ASSIGNMENT

Name Gaganpreet Singh

Roll No. 520946919

Course MBA-Semester-III

Advanced Production & Operations

Subject
management

Subject Code OM0004 Set-1

LC Code 02971

1. What do you mean by operation strategy? Explain the contents of

operations strategy.

Answer:

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Operations Strategy

Operations strategy is the total pattern of decisions and actions which set the roles, objectives
and activities of the operation so that they contribute to and support the organizations business
strategy.

Strategy Hierarchy

Operations strategy has two purposes:

- To contribute directly to the strategic objectives of the

next level up in the hierarchy and

- To help other parts of the business make their own

contribution to strategy

Content of operations strategy

Operations strategy content is the collection of policies, plan and behaviors which the operation
chooses to pursue.

Examples of questions of operations strategy content

- How many factories and service branches should we have, how large should they be, and
where should they be located?

- How should we change and develop the projects and services which we offer to our customers

- How should we lay out the various departments and facilities within the operation?

- What type of machines and process technology should we be purchasing?

- What human resource strategies regarding working responsibilities and practices should we
adopt for our staff?

- How should we adjust own capacity as demand fluctuates?

- How should we develop systems which manage the activities, which produce services and
products for our customers?

- How should we monitor the performance of the operation?

- How should we plan to improve the performance of the operation?

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The following are the areas in which the above questions will be relevant for the
organization.

1. The organization needs to determine the priority of its performance objectives.

- Should it concentrate on being particularly good at quality or speed or dependability or

flexibility or cost or may be a combination of these?

- Questions concerning the number, size and location of plants relate to designs decision, as do
the questions concern the product / service design, layout, technology and human resources.

The questions concerning capacity adjustment and the systems which manage the delivery of
products both relate to planning and control decisions. The questions which concern the
monitoring and improvement of the operations performance clearly relate to improvement
decision.

Questions related to the process of the company’s operations strategy.

- Why are we reviewing own operations strategy at this point

- Who should take overall responsibility for formulating our operations strategy?

- Is the formulation process to consider all aspects of all parts of our operation, or is it to be
more focused?

- Who should be involved in the process of formulating the operations strategy?

- How should we organize ourselves to formulate the operations strategy?

- What should we do first, second, third and so on?

- What action plans or specific projects should we initiate to achieve our new strategy?

- How should we manage the implementation of our strategic plans?

Reorganizing the value chain by removing, reordering or adding activities can produce a major
improvement in competitive advantage. For example, Japanese camera manufactures became
industry leader by creating value chains that combined single lens reflex camera technology
with automated mass production and mass marketing. Kodak recently reorganized its value
chain by adding digital technology, electronic photography and high resolution imaging to its
silver based film technologies.

OM 0004 SET 1
2. Explain the aggregate planning process. What are the different
costs involved in aggregate planning? Briefly explain the importance
of demand management in aggregate planning.
Answer:

Aggregate Planning Process:

Aggregate planning is the “big picture” approach to planning for the intermediate term (  1
year). The goal of aggregate planning is to achieve a production plan that will effectively utilize
the organization’s resources to satisfy expected demand.
Aggregate planning is the next step in the production planning process to sense the relationship
between overall productive capacity and the sales forecast. Suppose the annual forecast for air
conditioners in the coming year is 60,000; further suppose the sales are primarily in Uttar
Pradesh and Bihar and are concentrated in the summer months, 20% of annual sales in June,
30% in July, and 50% in August. One approach to aggregate planning is to match production
with actual demand. Suppose that goods produced in one month are sold the next.

Aggregate Planning with Normal Time Only

The advantage of this production strategy is a minimum amount of finished goods inventory. If
production exactly matches demand, there would be no inventory. The disadvantages are
twofold, labor and financial. Workers are hired in June, more in July and even more in August,
all to be let go in September. This hire and fire labor policy has definite drawbacks. Good
workers seek work elsewhere. There are high training and severance costs. The quality of the
product suffers when workers barely beginning to learn their jobs are laid off. There is a financial
reason not to pursue this production strategy. The plan has to be sized to peak demand, which
in this case is 30,000 units per month. Hence, the plant is fully utilized one month per year,
partly utilized two months and idle nine months. Off hand, it sounds like a capital resource.

