Production and Operation Management

St.
PETER’S UNIVERSITY
St. Peter’s Institute of Higher Education and Research
(Declared Under Section 3 of the UGC Act, 1956)
AVADI, CHENNAI – 600 054
TAMIL NADU
STUDY MATERIAL
M.B.A. PROGRAMME
(Code No. – 411)
(Effective from 2009 – 2010)
II SEMESTER
209MBT21
PRODUCTION AND OPERATION MANAGEMENT
St. PETER’S INSTITUTE OF DISTANCE EDUCATION

Recognized by Distance Education Council and Joint Committee of UGC – AICTE - DEC, New Delhi.
(Ref. F.No.DEC/SPU/CHN/TN/Recog/09/14 dated 02.04.2009 and
Ref. F.No.DEC/Recog/2009/3169 dated 09.09.2009)
Copyright © 2011, Upendra Kachru
No Part of this publication

publication which is material protected
protected by this copyright
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PREFACE
St. Peter’s University has been recognized by the Distance Education Council, and Joint Committee of UGC-
AICTE-DEC, for offering various programmes including B.Tech., D.Tech., MBA, MCA and other programmes in
Humanities and Sciences through Distance Education mode.
The Methodology of Distance Education includes self-instructional study materials in print form, face-to-face
counseling, practical classes, virtual classes in phased manner and end assessment.
The basic support for distance education students lies on the self instructional study materials. Keeping this in
mind, the study materials under distance mode are prepared. The main features of the study materials are
(1) learning objectives (2) self explanatory study materials unitwise (3) self tests (4) list of references for further
studies. The material is prepared in simple English and graded in terms of technical content. It is built upon the
pre-requisite knowledge.
Students are advised to study the materials several times and get benefitted. The face-to-face session in the
counseling centre will help them to clear their doubts and difficult concepts which they would have faced during
the learning process.
Students should remember that self study and sustained motivation are the two important requirements for a
successful learning under the distance education mode.
We wish the students to put forth their best efforts to become successful in their chosen field of learning.
Registrar
St. Peter’s University
CONTENTS
Page
Scheme of Examinations vi
Syllabus of Total Quality Management x
Model Question Paper xi
Unit I: Introduction to Production and Operation Management
Lesson 1 Production and Operations Management: An Introduction 3

Lesson 2 Communication in Production & Operations Management 22
Lesson 3 Computer Integrated Manufacturing and Services Systems 42
Lesson 4 Global Trade Operations and Supply Network Applications 54
Unit II: Material and Inventory Management
Lesson 5 Materials Management 71

Lesson 6 Inventory Management 87
Lesson 7 Enterprise Resource Planning 129
Unit III: Planning and Forecasting
Lesson 8 Production and Operations Planning 147

Lesson 9 Product and Product Design 168
Lesson 10 Forecasting Techniques 202
Unit IV: Scheduling and Project Management Methods

Lesson 11 Scheduling 237
Lesson 12 Project Management 264
Unit V: Facility, Layout Location and Work Measurement
Lesson 13 Facility Planning and Layout 307

Lesson 14 Work Measurement 357
Scheme of Examinations
Examinations
I Semester
Code No. Course Title Credit Marks

Theory EA Total
109MBT11 Management Principles & Organisational Behaviour 3 100 100
109MBT12 Economic Analysis for Business Decisions 3 100 100
109MBT13 Statistics for Management 2 100 100
109MBT14 Applied Operation Research for Management 3 100 100
109MBT15 Financial and Management Accounting 3 100 100
109MBT16 Legal Environment of Business 2 100 100
109MBT17 Executive Communication 2 100 100
Total 18 700 700
II Semester

Theory EA Total
209MBT21 Production & Operation Management 3 100 100
209MBT22 Financial Management Decisions 3 100 100
209MBT23 Marketing for Managers 2 100 100
209MBT24 Human Resource Management 2 100 100
209MBT25 Computer Applications and Management 2 100 100
Information System
209MBT26 Total Quality Management 2 100 100
209MBT27 Applied Research Methods in Management 3 100 100
209MBP01 Computer Lab for Business Administration Record 1 90 100
10
Total 18 800 800
III Semester

Theory EA Total
309MBT01 International Business Management 3 100 100
309MBT02 Strategic Management 3 100 100
E1*** Electives I 2 100 100
E2*** Electives II 2 100 100
E3*** Electives III 2 100 100
E4*** Elective IV 2 100 100
E5*** Elective V 2 100 100
E6*** Elective VI 2 100 100
Total 18 800 800
*** Any one group of electives from Marketing, Finance, Human Resource Management and System is to be chosen.
IV Semester

Theory EA Total
409MBT01 Marketing Research and Consumer Behaviour 6 100 100
409MBT02 Entrepreneurship Development 6 100 100
409MBP01 Project and Vivavoce * 6 100 100
Total 18 300 300
* In lieu of Project and Vivavoce, 409MBT03 - E-Commerce Technology and Management
Management (6 Credits) is offered for Distance Education Students.
LIST OF ELECTIVES
MARKETING – ELECTIVES

Theory EA Total
309MBT03 Retail Management 2 100 100
309MBT04 Services Marketing 2 100 100
309MBT05 Advertising and Sales Promotion 2 100 100
309MBT06 International Marketing 2 100 100
309MBT07 Brand Management 2 100 100
309MBT08 Rural and Social Marketing 2 100 100
Total 12 600 600
FINANCE – ELECTIVES

Theory EA Total
309MBT09 Security Analysis and Portfolio Management 2 100 100
309MBT10 Merchant Banking and Financial Services 2 100 100
309MBT11 International Trade Finance 2 100 100
309MBT12 Strategic Financial Management 2 100 100
309MBT13 Corporate Finance 2 100 100
309MBT14 Derivatives Management 2 100 100
Total 12 600 600
HUMAN RESOURCE MANAGEMENT – ELECTIVES

Theory EA Total
309MBT15 Managerial Behaviour and Effectiveness 2 100 100
309MBT16 Organisational Change & Intervention Strategy 2 100 100
309MBT17 Industrial Relations and Labour Welfare 2 100 100
309MBT18 Labour Legislations 2 100 100
309MBT19 Strategic Human Management and Development 2 100 100
309MBT20 Corporate Governance & Corporate Social 2 100 100
Responsibility
Total 12 600 600
SYSTEM – ELECTIVES

Theory EA Total
309MBT21 Software Development 2 100 100
309MBT22 Database Management Systems 2 100 100
309MBT23 Enterprise Resource Planning for Management 2 100 100
309MBT24 Software Project and Quality Management 2 100 100
309MBT25 Decision Support System 2 100 100
309MBT26 Information Technology for Management 2 100 100
Total 12 600 600
209MBT21 – PRODUCTION AND OPERATION MANAGEMENT
Syllabus
UNIT I: INTRODUCATION TO PRODUCTION AND OPERATION MANAGEMENT

Production and Operations Management (POM) - Need, History, System, Types, Functions and Communication
in POM. Computer Integrated Manufacturing and Services system. Global/trade operations and supply network
applications.
UNIT II: MATERIAL AND INVENTORY MANAGEMENT
Material Management (MM) - Handling Technology (Robots, Automated storage and retrieval systems (ASRS)
and methods (JIT, Kanban, ABC Systems) Independent Demand Inventory Models - Fixed order system, Basic
EOQ, EBQ: Models, Quantity discount models. Dependent Demand Inventory models - MRP and MRP.II
systems introduction to ERP, e-business and e-operations strategies.
UNIT III: PLANNING AND FORECASTING
Introduction to Strategic, Tactical, Operational, Aggregate and Capacity Planning. Planning product design and
development - Applications of CAD, Expert systems, Standardisation, Group Technology (GT) and Research and
Development. Forecasting-types, methods (Qualitative and Quantitative), Types of variation in data, Minimising.
Forecasting error and selection of forecasting methods.
UNIT IV: SCHEDULING AND PROJECT MANAGEMENT METHODS
Johnson’s Algorithm for job sequencing (n job thro' 2 machines, n jobs thro' 3 machines, n jobs thro’m machines
and 2 jobs thro'm machines). Use of Gantt charts, Queuing analysis and Critical Ratios as methods for job
scheduling, PERT/CPM - Drawing the network, computation of processing time, floats and critical 'Path.
Resource leveling techniques.
UNIT V: FACILITY, LAYOUT LOCATION AND WORK MEASUREMENT
Facility location Decisions (FLD) - Selections of country, region and site. Facility layout decision (FlyD) - Types
(Fixed Position, and Production, Process, flexible), Methodologies (Distance Minimizing, Computer software
systems (CRAFT, COREL, CORELAP, ALDEEP) Line Balancing and performance ratios, work measurement
(WM), Method Study, Time study, Time measurement, Work Sampling, White color measurement and learning
curves, Using WM to increase productivity.
TEXT BOOKS:
1. R. Paneer Selvam, Production and Operations Management , Prentice Hall of India.
2. Sang M. Lee and Marc J Schniederjans, Operation Management , Publishers "utors, First Indian edition 1997.
3. Robert H.'Lowson, Strategic Operations Management (The competitive advantage) , Vikas Publishing House,
First Indian reprint, 2003.
4. Upendra Kachru, Production & Operation Management , Excel Books, 1st edition, New Delhi.
REFERENCES:
1. Thomas E. Morton, Production and Operations Management , Vikas Publishing House, First Indian
reprint 2003.
2. Mahapatra P.B., Computer Aided Production Management , Prentice Hall of India, 2001.
3. Martand T. Telsang, Production Management , S Chand and Company, First edition, 2005.
MODEL QUESTION PAPER
M.B.A. DEGREE EXAMINATIONS
Second Semester
209MBT21 – PRODUCTION AND OPERATION MANAGEMENT
(Regulations 2009)
Time: 3 Hours Maximum: 100 marks
Answer ALL the questions
PART – A (10 × 2 = 20 Marks)

1. Define Production and Operation Management.
2. What is Computer Integrated Manufacturing?
3. Briefly explain Kanban System.
4. Define EOQ.
5. What is Capacity Planning?
6. Briefly explain Cellular Manufacturing.
7. What are Latest Finish and Latest Start in Project Management?
8. Briefly explain Critical Path.
9. What is Work Sampling?
10. Define Productivity.
PART – B (5 × 16 = 80 Marks)
11. (a) Explain the different types of Production System.

or
(b) Discuss the Historical Evolution of Operations Management.
12. (a) Discuss the components of Integrated Materials Management.
or
(b) Explain the E-business and ERP Concept.
13. (a) Explain the various factors affecting Demand Forecast.
or
(b) Explain the Aggregate Planning Strategies.
14. (a) Discuss the terms used in Project Management.
or
(b) Consider the following three machines and five jobs flow shop scheduling problem. Using Johnson’s
algorithm, obtain the optimal sequence which will minimize the makespan.
Job Machine Number
i 1 2 3
1 8 5 4
2 10 6 9
3 6 2 8
4 7 3 6
5 11 4 5
15. (a) Discuss the objectives of Plant Layout.

or
(b) Explain the concept of Work Measurement.
1
Production and Operations
Management: An Introduction
Unit I
Introduction to
Production and
Operation Management
14
1.7.2 Objectives of Operations Management
Production and
Objectives of operations management can be categorized into customer service and
resource utilisation.
 Customer Service: The first objective of operating systems is the customer service
to the satisfaction of customer wants. Therefore, customer service is a key
objective of operations management. The operating system must provide
something to a specification which can satisfy the customer in terms of cost and
timing. Thus, primary objective can be satisfied by providing the ‘right thing at a
right price at the right time’.
These aspects of customer service—specification, cost and timing—are described
for four functions in Table 1.2. They are the principal sources of customer
satisfaction and must, therefore, be the principal dimension of the customer
service objective for operations managers.
Table 1.2: Aspects of Customer Service
Principal Principal Customer Wants

Function
Primary Considerations Other Considerations
Manufacture Goods of a given, Cost , i.e., purchase price or cost of obtaining goods.
requested or acceptable Timing , i.e., delivery delay from order or request to
specification receipt of goods.
Transport Management of a given, Cost , i.e., cost of movements.
requested or acceptable Timing , i.e.,
specification
1. Duration or time to move.
2. Wait or delay from requesting to its
commencement.
Supply Goods of a given, Cost , i.e., purchase price or cost of obtaining goods.
requested or acceptable Timing , i.e., delivery delay from order or request to
specification receipt of goods.
Service Treatment of a given, Cost , i.e., cost of movements.
requested or acceptable Timing , i.e.,
specification
1. Duration or time required for treatment.
2. Wait or delay from requesting treatment to its
commencement.
Generally an organisation will aim reliably and consistently to achieve certain

standards and operations manager will be influential in attempting to achieve
these standards. Hence, this objective will influence the operations manager’s
decisions to achieve the required customer service.
 Resource Utilisation: Another major objective of operating systems is to utilise
resources for the satisfaction of customer wants effectively, i.e., customer service
must be provided with the achievement of effective operations through efficient
use of resources. Inefficient use of resources or inadequate customer service leads
to commercial failure of an operating system.
Operations management is concerned essentially with the utilisation of resources,
i.e., obtaining maximum effect from resources or minimizing their loss, under
utilisation or waste. The extent of the utilisation of the resources’ potential might
be expressed in terms of the proportion of available time used or occupied, space
utilisation, levels of activity, etc. Each measure indicates the extent to which the
potential or capacity of such resources is utilised. This is referred as the objective
of resource utilisation.
Operations management is also concerned with the achievement of both 15
satisfactory customer service and resource utilisation. An improvement in one will Management: An Introduction
often give rise to deterioration in the other. Often both cannot be maximized, and
hence a satisfactory performance must be achieved on both objectives. All the
activities of operations management must be tackled with these two objectives in
mind, and many of the problems will be faced by operations managers because of
this conflict. Hence, operations managers must attempt to balance these basic
objectives.
Table 1.3 summarizes the twin objectives of operations management. The type of
balance established both between and within these basic objectives will be
influenced by market considerations, competitions, the strengths and weaknesses
of the organisation, etc. Hence, the operations managers should make a
contribution when these objectives are set.
Table 1.3: The Twin Objectives of Operations Management
The customer service objective The resource utilisation objective

To provide agreed/adequate levels of customer service To achieve adequate levels of resource
(and hence customer satisfaction) by providing goods utilisation (or productivity) e.g., to
or services with the right specification, at the right cost achieve agreed levels of utilisation of
and at the right time. materials, machines and labor.
1.8 MANAGING GLOBAL OPERATIONS

The term ‘globalisation’ describes businesses’ deployment of facilities and operations
around the world. Globalisation can be defined as a process in which geographic
distance becomes a factor of diminishing importance in the establishment and
maintenance of cross border economic, political and socio-cultural relations. It can
also be defined as worldwide drive toward a globalised economic system dominated
by supranational corporate trade and banking institutions that are not accountable to
democratic processes or national governments.
There are four developments, which have spurred the trend toward globalisation.
These are:
1. Improved transportation and communication technologies;
2. Opened financial systems;
3. Increased demand for imports; and
4. Reduced import quotas and other trade barriers.
When a firm sets up facilities abroad it involve some added complexities in its
operation.
Global markets impose new standards on quality and time. Managers should not think
about domestic markets first and then global markets later, rather it could be think
globally and act locally. Also, they must have a good understanding of their
competitors. Some other important challenges of managing multinational operations
include other languages and customs, different management style, unfamiliar laws and
regulations, and different costs.
Managing global operations would focus on the following key issues:
 To acquire and properly utilise the following concepts and those related to global
operations, supply chain, logistics, etc.
 To associate global historical events to key drivers in global operations from
different perspectives.
16  To develop criteria for conceptualisation and evaluation of different global
Production and
Operation Management operations.
 To associate success and failure cases of global operations to political, social,
economical and technological environments.
 To envision trends in global operations.
 To develop an understanding of the world vision regardless of their country of
origin, residence or studies in a respectful way of perspectives of people from
different races, studies, preferences, religion, politic affiliation, place of origin,
etc.
1.9 SCOPE OF PRODUCTION AND OPERATIONS

MANAGEMENT
Production and operations management concern with the conversion of inputs into
outputs, using physical resources, so as to provide the desired utilities to the customer
while meeting the other organisational objectives of effectiveness, efficiency and
adoptability. It distinguishes itself from other functions such as personnel, marketing,
finance, etc., by its primary concern for ‘conversion by using physical resources.’
Following are the activities which are listed under production and operations
management functions:
1.9.1 Location of Facilities

Location of facilities for operations is a long-term capacity decision which involves a
long term commitment about the geographically static factors that affect a business
organisation. It is an important strategic level decision-making for an organisation.
It deals with the questions such as ‘where our main operations should be based?’ The
selection of location is a key-decision as large investment is made in building plant
and machinery. An improper location of plant may lead to waste of all the investments
made in plant and machinery equipments. Hence, location of plant should be based on
the company’s expansion plan and policy, diversification plan for the products,
changing sources of raw materials and many other factors. The purpose of the location
study is to find the optimal location that will results in the greatest advantage to the
organisation.
1.9.2 Plant Layout and Material Handling

Plant layout refers to the physical arrangement of facilities. It is the configuration of
departments, work centres and equipment in the conversion process. The overall
objective of the plant layout is to design a physical arrangement that meets the
required output quality and quantity most economically. ‘Material Handling’ refers to
the ‘moving of materials from the store room to the machine and from one machine to
the next during the process of manufacture’. It is also defined as the ‘art and science of
moving, packing and storing of products in any form’. It is a specialized activity for a
modern manufacturing concern, with 50 to 75% of the cost of production. This cost
can be reduced by proper section, operation and maintenance of material handling
devices. Material handling devices increases the output, improves quality, speeds up
the deliveries and decreases the cost of production. Hence, material handling is a
prime consideration in the designing new plant and several existing plants.
1.9.3 Product Design

Product design deals with conversion of ideas into reality. Every business organisation
have to design, develop and introduce new products as a survival and growth strategy.
Developing the new products and launching them in the market is the biggest 17
challenge faced by the organisations. The entire process of need identification to Management: An Introduction
physical manufactures of product involves three functions: marketing, product
development, and manufacturing. Product development translates the needs of
customers given by marketing into technical specifications and designing the various
features into the product to these specifications. Manufacturing has the responsibility
of selecting the processes by which the product can be manufactured. Product design
and development provides link between marketing, customer needs and expectations
and the activities required to manufacture the product.
1.9.4 Process Design

Process design is a macroscopic decision-making of an overall process route for
converting the raw material into finished goods. These decisions encompass the
selection of a process, choice of technology, process flow analysis and layout of the
facilities. Hence, the important decisions in process design are to analyse the
workflow for converting raw material into finished product and to select the
workstation for each included in the workflow.
1.9.5 Production Planning and Control

Production planning and control can be defined as the process of planning the
production in advance, setting the exact route of each item, fixing the starting and
finishing dates for each item, to give production orders to shops and to follow up the
progress of products according to orders. The principle of production planning and
control lies in the statement ‘First Plan Your Work and then Work on Your Plan’.
Main functions of production planning and control includes planning, routing,
scheduling, dispatching and follow-up.
 Planning is deciding in advance what to do, how to do it, when to do it and who is
to do it. Planning bridges the gap from where we are, to where we want to go. It
makes it possible for things to occur which would not otherwise happen.
 Routing may be defined as the selection of path which each part of the product
will follow, which being transformed from raw material to finished products.
Routing determines the most advantageous path to be followed from department
to department and machine to machine till raw material gets its final shape.
 Scheduling determines the programme for the operations. Scheduling may be
defined as ‘the fixation of time and date for each operation’ as well as it
determines the sequence of operations to be followed.
 Dispatching is concerned with the starting the processes. It gives necessary
authority so as to start a particular work, which has already been planned under
‘Routing’ and ‘Scheduling’. Therefore, dispatching is ‘release of orders and
instruction for the starting of production for any item in acceptance with the route
sheet and schedule charts’.
 The function of follow-up is to report daily the progress of work in each shop in a
prescribed proforma and to investigate the causes of deviations from the planned
performance.
1.9.6 Quality Control

Quality Control (QC) may be defined as ‘a system that is used to maintain a desired
level of quality in a product or service’. It is a systematic control of various factors
that affect the quality of the product. Quality control aims at prevention of defects at
the source, relies on effective feed back system and corrective action procedure.
18 Quality control can also be defined as ‘that industrial management technique by
Production and
Operation Management means of which product of uniform acceptable quality is manufactured’. It is the entire
collection of activities which ensures that the operation will produce the optimum
quality products at minimum cost.
The main objectives of quality control are:
 To improve the companies income by making the production more acceptable to
the customers i.e., by providing long life, greater usefulness, maintainability, etc.
 To reduce companies cost through reduction of losses due to defects.
 To achieve interchangeability of manufacture in large scale production.
 To produce optimal quality at reduced price.
 To ensure satisfaction of customers with productions or services or high quality
level, to build customer goodwill, confidence and reputation of manufacturer.
 To make inspection prompt to ensure quality control.
 To check the variation during manufacturing.
1.9.7 Materials Management

Materials management is that aspect of management function which is primarily
concerned with the acquisition, control and use of materials needed and flow of goods
and services connected with the production process having some predetermined
objectives in view.
The main objectives of materials management are:
 To minimize material cost.
 To purchase, receive, transport and store materials efficiently and to reduce the
related cost.
 To cut down costs through simplification, standardization, value analysis, import
substitution, etc.
 To trace new sources of supply and to develop cordial relations with them in order
to ensure continuous supply at reasonable rates.
 To reduce investment tied in the inventories for use in other productive purposes
and to develop high inventory turnover ratios.
1.9.8 Maintenance Management

In modern industry, equipment and machinery are a very important part of the total
productive effort. Therefore, their idleness or downtime becomes are very expensive.
Hence, it is very important that the plant machinery should be properly maintained.
The main objectives of maintenance management are:
1. To achieve minimum breakdown and to keep the plant in good working condition
at the lowest possible cost.
2. To keep the machines and other facilities in such a condition that permits them to
be used at their optimal capacity without interruption.
3. To ensure the availability of the machines, buildings and services required by
other sections of the factory for the performance of their functions at optimal
return on investment.
Check Your Progress 2 19
Fill in the blanks: Management: An Introduction
1. Operating system converts inputs in order to provide outputs which are

required by a …………………………..
2. Operations in an organisation can be categorized into manufacturing
operations and …………………………………. operations.
3. Managing operations can be enclosed in a frame of general
……………………………….. function.
4. The first objective of …………………… is the customer service to the
satisfaction of customer wants.
5. When a firm sets up facilities abroad it involve some added
………………………… in its operation.
1.10 LET US SUM UP

