attached to. • Inventory is stock of any item or physical resource (Raw Materials. Supplies. water and air. • Transportation is the backbone of the entire supply chain that ensures the delivery of the right product in the right quantity and the right condition. They are represented by numbers. inventory can be controlled to increase the organization’s profit. The different modes of transportation are road. at the right place. Balance Inventory Levels. Finished Products. when stock should be replenished. and Work-in-process) with intent of selling it or transforming it into a finished product. • The set of policies and controls that monitor levels of inventory and determines what levels should be maintained.

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Chapter-10 Aggregate sales and Operational planning Version4.0 For Associates Certificate in Manufacturing Concepts Page 1 of 18 .

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................... 9 9.......... finger pointing cash flow problems........................................................................................ 4 9........... 4 9.................7 Implementing Aggregate Plans and Master Schedules ........8 Yield Management ......... Learning objectives After completing this chapter............................................................................. 6 9...... many companies are using a business process called sales and operations planning(S&OP).........................9 Forecasting .... dissatisfied customers............................................................................................5 Level Scheduling .................. 13 Summary ..3 The Aggregate Operations Plan .............................. To avoid these problems.................................... etc has been the norms in many companies for years..................... late shipments...................................................................2 Overview of Sales and Operations Planning Activities ................... high inventories............................................ demand and supply out of balance........... 11 9............................................. The objective is to minimize the cost of resources required to meet the demand over that period... 10 9.4 Production Planning Strategies .Certificate in Manufacturing Concepts TCS Business Domain Academy Chapter-10 Aggregate Sales and Operational Planning Introduction Demand and supply out of balance.......1 What Is Sales and Operations Planning.... you will understand: • • • • • Sales and operations planning and its activities Aggregate Operations Plan Production Planning Strategies Implementing Aggregate Plans and Master Schedules Yield Management and Forecasting Topics Covered 9...................... 16 Page 3 of 18 ...8 9.............6 Relevant Costs ..................................................... missing the business plan... 7 9...........

and product development.Certificate in Manufacturing Concepts TCS Business Domain Academy 9. If the organization is planning for long terms. 9. sales. finance. shorten customer lead times. and stabilize production rate. But organization should be able to know how to sell a larger group of similar products (aggregate refers to this group of products) in the long term. Organizations need to get this balance not only at aggregate level but also at detailed individual product level. By aggregating at the level of major groups of products. to maintain enough capacity in-order to supply. Page 4 of 18 .2 Overview of Sales and Operations Planning Activities The term sales and operations planning have been created by organizations to refer to the process that keeps demand and supply in balance. it is important to monitor the sales of the product from 3 to 18 months. production schemes and matching customer orders can be handled more readily as a result of the sales and operations planning process. This entails general management. operations.1 What is Sales and Operations Planning Sales and operation planning is a process of building on collaboration among sales. organization can find out the demand and ensures. and product development departments. In manufacturing management this process is usually called as Aggregate Planning. The goals of sales and operations planning is to provide a better customer service. On the supply side it is done by product families and on the demand side it is done by groups of customers. Aggregation should be done on both supply and demand sides. This process consists of a series of meetings with various departments to make intermediate-term decisions. This balance is important for running a business well. Figure 10. The idea behind these meetings is not only to achieve optimal balance between supply and demand but also to bring operational plan in line with the business plan. For calculating the demand for a product.1 explains about sales and operations planning. which relates to other major operations planning activities. The individual product. finance. operations. The process is designed to get balance between supply and demand and also to maintain them in balance over the time. lower inventory. it is difficult to find out the demand of the product because of uncertainties.

1 Overview of major operations planning activities In the figure. intermediate. focusing on duration of greater than one year.Certificate in Manufacturing Concepts TCS Business Domain Academy Process planning Long range Strategic capacity planning Forecasting and demand management Sales and operations (aggregate) planning Sales plan Aggregate operations plan Medium range Master scheduling Material requirements planning Weekly workforce and customer scheduling Order scheduling Short range Daily workforce and customer scheduling Fig 10. monthly. with time increments that are weekly. Page 5 of 18 . the time dimension is shown as long. and short range. or sometimes quarterly. Long Range Planning: This is usually done annually. Intermediate Range Planning: This is calculated on the periodic basis generally from 3 to 18 months.