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Aggregate Planning with Average Demand

A better alternative may be to match production with average demand of 5000 air conditioners
per month. Here, the plant is one sixth the capacity of a plant sized to match production with
actual demand, hence one sixth the investments. The plant is fully utilized throughout the year,
and the work force is stabilized. Work teams can be organized for continuous product
improvement. The benefits are a smaller sized plant producing a better product.

A third alternative is to introduce overtime during the peak sales Season to reduce inventory,
shown the spread speed for producing 5000 units per moth, normal time only (eight low working
day), Normal time production is annual production less total overtime production divided 12
months.

Aggregate Planning with Normal time and overtime

Six hundred additional units can be made in overtime per month. Overtime has been selected
arbitarily for May through August. The formula for month normal time production takes into
account overtime production to keep annual production at 60,000. Overtime has to be limited to
600 per month.

Aggregate plan with normal time, over time and the optimal solution in fig 9.3 shows that the
best course of action is to have three months of overtime from June through August.

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Optimal aggregate plan

For many firms, planning the execution and controlling demand quantities and timings are a
day-to-day interactive dialogue with customers. For other firms, particularly in the process
industries the critical coordination is in scheduling large inter and intra company requirements.
For still others, physical distribution is critical since the factory must support a warehouse
replenishment program, which can differ significantly from the final customer demand.

The difference between the pattern demand and the response by the company points out the
important distinction between forecast and plans. In demand management, forecasts of the
quantities and timing of customer demand are developed. These are estimates of what might
occur in the market place. Manufacturing plans that specify how the firm will respond are based
on these forecasts. The plan for response can look quite different from the forecast.

The distinction between forecast and plan are important for two reasons. First, a manager
control be held responsible for not getting a forecast right. We can and we should hold
managers responsible for making the plans, however, much of the manufacturing planning
system is about providing the means for making as good a set of executable plans as possible
and then providing the information to execute them.

The linkage between demand management, sales and operations planning and master
production, scheduling in the front end makes clear the importance of providing complete
forecast and providing them at appropriate level of detail. If material and capacity of resource
are to be planned effectively, we must identify all sources of demand. Spare parts, distribution,
inventory changes, demonstration stock, new items, and promotions and so on.

Costs Involved In Aggregate Planning:

Four costs are relevant to the aggregate production plan. These relate to the production cost
itself as well as the cost to hold inventory and to have unfilled orders. These are:

1. Basic Cost of Production: These are the fixed and variable costs incurred in producing
a given product type in a given time period. Included are direct and indirect labor costs
and regular as well as overtime compensation.
2. Costs Associated with Changes In The Production Rate: Typical costs in these
categories are those involved in hiring, training, and lying off personnel. Hiring temporary
help is a way of avoiding these costs.

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 3. Inventory Holding Costs: A major component is the cost of capital tied up in inventory.
Other components are storing, insurance, taxes, spoilage and obsolescence.
4. Back Ordering Costs: Usually these are very hard to measure and include costs of
expediting, loss of customer goodwill, and loss of sales revenues resulting from back
ordering.
5. Budgets: To receive funding, operations manages are generally required to submit
annual and sometimes quarterly budget requests. The aggregate plan is the key to the
success of the budgeting process. The goal of the aggregate plan is to minimize the total
production related costs over the planning horizon by determining optimal combination of
work force levels and inventory levels. Thus the aggregate plan provides justification for
the requested budget amount. Accurate medium range planning increases the likelihood
of (1) receiving the requested budget and (2) operating within the limits of the budget.

Importance of Demand Management:

Demand management is an important stage in the Manufacturing and process control (MPC)
system and provides the link to the market place, ancillary plants, warehouses and important
elements in the planning system.

In demand management, we gather information from and about the market such as forecasting
market demand, entering orders and determining specific product requirements. Demand
management is also concerned with identifying all sources of demand for manufacturing
capacity including service – part demands, intra-company requirements and promotional
inventory buildup or other needs for pipeline inventory stocking.

The position of demand management system is shown in the figure 9.1. It is the key connection
to the market in the front-end of the MPC System. The other linkages are with the sales
operation planning (SOP) and the master production scheduling (MPS) stages.