This lesson discusses the historical background, definition and the basic concepts of
Operations Management. We will also examine the responsibilities of the Operation
Manager and Operations Management’s interface with other functions. In the last
section, we will identify the future challenges that will impact this discipline.
Today’s consumers have high expectations, and these are on the rise every day.
Consumers demand an increasing variety of products with new and improved features
that meet their changing needs; products that are defect-free, have high performance,
are reliable and durable, and are easy to repair. They demand rapid and excellent
service for the products they buy.
A focus on the issues central to operations management will soon carry us beyond
existing technologies and provide the catalyst for developing new ones. The set of
challenging problems is boundless, as is the upside potential in this new era.
Although ultimately it is the problems facing managers that will define objectives and
techniques, there are already visible broad outlines of potentially new and exciting
developments. These include agile production and mass customization which will
enable firms to make products better, cheaper, and faster than their competitors and
facilitate innovation and increased product variety. Nonetheless, transforming
operations from stable, rigid systems to operations that support agility will continue to
be a difficult challenge.
Service organisations are a large and growing part of the world economy. Services are
difficult to inventory so that variability must be buffered by capacity or time. The
search for the distinctive attributes of service operations will continue. Financial
services and call centres already have their own literature. It is clear that health-care
operations will be of increasing economic importance.
There will be major developments on how to design, deploy, and operate systems
offering new services, or old services via new technologies. These organisations will
also have to meet the demands of future customers in many of their attributes. When
customers go to buy services, they expect – indeed demand – short waiting and
processing times, availability when needed, courteous treatment from employees,
consistency, accessibility and convenience, accuracy, and responsiveness to
unexpected problems.
The rapid rate of the evolution of systems of operations management in both physical
and organisational dimensions; the evolution of legal structures that constrain the
CYP 2 21
1. customer Management: An Introduction
2. service
3. management
4. operating systems
5. complexities
1.12 SUGGESTED READINGS

Chase, R. B., Aquilano, N. J., Jacobs, F.R., Production and Operations Management ;
Manufacturing and Services, Richard D. Irwin, Inc., 1998.
Chopra, S. and Meindl, P., Supply Chain Management , Prentice Hall, 2001.
Griffin, Ricky W., Management , 3rd ed., Houghton Mifflin, 1990.
Hall, R.W., Attaining Manufacturing Excellence; Just in Time, Total Quality, Total People
Involvement, The Dow Jones-Irwin/APICS Series in Production Management, 1987.
Hayes, R. H., Wheelwright, S. C., Clark, K. B., Dynamic Manufacturing ; Creating the
Learning Organisation, The Free Press, 1988.
Hill, T., Production/Operations management: text and cases, Prentice Hall, 1991.
Hopp, M.L. and Spearman, W. J., Factory Physics, McGraw-Hill, 2000.
Japan Management Association, Kanban. Just-in-time at Toyota, Productivity Press, 1989.
Kanawaty, G. (Ed.), Introduction to Work Study, International Labour Office, Geneva, 1957
(4th. Ed. 1992).
Krajewski, L. J. and Ritzman, L. P., Operations Management: Strategy and Analysis,
(fifth edition), Addison-Wesley, 1999.
Meredith, J. R. and Shafer, S. M., Operations Management for MBAs, J. Wiley, 2002.
1.13 QUESTIONS
1. Briefly explain the production system and its characteristics.
2. What is job shop production? What are its characteristics, advantages and
limitations?
3. What is continuous production? What are its characteristics, advantages and
limitations?
4. Explain in brief the objectives of production management.
5. Explain in brief the objectives of operations management.
6. Distinguish between manufacturing operations and service operations.
7. Explain the key issues to be considered for managing global operations.
8. Explain the different types of production systems.
9. Explain the framework of managing operations.
10. Explain the scope of production and operations management.
22
Production and
LESSON
2
COMMUNICATION IN PRODUCTION &
OPERATIONS MANAGEMENT
STRUCTURE
2.0 Objectives
2.1 Introduction
2.2 The Communication Process
2.3 Barriers to Effective Communication
2.3.1 Filtering
2.3.2 Selective Perception
2.3.3 Information Overload
2.3.4 Emotional Disconnects
2.3.5 Lack of Source Credibility
2.3.6 Semantics
2.3.7 Gender Differences
2.3.8 Avoiding Biased Language
2.3.9 Multicultural Communication
2.4 Poor Listening and Active Listening
2.5 Communication Channels
2.6 Information Richness
2.7 Business use of E-Mail
2.8 Direction of Communication within Organisations
2.9 External Communications
2.10 Transfer of Management Practices
2.11 Let us Sum up
2.12 Glossary
2.13 Suggested Readings
2.14 Questions
23
2.0 OBJECTIVES Communication in
Production & Operations
After studying this lesson, you should be able to: Management
 Define communication
 Understand the communication process
 Understand different ways that the communication process can be sidetracked
 Understand the problem of poor listening and how to promote active listening
 Compare and contrast different types of communication
 Compare and contrast different communication channels
2.1 INTRODUCTION
Communication supports each of a manager’s POLC (Planning, Organising, Leading
and Controlling) functions. Communication is vital to organisations—it’s how we
coordinate actions and achieve goals. It is defined in the Merriam-Webster’s
dictionary as “a process by which information is exchanged between individuals
through a common system of symbols, signs, or behavior.” We know that 50% - 90%
of a manager’s time is spent communicating and that communication ability is related
to a manager’s performance. In most work environments, a miscommunication is an
annoyance—it can interrupt workflow by causing delays and interpersonal strife. And
in some work arenas, like operating rooms and airplane cockpits, communication can
be a matter of life and death.
So, just how prevalent is the problem of miscommunication in the workplace? You
may be surprised to learn that the relationship between miscommunication and
negative outcomes is strong. Poor communication can also lead to lawsuits. For
leaders and organisations, poor communication costs money and wastes time. One
study found that 14% of each workweek is wasted on poor communication. In
contrast, effective communication is an asset for organisations and individuals alike.
Effective communication skills, for example, are an asset for job seekers. A recent
study of recruiters at 85 business schools ranked communication and interpersonal
skills as the highest skills they were looking for, with 89% of the recruiters saying
they were important. Good communication can also help a company retain its star
employees. Surveys find that when employees think their organisations do a good job
of keeping them informed about matters that affect them and they have ready access to
the information they need to do their jobs, they are more satisfied with their
employers. So, can good communication increase a company’s market value? The
answer seems to be yes.
2.2 THE COMMUNICATION PROCESS

Communication fulfills three main functions within an organisation’s production and
Operations management field: (1) transmitting information, (2) coordinating effort,
and (3) sharing emotions and feelings. All these functions are vital to a successful
organisation. Transmitting information is vital to an organisation’s ability to function.
Coordinating effort within the organisation helps people work toward the same goals.
Sharing emotions and feelings bonds teams and unites people in times of celebration
and crisis. Effective communication helps people grasp issues, build rapport with
coworkers, and achieve consensus. So, how can we communicate effectively? The
first step is to understand the communication process.
24 We all exchange information with others countless times a day, by phone, e-mail,
Production and
Operation Management printed word, and of course, in person. Let’s take a moment to see how a typical
communication works using the Process Model of Communication as a guide.
Figure 2.1: The Process Model of Communication
A Sender, such as a boss, co-worker, or customer, originates the Message with a

thought. For example, the boss’s thought could be: “Get more printer toner
cartridges!”
The Sender encodes the Message, translating the idea into words.
The boss may communicate this thought by saying, “Hey you guys, we need to order
more printer toner cartridges.”
The medium of this encoded Message may be spoken words, written words, or signs.
The receiver is the person who receives the Message.
The Receiver decodes the Message by assigning meaning to the words.
In this example, our Receiver, Bill, has a to-do list a mile long. “The boss must know
how much work I already have.” the Receiver thinks. Bill’s mind translates his boss’s
Message as, “Could you order some printer toner cartridges, in addition to everything
else I asked you to do this week…if you can find the time?”
The meaning that the Receiver assigns may not be the meaning that the Sender
intended because of such factors as noise. Noise is anything that interferes with or
distorts the Message being transformed. Noise can be external in the environment
(such as distractions) or it can be within the Receiver. For example, the Receiver may
be highly nervous and unable to pay attention to the Message. Noise can even occur
within the Sender: the Sender may be unwilling to take the time to convey an accurate
Message or the words she chooses can be ambiguous and prone to misinterpretation.
Picture the next scene. The place: a staff meeting. The time: a few days later. The boss
believes her Message has been received.
“Are the printer toner cartridges here yet?” she asks.
“You never said it was a rush job!” the Receiver protests.
“But!”
“But!”
Miscommunications like these happen in the workplace every day. We’ve seen that 25
Communication in
miscommunication does occur in the workplace. But how does a miscommunication Production & Operations
happen? It helps to think of the communication process. The series of arrows pointing Management
the way from the Sender to the Receiver and back again can, and often do, fall short of
their target.
2.3 BARRIERS TO EFFECTIVE COMMUNICATION

Communicating can be more of a challenge than you think, when you realise the many
things that can stand in the way of effective communication. These include filtering,
selective perception, information overload, emotional disconnects, lack of source
familiarity or credibility, workplace gossip, semantics, gender differences, differences
in meaning between Sender and Receiver, and biased language. Let’s examine each of
these barriers.
2.3.1 Filtering
Filtering is the distortion or withholding of information to manage a person’s
reactions. Some examples of filtering include a manager who keeps her division’s
poor sales figures from her boss, the vice president, fearing that the bad news will
make him angry. The old saying, “Don’t shoot the messenger!” illustrates the
tendency of Receivers (in this case, the vice president) to vent their negative response
to unwanted Messages on the Sender. A gatekeeper (the vice president’s assistant,
perhaps) who doesn’t pass along a complete Message is also filtering. The vice
president may delete the e-mail announcing the quarter’s sales figures before reading
it, blocking the Message before it arrives.
As you can see, filtering prevents members of an organisation from getting a complete
picture of the way things are. To maximize your chances of sending and receiving
effective communications, it’s helpful to deliver a Message in multiple ways and to
seek information from multiple sources. In this way, the effect of any one person’s
filtering the Message will be diminished.
Since people tend to filter bad news more during upward communication, it is also
helpful to remember that those below you in an organisation may be wary of sharing
bad news. One way to defuse the tendency to filter is to reward employees who clearly
convey information upward, regardless of whether the news is good and bad.
Here are some of the criteria that individuals may use when deciding whether to filter
a Message or pass it on:
 Past experience: Was the Sender rewarded for passing along news of this kind in
the past, or was she criticized?
 Knowledge, perception of the speaker : Has the Receiver’s direct superior made it
clear that “no news is good news?”
 Emotional state, involvement with the topic, level of attention: Does the Sender’s
fear of failure or criticism prevent him from conveying the Message? Is the topic
within his realm of expertise, increasing his confidence in his ability to decode it,
or is he out of his comfort zone when it comes to evaluating the Message’s
significance? Are personal concerns impacting his ability to judge the Message’s
value?
Once again, filtering can lead to miscommunications in business. Each listener
translates the Message into his or her own words, creating his or her own version of
what was said.
26
Production and
2.3.2 Selective Perception
Selective perception refers to filtering what we see and hear to suit our own needs.
This process is often unconscious. Small things can command our attention when
we’re visiting a new place—a new city or a new company. Over time, however, we
begin to make assumptions about the way things are on the basis of our past
experience. Often, much of this process is unconscious. “We simply are bombarded
with too much stimuli every day to pay equal attention to everything so we pick and
choose according to our own needs.” Selective perception is a time-saver, a necessary
tool in a complex culture. But it can also lead to mistakes.
Think back to the earlier example conversation between Bill, who was asked to order
more toner cartridges, and his boss. Since Bill found his boss’s to-do list to be
unreasonably demanding, he assumed the request could wait. (How else could he do
everything else on the list?) The boss, assuming that Bill had heard the urgency in her
request, assumed that Bill would place the order before returning to the other tasks on
her list.
Both members of this organisation were using selective perception to evaluate the
communication. Bill’s perception was that the task of ordering could wait. The boss’s
perception was that her time frame was clear, though unstated. When two selective
perceptions collide, a misunderstanding occurs.
A field study found that managers can expect, on average, to do only three minutes of
uninterrupted work on any one task before being interrupted by an incoming e-mail,
instant message, phone call, coworker, or other distraction.
2.3.3 Information Overload

Information overload can be defined as “occurring when the information processing
demands on an individual’s time to perform interactions and internal calculations
exceed the supply or capacity of time available for such processing.” Messages reach
us in countless ways every day. Some are societal—advertisements that we may hear
or see in the course of our day. Others are professional—e-mails, and memos, voice
mails, and conversations from our colleagues. Others are personal—messages and
conversations from our loved ones and friends.
Add these together and it’s easy to see how we may be receiving more information
than we can take in. This state of imbalance is known as information overload.
Experts note that information overload is “A symptom of the high-tech age, which is
too much information for one human being to absorb in an expanding world of people
and technology. It comes from all sources including TV, newspapers, and magazines
as well as wanted and unwanted regular mail, e-mail and faxes. It has been
exacerbated enormously because of the formidable number of results obtained from
Web search engines.” Other research shows that working in such fragmented fashion
has a significant negative effect on efficiency, creativity, and mental acuity.
2.3.4 Emotional Disconnects

Emotional disconnects happen when the Sender or the Receiver is upset, whether
about the subject at hand or about some unrelated incident that may have happened
earlier. An effective communication requires a Sender and a Receiver who are open to
speaking and listening to one another, despite possible differences in opinion or
personality. One or both parties may have to put their emotions aside to achieve the
goal of communicating clearly. A Receiver who is emotionally upset tends to ignore
or distort what the Sender is saying. A Sender who is emotionally upset may be unable
to present ideas or feelings effectively.
45
3.5 CONCEPTUAL DESIGN Computer Integrated
Manufacturing and
The conceptual design of a Computer Integrated Manufacturing environment consists Services Systems
of individual systems that fulfill the required capabilities, an overall architecture
incorporating the systems and the communication links, and a migration path from the
current systems architecture. Functional requirements must be compared to the current
inventory of systems and available technology to determine system availability.
Jorgensen and Krause state that the following techniques are used in satisfying system
requirements:
 exploiting unused and available functional capabilities of current systems;
 identifying functional capabilities available for, but not installed on, current
in-house systems;
 locating systems that are commercially available but not currently in-house;
 recognizing state-of-the-art technology that is not immediately commercially
available on a system;
 foreseeing functional capabilities of systems on the technical horizon; and
 determining whether the requirement is beyond the capabilities of systems on the
technical horizon.
Check Your Progress 1
Fill in the blanks:
1. Computer-integrated manufacturing is the use of computer techniques to
integrate ……………………activities.
2. Computer Integrated Manufacturing systems have emerged as a result of
the developments in manufacturing and …………………………..
technology.
3. The term computer-integrated manufacturing was coined by ……………
in 1974.
4. The conceptual design of a CIM environment consists of individual
systems that fulfill the required ……………………………………., and a
migration path from the current systems architecture.
5. Computer-integrated manufacturing can be applied to non-manufacturing
organisations by changing the manufacturing focus toward a
………………………. orientation.
3.6 MANAGING A COMPUTER INTEGRATED

MANUFACTURING
Managers must understand that short-term goals must support the long-term goal of
implementing a Computer Integrated Manufacturing. Top management establishes
long-term goals for the company and envisions the general direction of the company.
The middle management then creates objectives to achieve this goal. Upper
management sees the focus as being very broad, whereas middle management must
have a more narrow focus.
In deciding to implement a Computer Integrated Manufacturing, there are three
perspectives that must be considered: the conceptual plan, the logical plan, and the
physical plan. The conceptual plan is used to demonstrate a knowledgeable
understanding of the elements of Computer Integrated Manufacturing and how they
46 are related and managed. Thacker goes on to say that the conceptual plan states that by
Production and
Operation Management integrating the elements of a business, a manager will produce results better and faster
than those same elements working independently.
The logical plan organizes the functional elements and logically demonstrates the
relationships and dependencies between the elements. Thacker details that it further
shows how to plan and control the business, how to develop and connect an
application, communications, and database network.
The physical plan contains the actual requirements for setting the Computer Integrated
Manufacturing system in place. These requirements can include equipment such as
hardware, software, and work cells. The plan is a layout of where the computers, work
stations, robots, applications, and databases are located in order to optimize their use
within the Computer Integrated Manufacturing and within the company. According to
Thacker, sooner or later it becomes the Computer Integrated Manufacturing
implementation plan for the enterprise.
Computer Integrated Manufacturing is challenged by technical and cultural
boundaries. The technical challenge is first complicated by the varying applications
involved. Thacker claims that it is also complicated by the number of vendors that the
Computer Integrated Manufacturing serves as well as incompatibility problems among
systems and lack of standards for data storage, formatting, and communications.
Companies must also have people who are well-trained in the various aspects of
Computer Integrated Manufacturing. They must be able to understand the
applications, technology, and communications and integration requirements of the
technology.
Computer Integrated Manufacturing cultural problems begin within the division of
functional units within the company such as engineering design, manufacturing
engineering, process planning, marketing, finance, operations, information systems,
materials control, field service, distribution, quality, and production planning.
Computer Integrated Manufacturing requires these functional units to act as whole and
not separate entities. The planning process represents a significant commitment by the
company implementing it. Although the costs of implementing the environment are
substantial, the benefits once the system is in place greatly outweigh the costs. The
implementation process should ensure that there is a common goal and a common
understanding of the company's objectives and that the priority functions are being
accomplished by all areas of the company according to Jorgensen and Krause.
3.7 COMPUTER CONTROL SYSTEMS TECHNIQUES AND

APPLICATIONS IN MANUFACTURING SYSTEMS
Reliable operations, quality assurance, reactivity and modularity are essential to
ensure economic interest in the manufacturing system facilities. These aims can be
achieved by integrating control loop functions into each manufacturing level,
including the design of the product, the maintenance of the means of production and,
in particular, the manufacturing process ensure immediate remedy once a fault is
detected. The integration of these functions allows us to search for a global
optimization of the production quality. This integration needs a suitable structure
which must be distributed since the intelligence of the various functions is
geographically distributed. This requires methods and efficient tools for the use and
maintenance of:
1. integration in a Computer Integrated Manufacturing (CIM) structure;
2. databases which store this information and achieve their coherence and
consistency;
3. real-time, distributed and reusable computer control systems which have to work 47
Computer Integrated
and cooperate permanently; Manufacturing and
Services Systems
4. communication networks which transmit all types of information.
The presentation of these control functions is limited to the level of a flexible
manufacturing cell. The main concepts are:
1. quality management in the manufacturing system;
2. maximum flexibility of the system related to the shop floor level, products and
control;
3. quality information system using entity-relationship modeling; and
4. distribution and modularity of the control system by means of the definition of a
conceptual model and its implementation with the ISO standard manufacturing
message specification.
The following sections are dedicated to these concepts and their application in a
flexible manufacturing cell, paying attention to quality management and reusability
features.
3.8 MANUFACTURING CONTROL SYSTEM

REQUIREMENTS
3.8.1 Quality
Many firms are being confronted with increasing market pressures induced by
competitiveness, reduced prices, better qualities, minimal response times and a rise in
product diversity. In the last few decades, the increasing development in flexible
manufacturing systems and cells has emerged to simultaneously fulfill the
requirements of efficiency, quality and flexibility. Manufacturing systems are large, as
well as complex systems that are made up of a variety of numerically controlled
machine tools, Coordinate Measuring Machines (CMM), machining centers,
storage-loading-unloading-clamping-unclamping areas and pallet transport systems.
Manufacturing cells are reduced-scale manufacturing systems controlled as
automation islands dedicated to the manufacturing of small sets of product classes,
and acting as computer controlled stand alone entities of an overall manufacturing
system. Flexible manufacturing systems and cells are considered as the shop floor
start-up of a Computer Integrated Manufacturing architecture involving contributions
and effort from all the departments of a company.
As one of the major goals in manufacturing systems, quality concerns the whole
life-cycle of both product and process, thus covering all quality management
activities, including quality planning, control and monitoring with appropriate
feedback actions.
The quality objective stands on horizontal and vertical integration flows in a
Computer Integrated Manufacturing structure. For the horizontal viewpoint,
in-process quality assurance and process certification methods require the significant
use of in-process quality sensors and deterministic metrology methods supported by a
reactive architecture. The QIA (Quality in automation) project has made big efforts on
this subject. Vertical integration of quality assurance operates from the manufacturing
system automation stage to the Computer Aided Design (CAD) stage by means of an
information system with quality management features.
Quality control has to be integrated into the whole manufacturing process, as close to
the production operations as possible to induce feedback actions on the operational
and/or informational stages of the system.
48 Optimal management of manufacturing operations requires the setting up of feedback
Production and
Operation Management control-loops within the system architecture. To achieve this, the system must be
equipped with loop-controlled functions. The difficulty here is to survey
manufacturing control loop solutions using existing and heterogeneous equipment, to
specify necessary modifications for their integration, and to propose adaptable and
reconfigurable solutions for various types of equipment.
Thus, a solution based on a centralized production control organisation, as well as
coordinating NC machines without initiative would be implemented easily but would
prove much too sensitive to perturbations: the smallest equipment failure can lead the
manufacturing system towards a degraded and sometimes incoherent functioning
mode. For these reasons, a distributed computer control solution that attempts to grant
more intelligence and also more autonomy to the machines is preferred. Many studies
have demonstrated the profitability of such an approach.
3.8.2 Autonomy
To increase the autonomy of manufacturing system, the production management of
the shop floor and the cell must be coupled as closely as possible. The manufacturing
orders can be created differently, either from:
1. information received from a next cell (Kanban),
2. information determined by the shop floor (MRP), or
3. (hi) information decided by the cell (OPT).
These differences alter the data flow consequences. Once the cell has received the
manufacturing orders, it can sequence them, but only in a very short-term way. The
integration of defects and manufacturing exceptions into the planning of computing
time is quite impossible. It does not take into account the due dates which are
computed by the MRP (material requirement planning) as priorities, and thus the FIFO
criterion is used. As for the Kanban and the OPT, the estimated processing time of the
manufacturing operations may serve to compute the due dates.
The cell may also use the Kanban or the OPT criteria, or any other criterion, in
maintaining both its autonomy and the decisional framework defined by the entire
manufacturing orders. The cell may decide to perform more quality control tasks
especially if it is not overloaded or if it is not a bottleneck. The cell also fulfills the
reporting activity, which concerns both the executed tasks and the obtained qualities.
Nevertheless, the reports must be suited to the production management method
because this method does not consider the same indicators.
3.8.3 Flexibility
The manufacturing abilities and control must be able to manage varying manufactured
articles (for example, using a group technology configuration), or different products
conceived to match the customer's requests. The equipment flexibility in the
manufacturing system is managed by the product system design and the control
flexibility by the chosen control architecture. The former is related to the integrated
management of the quality, and the la tter needs modular software and hardware. In the
long term, control system reconfiguration depends on the facility to substitute the
software in the computers, the numerical controllers, and the programmable logic
controllers. In the manufacturing process, the new incoming product should be able to:
1. explain the manufacturing specification using the design stage information (the
CAD/CAM product data exchange standards enable the consistency of data format
from the design stage to the manufacturing and inspection stage);
2. perform the report of the adapted manufacturing, at least to satisfy Statistical 49
Computer Integrated
Process Control (SPC) methodology. Manufacturing and
Services Systems
The manufacturing system adjusts itself on the control variation following the quantity
and the due date in JIT (just in time) and OPT ways. The manufacturing capabilities
must change with the control estimates. That is not within the cell's power, but it
affects the manufacturing management method applied in the factory or the shop floor.
On the other hand, the control criterion relative to this order can progress along with
the methods and the manufacturing systems. Thus the manufacturing control system
must be adaptive: its programming is parameterized by the criterion.
3.8.4 Modularity
A manufacturing system is composed of a computer-controlled collection of
communicating and generally distributed groups of modular, automated material
handling systems and interchangeable numerically controlled machine tools. These
various and heterogeneous components are all connected by communication links and
integrated by a hierarchical network of computers. They simultaneously contribute to
the efficient manufacture of a variety of parts at low to medium-sized volumes. Three
essential components of a manufacturing system must consequently be taken into
account. They are:
1. The CNC machine tools to process the parts;
2. The material handling systems to move the parts and tools; and
3. An overall control system to manage the manufacturing components.
The overall control system manages the various manufacturing components and
coordinates their activities to provide a cohesive structure that can react
deterministically to the events occurring on the shop floor. It therefore carries out
several activities such as detailed planning, direct control as well as the monitoring of
all manufacturing components and establishes a link between them and the superior
functions found in the shop floor.
The important criteria to structure the manufacturing control activities and their
relations are abstraction, decisional autonomy and modularity. With regards to these
principles, a distributed control solution is a natural way to grant more intelligence
and therefore more autonomy and flexibility to the manufacturing components.
In a distributed control solution, a manufacturing system acts as an adaptive, dynamic
system in which a wide variety of jobs are continuously and randomly introduced.
These jobs are broken down into operations which then have to be scheduled on
various manufacturing components. The computers in a manufacturing system carry
out different levels of planning and control using heterogeneous, intelligent,
autonomous, and spatially distributed processors that share a common goal:
1. At the highest level, the facility level deals with manufacturing engineering and
production management;
2. The shop level manages, coordinates and monitors the cell in the shop floor;
3. The cell level manages, coordinates and monitors the stations in the cell;
4. The station level deals with local planning, coordination and monitoring of the
equipment within the station; and
5. The equipment level directly controls and monitors manufacturing resources such
as robots, machine tools and devices.
Each level handles a set of manufacturing components. To model a manufacturing
system in an abstract manner, these manufacturing components can be described by
50 generic elements which are called reception posts. Each reception post is interfaced to
Production and
Operation Management a physical location in a manufacturing system and is represented by a machine state
graph. It thus informs the manufacturing control system when the component is
available, occupied or unavailable. Moreover, several reception posts can be
regrouped in a reception zone if they are handled by a same level (for example, in the
case of several pallets on a conveyor). These concepts of reception post and reception
zone provide an external and abstract image of the various manufacturing components
of a manufacturing system. Indeed, a manufacturing control system captures a view of
each manufacturing component by observing its associated reception zone without
knowing its internal functioning.
3.9 QUALITY IN THE MANUFACTURING