facilities. Most MRP systems also allocate production capacity to each other. with the time increment daily or weekly. 9. order quantity and time. production lines. Material Requirement Planning (MRP) splits them into component parts and sub-assemblies to create materials plan. and equipment and also check whether the vendors have allocated sufficient capacity to provide material on time. Page 6 of 18 . Large companies. The aggregate plans differ from company to company. Whereas smaller companies. by finding the mean of product group or other broad categories. and inventory on hand.Certificate in Manufacturing Concepts TCS Business Domain Academy Short Range Planning: This is calculated on the periodic basis generally from one day or less than six months. Many companies now update them every four weeks. • Inventory on hand: This is calculated on the basis of unused inventory carried over from the previous period. Basing on MPS output. workforce level. the planning process can be summarized as follows: The Master production schedule (MPS) will take production control groups’ forecast orders as input and generate output as specific items required for each order. • Workforce level: This is calculated on the basis of number of workers needed for production (production = production rate * workforce level). By considering end product requirement from the MPS. decide by making simple calculation of the workforce needs. or work centers. The aggregate plan is generally calculated for an intermediate term of 3 to 18 months and provides optimal combinations of production rate. The final planning activity is daily or weekly order scheduling of jobs to specific machines. Rough-cut capacity planning will start verifying production. when to place production order and purchase order for each part which is required for sub-assembly to complete the production order on the schedule time. formulate their plan based on company's objectives and goals and marketing strategies. warehouse.3 The Aggregate Operations Plan The purpose of aggregate operations plan is to find out the production rate. • Production rate: This is calculated on the basis of number of units completed per unit of time (such as per hour or per day). This is called Capacity Requirements Planning (CRP). This material plan specifies. The aggregate production plan should be updated at least every quarter (13 weeks). In manufacturing.

inventory and back logs. Whereas. This is a high-risk Page 7 of 18 . organization maintains constant output rate so that they can maintain stable work force and also constant working hours. work hours. but hiring and firing is transferred to the outsourced party. This strategy manages the shortages and surpluses of production by fluctuating inventory levels. The three production planning strategies are: • Chase strategy – This strategy mainly depends on production rate and order rate.4 Production Planning Strategies The production planning strategies are tradeoffs between workforce size.Certificate in Manufacturing Concepts TCS Business Domain Academy 9. By avoiding overtime there is an advantage. these three strategies are divided into two types. Basing upon the usage. The disadvantage of this strategy is the possibility of the products becoming obsolete and increase in the inventory cost. In subcontracting some portion of the production is outsourced when the demand is more. order backlogs. This strategy will be successful only if they have a pool of trained employees to hire from to fulfill an order. Subcontracting Subcontracting is also a widely used strategy of production planning. This is similar to chase strategy. and lost sales. • Mixed Strategy: When two or more of these strategies are used to absorb demand fluctuations. This strategy also makes the employees to slow down the work. the quality of the product increases. These strategies are chosen based on the firms requirement and order time. order rate is managed by changing the number of working hours and reducing the down time of the machine through flexible work schedules or overtime. out of the fear of being laid off as soon as existing order completes. When the order rate is high the organization will hire more people to fulfill the order. Then it is called as mixed strategy. • Level strategy – In this strategy. • Stable workforce-variable work hours – In this strategy. this strategy is most widely applied in industry. if the order rate is low they may lay-off the employees. • Pure Strategy: When just one of these strategies is used to absorb demand fluctuations then it’s named as pure strategy. This strategy also avoids hiring and firing of employees and provides work force continuity.

