: Each Question carries 10 marks 1. What do you mean by operation strategy? Explain the contents of operatio ns strategy. 2. Explain the aggregate planning process. What are the different costs in volved in aggregate planning? Briefly explain the importance of demand managemen t in aggregate planning. 3. What is MRP? Explain the role of MRP in production planning system. What are the inventory decision rules for MRP.

1. What do you mean by operation strategy? Explain the contents of operations st rategy. Ans: Operations Strategy Operations strategy is the total pattern of decisions and ac tions which set the roles, objectives and activities of the operation so that th ey contribute to and support the organizations business strategy. Strategy Hiera rchy Operations strategy has two purposes: - To contribute directly to the strat egic 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 st rategy Operations strategy content is the collection of policies, plan and behav iors which the operation chooses to pursue. Examples of questions of operations strategy content - How many factories and service branches should we have, how l arge should they be, and where should they be located? - How should we change and develop the projects and services which we offer to o ur customers - How should we lay out the various departments and facilities within the operat ion? - 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 fl uctuates? - How should we develop systems which manage the activities, which pro duce services and products for our customers? - How should we monitor the perfor mance of the operation? - How should we plan to improve the performance of the o peration? The following are the areas in which the above questions will be relev ant 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 combinat

ion of these? - Questions concerning the number, size and location of plants rel ate to designs decision, as do the questions concern the product / service desig n, layout, technology and human resources. The questions concerning capacity adj ustment and the systems which manage the delivery of products both relate to pla nning and control decisions. The questions which concern the monitoring and impr ovement 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 respo nsibility 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 focus ed? - 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 s trategy? - How should we manage the implementation of our strategic plans? Workers seek work elsewhere. There are high training and severance costs. The q uality 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 pe r 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. Ag gregate Planning with Average Demand a better alternative may be to match produc tion 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 p roduct improvement. The benefits are a smaller sized plant producing a better pr oduct. 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 produ ction less total overtime production divided 12 months. Aggregate Planning with Normal time and overtime Six hundred additional units can be made in overtime pe r month. Overtime has been selected arbitrarily for May through August. The form ula for month normal time production takes into account overtime production to k eep annual production at 60,000. Overtime has to be limited to 600 per month. Ag gregate plan with normal time, over time and the optimal solution in fig 9.3 sho ws that the best course of action is to have three months of overtime from June through August. OM 0004 SET 1 Optimal aggregate plan for many firms, planning t he execution and controlling demand quantities and timings are a day-to-day inte ractive dialogue with customers. For other firms, particularly in the process in dustries the critical coordination is in scheduling large inter and intra compan y requirements. For still others, physical distribution is critical since the fa ctory must support a warehouse replenishment program, which can differ significa ntly from the final customer demand. The difference between the pattern demand a nd the response by the company points out the important distinction between fore cast 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 ma rket 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 for ecast. The distinction between forecast and plan are important for two reasons. First, a manager control be held responsible for not getting a forecast right. W e can and we should hold managers responsible for making the plans, however, muc h of the manufacturing planning system is about providing the means for making a s good a set of executable plans as possible and then providing the information to execute them. The linkage between demand management, sales and operations pla nning and master production, scheduling in the front end makes clear the importa nce of providing complete forecast and providing them at appropriate level of de

tail. If material and capacity of resource are to be planned effectively, we mus t 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 p roduction plan. These relate to the production cost itself as well as the cost t o hold inventory and to have unfilled orders. These are: 1. Basic Cost of Production: These are the fixed and variable costs incurred in producing given product type in a given time period. Included are direct and ind irect 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. Hiri ng temporary help is a way of avoiding these costs. 3. Inventory Holding Costs: A major component is the cost of capital tied up in inventory. Other components are storing, insurance, taxes, spoilage and obsolesc ence. 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 sub mit annual and sometimes quarterly budget requests. The aggregate plan is the ke y 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 determi ning optimal combination of work force levels and inventory levels. Thus the agg regate plan provides justification for the requested budget amount. Accurate med ium 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 mark et place, ancillary plants, warehouses and important elements in the planning sy stem. 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 o f demand for manufacturing capacity including service ± part demands, intra-company requirements and promotional inventory buildup or other needs for pipeline inve ntory 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 pr oduction scheduling (MPS) stages. The information provided to SOP is used to dev elop sales and operations plan (including manufacturing) covering a year or more in duration at a fairly high level of aggregation. Both forecast and factual de mand information are provided to the MPS module. It is in the MPS module that sh ort term, product-specific manufacturing plans are developed and controlled as a ctual demand becomes available and information is provided to make delivery prom ises and other status to customers.

3. What is MRP? Explain the role of MRP in production planning system. What are the inventory decision rules for MRP? Ans: 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 far m machinery. The rigorous logic and masses of data to be handled made these an i deal computer application. Manufacturing Planning & Execution OM 0004 SET 1 The overall manufacturing planning process is comprised of: The forecast values and requirements from the sales information system and costing/profitability analys is are inputs to the Sales and Operations Planning (SOP) phase in which independ ent requirements are determined. Master Schedule items (those items that greatly

influence profits or consume critical resources) are planned. Planning the mast er schedule items separately leads to a reductionin stock levels and improved de livery performance.Materials requirements planning (MRP) is the final step in th e planning process. The output of MRP is either a planned production order, a pu rchase requisition, or a planned purchase order. The overall manufacturing execu tion process is comprised of: y Production orders are released y Materials are i ssued y Completion confirmations are performed y Goods are received into stock. The manufacturing process affects capacity, costing inventory, reporting, and an alysis. The five primary phases are: ⠢ Sales and operations planning ⠢ Demand management ⠢ Master production planning ⠢ Materials requirements planning y Production order execution The original MRP planned only materials. However, as computer power grew and app lications expanded, so did the breadth of MRP. Soon it considered resource as we ll as materials and was called MRP II, standing for Manufacturing Resource Plann ing. A complete MRP program included so or so modules controlling the entire sys tem form order entry through scheduling, inventory control finance, accounting, accounts payable, and soon. The modern MRP impacts the entire system and include s 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 si mply 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 derive d separately. The demand for cars on the other hand is independent- it comes fro m many sources external to the automobile firm and is not a part of other produc ts. To determine the quantities of independent items that must be produced, firm s usually turn to their sales and market research departments. Role of MRP in Pr oduction Planning System An indispensable part of an ERP system, material requir ements planning plays an important role in production planning because it. - Gen erates replenishment ± orders (production orders) for uncritical components and par ts (operations) in a multi stage production environment, and - Provides access t o a transactional ERP system and thus can initiate the execution of orders. Reco gnition that manufacturing is a process is essential to understanding how it sho uld work. The essence of manufacturing is flow of materials from suppliers, thro ugh 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 t o 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 simp le 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 un der MRP. 2. Lot size ordering ± minimum order quantity needed. 3. Lot for lot (LFL) ordering ± ordering the exact quantity to satisfy the req uirements of each timeperiod (usually a week)

4. Period Order Quantities (POQ) ± Selection of a fixed time interval over whi ch to purchase and determine requirements. OM 0004 SET 1 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 balance s the cost of possession and the cost of acquisition

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