CONTROL SYSTEM
One of the main difficulties in implementing quality in manufacturing control systems
is the structuring of information flows. The quality circles are useful if the quality
measurements and the improvements are correctly performed, but this condition is not
always satisfied for the following tasks:
1. Gathering of the quality data;
2. Their analysis;
3. The communication of proposed corrections; and
4. Their applications in the manufacturing process.
Quality management methods are clearly defined but are difficult to apply in a
coherent way when the manufacturing system is not structured. If the product lifecycle
is not totally controlled, the quality function cannot be handled. The following
parameters must be safeguarded:
1. The product design specifications on the process design;
2. The design adjustments;
3. The qualities relative to the products and processes; and
4. The difficulties which occurred during the manufacturing stage.
The computer aided design and manufacturing (CAD/CAM) level and the shop floor
level transmit dated objectives and quality to the manufacturing system. The
manufacturing system objectives are:
1. To obtain the required qualities; and
2. To report non-quality.
Thus, the control loop architecture joins the PDCA cycle (plan-do-check-action).
According to this cycle, the quality control function ensures that every manufacturing
task is well performed, and that the required quality of each operation is obtained. The
relationships with both CAD/CAM and the manufacturing management include the
feedback loops, which reconsider the design specifications, and the planning of work
in progress. The corrective actions of the manufacturing cell depend on the
CAD/CAM and the manufacturing management capabilities. Inside the cell, the
control loop architecture has effects on the manufacturing control system. This must
be able to take into account the manufacturing exceptions, and to verify the effects of
its orders. Then the non-quality relative to the parts or to the equipment induces
reactions. The main problem is to organise these reactions into a coherent architecture,
which includes informational and decisional abilities. Relative to product and process
design, the cell receives the design specifications, and then executes them according to
70
Production and
71
LESSON Materials Management
5
MATERIALS MANAGEMENT
STRUCTURE
5.0 Objectives
5.1 Introduction
5.2 Materials Handling
5.2.1 Objectives of Material Handling
5.2.2 Principles of Material Handling
5.3 Selection of Material Handling Equipments
5.4 Evaluation of Material Handling System
5.4.1 Equipment Utilisation Ratio
5.4.2 Material Handling Equipments
5.5 Guidelines for Effective Utilisation of Material Handling Equipments
5.6 Relationship between Plant Layout and Material Handling
5.7 Automated Storage and Retrieval System (ASRS) and Methods
5.7.1 Common Benefits of Automated Storage & Retrieval Systems (ASRS)
5.7.2 JIT/Kanban
5.7.3 ABC System
5.8 Let us Sum up
5.9 Glossary
5.11 Questions
5.0 OBJECTIVES
After studying this lesson, you should be able to:
 Explain the meaning and significance of material management
 Discuss the procedure of selection of material handling systems
 Describe the significance and method of material handling systems’ evaluation
 Identify the equipment utilisation ratio
 Describe the materials handling equipments
 Discuss the relationship between plant layout and material handling
 Report on the automated storage system and retrieval system and method
72
Production and 5.1 INTRODUCTION
Materials management is a function, which aims for integrated approach towards the
management of materials in an industrial undertaking. Its main objective is cost
reduction and efficient handling of materials at all stages and in all sections of the
undertaking. Its function includes several important aspects connected with material,
such as, purchasing, storage, inventory control, material handling, standardization etc.
Materials management is defined as “the function responsible for the coordination of
planning, sourcing, purchasing, moving, storing and controlling materials in an
optimum manner so as to provide a pre-decided service to the customer at a minimum
cost”.
From the definition it is clear that the scope of materials management is vast. The
functions of materials management can be categorized in the following ways:
1. Material Planning and Control
2. Purchasing
3. Stores Management
4. Inventory Control or Management
5. Standardisation
6. Simplification
7. Value Analysis
8. Erogonomics
9. Just-in-Time (JIT)
All the above mentioned functions of materials management has been discussed in
detail in this lesson.
1. Materials planning and control: Based on the sales forecast and production
plans, the materials planning and control is done. This involves estimating the
individual requirements of parts, preparing materials budget, forecasting the levels
of inventories, scheduling the orders and monitoring the performance in relation to
production and sales.
2. Purchasing: This includes selection of sources of supply finalization in terms of
purchase, placement of purchase orders, follow-up, maintenance of smooth
relations with suppliers, approval of payments to suppliers, evaluating and rating
suppliers.
3. Stores management or management: This involves physical control of materials,
preservation of stores, minimization of obsolescence and damage through timely
disposal and efficient handling, maintenance of stores records, proper location and
stocking. A store is also responsible for the physical verification of stocks and
reconciling them with book figures. A store plays a vital role in the operations of a
company.
4. Inventory control or management: Inventory generally refers to the materials in
stock. It is also called the idle resource of an enterprise. Inventories represent
those items, which are either stocked for sale or they are in the process of
manufacturing or they are in the form of materials, which are yet to be utilised.
The interval between receiving the purchased parts and transforming them into
final products varies from industries to industries depending upon the cycle time
of manufacture. It is, therefore, necessary to hold inventories of various kinds to
act as a buffer between supply and demand for efficient operation of the system. 73
Materials Management
Thus, an effective control on inventory is a must for smooth and efficient running
of the production cycle with least interruptions.
5. Other related activities: Other related activities constitutes the following:
 3S:
 Standardization: Standardization means producing maximum variety of
products from the minimum variety of materials, parts, tools and
processes. It is the process of establishing standards or units of measure
by which extent, quality, quantity, value, performance etc. may be
compared and measured.
 Simplification: The concept of simplification is closely related to
standardization. Simplification is the process of reducing the variety of
products manufactured. Simplification is concerned with the reduction of
product range, assemblies, parts, materials and design.
 Specifications: It refers to a precise statement that formulizes the
requirements of the customer. It may relate to a product, process or a
service.
Example: Specifications of an axle block are Inside Dia. = 2 ± 0.1 cm,
Outside Dia. = 4 ± 0.2 cm and Length = 10 ± 0.5 cm.
 Value analysis: Value analysis is concerned with the costs added due to
inefficient or unnecessary specifications and features. It makes its contribution
in the last stage of product cycle, namely, the maturity stage. At this stage
research and development no longer make positive contributions in terms of
improving the efficiency of the functions of the product or adding new
functions to it.
 Ergonomics (Human Engineering): The human factors or human engineering
is concerned with man-machine system. Ergonomics is “the design of human
tasks, man-machine system, and effective accomplishment of the job,
including displays for presenting information to human sensors, controls for
human operations and complex man-machine systems.” Each of the above
functions are dealt in detail.
5.2 MATERIALS HANDLING

Haynes defines “Material handling embraces the basic operations in connection with
the movement of bulk, packaged and individual products in a semi-solid or solid state
by means of gravity manually or power-actuated equipment and within the limits of
individual producing, fabricating, processing or service establishment”. Material
handling does not add any value to the product but adds to the cost of the product and
hence it will cost the customer more. So the handling should be kept at minimum.
Material handling in Indian industries accounts for nearly 40% of the cost of
production. Out of the total time spent for manufacturing a product, 20% of the time is
utilised for actual processing on them while the remaining 80% of the time is spent in
moving from one place to another, waiting for the processing. Poor material handling
may result in delays leading to idling of equipment.
Materials handling can be also defined as ‘the function dealing with the preparation,
placing and positioning of materials to facilitate their movement or storage’. Material
handling is the art and science involving the movement, handling and storage of
materials during different stages of manufacturing. Thus the function includes every
consideration of the product except the actual processing operation. In many cases, the
74 handling is also included as an integral part of the process. Through scientific material
Production and
Operation Management handling considerable reduction in the cost as well as in the production cycle time can
be achieved.
5.2.1 Objectives of Material Handling

Following are the objectives of material handling:
1. Minimize cost of material handling.
2. Minimize delays and interruptions by making available the materials at the point
of use at right quantity and at right time.
3. Increase the productive capacity of the production facilities by effective utilisation
of capacity and enhancing productivity.
4. Safety in material handling through improvement in working condition.
5. Maximum utilisation of material handling equipment.
6. Prevention of damages to materials.
7. Lower investment in process inventory.
5.2.2 Principles of Material Handling

Following are the principles of material handling:
1. Planning principle: All handling activities should be planned.
2. Systems principle: Plan a system integrating as many handling activities as
possible and co-coordinating the full scope of operations (receiving, storage,
production, inspection, packing, warehousing, supply and transportation).
3. Space utilisation principle: Make optimum use of cubic space.
4. Unit load principle: Increase quantity, size, weight of load handled.
5. Gravity principle: Utilise gravity to move a material wherever practicable.
6. Material flow principle: Plan an operation sequence and equipment arrangement
to optimize material flow.
7. Simplification principle: Reduce combine or eliminate unnecessary movement
and/or equipment.
8. Safety principle: Provide for safe handling methods and equipment.
9. Mechanization principle: Use mechanical or automated material handling
equipment.
10. Standardization principle: Standardize method, types, size of material handling
equipment.
11. Flexibility principle: Use methods and equipment that can perform a variety of
task and applications.
12. Equipment selection principle: Consider all aspect of material, move and method
to be utilised.
13. Dead weight principle: Reduce the ratio of dead weight to pay load in mobile
equipment.
14. Motion principle: Equipment designed to transport material should be kept in
motion.
15. Idle time principle: Reduce idle time/unproductive time of both MH equipment 75
and man power.
16. Maintenance principle: Plan for preventive maintenance or scheduled repair of
all handling equipment.
17. Obsolescence principle: Replace obsolete handling methods/equipment when
more efficient method/equipment will improve operation.
18. Capacity principle: Use handling equipment to help achieve its full capacity.
19. Control principle: Use material handling equipment to improve production
control, inventory control and other handling.
20. Performance principle: Determine efficiency of handling performance in terms of
cost per unit handled which is the primary criterion.
5.3 SELECTION OF MATERIAL HANDLING

EQUIPMENTS
Selection of Material Handling equipment is an important decision as it affects both
cost and efficiency of handling system. The following factors are to be taken into
account while selecting material handling equipment.
 Properties of the Material: Whether it is solid, liquid or gas, and in what size,
shape and weight it is to be moved, are important considerations and can already
lead to a preliminary elimination from the range of available equipment under
review. Similarly, if a material is fragile, corrosive or toxic this will imply that
certain handling methods and containers will be preferable to others.
 Layout and Characteristics of the Building: Another restricting factor is the
availability of space for handling. Low-level ceiling may preclude the use of
hoists or cranes, and the presence of supporting columns in awkward places can
limit the size of the material-handling equipment. If the building is multi-storeyed,
chutes or ramps for industrial trucks may be used. Layout itself will indicate the
type of production operation (continuous, intermittent, fixed position or group)
and can indicate some items of equipment that will be more suitable than others.
Floor capacity also helps in selecting the best material handling equipment.
 Production Flow: If the flow is fairly constant between two fixed positions that
are not likely to change, fixed equipment such as conveyors or chutes can be
successfully used. If, on the other hand, the flow is not constant and the direction
changes occasionally from one point to another because several products are being
produced simultaneously, moving equipment such as trucks would be preferable.
 Cost Considerations: This is one of the most important considerations. The above
factors can help to narrow the range of suitable equipment, while costing can help
in taking a final decision. Several cost elements need to be taken into
consideration when comparisons are made between various items of equipment
that are all capable of handling the same load. Initial investment and operating and
maintenance costs are the major cost to be considered. By calculating and
comparing the total cost for each of the items of equipment under consideration, a
more rational decision can be reached on the most appropriate choice.
 Nature of Operations: Selection of equipment also depends on nature of
operations like whether handling is temporary or permanent, whether the flow is
continuous or intermittent and material flow pattern-vertical or horizontal.
80 and three columns to store parts in vertical direction to utilise the floor space
Production and
Operation Management efficiently. The designed AS/RS also works with dual command cycle in which it
performs the storage and retrieval operations in same cycle. The designed AS/RS
system has computerized data base to store the position of materials in all storage
locations and also it can determine whether a particular storage location is full or
empty. When a command is dispatched for the storage or retrieval of an item to a
particular location the system first checks the status of the location in the data base
either it is filled or empty. The storage retrieval machine will be actuated after
determining this status to perform the assigned task. Random storage location strategy
is employed in this system and it can store unit load of certain designed dimensions.
The improved inventory management, space efficiency, reduced labor costs and
reduced costs of loss by theft and misplacing are some of the advantages of automated
storage and retrieval system through which the efficiency of material handling and
inventory control can be enhanced. Material handling operations are labor intensive
and are of repetitive nature. Although very few handling systems are completely
automated, the automation, control and mechanization play a significant role in
designing and operating effective and efficient handling systems. Automated
Storage/Retrieval (AS/R) systems, carousels/rotary racks, Automated Guided Vehicles
(AGV) systems, and robotic systems are some of the most commonly used material
handling systems in manufacturing industries.
Material handling systems are the backbone of computer integrated manufacturing
systems and flexible manufacturing systems where the assignment of storage and
retrieval of parts is based on the needs of manufacturing operations which can increase
not only the performance of the automated storage/retrieval system (AS/RS) but also
the performance of the production system.
Picking cart, tote picking, man-onboard system, various kinds of truck are some of the
equipments used in automated storage and retrieval systems and most of these can
enable the racks to conduct only up-and-down conveyance at the fixed range of track,
but they cannot move to another aisle.
A typical AS/RS is composed of storage racks, Storage/Retrieval (S/R) machines and
Pickup/Drop-off (P/D) stations. Based on volume of inventory level and size several
types of AS/RS are unit-load, mini-load, man on-board, deeplane, automated item-
retrieval system and flow rack systems. Dual commands dispatching of a class-based
unit-load automated storage and retrieval system using multi-pass simulation with
generic algorithm has been studied in reference. The adoption of automated storage
and retrieval system in flexible manufacturing system with optimal random storage
location strategy is studied in reference.
5.7.1 Common Benefits of Automated Storage & Retrieval Systems

(ASRS)
 Storage capacity: It can be measured as the total volumetric space available or the
total number of storage compartments available in the system for items or loads.
 Storage density: It is the volumetric space available for actual storage relative to
total volumetric space in the storage facility.
 Unit load: It is simply the mass that is to be moved or otherwise handled at one
time.
 Single command cycle: In this cycle storage or retrieval transactions alone are
performed.
 Dual command cycle: In this cycle the storage and retrieval transactions are
performed in one cycle.
 Randomized storage: In this storage system the items are storage are at any 81
available location.
 Dedicated storage: In this storage system items are assigned to specific locations.
 Uninterrupted operations: Operation without interruptions, distractions, break,
vacations or shift premiums
 Less Product damage: Gentler handling of the inventory with less product
damage from transit, misstacking or collisions.
 Increases worker productivity: Worker productivity is increased by the
elimination of non-value adding material handling tasks from their work scope.
5.7.2 JIT/Kanban
JIT (Just-in-time) enables a company to produce the products its customers’ want,
when they want them, in the amount they want. Under conventional mass production
approaches, large quantities of identical products are produced, and then stored until
ordered by a customer. JIT techniques work to level production, spreading production
evenly over time to foster a smooth flow between processes. Varying the mix of
products produced on a single line, provides an effective means for producing the
desired production mix in a smooth manner.
JIT frequently relies on the use of physical inventory control cues (or Kanban) to
signal the need to move raw materials or produce new components from the previous
process. In some cases, a limited number of reusable containers are used as Kanban,
assuring that only what is needed gets produced. Many companies implementing lean
production systems are also requiring suppliers to deliver components using JIT. The
company signals its suppliers, using computers or delivery of empty, reusable
containers, to supply more of a particular component when they are needed. The end
result is typically a significant reduction in waste associated with unnecessary
inventory, WIP, and overproduction.
Method and Implementation Approach

Key elements of JIT, and techniques for achieving JIT, are discussed below.
Leveli ng: This technique involves determining appropriate quantities and types
Load Leveling:
of products needed in a given day to meet customer orders. This technique allows
organisations to produce products with a variety of customer specifications each day
(using a daily schedule), in a smooth sequence that minimizes inventory and delay.
Takt time is critical to the daily scheduling required in leveled production described
above. It is the rate at which each product must be completed to meet customer needs,
expressed in amount of time per part.
Production Sequencing: This involves calculating the pattern for making each
product type in the required amount for any given day, by calculating the takt time for
the daily quantity of each type.
Kanban, often referred to as the "nervous system" of lean production, Kanban is a key
technique that determines a processes production quantity, and in doing so, facilitates
JIT production and ordering systems. Contrary to more traditional "push" methods of
mass production which are based on an estimated number of expected sales, Kanban's
"pull" system creates greater flexibility on the production floor, such that the
organisation only produces what is ordered.
More specifically, a Kanban is a card, labeled container, computer order, or other
device used to signal that more products or parts are needed from the previous process
step. The Kanban contain information on the exact product or component
82 specifications that are needed for the subsequent process step. Kanban are used to
Production and
Operation Management control work-in-progress (WIP), production, and inventory flow.
In this way, Kanban serves to ultimately eliminate overproduction, a key form of
manufacturing waste. Different types of Kanban include: supplier Kanban (indicate
orders given to outside parts suppliers when parts are needed for assembly lines);
in-factory Kanban (used between processes in a factory); and production Kanban
(indicate operating instructions for processes within a line).
Kanban are a critical part of a JIT system. In implementing a Kanban system,
organisations typically focus on four important "rules".
 Kanban works from upstream to downstream in the production process (i.e.,
starting with the customer order). At each step, only as many parts are withdrawn
as the Kanban instructs, helping ensure that only what is ordered is made. The
necessary parts in a given step always accompany the Kanban to ensure visual
control.
 The upstream processes only produce what has been withdrawn. This includes
only producing items in the sequence in which the Kanban are received, and only
producing the number indicated on the Kanban.
 Only products that are 100 percent defect-free continue on through the production
line. In this way, each step uncovers and then corrects the defects that are found,
before any more can be produced.
 The number of Kanban should be decreased over time. Minimizing the total
number of Kanban is the best way to uncover areas of needed improvement.
By constantly reducing the total number of Kanban, continuous improvement is
facilitated by concurrently reducing the overall level of stock in production.
Implications for Environmental

Environmental Performance
Potential Benefits:
JIT/Kanban systems help eliminate overproduction. Overproduction affects the
environment in three key ways:
1. increases the number of products that must be scrapped or discarded as waste;
2. increases the amount of raw materials
materials used in production;
production;
3. increases the amount of
of energy, emissions, and wastes (solid and
and hazardous) that
are generated by the processing of the unneeded output.
 JIT/Kanban systems reduce the amount of necessary in-process and post-process
inventory, thereby reducing the potential for products to be damaged during
handling and storage, or through deterioration or spoilage over time. Such
damaged inventory typically ends up being disposed of as solid or hazardous
waste. Frequent inventory turns can also eliminate the need for degreasing
processes for metal parts, since the parts may not need to be coated with oils to
prevent oxidization or rust while waiting for the next
next process step.
 JIT typically require less floor space for equal levels of production ("this is a
factory, not a warehouse"). Reductions in square footage can reduce energy use
for heating, air conditioning, and lighting. Reduced square footage can al so reduce
the resource consumption and waste associated with maintaining the unneeded
space (e.g., fluorescent bulbs, cleaning supplies). Even more significantly,
reducing the spatial footprint of production can reduce the need to construct
additional production facilities, as well as the associated environmental impacts
resulting from construction material use, land use, and construction wastes.
 JIT/Kanban systems also help facilitate worker-lead process improvements, as 83
workers are more motivated to make product improvements when there is no
excess inventory remaining to be sold.
 Excess inventory results in increased energy use associated with the need to
transport and reorganise unsold inventory.
Potential Shortcomings:
 JIT can result in more frequent "milk runs" for parts and material inputs from
sister facilities or suppliers, leading to an increased number of transport trips. This
can contribute to traffic congestion, as well as environmental impacts associated
with additional fuel use and vehicle emissions. Through efficient load planning,
however, the environmental implications of increased milk runs can be
significantly reduced or eliminated.
 JIT/Kanban may not succeed at reducing or eliminating overproduction and
associated waste if the products produced have large and/or unpredictable market
fluctuations.
 JIT, when not implemented throughout the supply chain, can just push inventory
carrying activities up the supply chain, along with the associated environmental
impacts from overproduction, damaged goods, inventory storage space heating
and lighting, etc.
5.7.3 ABC System