Example: Toyota Motor Corporation develops a yearly production plan that consists of total number of cars to be made and sold. manufacturer can lose control over schedule and quality. DID YOU KNOW? Outsourcing became an integral part of business during the 1980s. The production system has easy process flow. This is major disadvantage which should be considered before subcontracting the production and this is high-risk strategy. Advantages of Level Scheduling: • • • • • The entire system can be planned to minimize inventory and work-in-process. if the relationship with the outsourced party is not strong. which helps to schedule the sequence of products through the production system. The system must contain excess capacity. These quantities are given to subcontractors and vendors so that they can plan on meeting Toyota’s needs. Due to these advantages level scheduling is often know as backbone for JIT productions.Certificate in Manufacturing Concepts TCS Business Domain Academy strategy. To produce this total number with a level schedule. It holds constant production for a period of the time. the car types and quantities needed are established. For every period. This is converted to a detailed plan one month ahead. Page 8 of 18 . it maintains constant workforce.5 Level Scheduling Level scheduling is a combination of production planning strategies. Production smoothing is the one of the secret of success for the Japanese level scheduling. The system is planned to get minimum work-in-process and inventory. The essentially procedure is: Two months in advance. system requirements are important which are generated by aggregate production plan. low inventory and it also depends on the demand of the products. This plan is converted into monthly and daily. The monthly needs of various car types are then translated into daily schedules. Production line receives the items or materials directly from the vendors. The low amount of work-in-process keeps up-to date product modifications. To use level scheduling technique: • • Production system should be repetitive. 9.

and obsolescence of inventory which means capital is tied up in inventory. Budgets Operational managers have to submit annual budget reports. For aggregate production plan. They should maintain a good relationship among purchasing. aggregate plans help out in minimizing the total production-related costs over the planning horizon by determining the optimum contribution of workforce levels and inventory levels.6 Relevant Costs Relevant costs are related to the production cost itself as well as the cost to hold inventory and to have unfulfilled orders. 9. variable. These costs include fixed. and production. For preparing these budget plans. insurance. and loss of sales revenue. loss of customer goodwill. taxes. and laying-off personnel. Operational managers use aggregate plan as a key to successfully complete the budgeting process. • Backordering costs – These costs are usually very hard to measure like cost of expediting. Accurate medium range planning increases the likelihood of: (a) Receiving the requested budget (b) Operating within the limits of the budget. • Inventory holding costs – This cost incurred in storing. marketing. Thus. Equipment costs must be low.Certificate in Manufacturing Concepts TCS Business Domain Academy • • Output of the system must be fixed for a period of time (preferably a month). • Costs associated with changes in the production rate – These costs are incurred in hiring. direct and indirect labor costs and also regular as well as overtime compensation. • • • The cost of carrying inventory must be high. The workforce must be multi skilled. even sometimes quarterly budget reports for receiving funding from the finance department. the aggregate plan provides the control for the requested budget amount. Page 9 of 18 . there are four relevant costs: • Basic production costs-: The cost incurred while producing a given type of product in a given time period. training. spoilage.

As the aggregate plans are updated. But long-term planning is a difficult task. Deciding the time horizon is the biggest issue in aggregate planning.Certificate in Manufacturing Concepts TCS Business Domain Academy 9. If the plan is short-term and based on judgment and experience.1 Unplanned Events Aggregate plans are continuously updated to accommodate the effects of unplanned events.7. the purchasing department has to make arrangements to procure materials and hire subcontractors. as the complexities in planning are dependent on the time horizon. Forecasted demand and actual demand for a product may differ significantly due to unexpected events. sometimes the aggregate plan remains fixed. the implementation procedure can be segregated into two ways. records and reports are updated and reviewed continuously to accommodate these changes. 9. the difference will be that the actual demand is taken as input rather than the forecasted demand.7. This process of reviewing and updating. and performance rates. But in this case.2 Behavioral Considerations Behavioral considerations are important in planning and implementing the aggregate plans. When an aggregate plan is implemented. These are: • • Unplanned events Behavioral considerations 9. the master production schedule is also altered to incorporate these changes. Not achieving planned outputs for the month or the workforce not being able to produce at its average capacity are unexpected events that may also disrupt the plans. But. Therefore. For example. while the master production schedule undergoes changes because of changes in demand for individual products. it might turn out to be costly. Due to this reason.7 Implementing Aggregate Plans and Master Schedules The process and technique for implementing an aggregate plan depends on the conditions prevalent. shows the dynamic nature of planning and scheduling activities in operations management. These unexpected events must be taken into account while developing aggregate plan. it has an impact on almost all the functions and departments of an organization. The MPS transactions. the optimal time period for aggregate planning should be selected. called “rolling through time”. the production process. The implementation of the Page 10 of 18 .

