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Production and Operation
Management 2011-12
Refers to the management of the production systemthat
transforms inputs into finished goods and services.
Production system: the way a firm acquires inputs then
converts and disposes outputs.
Operations managers: responsible
process from inputs to outputs.




Operations management seeks to increase the quality, efficiency,

and responsiveness of the firm.
Seeks to provide a competitive advantage.
Quality: goods and services that are reliable and perform
Quality allows customers to receive the performance that they
Efficiency: the amount of input to produce a given output.
Less input required lowers cost and waste.
Responsiveness to customers: actions taken to respond to
customer needs.
Firm can react quickly and correctly to customer needs as they

Location theory: Alfred Weber (1909):
1. A part of the costs are stable
2. To gain as much as possible
3. Cost depending of the geography
4. Transportation costs
5. Agglomeration
Location factors:

raw materials
working force
size of the market

ERGONOMICS-Derived from two Greek words:
Nomoi meaning natural laws
Ergon meaning work
Hence, ergonomists study human capabilities in
relationship to work
As early as 18th century doctors noted that workers who
required to maintain body positions for long periods of time
developed musculoskeletal problems.
Within last 20 years research has clearly established
connections between certain job tasks and RSI or MSD.

VED Model:
V= Vital; E= Essential; D=Desirable;
VED Analysis is plays an important role in matarials
VED ranking may be done on the basis of the shortage cost
of matarials,which can be either quantified and qualitatively

ANS.(e) Tolerance:
Permissible variation in size or dimenions on is called
How to decide tolerance?
Functional requirements of mating parts
Cost of production
Available manufacturing process
Choose as coarse tolerance as
compromising functional requirements



Proper balance between cost and quality of parts

Centralized Purchasing: Purachasing is handled by one
special department.

Decentralized Purchasing: Individual departments or

Concept of Inspections:
Critical appraisal involving examination, measurement, testi
ng, gauging, and comparison of materials or items. An
inspection determines if the material or item is in
proper quantity and condition, and if it conforms to the
applicable or specified requirements. Inspection is generally
divided into three categories: (1) Receiving inspection, (2) Inprocess inspection, and (3) Final inspection. In quality
control (which is guided by the principle that "Quality cannot
be inspected into a product") the role of inspection is to
verify and validate the variance data; it does not involve
Expediting is the application of pressure on suppliers to get
them to either meet the original delivery promise or to
deliver ahead of schedule. It may be the threat of order
cancellation or other penalty, if the supplier cannot meet the
agreement. Expediting should be necessary on only a small
percentage of Purchase Orders issued. The purchaser should
be in a position to know which suppliers are most likely to
present delivery problems.
Methods of Expediting:
Exception expediting
Routine status check
Advanced expediting
Critical Incident:

The Critical Incident Technique (or CIT) is a set of procedures

used for collecting direct observations of human behavior that
have criticalsignificance and meet methodically defined criteria.
Vendor ratings systems provide a process for measuring those
factors that add value to the buying firm through value addition or
decreased cost. The process will continually evolve and the
criteria will change to meet current issues and concerns .
Product Layout: It is appropriate for producing one standardized
product,usually in large volume.It is also called as flow-shop
layout or straight line layouts.The machines are
according to the progressive steps by which the product is made.
Example: Chemical, Paper, Rubber, Cement Industry etc.

In manufacturing engineering, process layout is a design for
the floor plan of a plant which aims to improve efficiency by
arranging equipment according to its function. [1] The production
line should ideally be designed to eliminate waste in material
flows, inventory handling and management. [2] In process layout,
the work stations and machinery are not arranged according to a
particular production sequence. Instead, there is an assembly of
similar operations or similar machinery in each department (for
example, a drill department, a paint department, etc.)
Functional Layout:
Used in project
manufacturing (intermittent processes)