The ABC classification process is an analysis of a range of objects, such as finished
products, items
i tems 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:
A - outstandingly important; B - of average importance; C - relatively unimportant as
a basis for a control scheme. Each category can and sometimes should be handled in a
different way, with more attention being devoted to category A, less to B, and still less
to C.
Popularly known as the "80/20" rule ABC concept is applied to inventory
management as a rule-of-thumb. It says that about 80% of the Rupee value,
consumption wise, of an inventory remains in about 20% of the items. This rule, in
general, applies well and is frequently used by inventory managers to put their efforts
where greatest benefits, in terms of cost reduction as well as maintaining a smooth
availability of stock, are attained. 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
'A' class items are closely monitored because of the value involved (70-80%).
84 High value (A), Low value
value (C), Intermediary value (B)
(B)
Production and
Operation Management  20% of the items account for 80% of total inventory consumption value (Qty
consumed X unit rate)
 Specific items on which efforts can be concentrated profitably
 Provides a sound basis on which to allocate funds and time
 A,B & C , all have a purchasing / storage policy - "A", most critically reviewed ,
"B" little less while "C" still less with greater results.
ABC Analysis is the basis for material management processes and helps define how
stock is managed. It can form the basis of various activity including leading plans on
alternative stocking 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 frequently than c class stores
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.
All the items of inventories are put in three categories, as below:
 A Items: These Items are seen to be of high Rupee consumption volume. "A"
items usually include 10-20% of all inventory items, and account for 50-60% of
the total Rupee consumption volume.
 B Items: "B" items are those that are 30-40% of all inventory items, and account
for 30-40% of the total Rupee consumption volume of the inventory. These are
important, but not critical, and don't pose sourcing difficulties.
 C Items: "C" items account for 40-50% of all inventory items, but only 5-10% of
the total.
Rupee consumption volume: Characteristically, these are standard, low-cost and
readily available items. ABC classifications allow the inventory manager to assign
priorities for inventory control. Strict control needs to be kept on A and B items, with
preferably low safety stock level. Taking a lenient view, the C class items can be
maintained with looser control and with high safety stock level. The ABC concept
puts emphasis on the fact that every item of inventory is critical and has the potential
of affecting, adversely, production, or sales to a customer or operations. The
categorization helps in better control on A and B items.
In addition to other management procedures, ABC classifications can be used to
design cycle counting schemes. For example, A items may be counted 3 times per
year, B items 1 to 2 times, and C items only once, or not at all.
Fill in the blanks:
1. The effectiveness of of the material handling system can be measured in
terms of the ratio of the …………………………………. in the handling
to the total time spent in production.
2. Equipment utilisation ratio is an important indicator for judging the
………………………. handling system.
Contd….
3. Conveyors are useful for moving material between two fixed 85
……………………………………, either continuously or intermittently.
4. Materials storage systems are used to store a variety of materials like raw
materials, ……………………………………….., tooling, spare parts, etc.
5. Material handling operations are labor intensive and are of
………………………….nature.
5.8 LET US SUM UP

Materials management is part of logistics and refers to the location and movement of
the physical items or products. In this lesson we focused on all the aspects of material
handling like objectives of materials handling, principles of material handling,
selection of material handling equipments, evaluation of material handling system,
equipment utilisation ratio, material handling equipments like cranes, trucks etc.,
guidelines for effective utilisation of material handling equipments, relationship
between plant layout and material handling, automated storage system and retrieval
system and methods like JIT/Kanban, ABC system. In next lessons we will focus on
other aspects of inventories and their management.
5.9 GLOSSARY
Activity based Costing: Usually refers to costing method that breaks down overhead
costs into specific activities (cost drivers) in order to more accurately distribute the
costs in product costing.
Automated Storage and Retrieval Systems: A system of rows of rack, each row
having a dedicated retrieval unit that moves vertically and horizontally along the rack
picking and putting away loads.
Container: Although a container can be anything designed to hold (contain) materials
for storage or transport, the most common definition for Container in logistics refers
to the specific types of containers used for intermodal transportation, often referred to
as "Ocean Containers".
Distribution: Describes the process of storing, shipping, and transporting goods. Also
describes the facilities (distribution operations, distribution centers) that conduct these
activities.
Forklift-free Plants: A strategy to eliminate or reduce forklift use in operations. Used
mainly in manufacturing operations, forklift-free usually involves finding ways to
eliminate forklift use in specific areas (mainly the production areas).
JIT—Just-in-time: JIT is a process for optimizing manufacturing processes by
eliminating all process waste including wasted steps, wasted material, excess
inventory, etc.
Kanban: Used as part of a Just-In-Time production operation where components and
sub-assemblies are produced based upon notification of demand from a subsequent
operation.
Lift Truck: Vehicles used to lift, move, stack, rack, or otherwise manipulate loads.
Material handling workers use a lot of terms to describe lift trucks; some terms
describe specific types of vehicles, others are slang terms or trade names that people
often mistakenly use to describe trucks.
86
Check Your Progress: Answers
Production and
Operation Management CYP 1
1. materials
2. operations
3. products
4. materials
5. efficiency
CYP 2
1. time spent
2. materials
3. workstations
4. finished goods
5. repetitive

Ackerman, K. B., Practical
B., Practical Handbook of Warehousing
Warehousing , 4th ed., Springer, New York. (1997)
Ackerman, K. B., Auditing Warehouse Performance,
Performance, Ackerman Publications, Columbus,
(2004)
Aminoff, A. and Kettunen O., Research on factors affecting warehousing efficiency, efficiency,
International Journal of Logistics: Research and Applications, 5(1), p. 45- 57. (2002)
Apple, J., Plant
J., Plant Layout and Material Handling
Handling , 3rd ed. John Wiley, New York. (1977)
Apte, U. M. and Viswanathan, S., Effective cross-docking for improving distribution
efficiencies.
efficiencies. International Journal of Logistics: Research & Applications, 3(3), p. 291-302.,
(2000)
Lahmar, M., Facility Logistics: Approaches and Solutions to Next Generation Challenges,
Auerbach, Boca Raton, FL., (2007)
Tarn, J. M., Razi, M. A., Wen, H. J. and Perez Jr. A. A., E-fulfillment: the strategy and
operational requirements. Logistics Information Management , 16(5), p. 350-362., (2003)
Tompkins, J. A., Enhancing the Warehouse’s Role through Customisation, Warehouse
Education and Research Council Special Report, Oak Brook. (1997)
Tompkins, J. A. and Smith, J. D., editors, The Warehouse Management Handbook . 2nd ed.
Tompkins Press, Raleigh, (1998)
5.11 QUESTIONS
1. Explain the objectives of material handling.
2. Explain the principles of material handling.
3. How do you evaluate the material handling system?
4. What are the relationship between plant layout and material handling?
handling?
5. Discuss the factors to be considered while selecting material handling equipment.
6. Discuss the different material handling equipments.
7. Discuss the guidelines for effective utilisation of material
material handling equipments.
8. Explain the objectives of materials management.
87
LESSON Inventory Management
6
INVENTORY MANAGEMENT
STRUCTURE
6.0 Objectives
6.1 Introduction
6.2 Functions of Inventory
6.3 Inventory Costs
6.4 Inventory Control by Classification Systems
6.4.1 ABC Classification and Analysis
6.4.2 Other Classification Systems
6.5 Inventory Control
6.6 Elementary Inventory Models
6.6.1 Single Period Models
6.6.2 Multiple Period Inventory Models
6.6.3 Fixed-time Period Models
6.6.4 Fixed-time Period Model with Safety Stock
6.6.5 Manufacturing Model without Shortages
6.7 More Complex Models
6.7.1 Quantity Discounts or Price-Break Models
6.7.2 Model with Specified Service Levels
6.8 Characteristics of Control Systems
6.9 MRP Inventory Management
6.9.1 Independent versus Dependent Demand
6.9.2 Inputs from Master Production Schedule
6.9.3 Outputs – The Materials Requirement Plan
6.9.4 Capacity Requirement Planning
6.10 MRP in Service Organisations
6.10.1 Distribution Requirements Planning (DRP)
6.10.2 Distribution Resource Planning (DRP II)
6.11 Let us Sum up
6.12 Glossary
6.14 Questions
88
Production and 6.0 OBJECTIVES
 Explain the meaning and significance of inventory
 Paraphrase the functions of inventory and identifying the inventory costs
 Describe the method of inventory control by classification systems
 Describe various inventory control models
 Identify the characteristics of control systems
6.1 INTRODUCTION
The term 'inventory' means any stock of direct or indirect material (raw materials or
finished items or both) stocked in order to meet the expected and unexpected demand
in the future. A basic purpose of supply chain management is to control inventory by
managing the flows of materials. It sets policies and controls to monitor levels of
inventory and determine what levels should be maintained, when stock should be
replenished, and how large orders should be tackled.
Inventory is a stock of materials used to satisfy customer demand or support the
production of goods or services. By convention, inventory generally refers to items
that contribute to or become part of an enterprise's output. There are different types of
inventory, however, the most commonly identified types of inventory are:
 Raw Materials Inventory: Parts and raw materials obtained from suppliers that
are used in the production process.
 Work-in-process (WIP) Inventory: This constitutes semi-finished parts,
components, sub-assemblies or modules that have been inducted into the
production process but not yet finished.
 Finished Goods Inventory: Finished product or end-items.
 Replacement Parts Inventory: Maintenance Parts meant to replace other parts in
machinery or equipment, either the company's own or that of its customers.
 Supplies Inventory: Parts or materials used to support the production process, but
not usually a component of the product.
 Transportation (pipeline) Inventory: Items that are in the distribution system but
are in the process of being shipped from suppliers or to customers.
Manufacturing inventory is typically classified into raw materials, finished products,
component parts, supplies, and work-in-process. In services, inventory generally refers
to the tangible goods to be sold and the supplies necessary to administer the service.
In simple terms, inventory is an idle resource of an enterprise comprising physical
stock of goods that is kept by an enterprise for future purposes.
6.2 FUNCTIONS OF INVENTORY

Though inventory is an idle resource, it is almost essential to keep some inventory in
order to promote smooth and efficient running of business. To maintain independence
of operations, a supply of materials at a work center allows that center flexibility in
operations.
Consider the case—an enterprise that does not have any inventory. Clearly, as soon as
the enterprise receives a sales order, it will have to order for raw materials to complete
the order. This will keep the customers waiting. It is quite possible that sales may be 89
Inventory Management
lost. The enterprise may also have to pay a high price for various other reasons.
Another aspect relates to the costs for making each new production set up.
Independence of workstations is desirable in intermittent processes and on assembly
lines as well. As the time that it takes to do identical operations varies from one unit to
the next, inventory allows management to reduce the number of setups. This results in
better performance.
Consider the case of seasonal items. Any fluctuation in demand can be met if possible,
by either changing the rate of production or with inventories. However, if the
fluctuation in demand is met by changing the rate of production, one has to take into
account the different costs.
The cost of increasing production and employment level involves employment and
training, additional staff and service activities, added shifts, and overtime costs. On
the other hand, the cost of decreasing production and employment level involves
unemployment compensation costs, other employee costs, staff, clerical and services
activities, and idle time costs. By maintaining inventories, the average output can be
fairly stable. The use of seasonal inventories can often give a better balance of these
costs.
Inventory can be used, among other things, to promote sales by reducing customer's
waiting time, improve work performance by reducing the number of setups, or protect
employment levels by minimizing the cost of changing the rate of production.
Therefore, it is desirable to maintain inventories in order to enhance stability of
production and employment levels.
If the demand for the product is known precisely, it may be possible (though not
necessarily economical) to produce the product to exactly meet the demand. However,
in the real world this does not happen and inventories become essential. Inventories
also permit production planning for smoother flow and lower cost operation through
larger lot-size production. They allow a buffer when delays occur. These delays can be
for a variety of reasons—a normal variation in shipping time, a shortage of material at
the vendor's plant, an unexpected strike in any part of the supply chain, a lost order, a
natural catastrophe like a hurricane or floods, or perhaps a shipment of incorrect or
defective materials.
Broadly speaking, some other functions of inventories are:
1. To protect against unpredictable variations (fluctuations) in demand and supply.
2. To take advantage of price discounts by bulk purchases.
3. To take advantage of batches and longer production run.
4. To provide flexibility to allow changes in production plans in view of changes in
demands, etc. and
5. To facilitate intermittent production.
Only when considered in the light of all quality, customer service and economic
factors – from the viewpoints of purchasing, manufacturing, sales and finance – does
the whole picture of inventory become clear. No matter what the viewpoint, effective
inventory management is essential to organisational competitiveness.
6.3 INVENTORY COSTS

As inventory is a necessary but idle resource, inventory costs in manufacturing need to
be minimized. The heart of inventory decisions lies in the identification of inventory
costs and optimizing the costs relative to the operations of the organisation. Therefore,
Actually, this is a very common type of problem for all products that are perishable or 97
have very low shelf lives. This includes both goods as well as services. A simple way
to think about this is to consider how much risk we are willing to take for running out
of inventory.
The classical case illustrated in most texts is the 'newspaper seller's dilemma'. Let's
take the example where the newspaper vendor has collected data over a few months
that show that each Sunday, on an average, 100 papers were sold with a standard
deviation of 10 papers. With this data, it is possible for our newspaper vendor to state
a service rate that he feels is acceptable to him. For example, the newspaper vendor
might want to be 90 per cent sure of not running out of newspapers each Sunday.
In the lesson on forecasting, we described a normal distribution. If we assume that the
distribution is normal and the newspaper vendor stocked exactly 100 papers each
Sunday morning, the risk of stock running out would be 50 per cent. The demand
would be expected to be less than 100 newspapers 50 per cent of the time, and greater
than 100 the other 50 per cent. To be 90 per cent sure of not stocking out, he needs to
carry a few more papers. From the "standard normal distribution", we know that we
need to have additional papers to cover 1.282 standard deviations, in order to ensure
that the newspaper vendor is 90 per cent sure of not stocking out.
A quick way to find the exact number of standard deviations needed for a given
probability of stocking out is provided by Microsoft Excel. Press 'insert' and you will
find 'functions'. Click on 'function' and select the category 'statistical'. You can then
use the NORMSINV (probability) function to get the answer. NORMSINV returns the
inverse of the standard normal cumulative distribution. In this case, (NORMSINV
(.90) = 1.281552. This means that the number of extra newspapers required by the
vendor would be 1.281552 × 10 = 12.81552, or 13 papers. This result is more accurate
than what we can get from the tables and is sometimes very useful.
If we know the potential profit and loss associated with stocking either too many or
too few papers on the stand, we can calculate the optimal stocking level using
marginal analysis. The optimal stocking level occurs at the point where the expected
benefits derived from carrying the next unit are less than the expected costs for that
unit. This can be mathematically expressed as follows:
If Co = Cost per unit of demand overestimated, and C u = Cost per unit of demand
overestimated and the probability that the unit will be sold is 'P'; the expected
marginal cost equation can be represented as:
P (Co) < (1–P)C u
Here (1–P) is the probability of the newspaper not being sold. Solving for P, we obtain
P < [Cu/(Co + Cu)]
This equation states that we should continue to increase the size of the order so long as
the probability of selling what we order is equal to or less than the Ratio C u/(Co+Cu).
Single-period inventory models are useful for a wide variety of service and
manufacturing applications. This mode is very useful and is used for many service
sector problems, such as in yield analysis.
6.6.2 Multiple Period Inventory Models

Multi-period inventory systems are designed to ensure that an item will be available
on an ongoing basis throughout the year. There are two general types of systems and
these inventory systems can be distinguished on the basis of the ordering criteria. The
models of these two systems are; (a) Fixed-Order Quantity Models (also called the
98 Economic Order Quantity models) and (b) Fixed-Time Period Models (also referred to
Production and
Operation Management as the Periodic System or P-models).
The basic difference between the two systems is that the fixed-order quantity models
are "event triggered" and fixed time period models are "time triggered". In other
words, at an identified level of the stock the fixed-order quantity model initiates an
order. This event may take place at any time, depending on the demand for the items
considered. In contrast, the fixed time period models review the stocks at time
intervals that are fixed and orders are placed at the end of predetermined time periods.
In these models, only the passage of time triggers action.
Table 6.5 makes a comparison of the two systems and brings out the significant
differences.
Table 6.5: Fixed-Order Quantity and Fixed-Time Period Differences
Feature Fixed Order Quantity Model Fixed Time Period Model
Order quantity The same amount ordered each time Quantity varies each time
order is places
When to place Reorder point when inventory position dips to a Reorder when the review
order predetermined level period arrives
Record keeping Each time a withdrawal or addition is made Counted only at review
period
Size of inventory Less than fixed-time period model Larger than fixed-order
model quantity
Time to maintain Higher due to perpetual record keeping
Type of items Higher priced, critical, or important items.
The models that emanate from this system are for perpetual systems that require
continual monitoring of inventory. Every time a withdrawal from inventory or an
addition to inventory is made, records must be updated. Generally, the Fixed-Order
Quantity models are favoured when:
 Items are more expensive items because average inventory is lower.
 Items are critical, e.g., repair parts, because there is closer monitoring and
therefore quicker response to potential stock out.
The models that emanate from this are similar to batch processing systems, counting
takes place only at the review period. The Fixed-Time Period models require a larger
average inventory because it must also protect against stock out during the review
period, while the fixed-order quantity model has no review period.
These differences and the nature of operations tend to influence the choice of the
inventory system that is more appropriate.
Fixed-Order Quantity Modeling

In this section, we will consider Fixed-Order Quantity i.e., inventory models in which
demand is assumed to be fixed and completely predetermined. The heart of inventory
analysis resides in the identification of relevant costs. The basic approach to
determining fixed order sizes are shown by the Economic Order Quantity (EOQ)
models. The basic EOQ model is concerned primarily with the cost of ordering and
the cost of holding inventory.
A Fixed-Order Quantity system is shown in Figure 6.1. 99
Waiting for d emand
Demand occurs, units

withdrawn from
inventory or backorder
No
Is position < Reorder point?
Yes
Issue an order
for exactly ‘Q’ units
Figure 6.1: Fixed-Order Quantity System
The notations that will be used in the models for this system are given below:
'D' - Annual demand
'v' - Unit purchase cost or unit cost of production (Rs./unit)
'A' - Ordering or Set up cost (Rs./year)
'r' - Holding cost per Rs. per year (Rs./Rs./year) (Inventory carrying charges factor)
'b' - Shortage cost per Rs. short per unit time (Rs./Rs./year)
'Q' - Order quantity (to be determined)
The basic assumptions in the model are as follows:
1. The rate of demand for the item is deterministic and is a constant 'D' units per
annum independent of time.
2. Production rate is infinite, i.e., production is instantaneous.
3. Shortages are not allowed.
4. Lead time is zero or constant and it is independent of both demand as well as the
quantity ordered.
5. The entire quantity is delivered as a single package (or produced in a single run).
106
Production and
Figure 6.6: Fixed-Time Period Quantity System
The notations that will be used in the model are given below:
q = Quantity to be ordered
T = Number of days between reviews
L = Lead time in days (time between placing an order and receiving it)
D = Forecast average daily demand
z = Number of standard deviations for a specified service probability
σT + L = Standard deviation of demand over the review and lead time
I = Current inventory level (includes items on order)
Reorders are placed at the time of review 'T', and the safety stock has to be a function
of the level of service desired and lead time. Accordingly, the quantity that must be
reordered is:
Safety Stock = z× σT+L
Figure 6.7: Fixed Time Period Model with Safety Stock

Figure 6.7 shows a fixed-time period system with a review cycle of 'T' and constant 107
lead time of 'L'. Demand is assumed to be normally distributed and randomly
distributed about a mean 'd' and the quantity to order 'q', is given by the relationship:
Order Quantity = Average demand over the vulnerable period + safety stock –
Inventory currently on hand
Or q = d×(T + L) + z× σT+L – I
In this model, demand (d) can be forecast and revised each review period if desired or
the yearly average may be used if appropriate. The value of z is dependent on the
probability of stocking out and can be found using the Excel NORMSINV function
discussed earlier.
A comparison between the two systems; (a) Fixed-order Quantity System and (b)
Fixed-time Quantity System is given in Table 6.6.
Table 6.6: Comparison of Different Inventory Ordering Systems
S.No. Fixed Order Quantity System Fixed Time Quantity System

1. The order quantity is fixed. The re-order data is fixed.
2. The order is placed when the inventory drops The re-order quantity varies
tore-order level. according to inventory on hand.
3. It is most suitable when carrying cost is It is suitable when the carrying cost is
measurable and significant. meaningless and insignificant.
4. It is preferred when the supplier places a It is preferred when the supplier will
minimum order quantity restriction. only ship at fixed date.
5. It is suitable for A class items having a high It is suitable for B and C class items.
unit cost.
6.6.5 Manufacturing Model without Shortages

If a company manufactures its component which is required for its main product, then
the corresponding model of inventory is called “Manufacturing Model.” This model
will be with shortages or without shortages. The rate of consumption of items is
uniform throughout the year. The cost of production per unit is same irrespective of
production lot size. Let,
r be the annual demand of an item
k be the production rate of the item (Number of units produced per year).
C o be the cost per set up.
C c be the carrying cost per unit per period.
P be the cost of production per unit.
EBQ be Economic Batch Quantity
The operation of the manufacturing model without shortages is shown in Figure 6.8.
108
Production and
Figure 6.8: Manufacturing Model without Stockout
During the period t 1, the item is produced at the rate of k units per period and
simultaneously it is consumed at the rate of r units per period. So, during this period,
the inventory is built at the rate of k-r units per period. During the period t 2, the
production of the item is discontinued but the consumption of that item is continued.
Hence, the inventory is decreased at the rate of r units per period during this period.
The various formulas for this situation are given below.
2Co r
EBQ =
Cc (1 − r / k )
t1* = Q* / k
Q*[1 − r / k ]
t =
*
2
r
Cycle time = t1 + t 2
* *
If a product is to be manufactured within the company, the details are as follows:

r = 24,000 units/year
k = 48,000 units/year
C o = Rs. 200 per set-up
C c = Rs. 20 unit/year
EBQ and cycle time will be found in the following manner.
2Co r
EBQ =
Cc (1 − r / k )
2 × 200 × 24, 000