transferring demand to an off-peak time from peak time. From an operational perspective. Source: Operation management for competitive advantage by chase It is a powerful approach to predict the demand. cruise lines and hotels are the best examples of yield management usage. during off-peak times. A barber shop. Soft drink vending machine – It is assumed that the lack of capacity would not be a problem for a vending machine. or even the day of the week. can offer lower prices during off-peak times such as days of the week. This may affect the level of motivation and job satisfaction of the workforce. If the plan specifies reduced output. trying to increase consumption during non-peak times is difficult because most vending machine can charge only one price. Therefore. a lower price could be charged to stimulate sales. which is important for preparing aggregate planning.Certificate in Manufacturing Concepts TCS Business Domain Academy aggregate plan initiates actions in various functions. during off-peak time.8 Yield Management Yield management can be defined as the process of allocating the right type of capacity to the right type of customer at the right price and time to maximize revenue or yield. people may have to be removed from their jobs. It also affects organizational environment. so reallocating peak demand should not be an issue. But new technology can allow the prices to be changed based on time of day. Page 11 of 18 . Thus. However. or times of the day when demand is low. Example: Airlines. 9. The second step is to offer a discount on an appointment for people who walk-in. rental car agencies. yield management is more effective when • • • • • Demand can be segmented by customer Fixed costs are high and variable costs are low Inventory is perishable Product can be sold in advance Demand is highly variable Examples: applying yield management to: Barber shop – The first step is to determine the peak and off-peak times.

and cross-training employees to create reserves for peak periods. Pricing should also relate to addressing specific capacity problems. The following concerns can come up in managing yield: Ensure that pricing structures appear logical to the customer and the different prices are justified.Certificate in Manufacturing Concepts TCS Business Domain Academy DID YOU KNOW? The first widespread scientific application of yield management began when American Airlines’ computerized reservation system (SABRE). The fourth issue is the critical and important issue related to training workers and managers to work in an environment where overbooking and price changes are standard occurrences that directly impact the customer. creating adjustable capacity. This entails employing accurate forecasting methods (the greater the accuracy in forecasting demand. utilizing idle capacity for complementary services. may have either a physical basis (such as a room with a view) or a nonphysical basis (like unrestricted access to the internet). If capacity is insufficient. coordinated policies on overbooking. A golf course company once offered $ 100 putters to players who had been overbooked at a particular tee time. commonly called rate fences.1 Operating Yield Management Systems 1. increasing customer co-production(here customers is also part production like in designing and so on). Handle variability in arrival or starting times. 2. Example: Any airlines company gives overbooked passengers free tickets for other flights. was introduced in the mid 1980s. offering deals to customers who arrive during non-peak periods (or creating alternative service locations) may enhance revenue generation. Page 12 of 18 . price reductions stimulating off-peak demand should be the focus. If capacity is sufficient for peak demand. Companies have to develop creative ways for peace-making the overbooked customers. 3. Manage the service process properly. duration. and well-designed service processes that are reliable and consistent. deposits. and time between customers effectively. 4. and no-show cancellation penalties. 9. Some strategies include scheduling additional personnel to meet peak demand.8. the more likely yield management will succeed). Such justifications.

In includes both long-term estimates of overall demand and short-term estimates of demand for each product or service. it can provide vital information for strategic. inventory management. scheduling. in a specific market environment. aggregate planning. capacity and facilities planning.Certificate in Manufacturing Concepts TCS Business Domain Academy 9. forecasting time horizons (the future point in time to which forecasting is Page 13 of 18 . While forecasting cannot predict the future with absolute accuracy. But long-term. Organizations need to forecast the demand for their products and services so that all relevant plans can be developed accordingly. Good forecasting is the foundation of good operations management.1 Forecasting In Operations Forecasting involves making calculated predictions that can be used in the planning and decision-making process. Demand is the quantity of a product or a service that buyers are able and willing to purchase during a particular time period. and are used to plan and schedule the production operations. 9. are used for making location. By predicting the most probable future value of a variable.9 Forecasting Forecasting seeks to predict what is most likely to happen in future. Operations managers often try to forecast a wide spectrum of future events that could influence the performance of their organizations. Thus. layout and capacity decisions. aggregate product-demand forecasts. The market environment is influenced by following conditions: Price of a product Price of its substitute Complementary products The incomes of customers Their expectations regarding price changes Their tastes & preferences The number of customers Their travel costs to the point of purchase (PoP). tactical and operational planning. etc.9. managers take effective decisions and carry out planning activities. The main purpose of forecasting is to predict future customer demand for a product or service. Short-term demand estimates for individual products are generally very detailed. Forecasting is used in process design.