Also used in department stores, offices, hospitals, and


Able to make or sell a variety of products

Use general purpose resources
Less automation than in product layouts
Material handling costs per unit are higher than in product
Scheduling production is more complex than in product
Designing Process Layouts:
Step 1: Gather information:
Space needed, space available, importance of proximity
between various units
Step 2: Develop alternative block plans:
Using trial-and-error or decision support tools
2 approaches
Relationship (REL) chart
From-to matrix
Can use both
Decision support systems are heuristic methods
Usually give a "good" solution
Solution may not be optimal (best solution)
Step 3: Develop a detailed layout
Consider exact sizes and shapes of departments and
work centers including aisles and stairways
Tools like drawings, 3-D models, and computer-assisted
design (CAD) software are often used

1. Provide visual control of activities

2. Utilize space efficiently
3. Utilize labor efficiently
4. Eliminate bottlenecks

5. Facilitate communication and interaction between workers and supervisors

Matarial Handling:
Weights and Forces
Frequency of Activities
Load Center of Gravity
Need for Material Handling Analysis
Continual Squeeze on profits
Market Survival
Purpose of Material Handling Analysis:
Potential Cost Savings
An Orderly Approach
Effectiveness of Material Handling Analysis:
Nebulous & Complex Task
Differing Problems

Vary the Procedure

Material Handling Selection Procedure:
Two Phases:
Phase I : General Analysis Phase
Phase II : Equipment Selection Phase

WORK SAMPLING: Work Sampling is a method for analyzing
work by taking a large number of observations at random times.
Use work sampling to:
Determine machine utilization
Determine allowances
Establish time standards
Use as many observations as practical
Take observations at random times over two or more weeks.
Work sampling is a technique used to investigate the
proportions of total time devoted to the various activities
that constitute a job or work situation.
The results of work sampling are effective for determining
machine and personnel utilization, allowances applicable to
the job and production standards.
Work sampling frequently provides the same information
faster and considerably less cost than time study.
In conducting work sampling studies:
Large number of observations at random intervals,
The ratio of observations of a given activity to the total
observations approximates the percentage of time that the
process is in that state of activity.

Work sampling was first applied in the British textile industry

Later, technique was brought to the United States.
The accuracy of the data determined by work sampling
depends on the number of observations and the period over
which the random observations are taken.
1. It does not require continuous observation by an analyst
over a long period of time
2. Clerical time is diminished,
3. The total work-hours expended by the analyst are usually
much fewer,
4. The operator is not subjected to long period stopwatch
5. Crew operations can be readily studied by a single analyst.
Work sampling has three main uses:
1. Activity and delay sampling (to measure the activities and
delays of workers or machines. Ex:percentage of working
2. Perfomance sampling (to measure working time and
nonworking time of a person on a manual task, and to
establish a performance index or performance level for the
person during his or her working time.
3. Work measurement (under certain circumstances, to
measure a manual task, that is, to establish a time standard
for an operation.

EOQ Model :
The decision variable is
Q = Order Quantity

There are four parameters:

k = Fixed cost per order
A = Annual number of items demanded
c = Unit cost of procuring an item
h = Annual cost per dollar value of
holding items in inventory
An order quantity is to be found that minimizes:
Total Annual Cost=Ordering Cost+Holding Cost Procurement
Inventory level has a cycle beginning with a new shipments

T = Q/A = Duration of inventory cycle

The annual ordering cost is the number of orders times the

cost per order:
Annual Ordering Cost=(A/Q)k
The annual holding cost is the cost per item held 1year times
the average inventory:
Annual Holding Cost=hc(Q/2)
The annual procurement cost is the product of annual
demand and unit cost:
Procurement cost = Ac
The total annual inventory cost is:
Total Annual Cost=(A/Q)k+ hc(Q/2)+AC
We drop Ac from the above, since that amount will not vary
with Q.
Ac is not a relevant cost.

That provides the function to be minimized, the total

annual relevant inventory cost:
TC(Q) =(A/Q)k+ hc(Q/2
It may be shown using calculus that the level for Q
minimizing the above is the economic order quantity
Problem. A software store sells 500 Alien Saboteurs annually.
The supplier charges $100 per order plus $20 each. It costs
$.15 per dollar value to hold inventory for a year. How many
should they order, how often, and at what annual relevant
inventory cost?