=
20(1 − 24,000 / 48,000)
= 980 units (Approx.)
114 otherwise have been. This cost is critical and is optimized with the expected stock out
Production and
Operation Management costs.
The expected stock out cost, a key calculation in the total inventory cost, is the
expected probability of a stock out times and the stock out costs that are incurred
regardless of the number of units short. The complementary cumulative function can
also be used to set buffer stocks for the allowable number of stock outs per year. The
expected number of stock outs for a demand level is found by multiplying the number
of orders in a year (D/Q) times the probability of a stock out.
Variable Demands and Lead Times

When both demand and lead times are probabilistic, the basic procedure for finding
operating doctrines is a convergence procedure. This is a directed trial and error
method. For the quantity/reorder point model, the order quantity is computed
assuming constant demand. Then the reorder point is calculated using the computed
order quantity. This value is then used to recalculate the order quantity and recalculate
the reorder point. Eventually, the order quantity and the reorder point coverage revert
to their optimal values.
This type of trial and error computation is best carried out using a computer.
6.8 CHARACTERISTICS OF CONTROL SYSTEMS

An effective inventory control system should provide satisfactory answers to three
questions:
1. How often should the assessment of stock on hand be made?
2. When should a replenishment order be placed?
3. What should be the size of the replenishment
replenishment order?
order?
In fixed quantity systems, the parameters that define a fixed reorder quantity system
are 'Q', the fixed amount ordered at one time, and reorder point. These systems are
common where a perpetual inventory record is kept or where the inventory level is
under sufficiently close surveillance so t hat notice can be given when the reorder point
has been reached.
In a 'time' triggered system, the inventory status is reviewed on a periodic basis, and
an order is placed for an amount that will replenish inventories to a planned maximum
level. The reorder quantity therefore varies from one review period to the next. The
economic reorder cycle would then be EOQ/R, where R is the annual requirement.
For example, if EOQ = 10,000 units and annual requirements are R=120,000 units,
then the economic cycle would be 10,000/120,000 = 1/12 or 1 month.
One advantage of this system is that it sometimes makes operating efficiencies
possible by reviewing the status of all items at the same time. However, inventory
holding costs are usually higher than those associated with the continuous review
system.
The following facts describe the important differences that determine the choice of the
system that should be used.
1. The time triggered system requires less manpower to control. In the event
triggered system, each item must be counted as it is issued or demanded. In the
time triggered system, physical inventory count is taken only at the end of the
period. This system is especially good for fast moving raw materials and supplies.
2. The time triggered system requires less calculating time than the event triggered 115
system. In the event triggered system, each issue or demand from stock must be
recorded and accounted for. Systemic costs i.e., the costs of running the system
are generally less with the time triggered system.
3. The time triggered system may require more
more buffer stock to protect against
uncertain demand and lead time. The reorder time is often non-optimal as it is
fixed either weekly or monthly, and not based solely on economics, resulting in
higher physical inventory costs.
4. The time triggered system runs the risk in more stock outs when unusually high
fluctuation in demand occurs. When one or successive periods of unusually large
demand occur, the event triggered system can react more quickly because it keeps
track of net inventory with each unit demanded.
Control systems sometimes combine regular review cycles and order points. In such
systems, stock levels are reviewed on a periodic basis, but orders are placed only
when inventories have fallen to a predetermined reorder level. Such systems combine
the advantages of 'event' triggered and 'time' triggered review systems. These have the
lowest total costs.
6.9 MRP INVENTORY MANAGEMENT

The MRP (material Requirement Plan) is applicable to any manufacturing system that
involves discrete, engineered products involving assembling and part fabrication is
dependent on the demand situation. Since MPS is essentially an input to the system,
MRP could be regarded primarily as a component requirement planning system.
The basis for MRP design is based on a concept of dependent demand and a time
phasing approach. The approach combines
combines three principles:
1. The inventory system deals with dependent demand.
2. Component demand can be precisely determined from the master schedule.
3. The optimum levels of inventory can can be determined by time phasing, i.e.,
segmenting inventory status data by time.
Time phasing means adding the dimension of time to inventory data. The status is
established by recording and storing information on either specific dates or planning
periods with which the inventory are associated. The main aim of time phasing is to
provide answers to questions related to manufacturing inventory management.
It answers all questions related to when the material is required.
6.9.1 Independent versus Dependent Demand

Inventory is also classified according to the type of demand it is meant to serve. The
type of demand determines the methods used to manage the inventory.
Independent Demand
Demand
Independent demand is demand that is not controlled directly by the company, such as
demand from customers.
 Independent demand items usually include finished products, such as different
octane petrol, high speed and low speed diesel, or lubricants manufactured by,
say, BPCL.
 In industrial products, this would also include the replacement parts of the product
that the company sells to customers.
116  Demand for such items is generally independent of a company's own production
Production and
Operation Management plans.
Dependent Demand
 Dependent demand is usually demand for an item that is generated by a
company's own production process. One example would be the different
distillation fractions BPCL produces to manufacture petrol. The fraction obtained
after removing Liquefied Petroleum Gas (LPG) is petrol. Petrol consists of two
components known as light-straight-run naphtha (LSR) and heavy-straight-run
naphtha (HSR). HSR has a low octane rating, unsuitable for direct blending into
high-octane petrol. The molecular structure of this fraction is changed under high
temperature and pressure to provide high octane reformate suitable for petrol
manufacture. LSR has a higher octane rating than HSR and can be blended
directly into petrol. BPCL knows that from each ton of crude, what fractions are
extracted and depending upon the output of the different octane petrol in a given
week, it will then need 'x' amount of distillates and blends that week. Thus, the
demand for distillates and blends depends on the production of petrol.
 The inventory system must deal with dependent demand, i.e., directly related to or
derives from the demand for another inventory item or product. This dependency
may be 'vertical' such as when a component is needed in order to build a
sub-assembly or product, or 'horizontal' as in the case of an attachment or owner's
manual shipped with the product.
 To manage inventory for dependent demand items, companies use Materials
Requirements Planning (MRP).
Let us illustrate the concept with an example of the manufacture of a 'chest of
drawers'. Assume that we have translated the current demand for the 'chest of drawers'
into a master schedule and that they are to be produced in lots of 100 every two
weeks. The bill of materials for a 'chest of drawers' is shown as Table 6.9.
Normally, we can assume that the firm is a multi-product organisation. It not only
manufactures the chest of drawers, but other products as well. It uses its resources,
i.e., workers and machines, for other sizes and designs including the other products,
e.g., chairs and tables, etc. Therefore, we can assume that the chest of drawers will be
produced periodically, in lots. Like the other products in its product range, the firm
will determine the production schedule of this product based on the market demand.
Table 6.9: BOM for a Chest of Drawers
Part Part Qty Thickness Width Length Lumber Bd Ft Cost

Number Description
(Rs.)
A Top 1 3/4 18 1/2 26 4/4 Red 3.8 199.00
Oak
B Sides 2 3/4 18 37 4/4 Red 10.6 427.50
Oak
C Frame rail 4 3/4 1 1/4 24 4/4 Red 1.0 62.50
Oak
D Frame rail 1 3/4 1 1/4 24 1/2 4/4 Red 0.2 120.75
Oak
E Toe kick 1 3/4 3 24 4/4 Red 0.6 41.50
Oak
F Drawer front 3 3/4 8 1/8 24 4/4 Red 4.7 222.15
Oak
Contd…..
G Drawer front 1 3/4 6 3/8 24 4/4 Red 1.2 130.80 117
Oak
H Drawer sides 6 1/2 7 3/4 15 3/4 4/4 Y. 5.8 300.65
Poplar
I Drawer sides 2 1/2 6 15 3/4 4/4 Y. 1.5 60.50
Poplar
J Drawer back 3 1/2 7 3/4 23 1/4 4/4 Y. 4.3 200.20
Poplar
K Drawer back 1 1/2 6 23 1/4 4/4 Y. 1.1 40.00
Poplar
L Web frame 5 3/4 1 1/4 24 4/4 Y. 1.2 70.00
rail Poplar
M Web frame 10 3/4 1 1/4 15 3/4 4/4 Y. 1.6 110.00
end Poplar
Total 37.6 1985.55
There are several alternatives. From the bill of materials, it is apparent that the chest of
drawers can be manufactured as a unit or we can produce enough top, sides, frame
rails, drawer fronts, drawer sides, drawer back, web frames, etc., to assemble
100 chests of drawers every two weeks. However, because set up costs and variable
production costs for the various operations are different, we may be able to produce
more efficiently by considering the manufacture of each component individually. For
example, we might produce 'tops' every four weeks in lots of 800 to match the
requirements of the master schedule.
Let us consider the schedule for producing 'tops' every two weeks in lots of 100 and
'drawers' every four weeks in lots of 800. Because the demand for 'tops' is entirely
dependent on the production schedule for the 'chest of drawers', the time phasing of
the 'drawer' lots with respect to 'top' lots has a very important impact on the in-process
inventory.
Therefore, the problem is not simply to produce 'tops' in lots of 800 every 4 weeks, but
to time phase the production of 'tops' and 'drawers' with respect to the production of
the 'chest of drawers', the primary item. Though the demand for 'chest of drawers' is
dependent on market factors, the production of 'tops' and 'drawers' becomes a
requirement as soon as the 'chest of drawers' production schedule is set. If the proper
time phasing is ignored, the price will be paid in terms of higher in-process inventory
of components for the product.
Also, the components, sub-assemblies and assemblies requirements are not uniform
and consumption is not constant. Therefore, inventory depletion tends to occur in
discrete measures due to lot sizing. Where there are subsequent stages of manufacture,
inventory depletion also depends on the subsequent stages. As the example shows,
dependent demand is not forecasted, as it can be precisely determined from the master
schedule. The requirements are derived directly from the production schedules.
In case of inventory that is subject to both dependent and independent demand, such
as service parts, etc., the independent demand, which is forecast, is added on to the
dependent demand that has been calculated to arrive at the total demand figure.
Techniques of MRP system are expressly designed for dealing with dependent,
discontinuous, non-uniform demand, which is characteristic of manufacturing
environments, although it does assume certain characteristics of the product and of the
process used in its manufacture. When is forecasting applicable? Forecasting is
applicable to the primary demand for the chest of drawers, not to the dependent
components and raw materials.
118
6.9.2 Inputs from Master Production Schedule
Production and
The inputs to the MRP system come from the MPS. The MPS expresses the overall
production plan and the span of time covered by it is termed the planning horizon. The
planning horizon of the MPS usually covers a time span large enough to contain
recurring requirements for a given end item.
In the development of lot requirements, component inventories are allocated according
to the sequence of all the end item lots. The sequence of end item lots affects both the
quantities and the timing of requirements in an MRP system. The MRP deals with this
through level-by-level and time phasing techniques.
A change in end item lot sequence affects not only the timing but also the quantities of
requirements. This may create severe problems because the sequence of the lots of all
products in MPS normally keeps changing. This needs to be kept
kept in mind.
Other System Inputs

In addition to the MPS, the MRP also requires information on,
 Orders for components originating from sources external to the plant using the
system, and
 The forecasts for items subject to independent demand.
The inventory record file is used to obtain information on the status data required for
determination of size and timing of planned orders namely, item lead time, safety
stock (if any), scrap allowances, lot sizing algorithms, etc.
The product structure file (bill of materials) contains information on relationships of
components and assemblies that are necessary to prepare the MRP. Some areas of
special concern are the product structure, the lot sizing and the item lead times. These
are discussed below:
Product Structure
Structure
 In determining net requirements for a low-level inventory item, the quantity that
exists under its own identity, as well as any quantities existing as (consumed)
components of parent items must be accounted for.
 Net requirements are developed by allocating (reallocating) quantities in inventory
to the quantities of gross requirements, in a level-by-level process. The downward
progression from one product level to another is called an explosion.
 The bill of material file guides the explosion process.
Lot Sizing
Lot sizing techniques in MRP are meant to determine planned order quantities. Lot
sizing is also another reason why the top-to-bottom, level-by-level procedure must be
followed. For an MRP to be able to carry out a complete explosion, lot-sizing
algorithms must be incorporated into the computer program that controls the
requirement computation.
 Lot sizing techniques can be categorized into those that generate fixed,
repetitively ordered quantities and those that generate varying order quantities.
 The factors that are generally considered in the design of such techniques include:
 Variability of demand;
 Length of the planning horizon;
 Size of the planning period; and 119
 Ratio of set up and unit costs.
In the more commonly used procedures described below, the first two procedures are
demand-rate oriented; the others are discrete lot sizing techniques.
Fixed Order Quantity (FOQ)

The fixed order quantity policy maintains the same order quantity each time an order
is issued. This may be specified for any item under an MRP system, but in practice is
limited to a few items with high ordering cost. However, this rule is also used when
quantity discounts, truckload capacity or minimum purchase quantities are specified
by suppliers. During the steel control regime in the 1970's, steel could only be ordered
in wagonloads.
Economic Order Quantity

Quantity (EOQ)
This model is a demand rate oriented model and will be discussed in detail in the next
lesson. This technique is unsuited to discrete, discontinuous, non-uniform demand
situations and is generally used for continuous and assembly-line type operations only.
Fixed Period Requirements (FPR)

This is a converse technique to the FOQ; the user specifies how many periods of
coverage every planned order should provide. The ordering interval is specified and
the quantity is allowed to vary.
Period Order Quantity

Quantity (POQ)
It is modified EOQ for use in discrete demand situation. Using the schedule to know
future net requirements, EOQ is computed. Based on this, the number of orders per
year to be placed are determined. Similar to the FPR, the ordering interval is
computed, and supplies are ordered accordingly. A potential difficulty with
discontinuous net requirements could be their distribution. In case where for several
periods (coinciding with ordering interval) there are zero requirements, a
predetermined order interval would prove
prove inoperative.
Lot for Lot Ordering (L4L)

(L4L)
It is the simplest of all the different procedures, though it is a special case of POQ.
It provides period-by-period coverage of net requirements and the planned order
quantity always equals the quantity of net requirements being covered. The projected
on-hand inventory combined with the new order so that it will equal zero at the end of
each period. This technique minimizes inventory-carrying cost, and is suitable for
expensive items, purchased or manufactured, with highly discontinuous demand.
Least Unit Cost

In this technique, the lot size as well as the ordering interval, are allowed to vary. The
set up plus inventory carrying cost per unit is calculated and the requirements to be
covered by the order are based upon the least 'unit cost'. This may turn out to be larger
than required in the planning period. The criteria still remains the lot size with the
least unit cost. The main drawback of the technique is that it considers only one lot at
a time.
Least Total Cost (LTC)

This technique is based on the rationale that sum of the set up and inventory carrying
costs (total cost) for all lots within the planning horizon should be minimized.
120 For items using this criterion the two costs should be as equal as possible. The order
Production and
Operation Management quantities, at which the set up cost per unit and the carrying cost per unit are most
nearly equal, are selected. The measure of the least total cost is the Economic Part
Period (EPP). This is the cost of one unit of the item carried in inventory for one
period, and follows logically from the assumption that the carrying cost of the
inventory item should equal the set-up cost.
EPP = Set up Cost/ Inventory Cost per Unit per Period
This procedure allows the lot size and the ordering interval to vary with time,
depending upon the inventory carrying costs. The technique is generally biased toward
larger order quantities. However, its major drawback is the assumption that least cost
occurs when set up cost and inventory costs are equal.
Wagner-Whitin Algorithm (W-W Method): This algorithm is a dynamic
programming approach to determine optional lot sizes, in discrete, discontinuous and
non-uniform demand situations. The technique minimizes the combined (total) cost of
set up and of carrying inventory and is normally used as a standard for measuring
relative effectiveness of other discrete lot-sizing techniques. However, in the real
world there is little evidence that with changing requirements and planning horizons, a
dynamic programming approach will guarantee optimality.
In recent years, however, several more advanced techniques are available for
determining dynamic optimal lot sizes. The main disadvantages of these techniques
including W-W method are:
1. They require sophisticated software, e.g., sophisticated ERP software to be
effective;
2. As the techniques deal with dynamic programming they are difficult for
for the
average MRP user to understand.
A recomputation of a parent planned order quantity will often mean that component
item open orders have to be rescheduled, in addition to recomputing and/or retiming
planned orders. There is some merit in 'freezing' an order quantity, once established
and only changing its timing as required by changing net requirements.
The planned order quantity determined by any of the lot sizing techniques is subject to
certain adjustments dictated by practical considerations such as:
1. Warehousing and limitations
2. Scrap allowances
3. Multiple usages
4. Raw material wastage and cutting factors, and
5. Coiling constraints in the case of some raw materials.
In some cases, there is a clear direction, for example, where there are significant s et up
costs, POQ, LTC or LUC could provide satisfactory results. However, there does not
appear to be one 'best' lot-sizing algorithm that could be selected for a given
manufacturing environment for a class of items in most cases, even for a single
specific item.
Item Lead Times

The individual inventory item lead times determine the timing of release of orders and
schedules. If the lead time for manufacturing a component or a part is variable, then
stock outs could occur if a batch is not scheduled for production sufficiently in
advance of actual requirements. The effect of item lead time is solved by time
phasing. Positioning the planned order release ahead of the time of the net 121
requirements is called setting the lead-time. The timing of requirements is calculated
and deliveries determined by the lead times supplied to the MRP system. The
requirements are derived from the explosion of the bill of materials and data used in
aligning the requirements and planned order dates.
The computation of requirements is complicated by the factors we have discussed
earlier. One is the structure of the product, containing several manufacturing levels of
materials, component parts and sub-assemblies. The second is lot sizing, i.e., the
ordering of inventory items in quantities exceeding net requirements, for reasons of
economy or convenience. Very often these complications arise because of multiple
requirements for an inventory item due to commonality, i.e., usage in the manufacture
of a number of other items, multiple requirements for an inventory item due to its
recurrence on several levels of a given end items, and the recurrence of requirements
within a time span across a large planning horizon.
Other complicating factors relate to the different individual lead times of inventory
items that make up the product with provisions made for safety lead times, safety
stocks, and buffer stocks. These are discussed below.
 Safety Lead Time: Suppose that 10 per cent of the time, the paint and shop is
behind the schedule and 5 per cent of the time it is ahead of the schedule. Now in
this situation, if management desires that stock outs do not occur even 1 per cent
of the time, then it will need to hold inventory to meet both these possibilities.
This would result in higher inventory holding costs. The determination of lead
time should therefore balance the cost of holding inventory and cost of stock outs.
Attempts should also be made to reduce the variability in lead time by proper
scheduling and coordinated production control systems.
 Safety Stock: In some situations, sales forecast errors, customer order changes,
production variability in upstream departments, adjustment for rejects, scraps, and
the like make it necessary to provide for safety stock. This is needed to guard
against such variability. Safety stock is determined by considering the cost of
stock outs and cost of holding excess inventories. Once a safety stock level is
determined, the lot size policies can be modified to start production when net
requirements fall to the level of the safety stock.
 Buffer Stocks in Requirements Systems: Though dependent items are not subject
to the kinds of random variations in demand that characterize primary product
demand, buffer stocks in requirements systems are designed to absorb random
variations in the supply schedule. The time required for processing orders through
the system often varies due to factors as delays, breakdowns, rejections, scrap and
plan changes. In addition, the actual quantity delivered from production is variable
because of scrap.
Buffer stocks due to the compounding effects of inflated sales forecasts, pessimistic
production lead times, and incorrect ordering, could produce very large raw material
and work-in-process inventories. This defeats the primary purpose of materials
requirements planning systems. Efforts are required in identifying, isolating, and
correcting the causes of these variations so that buffer stocks can be kept at a
minimum just to absorb variations in supply time and in the quantity actually
delivered.
6.9.3 Outputs – The Materials Requirement Plan

The common objective of all MRP systems is to determine (gross and net)
requirements, i.e., discrete period demands for each item of inventory, so as to be able
to generate information needed for correct action in ordering inventory, i.e., relating to
122 procurement and production. The action is either new action (release of an order) or a
Production and
Operation Management revision of previous action. The essential data elements that are required for any
action to be taken are:
1. Item Identity (part number)
2. Order Quantity
3. Date of Order Release
4. Date of Order Completion (due date)
Once the order has been placed, the types of order action that are required when
revising an action taken previously, are limited to the following:
1. Increase in Order Quantity.
2. Decrease in Order Quantity.
3. Order cancellation.
4. Advancement of Order Due Date.
5. Deferment of Order Due Date.
6. Order suspension (indefinite deferment).
MRP systems meet their objective by computing net requirement for each inventory
item. The term component in MRP covers all inventory items other than products or
end items. Requirements for end items are stated in the MPS. The latter are derived
from forecasts, customer orders, field warehouse requirements, interplant orders, etc.
Requirements for all component items (including raw material) and their timings are
derived from the MPS by the system.
After determining the net requirements, these are time phased to ensure their proper
coverage. Therefore, MRP converts the gross requirements into net requirements. The
net requirements are always related to time, i.e., to some date or period. These are
covered by planned orders. Their quantities and timing are determined by any of the
lot sizing techniques. MRP signals, if necessary, the need to reschedule any of these
orders forward or backward in time, so that the net requirements are directly related
and are correctly timed with shop orders and purchase orders. Capacity considerations
are taken into account in determining MPS; this is not the role determined by MRP.
All the inputs received above enable determination of correct inventory status of each
item under the control of MRP. The MPS expresses the overall production plan and
the span of time covered by it. This is termed the planning horizon. Item lead time,
safety stock (if any), scrap allowances, lot-sizing algorithms, etc., are available from
the inventory record file. This is used to determine the size and timing of the planned
orders. The product structure file contains information on relationships of components
and assemblies. The MRP system uses these inputs to provide a number of important
outputs. These outputs can be classified as primary and secondary outputs. The
primary outputs of an MRP system are:
1. Order-release notices: These determine the orders that need to be placed and the
system makes the call for placement of planned order.
2. Rescheduling notices: Based on the feedback from manufacturing, it firms up
requirements on open order due dates.
3. Cancellation notices: Wherever necessary, it calls for cancellation or suspension
of open orders.
4. Item status analysis: It provides back-up data on the item. The output of the MRP 123
includes the following information: (a) Requirements, (b) Coverage of
requirements, and (c) Product structure.
5. Planned orders: It identifies factors considered for planning and on that basis
schedules for releases of notices in the future.
The system is also capable of providing to provide a number of secondary outputs.
Apart from the primary outputs an MRP System can be used for:
1. Inventory order action
2. Re-planning order quantities
3. Safeguarding priority integrity
4. Performance control, and
5. Reporting errors, incongruities and out-of-bounds situations in the system
Some of the secondary outputs that can be provided by the MRP system are:
1. Exception notices reporting errors, incongruities, and out-of-bound situations
2. Inventory level projections
3. Purchase commitment reports
4. Tracing demand sources
5. Performance reports
An MRP system that is properly designed, implemented and used will also contain
valid and timely information that can assist in the functioning of the organisation on
three separate levels:
1. Planning and control of inventories.
2. Planning of 'open order' priorities.
3. Inputs to the capacity requirements planning system.
Priority Planning
The validity and integrity of shop scheduling, loading, despatching and job
assignments are based on operational priorities. The priorities in a MRP system are
derived from the MPS. Each shop order entails a number of operations that must be
performed to complete the order. In order to complete these operations, there are
priorities in two areas:
1. Order priority.
2. Operation priority.
Where there are valid open-orders, priority planning and priority control are the basis
for decisions on due dates, re-planning of order quantities and releases of schedules in
the future. But to be valid, they must derive from valid order priorities, i.e., valid order
due date. An MRP system has the capability to establish valid order priorities at the
time of order release and maintain them up-to-date and valid.
In priority assignment and updating, the concept of dependent priority is very useful.
The 'dependent priority' concept recognizes that the real priority of an order depends
on the time of order completion and the availability of all inventory items that are
required not only for the operation but also for previous operations. This can be
thought of as vertical priority dependence. Due date-oriented priority ratios have been
developed and are being used successfully in many MRP systems.
created opportunities for buyers, sellers, and new intermediaries to create value in 137
Enterprise Resource Planning
electronic channels. It offers enormous opportunities for both developed and
modernizing countries alike.
Table 7.1: Scope of E-commerce
Business-to-business Services Business-to-consumer Services