9. Operations managers should select a method on the basis of data available. the selection of a forecasting system depends on the following factors: time period for which the forecast is needed. If comprehensive historical data is available. qualitative forecasting methods such as the Delphi method or the nominal group technique is used. 9. Forecasting for long range decisions like product planning. project assignment and machine scheduling. then time series analysis such as moving Page 14 of 18 .2 Selecting a Forecasting Method The objective of selecting the right method is to maximize accuracy and minimize biases. time series techniques such as moving averages (SMA or WMA) and exponential smoothing are preferred.Certificate in Manufacturing Concepts TCS Business Domain Academy directed) provide different types of information. For decisions like capital and cash budgeting. the amount and nature of data available and the cost and accuracy of the method. facility location and expansion. Data availability The selection of a forecasting method also depends on the amount and nature of data available. On the basis of aggregate demand forecast (that is obtained in terms of sales volume) individual forecasts are made for labor/or material requirements. the Delphi technique. job scheduling. the amount of variation expected and the forecast accuracy required. etc. market research. capital planning is done through the use of regression analysis. to help the managers make long-term or short-term decisions. scheduling. Forecasting is thus necessary for planning. The costs and technical expertise involved in forecasting also affects the situation of a method. Time span The time period for which the forecast is needed is one of the key issues in the selection of a forecasting method. the suitability of a forecasting method should be verified before it is selected. Therefore. the amount and nature of available data. medium range forecasting method like regression analysis is used. Generally. These resource forecasts are used to plan and control the operation subsystems. if no data is available or it is too expensive to collect data. and controlling the production system in order to deliver goods and services effectively and efficiently. For short-range decisions like purchasing.

Page 15 of 18 . Cost and accuracy No forecasting method can be hundred percent accurate. Some low accuracy methods use less data which is readily available. causal methods (such as regression analysis) are used. For these methods. Due to inaccuracies in the forecasts provided by these methods. the cost of forecasting is low. Generally.Certificate in Manufacturing Concepts TCS Business Domain Academy averages and exponential smoothing methods is employed. If a relationship exists between the different variables under review. operations managers make a tradeoff between cost and accuracy. organizations may end up with high inventory holding costs and operating costs.

shorten customer lead times. • Stable workforce-variable work hours – Vary the output by varying the number of hours worked through flexible work schedules or overtime.Certificate in Manufacturing Concepts TCS Business Domain Academy Summary • Sales and operations planning is a process to help give better customer services. • A level schedule holds production constant over a period of time. Due to this reason. These relate to the production cost itself as well as the cost to hold inventory and to have unfulfilled orders. workforce level. It is a combination of the strategies mentioned above. sales. • Level strategy – Maintain a stable workforce. working at a constant output rate. • The aggregate operations plan is concerned with setting production rates by product group or other broad categories for the intermediate term (3 to 18 months). stabilize production rates. the implementation procedure can be segregated into two ways: unplanned events and behavioral considerations. • Forecasting seeks to predict what is most likely to happen in future. • Chase strategy – Match the production rate to the order rate by hiring and laying-off employees as the order rate varies. By predicting the most probable future value of a variable. and give top management a handle on the business. it keeps the workforce constant and inventory low. • The process and technique for implementing an aggregate plan depends on the conditions prevalent. For each period. order backlogs. • Yield management can be defined as the process of allocating the right type of capacity to the right type of customer at the right price and time to maximize revenue or yield. and lost sales. Shortages and surpluses are absorbed by fluctuating inventory levels. managers take effective decisions and carry out planning activities. lower inventory. and inventory on hand. and depends on demand to pull products through. and product development. operations. • Four costs are relevant to the aggregate production plan. Page 16 of 18 . finance. The aggregate plan aims to specify the optimal combination of production rate. • Typically sales and operations planning involve general management.

aggregate planning. capacity and facilities planning. scheduling. Forecasting is used in process design.Certificate in Manufacturing Concepts TCS Business Domain Academy • The main purpose of forecasting in operations is to predict future customer demand for a product or service. etc. In includes both long-term estimates of overall demand and short-term estimates of demand for each product or service. inventory management. Page 17 of 18 .