The information provided to SOP is used to develop sales and operations plan (including
manufacturing) covering a year or more in duration at a fairly high level of aggregation. Both
forecast and factual demand information are provided to the MPS module.

It is in the MPS module that short term, product-specific manufacturing plans are developed and
controlled as actual demand becomes available and information is provided to make delivery
promises and other status to customers.

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Demand Planning in Aggregate Planning

3. What is MRP? Explain the role of MRP in production planning

system. What are the inventory decision rules for MRP.
.

Answer:

Material Requirements Planning (MRP)

Driven by a master production schedule (MPS) was first applied successfully in 1961 by J.A.
Orlicky on J.I case company farm machinery. The rigorous logic and masses of data to be
handled made these an ideal computer application.

Manufacturing Planning & Execution

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The overall manufacturing planning process is comprised of:

 The forecast values and requirements from the sales information system and
costing/profitability analysis are inputs to the Sales and Operations Planning (SOP) phase in
which independent requirements are determined.
 Master Schedule items (those items that greatly influence profits or consume critical
resources) are planned. Planning the master schedule items separately leads to a reduction
in stock levels and improved delivery performance.
 Materials requirements planning (MRP) is the final step in the planning process. The
output of MRP is either a planned production order, a purchase requisition, or a planned
purchase order.

The overall manufacturing execution process is comprised of:

 Production orders are released

 Materials are issued
 Completion confirmations are performed
 Goods are received into stock.
The manufacturing process affects capacity, costing inventory, reporting, and analysis.

The five primary phases are:

 Sales and operations planning

 Demand management
 Master production planning
 Materials requirements planning
 Production order execution

The original MRP planned only materials. However, as computer power grew and applications
expanded, so did the breadth of MRP. Soon it considered resource as well as materials and
was called MRP II, standing for Manufacturing Resource Planning. A complete MRP program
included so or so modules controlling the entire system form order entry through scheduling,
inventory control finance, accounting, accounts payable, and soon. The modern MRP impacts
the entire system and includes just –in-time, Kanban, and Computer- Integrated Manufacturing
(CIM)

MRP is based on dependent demand. Dependent Demand is caused by the demand for a
higher level item. Tires, wheels and engines are dependent demand items base on the demand
for automobiles. Needed quantities of a dependent demand item are simply computed based on
a number needed in each higher level item in which it is used.For example, if an automobile
company plans on producing 500 cars per day, then obviously, it will need 2000 wheels and
tires (plus spares). The number of wheels and tires needed is dependent on the production
levels and is not derived separately. The demand for cars on the other hand is independent- it
comes from many sources external to the automobile firm and is not a part of other products. To
determine the quantities of independent items that must be produced, firms usually turn to their
sales and market research departments.

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Role of MRP in Production Planning System

An indispensable part of an ERP system, material requirements planning plays an important

role in production planning because it.

- Generates replenishment – orders (production orders) for uncritical components and parts
(operations) in a multi stage production environment, and

- Provides access to a transactional ERP system and thus can initiate the execution of orders.

Recognition that manufacturing is a process is essential to understanding how it should work.

The essence of manufacturing is flow of materials from suppliers, through plants to customer,
and of information to all parties about what was planned. The first law of manufacturing is all
benefits will be directly proportional to the speed of flow of materials and information.

Time is the most precious resource employed in the manufacturing process.

Simple, universal logic underlies all manufacturing and can be represented by six simple
questions.

1. What is to be made?

2. How many and when are they needed?

3. What resources are required to do this?

4. Which are already available?

5. Which others will be available in time?

6. What more will be needed and when?

Business and marking strategies determine the answers to the first two questions. Internal
company planning and control systems provide answers to the last four.

Inventory Decision Rules for MRP

1. Many decision rules (lot sizing rules) can be employed for lot sizing under MRP.

2. Lot size ordering – minimum order quantity needed.

3. Lot for lot (LFL) ordering – ordering the exact quantity to satisfy the requirements of each time
period (usually a week)

4. Period Order Quantities (POQ) – Selection of a fixed time interval over which to purchase and
determine requirements.

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5. Economics order quantity – using the standard EOQ formula, the annual usage is determines
by proportioning.

6. Least cost method: Attempts to select the quantity to order that balances the cost of
possession and the cost of acquisition.

OM 0004 SET 1