Traditional E-commerce Messaging services
• EDI and EFT • E-mail
• Messaging/E-mail • Fax
• Fax
Online Information services, Online information services,
eg Lexis-Nexis e.g. America Online, CompuServe
Electronic marketplace/transactions, Electronic marketplaces/transactions, e.g.
e.g. industry, Net, electronic malls Internet home shopping
Examples of the application of e-commerce are shown in Table 7.1. E-commerce

means more choices, convenience and lower prices for consumers. It also provides
new ways for businesses to grow and meet customer needs, and important benefits and
cost-savings for governments and the people they serve. Its growth has been
phenomenal. In 2000, the total investment in infrastructure exceeded $200 billion. By
2002, global revenues associated with electronic commerce had crossed $500 billion.
This investment and growth is attributed to the value created by B2B marketplaces to:
 Expand everyone's market reach.
 Generate lower prices for buyers from the ability of buyers to reach more
suppliers or the most efficient supplier and from increased price competition and,
in some cases, access to surplus inventory stocks,
 Cut the cost of the buyers' operations by providing services that significantly
reduce the cost of B2B procurement processes, which traditionally consume much
staff time and effort, and
 Finally, help these marketplaces identify industry’s best practices.
The first wave of e-commerce was the establishment of independent online companies
such as Paper Exchange and E-Steel who used a readily understood business model—
charge a small fee for matching up buyers and sellers. By some estimates, more than
1,000 such E-marketplaces – for products that ranged from commodities such as
lumber to specialized components such as airplane parts – managed to receive
funding.
These marketplaces were initially designed to reduce bid-ask spreads and to bring
down transaction costs by matching buyers with suppliers and enabling suppliers to
trade with one another—the very kinds of procurement-based benefit that would be
expected of an efficient marketplace. Most independent, fee-based marketplaces could
not provide real economic value as they were not able to achieve scale volumes.
As volumes can be achieved only if suppliers and buyers invest to integrate their
systems and to manage the change process actively in their buying organisations, in
the second wave of B2B, large incumbents took matters into their own hands, banding
together into consortia with their current trading partners and competitors. During the
year 2000, an estimated $10 billion investment in B2B was made for public consortia-
backed e-marketplaces alone. This included GM-Ford-Daimler Chrysler who banded
together into consortia with their current trading partners and competitors, a joint
venture now called Covisint. Other well-known examples include Forest Express and
Aero Exchange International, in the forest products and airline industries, respectively.
138 There are three types of traditional B2B marketplaces:
Production and
Operation Management  Controlled by sellers,
 Controlled by buyers, and
 Controlled by neutral third parties.
Marketplaces controlled by sellers are usually set up by a single vendor seeking many
buyers. Its aim is to create or retain value and market power in any transaction. For
example, Cisco Systems has set up a corporate website that enables buyers to
configure their own routers, check lead times, prices, and order and shipping status,
and confer with technical experts. The site generates $3 billion in sales a year.
Marketplaces controlled by buyers are set up by or for one or more buyers with the
aim adding value to the buyer and providing negotiating power. Many involve an
intermediary, but some buyers have developed marketplaces for themselves. For
example, Japan Airlines, a big purchaser of in-flight consumable items such as plastic
rubbish bags and disposable cups, posts procurement notices online in order to find
the most attractive suppliers.
Marketplaces controlled by neutral parties involve third-party intermediaries who
match many buyers to many sellers. For example, Fast Parts is one such intermediary.
It operates an anonymous spot market for the trading of overstocked electronic
components. It receives notice of available stock from sellers, and then matches
buyers to sellers at an online auction. Sellers get higher prices than they would
through a traditional broker; buyers get market-driven prices that are lower than
brokers', plus guaranteed quality because Fast Parts inspects the products; and Fast
Parts earns up to 8 per cent commission. All parties benefit.
7.11 THIRD-WAVE B2B MARKETPLACE MODELS

Using a different classification, Mckinsey in a survey identified five distinct
E-marketplace models that differ in the services they provide. The classification is
based on the focus and the capabilities that the e-marketplace delivers. Two of the
models focus on collecting and distributing information, three on bringing down
purchase costs and improving transactional efficiencies. The classification is as
follows:
 Liquidity Creators: Create liquid dynamic markets between commodity products
traded between buyers and sellers.
 Supply Consolidators: Identify relevant supply base and conduct purchases.
 Project/Specification Managers: Aid in planning and managing complex projects
or processes.
 Transaction Facilitators: Transact and execute purchases.
 Aggregators: Combine demand within and across buying enterprises to use the
resulting market power to achieve lower prices from suppliers.
139
Figure 7.1: Different Types of E-marketplace Models
Marketplaces that exemplify the information-based model help buyers and suppliers
cut costs by helping to set appropriate specifications and by streamlining interactions
among the parties constituting the value chains. They can also help them collaborate
on design and other high-value decisions. Marketplaces for supply consolidators offer
search capabilities based on different parameters as well as price data. This
information helps customers trade-off cost against quality. Both project/specification
managers and supply consolidators develop and control information that would be
very hard to duplicate; in addition, supply consolidators offer highly customized,
difficult-to-replicate tools.
A new model used by aggregators is that of the "e-distributor". Like distributors in the
off-line world, e-distributors take title to the goods they sell, and aggregate those
goods for the convenience of buyers. In addition, E-distributors perform a critical
service for sellers by reaching hard-to-find buyers, such as small ones. The result, in
many cases, is significant extra value for buyers and decent profits for sellers.
The marketplaces based on the other three models – for liquidity creators, aggregators,
and transaction facilitators – focus on benefits such as reducing waste and supplier
margins and increasing the efficiency of transactions. For example, TPN Register, a
joint venture between GE Information Services and Thomas Publishing, grew out of
an initiative within GE Lighting to consolidate purchases. It was then extended across
buyers and sellers. Such marketplaces might even help buyers and sellers partially 141
integrate their operations, allowing them to improve their supply chains, and to work
jointly on product designs, as is already apparent from developments like world-wide
sourcing. The unifying feature of collaboration on this model is the sharing of real
time information and building sustainable partnerships.
Benefits of E-business
E-business
 ‘Consumer-centric’ as opposed to ‘production-centric’ collaborating with
consumers to identify their needs and then provide tailored solutions using holistic
business approaches rather than discrete functions.
 E-business allows true collaboration with customers, leading eventually to mass
customization in which the customer is an active player in the design of products
and services. It also allows collaboration with suppliers through the sharing of
data and information.
 Interoperability not only between a firm’s internal systems, but also those of its
partners both inside and outside its industry (in the supply
supply network).
 Disintermediation (cutting out the middle man) as a means to bypass channel
partners to remove sales and infrastructure cost and increase speed of response.
response.
 An enabling device for Customer Relationship Management (CRM) that can
record customers purchasing activities and preferences, problems and other
information that can be used in determining individual current and future needs
and values. This in turn will
w ill allow one-to-one marketing, knowledge management,
e-analytics (or data mining) and better customer support.
 Improved lower-cost information flows that make buyers and sellers more
knowledgeable and can drive down industry costs.
 Low industry entry cost.
 Increased information sharing.
 Increased availability, both geographically and time of day.
 Information availability expanding the market for buyers and sellers.
 Reduction in cost of creating, processing, distributing, storing and retrieving
information.
 Reduction in cost of communication.
 Richer communication flows than traditional media.
 Fast delivery of digitized products.
 Faster delivery of digitized products.
 Faster ordering of goods.
 Increased flexibility of locations from which service can be provided or purchase
made.
 Less paper work, fewer manual processes, instant availability of information,
reduced transaction costs and quicker cycle times.
Limitations of E-business
 Lack of system security, flexibility and standards
 Lack of privacy
 Insufficient band width slowing many transactions.
142  Back end systems for fulfillment still rely on traditional methods and are thus
Production and
Operation Management slow compared with front end ordering.
 Integrating e-business software with existing systems and databases remains a
problem.
 Lack of trust in (a) unknowns at the other end of transaction, (b) integrity of the
transaction itself, and (c) electronic money that is in reality only bits and bytes.
Fill in the blanks:
1. The step beyond integrating
integrating internal ERP systems with immediate
immediate
customers and suppliers is to integrate all the ERP and similar systems
along a ………………………………...
2. The Theory of Constraints (TOC) has been developed to focus attention
on the ………………………… constraints or bottleneck parts of the
operation.
3. OPT is a computer-based technique and tool which helps to schedule
……………………….. to the pace dictated by the most heavily loaded
resources, that is, bottlenecks.
4. A bottleneck should never be allowed to be working at less than
…………………………… therefore, inventory buffers should be placed
before it to ensure that it never runs out of work.
5. Marketplaces controlled by sellers are usually set up by a single
……………………………. seeking many buyers.
7.13 LET US SUM UP

This lesson has presented the final strategy application. Here, it was suggested that
those organisations adopting elements of e-business will benefit from the adoption of
an operations strategy for those particular business processes. We also briefly,
discussed the latest conceptual research suggesting an operations strategy may also
prove a useful policy deployment vehicle – an interface betw een business strategy and
tactical and daily activities. In other words, as with continuous improvement
initiatives, a method by which to cascade the business strategy throughout the daily
operations of the firm.
7.14 GLOSSARY
Enterprise Resource Planning (ERP): The integration of all significant resource
planning systems in an organisation that, in an operations context, integrates planning
and control with the other functions of the business.
Web-integrated ERP: Enterprise resource planning that is extended to include the
ERP type systems of other organisations such as customers and suppliers.
Theory of Constraints (TOC): Philosophy of operations management that focused
attention on capacity constraints or bottleneck parts of an operation; uses software
known as optimized production technology (OPT).
Optimized Production Technology (OPT): Software and concept originated by
Eliyahu Goldratt to exploit his theory of constraints (TOC).
E-business: the use of internet-based technologies either to support existing business
processes or to create entirely new business opportunities.
143
CYP 1
1. performance
2. achieve
3. ensure
4. costs
5. staff
CYP 2
1. supply chain
2. capacity
3. production systems
4. full capacity
5. vendor

Curran, T., Keller, G. and Ladd, A., Business Blueprint: Understanding SAP’s R/3 Reference
Model , Prentice Hall, NJ. A practitioner’s guide, 1998
Davenport, T.H., Putting the Enterprise into the Enterprise System, Harvard Business Review,
July–August, 1998
Vollmann, T.W., Berry, D.C., Whybark, F.R. and Jacobs, F.R., Manufacturing Planning and
Control Systems for Supply Chain Management: The Definitive Guide for Professionals,
McGraw-Hill Higher Education, 2004
Wallace, T.F. and Krezmar, M.K., ERP: Making it happen, Wiley. Another practitioner’s
guide but with useful hints on the interior mechanisms of MRP, 2001
7.16 QUESTIONS
1. Distinguish between e-business and e-commerce.
2. What are the benefits and limitations of
of e-business?
3. What are the main impacts of e-business on an operations
operations strategy?
4. How can an operations strategy provide
provide a method by which to deploy policies
throughout the organisation?
145
Production and
Operations Planning
Unit III
Planning and Forecasting
146
Production and
147
LESSON Production and
Operations Planning
8
PRODUCTION AND OPERATIONS PLANNING
STRUCTURE
8.0 Objectives
8.1 Introduction
8.2 Strategic Planning
8.2.1 Strategic Analysis
8.2.2 Setting Strategic Direction
8.2.3 Action Planning
8.2.4 Situational Analysis
8.2.5 Goals, Objectives and Targets
8.2.6 Mission Statements and Vision Statements
8.2.7 Basic Approach to Strategic Planning
8.3 Tactical Planning
8.4 Operational Planning
8.5 Aggregate Planning
8.5.1 Aggregate Planning Strategies
8.5.2 Techniques for Aggregate Planning
8.5.3 Mathematical Approaches to Aggregate Planning
8.5.4 Aggregate Planning in Services
8.6 Capacity Planning
8.6.1 Long-term Capacity Planning
8.6.2 Short-term Capacity Planning
8.6.3 Capacity Planning Techniques
8.7 Let us Sum up
8.8 Glossary
8.10 Questions
8.0 OBJECTIVES
 Explain the meaning and significance of strategic planning in production and
operations
 Discuss the steps involved in making strategic plans
148  Explain the meaning and significance of tactical planning
Production and
Operation Management  Discuss the components of operational planning in regard to production and
operations
 Explain the concept of aggregate planning in production and operations
 Explain the meaning of capacity planning and techniques of capacity planning
8.1 INTRODUCTION
The planning process within an organisation is dynamic and continuous. It is nothing
but deciding future courses of action of the organisation well in advance so that
executives at different level will play their role as per these guidelines. In any
organisation, the following type of decisions are taken.
 Strategic decisions which are taken at top level management.
 Tactical decisions which are taken at middle level management.
 Operational decision which are taken at bottom level management.
8.1 STRATEGIC PLANNING

Simply put, strategic planning determines where an organisation is going over the next
year or more and how it's going to get there. Typically, the process is organisation-
wide, or focused on a major function such as a division, department or other major
function. (The descriptions on this page assume that strategic planning is focused on
the organisation.)
Strategic planning is an organisation's process of defining its strategy, or direction,
and making decisions on allocating its resources to pursue this strategy, including its
capital and people. Various business analysis techniques can be used in strategic
planning, including SWOT analysis (Strengths, Weaknesses, Opportunities, and
Threats ) and PEST analysis (Political, Economic, Social, and Technological analysis)
or STEER analysis involving Socio-cultural, Technological, Economic, Ecological,
and Regulatory factors and EPISTEL (Environment, Political, Informatics, Social,
Technological, Economic and Legal).
Strategic planning is the formal consideration of an organisation's future course.
All strategic planning deals with at leas t one of three key questions:
 "What do we do?"
 "For whom do we do it?"
 "How do we excel?"
In business strategic planning, the third question is better phrased "How can we beat
or avoid competition?"
In many organisations, this is viewed as a process for determining where an
organisation is going over the next year or more -typically 3 to 5 years, although some
extend their vision to 20 years. In order to determine where it is going, the
organisation needs to know exactly where it stands, then determine where it wants to
go and how it will get there. The resulting document is called the "strategic plan". It is
also true that strategic planning may be a tool for effectively plotting the direction of a
company; however, strategic planning itself cannot foretell exactly how the market
will evolve and what issues will surface in the coming days in order to plan your
organisational strategy. Therefore, strategic innovation and tinkering with the
'strategic plan' have to be a cornerstone strategy for an organisation to survive the 149
Production and
turbulent business climate. Operations Planning
Planning typically includes several major activities or steps in the process. Different
people often have different names for these major activities. They might even conduct
them in a different order. Strategic planning often includes use of several key terms.
Different people might use apply different definitions for these terms, as well.
One interpretation of the major activities in strategic planning activities is that it
includes:
8.2.1 Strategic Analysis

This activity can include conducting some sort of scan, or review, of the organisation's
environment (for example, of the political, social, economic and technical
environment). Planners carefully consider various driving forces in the environment,
for example, increasing competition, changing demographics, etc. Planners also look
at the various strengths, weaknesses, opportunities and threats (an acronym for this
activity is SWOT) regarding the organisation.
Some people take this wide look around after they've identified or updated their
mission statement, vision statement, values statement, etc. Other people conduct the
analysis before reviewing the statements.
Note: that in the past, organisations usually referred to the phrase "long-range
planning". More recently, planners use the phrase "strategic planning". This new
phrase is meant to capture the strategic (comprehensive, thoughtful, well-placed)
nature of this type of planning.
8.2.2 Setting Strategic Direction

Planners carefully come to conclusions about what the organisation must do as a result
of the major issues and opportunities facing the organisation. These conclusions
include what overall accomplishments (or strategic goals) the organisation should
achieve, and the overall methods (or strategies) to achieve the accomplishments. Goals
should be designed and worded as much as possible to be specific, measurable,
acceptable to those working to achieve the goals, realistic, timely, extending the
capabilities of those working to achieve the goals, and rewarding to them, as well. (An
acronym for these criteria is "SMARTER".)
At some point in the strategic planning process (sometimes in the activity of setting
the strategic direction), planners usually identify or update what might be called the
strategic "philosophy". This includes identifying or updating the organisation's
mission, vision and/or values statements. Mission statements are brief written
descriptions of the purpose of the organisation. Mission statements vary in nature from
very brief to quite comprehensive, and including having a specific purpose statement
that is part of the overall mission statement. Many people consider the values
statement and vision statement to be part of the mission statement. New businesses
(for-profit or nonprofit) often work with a state agency to formally register their new
business, for example, as a corporation, association, etc. This registration usually
includes declaring a mission statement in their charter (or constitution, articles of
incorporation, etc.).
It seems that vision and values statements are increasingly used. Vision statements are
usually a compelling description of how the organisation will or should operate at
some point in the future and of how customers or clients are benefitting from the
organisation's products and services. Values statements list the overall priorities in
how the organisation will operate. Some people focus the values statement on moral
values. Moral values are values that suggest overall priorities in how people ought to
150 act in the world, for example, integrity, honesty, respect, etc. Other people include
Production and
Operation Management operational values which suggest overall priorities for the organisation, for example,
to expand market share, increase efficiency, etc. (Some people would claim that these
operational values are really strategic goals. Don't get hung up on wording for now.)
8.2.3 Action Planning

Action planning is carefully laying out how the strategic goals will be accomplished.
Action planning often includes specifying objectives, or specific results, with each
strategic goal. Therefore, reaching a strategic goal typically involves accomplishing a
set of objectives along the way — in that sense, an objective is still a goal, but on a
smaller scale.
Often, each objective is associated with a tactic, which is one of the methods needed
to reach an objective. Therefore, implementing a strategy typically involves
implementing a set of tactics along the way — in that sense, a tactic is still a strategy,
but on a smaller scale.
Action planning also includes specifying responsibilities and timelines with each
objective, or who needs to do what and by when. It should also include methods to
monitor and evaluate the plan, which includes knowing how the organisation will
know who has done what and by when.
It's common to develop an annual plan (sometimes called the operational plan or
management plan), which includes the strategic goals, strategies, objectives,
responsibilities and timelines that should be done in the coming year. Often,
organisations will develop plans for each major function, division department, etc.,
and call these work plans.
Usually, budgets are included in the strategic and annual plan, and with work plans.
Budgets specify the money needed for the resources that are necessary to implement
the annual plan. Budgets also depict how the money will be spent, for example, for
human resources, equipment, materials, etc.
Note: there are several different kinds of budgets. Operating budgets are usually
budgets associated with major activities over the coming year. Project budgets are
associated with major projects, for example, constructing a building, developing a new
program or product line, etc. Cash budgets depict where cash will be spent over some
near term, for example, over the next three months (this is very useful in order to
know if you can afford bills that must be paid soon). Capital budgets are associated
with operating some major asset, for example, a building, automobiles, furniture,
computers, etc.
8.2.4 Situational Analysis

When developing strategies, analysis of the organisation and its environment as it is at
the moment and how it may develop in the future, is important. The analysis has to be
executed at an internal level as well as an external level to identify all opportunities
and threats of the external environment as well as the strengths and weaknesses of the
organisations.
There are several factors to assess in the external situation analysis:
1. Markets (customers)
2. Competition
3. Technology
4. Supplier markets
5. Labor markets 151
Production and
6. The economy Operations Planning
7. The regulatory environment

It is rare to find all seven of these factors having critical importance. It is also
uncommon to find that the first two – markets and competition – are not of critical
importance.
Analysis of the external environment normally focuses on the customer. Management
should be visionary in formulating customer strategy, and should do so by thinking
about market environment shifts, how these could impact customer sets, and whether
those customer sets are the ones the company wishes to serve. Analysis of the
competitive environment is also performed, many times based on the framework
suggested by Michael Porter.
8.2.5 Goals, Objectives and Targets