A system for scheduling the manufacture of products and ma
naging stock inventory that aims to optimize costs, minimize
and maintain a
steady work flow.
modern production technology that might be used by
a manufacturing business can identify production blockages
sense capacity constraints,
usually operate at full capacity if sufficient inventory to
meet demand already
Technology is the process of applying the finding of science
and other forms of enquiry to applied situations. Production
technology therefore involves applying the work of
researchers to develop new products and processes.

Production Planning & Control:

Production planning and control is the organization and

planning of the manufacturing process.
It co-ordinates supply and movement of materials and labor,
ensures economic and balanced utilization of machines and
equipment as well as other activities related with production
to achieve the desired manufacturing results in terms of
quantity, quality, time and place.
There are three stages in PPC
Planning : The choice from several alternatives of the best
utilizing the available resources to achieve the desired
objective .
Operations: Performance in accordance with details set out
in production plan.
Control: The monitoring of performance through a feed
back by comparing the results achieved with planned targets
so that performance can be improved.
Objective of PPC:
To deliver goods in required quantities to customers in
required delivery schedule.ion
To ensure maximum utilization of all resources
To ensure production quality products
To minimize the product throughput time
To maintain optimum level inventory
To maintain flexibility in manufacturing operations
Coordinate between labour and machines and various
supporting departments
Functions of PPC:

Inventory Control
Levels of PPC:
Strategic Planning(Long range): It is process of thinking
though the organizations current mission and environment
and setting a guide for future decisions and results. e.g.
Technology forecasting and choice of appropriate technology
for the long range time horizon.
Tactical Planning(Intermediate Range): It is done over
an intermediate term or medium range time horizon by
middle level management. These plans focus on aggregate
products rather than individual products.
Operational Planning(Short Range ): It is done over a
short range time span developed by junior level
management. It is concern with utilization of existing
facilities rather than creation of new facilities.
Benefits of PPC:
PPC coordinates all the phases of production / Operating
An efficient plan results in higher quality ,better utilization of
resources, reduced inventories, better customer services.
An efficient plan enable the firm to improve its sales
turnover , market share and profitability.
Limitations of PPC:

PPC function is based on certain assumptions or forecasts of

customers demand, Plant capacity, availability of materials
Employee may resist change in production levels set as per
production plans.
This process is time consuming when we need to carry out
routing and scheduling function for large products.
This function become difficult when environmental factors
changes rapidly.

Operating Characteristics (OC) Curves:
Operation Characteristic (OC) curve Defined
Explanation of OC curves
How to construct an OC curve
An example of an OC curve
Problem solving exercise
What is an Operations Characteristics Curve?
the probability of accepting incoming lots.
OC curves are graphs which show the probability of
accepting a lot given various proportions of defects in the lot
X-axis shows % of items that are defective in a lot- lot
Y-axis shows the probability or chance of accepting a lot
As proportion of defects increases, the chance of accepting
lot decreases
Example: 90% chance of accepting a lot with 5% defectives;
10% chance of accepting a lot with 24% defectives

OC Curves Uses:
Selection of sampling plans
Aids in selection of plans that are effective in reducing risk
Help keep the high cost of inspection down
What can OC curves be used for in an organization?
Types of OC Curves:
Type A
Gives the probability of acceptance for an individual lot
coming from finite production
Type B
Give the probability of acceptance for lots coming from
a continuous process
Type C
Give the long-run percentage of product accepted
during the sampling phase
Definition of Variables:
PA = The probability of acceptance
p = The fraction or percent defective
PF or alpha = The probability of rejection
N = Lot size
n = The sample size
A = The maximum number of defects
OC Curve Calculation:
Two Ways of Calculating OC Curves
Binomial Distribution
Poisson formula

P(A) = ( (np)^A * e^-np)/A !