Strategic planning is a very important business activity. It is also important in the
public sector areas such as education. It is practiced widely informally and formally.
Strategic planning and decision processes should end with objectives and a roadmap
of ways to achieve those objectives.
The following terms have been used in strategic planning: desired end states, plans,
policies, goals, objectives, strategies, t actics and actions. Definitions vary, overlap and
fail to achieve clarity. The most common of these concepts are specific, time bound
statements of intended future results and general and continuing statements of
intended future results, which most models refer to as either goals or objectives
(sometimes interchangeably).
One model of organising objectives uses hierarchies. The items listed above may be
organised in a hierarchy of means and ends and numbered as follows: Top Rank
Objective (TRO), Second Rank Objective, Third Rank Objective, etc. From any rank,
the objective in a lower rank answers to the question "How?" and the objective in a
higher rank answers to the question "Why?" The exception is the Top Rank Objective
(TRO): there is no answer to the "Why?" question. That is how the TRO is defined.
People typically have several goals at the same time. "Goal congruency" refers to how
well the goals combine with each other. Does goal A appear compatible with goal B?
Do they fit together to form a unified strategy? "Goal hierarchy" consists of the
nesting of one or more goals within other goal(s).
One approach recommends having short-term goals, medium-term goals, and
long-term goals. In this model, one can expect to attain short-term goals fairly easily:
they stand just slightly above one's reach. At the other extreme, long-term goals
appear very difficult, almost impossible to attain. Strategic management jargon
sometimes refers to "Big Hairy Audacious Goals" (BHAGs) in this context. Using one
goal as a stepping-stone to the next involves goal sequencing. A person or group starts
by attaining the easy short-term goals, then steps up to the medium-term, then to the
long-term goals. Goal sequencing can create a "goal stairway". In an organisational
setting, the organisation may co-ordinate goals so that they do not conflict with each
other. The goals of one part of the organisation should mesh compatibly with those of
other parts of the organisation.
166 The production-planning process typically begins with an updated sales forecast
Production and
Operation Management covering the next 6 to 18 months. Any desired increase or decrease in inventory or
backlog levels can be added or subtracted, resulting in the production plan. However,
the production plan is not a forecast of demand. It is planned production, stated on an
aggregate basis. An effective production-planning process will typically utilise
explicit time fences for when the aggregate plan can be changed (increased or
decreased). Also, there may be constraints on the degree of change (amount of
increase or decrease).
The production plan also provides direct communication and consistent dialogue
between the operations function and upper management, as well as between
operations and the firm's other functions. As such, the production plan must
necessarily be stated in terms that are meaningful to all within the firm, not just the
operations executive. Some firms state the production plan as the dollar value of total
input (monthly, quarterly, etc.). Other firms may break the total output down by
individual factories or major product lines. Still other firms state the plan in terms of
total units for each product line. The key here is that the plan be stated in some
homogeneous unit, commonly understood by all, that is also consistent with that used
in other plans.
8.8 GLOSSARY
Capacity: For a process or activity, the maximum throughput that can be sustained.
Acquisition: Typically the purchase of a company or a significant business asset.
In the defense industry, acquisition means the purchase of products and systems.
Backlog: The amount of actual demand, orders or contracts that are in the pipeline for
future sales. Can be expressed in units of production time or dollars.
Aggregate planning: A term used to mean medium-range operations planning. A first
rough-cut approximation at determining how existing resources of people and
facilities should be used to meet projected demand.
CYP 1
1. capital
2. future
3. priorities
4. strategic
5. time-independent
CYP 2
1. actions
2. delivery
3. optimal
4. orders
5. operations
167
8.9 SUGGESTED READINGS Production and
Operations Planning
Chase, R. B., Aquilano, N. J., Jacobs, F.R., Production and Operations Management;
Meredith, J. R. and Shafer, S. M., Operations Management for MBAs, J. Wiley, 2002.
Slack, N. and Lewis, M., Operations Strategy, Prentice Hall, 2003.
Slack, N. et al., Operations Management , Prentice Hall, 2001.
Taylor, Bernard W., Introduction to Management Science, Prentice Hall, 1996.
Tersine, Richard J., Production/Operations Management , North-Holland, 1985.
Vollmann, T. E., Berry W. L., and Whybark, D. C., Manufacturing Planning and Control
Systems, Richard D. Irwin, Inc..
Waters, C.D.J., An Introduction to Operations Management , Addison-Wesly, 1991.
Waters, D., A practical introduction to management science, 2nd, Addison-Wesly, 1998.
8.10 QUESTIONS
1. What is strategic planning and how is it useful in making production and
operations decisions?
2. What do you mean by tactical planning?
3. Explain the steps in aggregate planning?
4. What do you mean by capacity planning? Explain the fundamentals of long term
and short-term capacity planning.
5. Explain the techniques of capacity planning techniques.
168
Production and
LESSON
9
PRODUCT AND PRODUCT DESIGN
STRUCTURE
9.0 Objectives
9.1 Introduction
9.2 Typology of Products
9.3 Product Lifecycle
9.4 Technology Lifecycle
9.4.1 Product Lifecycle and Technology Lifecycle
9.5 Product Development Process
9.5.1 Product Development
9.5.2 Detailed Engineering Design
9.5.3 Physical Evaluation
9.5.4 Product and Process Development
9.6 Applications of CAD
9.6.1 Fields of Use
9.6.2 History
9.6.3 Software Providers Today
9.6.4 Capabilities
9.6.5 Software Technologies
9.6.6 Hardware and OS Technologies
9.7 Expert System
9.7.1 Building Blocks of Expert Systems
9.7.2 Applications of Expert Systems
9.7.3 Benefits to End Users
9.7.4 Expert Systems Business
9.8 Standardisation Group Technology (GT)
9.9 Product Research and Development
9.10 Let us Sum up
9.11 Glossary
9.13 Questions
169
9.0 OBJECTIVES Product and Product Design

 Differentiate between the typology of products: goods, services and contracts
 Explain the concept of product lifecycle and technology lifecycle in the
development of new products
 Describe the World Bank model on the organisation's technological capabilities
 Explain the different stages of the product development cycle
 Discuss the factors that one needs to look into while determining the product
architecture
 Explain the concepts involved in Design for Manufacturability (DFM) and Value
Analysis/Value Engineering
9.1 INTRODUCTION
Product decisions often make or break companies. Studies indicate that nearly two out
of three new products fail after launch. In addition, companies in many sectors are
under continual pressure to speed up the pace of product development—even to adapt
products that are still in the pipeline to the demands of a constantly changing
marketplace. This lesson will discuss product design and process selection, which are
crucial areas in operations management.
9.2 TYPOLOGY OF PRODUCTS

Operations Management is fundamental to an organisation's achievement of its
mission and competitive goals. It is involved in creating value in the products.
Products can be tangible or intangible. Tangible products are called 'goods', while
intangible products include 'services' and 'contracts'. These are collectively referred to
as products.
Effective Operations Management is critical for organisations that provide goods as
well as to organisations that provide services and contracts. A firm's success or failure
can depend on how it manages operations on a daily basis.
Goods: are tangible items that are usually produced in one location and purchased in
another. They can be transferred from one place to another and stored for purchase by
a consumer at a later time. Examples of goods are products such as cars, washing
machines, televisions, packaged foods, etc.
Services: are intangible products that are consumed as they are created. Services now
dominate the economies of most industrialized nations. Service organisations include
hotels, hospitals, law offices, educational institutions, and public utilities. They
provide such services as a restful and satisfying vacation, responsive health care, legal
defence, knowledge enrichment, and safe drinking water.
Services also include 'back-office' support for internal customers of an organisation,
such as IT support, training, and legal services. Services take place in direct contact
between a customer and representatives of the service function.
Customer contact is a key characteristic of services. A high quality of customer
contact is characteristic of a good service organisation. This is vital to retain current
customers as well as for attracting new ones. Most service organisations, though they
seldom carry finished inventory, do have supporting inventory. Hospitals keep drugs,
170 surgical supplies, emergency supplies and equipment spares; banks have forms,
Production and
Operation Management cheque books, and other supplies.
Contracts: are business exchanges in which neither services nor goods are transferred;
instead, there is an implicit understanding between the customer and the provider that
goods and services will be provided on an 'as needed' basis. With a contract, the
customer pays a fee and is then entitled to manufactured goods or services. Many
goods and services are now evolving into contracts.
Historically, manufacturing organisations have operated tertiary and often secondary
activities on contracts. Today, many businesses are increasingly moving to contract-
based transactions. For example, Internet and Applications Service Providers (ASPs);
security organisations; maintenance, health care and many other businesses design
their operations based on contracts.
Service and contracts require more attention and better planning than manufacturing.
A manufacturing defect can always be reworked before despatch. Service, however,
occurs in the presence of the service provider, making it difficult to manage capacity
and control quality since inventory cannot be stored and inspected prior to the service
encounter. Contractual transactions can be even more complicated. The complication
arises because it is difficult to enhance capacity overnight and all customers may
choose to exercise their options at the same time.
Many recent thinkers have suggested that most manufacturing firms are better off
thinking of their output in terms of the service bundle they provide to the customer.
For example, Mercedes has announced that it is developing a system that will connect
the car's software via the Internet to a customer assistance center. This system will be
able to detect, diagnose and repair the problem.
Another example is Xerox. It has 'redefined' its product as facilitating communications
rather than just selling copy machines. In its strategy to be the 'Document Company',
Xerox now offers products that can copy handwritten documents, convert them to
electronic form, and e-mail them. Such products have allowed Xerox to increase the
services related to document management in its output bundle. This type of transition
creates significant challenges for Operations Management.
Today, organisations are increasingly trying to grow their presence in the market and
earn a competitive edge over competition by mixing goods, services and contracts.
This brings in a number of permutations and combination, significantly changing the
landscape of operations.
Table 9.1: Comparison among Goods, Services and Contracts
Operations Factors Goods Services Contracts
Value Value is provided by Value is provided by Value is provided by

physical processing
processing availability of the the promise
during manufacturing. service, leading to (guarantee) of
sensory or availability of a
psychological
psychological product or service
satisfaction. when the contract is
exercised.
Tangibility Goods are tangible; Services are intangible; Intangibility is often

specifications are operational accompanied by an
easily defined; and characteristics
characteristics are absence of customer
goods can be inspected difficult to specify; and presence for
for long
for quality. services cannot be periods of time.
time.
inspected for quality
prior to consumption.
consumption.
Contd….
171
Process design Manufacturing can be The service process The process must be
Product and Product Design
isolated from the must be designed to designed to
customer and designed occur in the presence of accommodate batches
for efficiency. the customer. and surges in demand.
Inventory Products can be stored Services are consumed Many operations can
for later consumption as they are created. be conducted
conducted “off-
line”, or not in the
presence of the
customer.
Capacity Manufacturing Capacity must be Capacity must be

capacity can be designed for maximum flexible to
designed for average demand. accommodate periods
demand. of low and high
demand.
Quality Manufacturing Consistency of human Quality is perceived

processes can
can achieve
achieve a performance
performance is more only when the option
high level of precision difficult to maintain; is exercised, and may
and repeatability.
repeatability. customer perceptions be influenced
influenced by time
are subjective and availability.
Location Facilities can be Service facilities must Centralization and

located to minimize be located near
near the economies of scale are
operations and customer. more likely.
transportation costs.
Table 9.1 summarizes some key differences and operational consequences among
goods, services, and contracts across several factors that shape operational decisions in
organisations.
9.3 PRODUCT LIFECYCLE

The product lifecycle model is a simple representation of the cumulative impact of
changes in the business environment on the life of a manufactured product. It is an
important management tool to understand the product and its finite lifespan and
develop the understanding of the situation so that strategies for survival and growth
can be effectively advanced.
A product category goes through four stages of development.
Stage 1: Product Introduction

Introduction Stage
During this stage, the product is new to the market and the consumers have to be
motivated to try and accept the product. This is a stage when the product volumes are
low and profit is normally down.
Stage 2: Growth Stage

Stage
As the product finds market acceptance, it goes into the growth stage. During this
period, there is an exponential growth of the volumes accepted by the market. New
competitive products are introduced and there is a significant change in the product
features due to continuous improvements.
Stage 3: Maturity Stage

The third stage or the maturity stage sees the product as an established product and the
demand and quality of the product does not undergo much change. However, this is
the stage of cut-throat competition, with competitors competing on the basis of
providing value to the product.
172 Stage 4
Production and
Operation Management In this stage, new product categories are introduced into the market that provide better
value to the consumer for that particular need or there is a change in the needs of the
consumer.
Figure 9.1: Product Lifecycle
A number of factors impact the product category when it is introduced. Factors that
impact the introduction stage of consumer products positively are:
1. Relative Advantage
2. Compatibility (values and experience of adopters)
3. Divisibility (ability
(ability to try on a limited basis)
4. Communicability, i.e., ability to describe advantages.
Factors that impinge negatively are:
1. Complexity
2. Perceived Risk
In the case of industrial products, though the principles involved are similar, the
mechanism by which it works is different. It has been found that the rate of diffusion
in industrial markets, during the 'introduction stage', is related to the competitive
intensity of the supplier industry, the reputation of the supplier industry, and the
vertical co-ordination between supplier and adopter industries.
9.4 TECHNOLOGY LIFECYCLE

Statistical regularities show that the product lifecycle can be used to forecast the way
the product attributes, demand, production and competition will change as the product
matures. A related and more useful concept is the technological lifecycle. This links
market growth and technology.
173
Figure 9.2: Technology Lifecycle
It has been seen that technological change generally follows the course described by
the 'technology lifecycle' graph. By plotting the market volume over time for any
industry, one can identify the changes in the industry. This is called technological
aging of the industry. This exercise can be carried out both for the product as well as
the process and has been depicted in Figure 9.2. When a new industry based on new
technology is begun, there will come a point in time that one can mark as the inception
point of the technology.
Lets us discuss the various phases of technological aging/lifecycle by taking up the
example of the automobile industry. In 1887, Gottlieb Daimler manufactured the first
gasoline-powered automobile.
Phase I - Technology Development

Development
 Then the first technological phase begins with the rapid development of the new
technology. This phase is called the Technology Development phase. In the case
of the automobile, it would be from 1887 to 1902, as experiments with steam,
electric and gasoline powered vehicles were conducted.
 This is an exciting time, because product improvements continue and improved
processes for producing cheaper, better products
products are innovated.
 This is the time of eliminating weak competitors. For example, in 1909 there were
69 auto-manufacturing firms in USA. Only half the firms survived by 1916.
Phase II - Applications Launch

 This phase is the creative period of product experimentation. This lasts till the
time a standard design has been worked out and rapid growth of the market
begins. This occurred with Ford's Model T design. During this phase, failure rate
of firms in the industry continues to be high, but successful firms grow. Corporate
R&D becomes important to maintain incremental model improvements. For
example, by 1923 only eight major American firms had remained in the
automobile industry, capturing 99 per cent of the market.
174 Phase III - Applications
Applications Growth
Production and
Operation Management  During this phase there is a rapid growth in the penetration of technology into
markets.
 After some time, however, the innovation rate slows down and the market peaks;
no new markets are created.
Phase IV - Mature
Mature Technology
 In this phase, process innovations are dominant.
 Very few firms survive, of the original lot.
 Competition is primarily on price and segmented market lines.
 Production is specialized and efficient.
 Economies of scale and marketing dominance continue to whittle down
competitors, to the final few. For example, by 1965, only General Motors, Ford,
Chrysler, and American Motors had survived in the American automobile
industry.
A mature industry can continue indefinitely. Competitors with more abundant
resources, cheaper labour or subsidized capital can obtain a competitive advantage.
When market saturation is taking place, it is important to continue
technological innovation to extend the product life and delay market saturation.
Innovation succeeds in:
(a) Creating succeeding generation products with significantly improved
performance,
(b) Creating multiple applications,
applications,
(c) Lowering of price to facilitate ownership of multiple copies of the product for
convenience.
Phase V
Finally, competing or substituting technologies overrun the mature technology and the
last phase is reached. At this stage, the industry has run out of significant innovation.
Changes in demography, replacement and foreign markets now primarily determine
the market size.
9.4.1 Product Lifecycle and Technology Lifecycle

The length and pattern of the Product Lifecycle can vary significantly. There is no
reason to believe that all products inevitably pass through all four stages, e.g., fad
items, consumer resistance, and introduction of superior new product. Though the
Product Lifecycle diagram has been designed for product categories, it has limited use
to management, as it may not reflect the life of their 'Product Form', or 'Brand'.
The reliability and the interpretation of the Product Lifecycle for analysis of product
brands is a serious limitation
l imitation of this instrument. However, it can be used for 'product
forms' quite successfully. Examples of product form and product brand are:
 Product Form, e.g., Filter Cigarettes.
 Product Brand, e.g., Classic Mild.
The Product Lifecycle concept is extremely useful. It shows how customers tend to be
much more knowledgeable about the product class as the lifecycle progresses; product
performance typically improves over the cycle and the relative differences in brands
competing for the same segment decline as successful ideas are copied. This leads to
increased competition based on price, image, service, durability, reliability, etc., which 175
results in increased value to the consumer.
Simultaneously, with the technological changes in the lifecycle of the product,
changes also take place in the process. The changes are slow at first during the period
that the product volumes increase, but are maximized during the phase that the
product reaches the maturity stage. In other words, the growth stage of the process
technology normally coincides with the maturity stage of the product.
The growth stage of the technological process is between the lines AA and BB in
Figure 9.2, which coincides with the maturity stage of the product technology.
Technology improvements take place until such time that the process becomes so
efficient that any marginal increase in the parameters of the process would not provide
the required returns. As improvements continue, the investment in small
improvements becomes so large that they are not economically justified. This reflects
the downturn in the process technology curve.
The fact that the rates of technological innovation affect the competitive conditions of
an industry means that management should plan different strategies for different
phases of the technology lifecycle. For example, it is suggested that in times of
changing technology, management should use the technology lifecycle model to arrive
at decisions regarding the technologies, new products, etc., that it requires for its
future growth and survival. A general strategy of phasing new products in and phasing
old products out sustains the existing process capacity.
However, transitions are not smooth rarely does capacity remain constant. This is
especially true as technologies to process different products are not identical. During
the growth stage, the market grows with the increase in the number of first-time users.
Added sales are from repeat purchases and replacement purchases. Initially, the
growth is exponential and then it reaches a linear rate of rapid advance. During the
maturity phase, repeat purchases and replacement purchases form the bulk of the
volume. The decline stage reflects:
 Change in preference
 Substitution by another product
 Change in demographic factors.
The growth period can be prolonged through the introduction of innovations either in
the product or the process. The product lifecycle and technology lifecycle is
exemplified in the case of Maruti Udyog Limited. Maruti Udyog launched Maruti 800
and also two utility vehicles, Omni and Gypsy in 1984-85. In 1984-85, the production
was 30,000. The volume of production increased dramatically, reaching
1,20,000 vehicles in 1988. In 1998, in the car market, which was 4,01,002 units, the
Maruti 800 along with the Omni accounted for 75 per cent of unit sales. Maruti Udyog
production volume had reached 3,00,000
3,00,000 units.
These models had become market leaders in their respective segments with the
possible exception of the Gypsy. However, both the Maruti 800 and the Omni started
losing their sheen in the 1990s as newer players emerged in the market. To counter
this and to exploit the changing market conditions, Maruti Udyog introduced the
Esteem in 1993. This was motivated due to the fact that the entry-level segment had
ceased to be the center of action due to easy car finance availability. The lure of
Maruti 800 users to try out new cars that were more comfortable and luxurious had
become apparent. Though more expensive, these automobiles had become affordable
with the new philosophy of credit expansion by the banking sector.
176 By the mid-nineties, the Maruti 800 had reached the maturity phase. To promote
Production and
Operation Management growth, Maruti Udyog reduced the prices of Maruti 800 and Zen by about Rs. 24,000
and Rs. 51,000 respectively in December 1998. This resulted in a drop of Rs. 300
crore in net profit for the year 1998-99. The move was an attempt to 'redefine the
price-value equation.' This was designed to create an incremental growth of the model.
Maruti Udyog adopted a two-pronged strategy,
 It introduced new models like Baleno, WagonR and Alto;
 It decided to increase the number of variants rapidly, offering an upgraded variant
with every increase of Rs 25,000.
 Maruti Udyog also actively increased its promotion of the 800 in semi-urban and
rural areas, to compensate for the declining urban sales.
Faced with competition, Maruti Udyog has been competing on price. This has had its
impact on its profitability. In 1993-04, its turnover was Rs. 2,792 crore and its pre-tax
profit Rs. 136 crore. In 2002-03, while its turnover had risen to Rs. 9,063 crore, its
pre-tax profit had grown to just Rs. 282 crore. Between 1998 and 2002, its net profit
margins slipped from 10 per cent to 1.30 per cent before rising to 3 per cent. The
product pyramid base of Maruti Udyog is occupied by low-price, high-volume
products like the Maruti 800 and Omni, where the margins are slim. The apex of the
pyramid is occupied by high-price, low-volume products such as the Maruti Esteem
VX. Although profits are concentrated near the top, the base has played a crucial role.
It has created an entry-barrier for competitors, and insulated the profitable area near
the top from competition. However, it needs to rethink its strategy as the Maruti 800
has now almost reached the end of the maturity phase.
The technology lifecycle concept is an effective tool that provides management the
necessary indications on the following:
 Which technologies to develop,
 How to manage the transition from one technology to another,
 How to prepare the firm for technological change.
An industry is innovative in the beginning and middle phases of its technological
history but un-innovative in the last phases. In the last phases, new technology creates
new products and services hence new business opportunities.