Binomial Distribution
Cannot use because:
Binomials are based on constant probabilities.
N is not infinite
p changes
But we can use something else.
A Poisson formula can be used
P(A) = ((np)^A * e^-np) /A !
Poisson is a limit
Limitations of using Poisson
n<= 1/10 total batch N
Little faith in probability calculation when n is quite
small and p quite large.
We will use Poisson charts to make this easier.
Find your sample size, n
Find your fraction defect p
Multiply n*p
From a Poisson table find your PA
Properties of OC Curves:
Ideal curve would be perfectly perpendicular from 0 to 100%
for a given fraction defective.
The acceptance number and sample size are most important

Decreasing the acceptance

increasing sample size.





The larger the sample size the steeper the curve

AQL, LTPD, Consumers Risk () & Producers Risk ():

AQL is the small % of defects that consumers are willing to
accept; order of 1-2%
LTPD is the upper limit of the percentage of defective items
consumers are willing to tolerate
Consumers Risk () is the chance of accepting a lot that
contains a greater number of defects than the LTPD limit;
Type II error
Producers risk () is the chance a lot containing an
acceptable quality level will be rejected; Type I error
Developing OC Curves:
OC curves graphically depict the discriminating power of a
sampling plan
Cumulative binomial tables like partial table below are used
to obtain probabilities of accepting a lot given varying levels
of lot defectives
Top of the table shows value of p (proportion of defective
items in lot), Left hand column shows values of n (sample
size) and x represents the cumulative number of defects

Table 6-2 Partial Cumulative Binomial Probability Table (see Appendix C for comple
Proportion of Items Defective (p)



































The poorest quality level for the suppliers process that a

consumer would consider to be acceptable as a process
average is called the acceptable quality level (AQL)

AQL is a property of the suppliers manufacturing

process, not a property of the sampling plan

The protection obtained for individual lots of poor quality is

established by the lot tolerance percent defective

Also called rejectable quality level (RQL) and the

limiting quality level (LQL)

LTPD is a level of lot quality specified by the

consumer, not a characteristic of the sampling plan

Sampling plans can be designed to have specified

performance at the AQL and the LTPD points

Production and Operation Management:
POM is the management of organization production system.A
production system takes inputs and convert them into output.
The conversion process is the predominant activity.of the
production system.
The primary concern of an operation manager is the activity of
the conversion.

The ABC concept is derived from the Pareto's 80/20 rule curve. It is also known as the
80-20 concept. Here, Rupee / Dollar value of each individual inventory item is calculated
on annual consumption basis.

Thus, applied in the context of inventory, it's a determination of the relative ratios
between the number of items and the currency value of the items purchased /
consumed on a repetitive basis :

10-20% of the items ('A' class) account for 70-80% of the consumption

the next 15-25% ('B' class) account for 10-20% of the consumption and

the balance 65-75% ('C' class) account for 5-10% of the consumption

The ABC classification process is an analysis of a range of

objects, such as finished products ,items lying in inventory or
customers into three categories. It's a system of categorization,
with similarities to Pareto analysis, and the method usually
categorizes inventory into three classes with each class having a
different management control associated.
ABC Analysis is the basis for material management processes and
helps define how stock is managed. It can form the basis of various
arrangements (consignment stock), reorder calculations and can
help determine at what intervals inventory checks are carried out
(for example A class items may be required to be checked more
Inventory Control Application: The ABC classification system is to
grouping items according to annual issue value, (in terms of money),
in an attempt to identify the small number of items that will account
for most of the issue value and that are the most important ones to
control for effective inventory management. The emphasis is on
putting effort where it will have the most effect.
ANS.7 (b)

SDE Model of inventory management: It is based upon the

availability of items and it is very useful in the context of scarcity
of supply.
S refers scares items; generally imported and those which are in
short supply.
D refers to difficult items;which are available indigenously but
are difficult are procure.
E refers to items which are easy to acquire and which are

available in the local market.

These are generally short supply or are channelized through
government agencies.