Fill in the blanks:
1. A firm's success or failure can depend on how it manages
………………………… on a daily basis.
2. Customer contact is a key characteristic of …………………….
3. Service and contracts require more attention and better planning than
……………………………….
4. The product lifecycle model is a simple representation of the cumulative
impact of changes in the business environment on the life of a
………………………………. product.
5. Statistical regularities show that the product lifecycle can be used to
forecast the way the product attributes, demand, production and
……………………. will change as the product matures.
177
9.5 PRODUCT DEVELOPMENT PROCESS Product and Product Design
Without products, there would be no customers. Without customers, there would be no

revenue. Developing a new product is a major activity. Thomas Alva Edison, with as
many as 1,300 inventions and 1,100 patents to his credit, said about the product
development process, "Genius is 1 per cent inspiration and 99 per cent perspiration."
Product development requires more of perspiration and less of genius to be successful.
Leaders today still use four key components of Edison's product development model:
 Lofty Goals: For example, the ability of the bulb to stay lit for long periods of
time.
 Right to Left Process: Start with customers and move backward through
operations to design.
 Structure: Have 'clear targets' instead of daydreaming and aimless
experimentation.
 Fluidity: Be driven by talent, not hierarchy.
Many designers do not understand these issues and, as a result, often propose products
that cannot be produced or service designs that cannot be delivered because of
inadequate technology or operational capabilities. The approach to product
development has to start with an evaluation of the capabilities and resources of the
organisation.
The new product strategy of the organisation is decided on the basis of
organisational capabilities and resources. Organisations should develop explicit
product-development strategies to co-ordinate all of the major business processes that
contribute to product innovation. The need to be fast when competing in high
clock-speed industries makes this an absolute necessity.
9.5.1 Product Development

With a new regime of patents and legal protection against copying ideas, designs, or
products—there have been changes in the approach to new product development.
Organisations are more concerned about being the first to develop an idea or design a
product so that they can protect their markets.
Being able to design, develop, and introduce a new product quickly gives a firm 'fast
to market' capabilities. There are two types of fast to market activities.
1. Fast to customisation: The first activity is being able to develop products to meet
the specific needs of a customer. This is called fast to customisation. Producing
such a product with the participation of the customer, may give a firm a
competitive advantage.
2. Fast to design: The second type relates to developing products to meet the needs
of a cluster of customers. Fast to design product innovation can be used in MTS,
ATO, and MTO market orientations. For example, Nokia introduced cell phones
that incorporate cameras. Seeing that there was a cluster of customers for this
product all manufacturers now offer this product. Nokia has a first mover's lead in
this segment of the market.
178
Production and
Figure 9.3: New Product Development Process
In other situations, being fast to market may not be less important. It depends on how
quickly a product's design becomes stale. Mercedes-Benz traditionally had customers
that valued good design more than a model a year.
For some products, being fast to market may not be in your firm's best interest.
A creative advertising executive always makes his clients wait a week or two, even
though he thought of the copy for the ad in a day. Likewise, if a gourmet restaurant
that serves your meal five minutes after you order, you know that they must be using a
microwave oven. If they make you wait for 30 minutes, then the same judgment
cannot be made.
Another important type of product innovation involves refining or rejuvenating
products within the existing product line. For some companies, this is an annual event,
as is the case with the automotive industry.
Major redesigns in the automobile industry can take years and costs billions. This
becomes a Catch-22 situation. Since it costs so much to develop new models, auto
companies often try to sell as many copies of the new product as possible, even if it 179
takes four or five years. But the older a car's design gets, the greater the chance that it
will lose market share to competitors with fresher models. And worse yet, if it takes
five years to develop a new model and a company wants to sell that model for another
five years, then it must project what the customer's preferences are likely to be ten
years from now. This is not only a tremendous challenge, it requires a leap of faith to
take it to its logical conclusion.
The product-development process and its identifiable stages are shown in Figure 9.3.
Product development includes a number of processes. The steps that follow are given
below:
Clarification of the Task

The search for ideas starts from – and is based on – the 'new product' strategy. The
ideas that fit in with the strategy have to be identified. The customer needs have to be
determined. This should provide pointers towards the functional requirements of the
product.
Simultaneously, the organisation should be evaluating its resources and time schedules
to identify and specify constraints. Based on this exercise, the general specifications of
the product or service are drawn up. The product idea must demonstrate that it fulfills
some consumer need, and that existing products do not already fulfill.
Concept Generation
The specifications are the basis for concept generation. At the concept level, the
organisation should identify essential problems and propose the function structure of
the product or service. This should generate proposals and solution principles that are
combined and refined into concept variants.
The concept should be evaluated against technical and economic data. If the results
are found satisfactory, the concept has reached the stage for screening.
Screening is a management process. Each idea is analysed and its risks and potential
are scrutinized, both technically and business wise. Those having potential are
identified. Most of the ideas are killed or die at the screening level.
The business analysis includes preliminary market analysis, creating alternative
concepts for the product, clarifying operational requirements, establishing design
criteria and their priorities, and estimating logistic requirements for producing,
distributing and maintaining the product in the market.
Embodiment Design
After they have cleared screening, the ideas are developed in their preliminary
configuration and an introductory analysis is conducted.
The best preliminary design(s) are:
 selected and refined.
 evaluated against technical and economic criteria.
 The preliminary design(s) are refined an d the configuration completed.
Detailed analysis is conducted of refined design(s). The design is reviewed for errors,
manufacturability and cost. The preliminary design and alternate designs are evaluated
according to critical parameters to determine the design support that will be required
including analytical testing, experimentation, and physical modeling. Based on the
results and trade-offs, the conceptual design is firmed up.
180 This is followed by:
Production and
Operation Management  Preparation of preliminary parts list, and
 Fabrication design for the basic elements of the conceptual design.
This completes the stage of firming up the definitive design of the new product or
service.
9.5.2 Detailed Engineering Design

This stage involves engineering a detailed definition of the product, including its
components, materials, sizes, shapes, etc. The product design is:
 analyzed,
 experimented upon, and
 data collected to determine if the design meets the design objectives.
Trade-offs are inevitable in the optimal design, since objectives often conflict with
each other.
The final design, whether computer generated or compiled manually, includes
drawings, specifications and other documentations necessary to form the basis of
product and process development.
GM and IBM began work in the sixties to develop a system of Computer Aided
Design (CAD); today, it has become a commonly used tool. Originally, CAD was
envisaged as a sophisticated drafting system. Today, final analysis and verification is
conducted through computer analysis and simulations. Complete and detailed
drawings and production documents are then generated.
Prototypes are used to establish the detailed engineering design before the details are
finalized. In some cases, especially in defence related products or products whose unit
value is extremely high, prototypes are often virtual prototypes.
9.5.3 Physical Evaluation

Concurrently with the development of detailed engineering design, physical
evaluation is carried out. This includes:
 Fabricating a working prototype of the product.
 Testing and evaluation to confirm that it represents the solution.
Very often, the duration of this stage can be reduced if certain tasks are done
simultaneously by the organisation fully utilising the benefits of cross-functional
thinking.
Computer simulations often precede physical evaluation. In currently available CAD
systems, the designer can view the part in any orientation, any scale or any cross
section. The parts and the product can be seen in the form of three dimensional
images, rotated, moved, and the response to different stress patterns seen visually on
the computer screen, without building a physical prototype.
181
Concept Product A Product and Product Design
in-market
Product design time
Develop Product A
reduced by CAD
Design and Build
Ramp-Up Produce A for 10-20 years
Manufacturing system
System Lead Time
Develop Product C
GOAL
Develop Product B
Develop Product A Product A

in-market
Produce Produce
Product A A & B B&C
Reconfiguration
Figure 9.4: Product Design Cycle
9.5.4 Product and Process Development

Once the detailed engineering is under way, the detailed product design provides the
operations team the basis for preparing plans for:
 Materials acquisitions, and
 Production.
This involves suppliers also. Suppliers are playing an increasingly important role with
the increase in outsourcing.
Operations activities involve:
 Planning for production and control systems,
 Computer information systems, and
 Human resource systems.
9.6 APPLICATIONS OF CAD

Computer-aided design (CAD) is the use of a wide range of computer-based tools that
assist engineers, architects and other design professionals in their design activities. It
is the main geometry authoring tool within the Product Lifecycle Management process
and involves both software and sometimes special-purpose hardware. Current
packages range from 2D vector based drafting systems to 3D parametric surface and
solid design modelers.
CAD is sometimes translated as "computer-assisted", "computer-aided drafting", or a
similar phrase. Related acronyms are CADD, which stands for "computer-aided
design and drafting", CAID for Computer-aided Industrial Design and CAAD, for
"computer-aided architectural design". All these terms are essentially synonymous,
but there are some subtle differences in meaning and application.
182
Production and
Figure 9.5: CAD Design and Uses
CAD is used to design and develop products, these can be goods used by end
consumers or intermediate goods used in other products. CAD is also extensively used
in the design of tools and machinery used in the manufacture of components. CAD is
used throughout the engineering process from conceptual design and layout, through
detailed engineering and analysis of components to definition of manufacturing
methods.
9.6.1 Fields of Use

 AEC (Architecture Engineering and Construction)
 Building engineering
 MCAD Mechanical
 Automotive
 Aerospace
 Consumer Goods
 Machinery
 Ship Building
 ECAD Electronic and Electrical
 Manufacturing process planning
 In designing digital circuits
Architecture
The software package may produce its results in several formats, but typically
provides a graphically-based result which is then able to be used to create concept
sketches for assessment and approval, and eventually working drawings. An example
would be a structural design package used to assess the integrity of a steel-framed
building by performing all the calculations necessary to determine the size and
strength of the components, and the effect of such things as wind-loading. The output
commonly is a schedule of materials and some basic sketches which can be transferred 183
to a computer-aided drafting package for final production of construction working
drawings.
Computer-aided drafting, however, commonly refers to the actual technical drawing
component of the project, using a computer rather than a traditional drawing board.
The input into this aspect of the design process may come from specialized calculation
packages, from pre-existing component drawings, from graphical images such as
maps, from photos and other media, or simply from hand-drawn sketches done by the
designer. The operator's task is to use the CAD software to meld all the relevant
components together to produce drawings and specifications which can then be used
to estimate quantities of materials, determine the cost of the project and ultimately
provide the detailed drawings necessary to build it.
The spectrum of architectural and engineering projects commonly documented with
computer-aided drafting is broad, and includes architectural, mechanical, electrical,
structural, hydraulic, interior design, civil construction. CAD may also provide input
to other forms of design communication such as 3D visualizations, model
construction, animated fly-throughs, to name a few.
Computer-aided drafting software is also a basic tool used in other disciplines related
to Architecture, for example Civil Engineering, for site design, for instance roads,
grading and drainage, in mapping and cartography, in the production of plans and
sketches for a variety of other purposes (such surveyor's plans and legal descriptions
of land), and as the input format to geographic and facilities information systems.
Additionally, landscape architecture and interior design is often also commonly
performed using CAD software.
Mechanical
CAD is used in a variety of ways within engineering companies. At its simplest level
it is a 2D Wireframe package that is used to create engineering drawings. This has
however over the last 20 years been overtaken by 3D parametric feature based
modeling. Component forms are created either using Freeform surface modeling or
solid modeling or a hybrid of the two. These individual components are then
assembled into a 3D representation of the final product; this is called bottom-up
design. These assembly models can be used to perform analysis to assess if the
components can be assembled and fit together as well as for simulating the dynamics
of the product. FEA can also be performed on the components and assemblies to
assess their strength. Over the last few years, methods and technology have been
developed to do top-down design within CAD. This involves starting with a layout
diagram of the product; which is broken down into sub-systems with ever increasing
detail until the level of single components is reached; geometry in each level being
associative with the level above. Detailed design of the individual components is then
completed before building up the final product assembly. In general t he 3D models are
used to generate a 2D technical drawing, this has, however, been slowly replaced by
direct transfer of the data to CAM, CNC , Rapid prototyping and Product visualization
systems, non geometric information being communicated to down-stream processes
with the aid of PMI.
Electrical and Electronic

Electronic Design Automation (EDA) includes PCB design, intelligent wiring
diagrams (routing) and component connection management.
184 Manufacturing Process Planning
Production and
Operation Management 2D and 3D CAD systems are sometimes used for graphically represented of plant
layout, usually with the aid of specific machine geometry libraries and layout tools.
Although this is often done with specialist real-time process simulation tools based on
Product visualization and Manufacturing Process Management technologies.
9.6.2 History
Designers have long used computers for their calculations. Initial developments were
carried out in the 1960s within the aircraft and automotive industries in the area of 3D
surface construction and NC programming, most of it independent of one another and
often not publicly published until much later. Some of the mathematical description
work on curves was developed in the early 1940s by Isaac Jacob Schoenberg,
Apalatequi (Douglas Aircraft) and Roy Liming (North American Aircraft), however
probably the most important work on polynomial curves and sculptured surface was
done by Pierre Bezier (Renault), Paul de Casteljau (Citroen), S.A. Coons (MIT, Ford),
James Ferguson (Boeing), Carl de Boor(GM), Birkhoff(GM) and Garabedian(GM) in
the 1960s and W. Gordon (GM) and R. Riesenfeld in the 1970s.
It is argued that a turning point was the development of SKETCHPAD system in MIT
in 1963 by Ivan Sutherland (who later created a graphics technology company with
Dr. David Evans). The distinctive feature of SKETCHPAD was that it allowed the
designer to interact with computer graphically: the design can be fed into the computer
by drawing on a CRT monitor with a light pen. Effectively, it was a prototype of
graphical user interface, an indispensable feature of modern CAD.
First commercial applications of CAD were in large companies in the automotive and
aerospace industries, as well as in electronics. Only large corporations could a fford the
computers capable of performing the calculations. Notable company projects were at
GM (Dr. Patrick J. Hanratty) with DAC-1 (Design Augmented by Computer) 1964;
Lockhead projects; Bell GRAPHIC 1 and at Renault (Bezier) – UNISURF 1971 car
body design and tooling.
The most influential event in the development of CAD was the founding of MCS
(Manufacturing and Consulting Services Inc.) in 1971 by Dr. P. J. Hanratty, who
wrote the system ADAM (Automated Drafting And Machining) but more importantly
supplied code to companies such as McDonnell Douglas (Unigraphics)
Computervision(CADDS), Calma, Gerber, Autotrol and Control Data.
As computers became more affordable, the application areas have gradually expanded.
The development of CAD software for personal desk-top computers was the impetus
for almost universal application in all areas of construction.
Other key points in the 1960s and 1970s would be the foundation of CAD systems
United Computing, Intergraph, IBM, Intergraph IGDS in 1974 (which led to Bentley
MicroStation in 1984).
CAD implementations have evolved dramatically since then. Initially, with 2D in the
1970s, it was typically limited to producing drawings similar to hand-drafted
drawings. Advances in programming and computer hardware, notably solid modelling
in the 1980s, have allowed more versatile applications of computers in design
activities. Key products for 1981 were the solid modelling packages-Romulus
(ShapeData) and Uni-Solid (Unigraphics) based on PADL-2 and the release of the
surface modeler Catia (Dassault). Autodesk was founded 1982 by John Walker, which
led to the 2D system AutoCAD. The next milestone was the release of Pro/Engineer in
1988, which heralded greater usage of feature based modeling methods. Also of
importance to the development of CAD was the development of the B-rep solid
modeling kernels (graphics engines) Parasolid (ShapeData) and ACIS (Spatial 185
Technologies) at the end of the 1980s beginning of the 1990s, both inspired by the
work of Ian Braid. This led to the release of mid-range packages such as SolidWorks
in 1995 SolidEdge (Intergraph) in 1996.
Today CAD is not limited to drafting and rendering, and it ventures into many more
"intellectual" areas of a designer's expertise.
9.6.3 Software Providers Today

This is an ever changing industry with many well known products and companies
being taken over and merged with others. There are many CAD software products
currently on the market. More than half of the market is however covered by the four
main PLM corporations Autodesk, Dassault Systems, PTC, and UGS Corp., but there
are many other CAD packages with smaller user bases or covering niche user areas.
Packages can be classified into 3 types: 2D drafting systems (e.g. AutoCAD,
Microstation); mid-range 3D solid feature modelers (e.g. SolidWorks, SolidEdge,
Alibre); and high-end 3D hybrid systems (e.g. CATIA, NX (Unigraphics)). However
these classifications cannot be too strictly taken as many 2D systems have 3D
modules, the mid-range systems are increasing their surface functionality, and the
high-end systems have developed their user interface in the direction of interactive
Windows systems.
9.6.4 Capabilities
The capabilities of modern CAD systems include:
 Wireframe geometry creation
 3D parametric feature based modeling, Solid modeling
 Freeform surface modeling
 Automated design of assemblies, which are collections of parts and/or other
assemblies
 Create Engineering drawings from the solid models
 Reuse of design components
 Ease of modification of designs of model and the production of multiple versions
 Automatic generation of standard components of the design
 Validation/verification of designs against specifications and design rules
 Simulation of designs without building a physical prototype
 Output of engineering documentation, such as manufacturing drawings, and Bills
of Materials to reflect the BOM required to build the product
 Import/Export routines to exchange data with other software packages
 Output of design data directly to manufacturing facilities
 Output directly to a Rapid Prototyping or Rapid Manufacture Machine for
industrial prototypes
 Maintain libraries of parts and assemblies
 Calculate mass properties of parts and assemblies
 Aid visualization with shading, rotating, hidden line removal, etc...
186  Bi-directional parametric associatively (modification of any feature is reflected in
Production and
Operation Management all information relying on that feature; drawings, mass properties, assemblies,
etc... and counter wise)
 Kinematics, interference and clearance checking of assemblies
 Sheet metal
 Hose/cable routing
 Electrical component packaging
 Inclusion of programming code in a model to control and relate desired attributes
of the model
 Programmable design studies and optimisation
 Sophisticated visual analysis routines, for draft, curvature, curvature continuity...
9.6.5 Software Technologies

Originally software for CAD systems were developed with computer language such as
Fortran, but with the advancement of Object-oriented programming methods this has
over the last decade or so radically changed. The development of a typical modern
Parametric feature based modeler and freeform surface systems are built around a
number of key, C programming language, modules with their own APIs. A CAD
system can be seen as built up from the interaction a GUI with an Associative engine
and Geometry constraint engine controlling BREP, CSG and NURBS geometry via a
Geometric modeling kernel.
9.6.6 Hardware and OS Technologies

Today most CAD computer workstations are Windows based PCs; some CAD
systems also run on hardware running with one of the Unix operating systems and a
few with Linux. Generally no special hardware is required with the exception of a
high end OpenGL based Graphics card; however for complex product design
machines with high speed (and possibly multiple) CPUs and large amount of RAM are
recommended. The human-machine interface is generally via a computer mouse but
can also be via a pen and digitizing graphics tablet. Manipulation of the view of the
model on the screen is also sometimes done with the use of a spacemouse/spaceball.
Some systems also support stereoscopic glasses for viewing the 3D model.
9.7 EXPERT SYSTEM

Expert Systems are computer programs that are derived from a branch of computer
science research called Artificial Intelligence (AI). AI's scientific goal is to understand
intelligence by building computer programs that exhibit intelligent behavior. It is
concerned with the concepts and methods of symbolic inference, or reasoning, by a
computer, and how the knowledge used to make those inferences will be represented
inside the machine.
Of course, the term intelligence covers many cognitive skills, including the ability to
solve problems, learn, and understand language; AI addresses all of those. But most
progress to date in AI has been made in the area of problem solving – concepts and
methods for building programs that reason about problems rather than calculate a
solution.
AI programs that achieve expert-level competence in solving problems in task areas
by bringing to bear a body of knowledge about specific tasks are called knowledge-
based or expert systems. Often, the term expert systems is reserved for programs
requirements to build the facilities, or the contracts required to complete construction 271
Project Management
of the facilities are identified. A sample codified WBS of the Garden Project is
illustrated in Figure 12.4.
Figure 12.4: A WBS for a Project to Clean the Garden
A coding structure should be established for each element of the WBS. Its purpose is
to provide a means for easily referring to the work element for management or
administrative control purposes. It assigns a particular number as a basic number to
each of the upper level elements of the breakdown structure. It extends the coding
structure to the different levels by changing certain digits or adding additional digits to
the element's basic number, when assigning numbers to the lower level subtasks of the
elements. This is illustrated in Figure 12.4. At the second level, there are 5 elements.
At the next level, the codification reflects the relationship with the higher level.
A key issue in constructing a WBS for a project is the depth to which the WBS should
be extended. Limit the WBS development to subdivision of work to the work package
level only. Two principles are particularly important to note:
1. Each part of the WBS should be subdivided to the number of levels useful for
managing the project and
2. No effort should be made to extend the QWBS to the same number of levels for
all project tasks.
Figure 12.5: Break-up of a Project

272 The typical WBS has three to six levels, and these can be named as shown in
Production and
Operation Management Figure 12.5. It is, of course, possible to have projects that require a lot more levels.
Twenty levels are considered to be the upper limit, and that is a huge project.
 Level 1 is called the program level while the project is one degree lower.
 The project is broken down into tasks and the tasks into subtasks.
 Detailed project planning and assignment of responsibilities for planning and
management are performed at the work package level.
 A work package, depending upon the level of effort, is assigned to individuals or
contractors with budgets in monetary terms, man-hours, or other measurable units.
The duration of a work package is usually short. A short duration makes an
objective measurement of the work components easier.
 It is desirable that the management of a project should not have too many work
packages.
 However, the Project Management should not be constrained from subdividing
work into a larger number of work packages in areas that are complex, high risk,
or other wise critical to project success.
A WBS dictionary is generally attached to a WBS. The dictionary defines each of the
different project elements. It provides descriptions that fully explain what the item is,
where it fits into the project, what the material for the item consists of, what functions
are included in the item (i.e. design, procurement or construction). Sometimes, where
it is needed for clarity, it specifies exclusions in the work element. A sample WBS
dictionary description for a WBS element 'piping' is shown below.
Element Dictionary Description: PIPING
The piping component element refers to all system piping in this plot area regardless
of whether the piping is for a utility or process system. Both above ground and
underground piping are included. Above ground piping may be broken down at the
next WBS element level, by piping block or g roupings of piping blocks, depending on
the number of categories of blocks that are best for internal management control of
the work. Types of piping material include carbon steel, stainless steel, alloy steel,
concrete and other non-metallic piping, as well as piping supports. Above ground
piping includes the following systems: creaking and quench, gas compression and
treating, propylene refrigeration, ethylene refrigeration, flare stem distribution /water
treating, fuel supply, instrument, air, and cooling water. Underground piping includes
the fire, sewer and cooling water systems. The work for above ground piping
encompasses detail design from routing and planning studies through completion of
the bill of material and vendor print checks. It also encompasses the vendor provided
piping materials and all assembly work starting with prefabrication and ending with
the final check of each of the system lines. The work for underground piping
encompasses all assembly work starting with the installation of the piping and ending
with the final check of each of the system lines.
In addition to WBS based on the physical structure, alternative Work Breakdown
Structures can be developed for a project depending upon the requirements. For
example, it is common to see the following types of WBS in projects:
1. Hardware-software oriented
2. Agency oriented
3. Function oriented
The hardware-software approach often provides the basic framework for project
planning and implementation. Since project hardware is built only through software,
establishment of the linkage between hardware and software is important and enables
the design of project work system. A WBS that is developed on assumptions of work 273
Project Management
assignment is an agency oriented WBS. This can be developed only after a decision
has been taken regarding work distribution. Work can also be broken down using a
function-oriented approach. This is often the approach used by contractors for
distributing in-house work, which is normally organised along functional lines.
The WBS should assign responsibilities for all identified efforts to specific
organisations and organisational elements, while conforming to the reporting
requirements of the organisations involved. There are no standard solutions for
developing a WBS for a project. However, there are some general guidelines that
make the WBS into an effective tool in organising the work into logical groupings:
 The WBS should be established early in the project life.
 It should subdivide the total effort into discrete and logical sub elements.
 The WBS should provide detailed work plans and estimate the resources required,
with cost estimates of those resources.
 It should also establish schedules for the conduct of the work plans and use of
these resources.
 It should describe the project completely, be compatible and continuous and this
needs to be regularly checked.
 Make sure that the WBS satisfies both functional and project requirements.
A responsibility chart illustrating this is shown as Table 12.2.
Table 12.2: Responsibility Chart
12.3.2 Classification of Project Schedules

Scheduling is certainly a major tool used to manage projects. It puts into perspective
the shared understanding of what the project is supposed to accomplish and the Work
Breakdown Structure (WBS). The best way to classify the project schedules is by the
uses they are put to. Thus, there are schedules for tendering, purchase, engineering,
construction, erection and commissioning etc. As already discussed, different
schedules involve different levels of project WBS.
274 One popular way of schedule classification is therefore based on the level on which
Production and
Operation Management the respective schedules are used. On this basis, there are 3 categories of schedules as
described in Table 12.3. We shall briefly consider each.
Table 12.3: Categories of Schedules
Category Description of Schedules Purpose of Schedules

i) System schedules or overall Prepared for the project as a whole. Comprises major
Schedules or Master project system/components of the project. Identify the primary
schedules. milestones to be achieved in the project. Help integrate
inputs-outputs and resources leading to the achievement
of the overall objectives of the project.
ii) Resource schedules/Agency Prepared for each contractor, vendor or functional
Schedules /Functional department. Help establish resource requirement and
Schedules. decide commitment so that maximum throughput is
achieved with optimal commitment of resources. Help
set targets for different agencies and thus monitor their
work, cost and time. Help determine payment schedules.
iii) Input-output Help list each and every input and output like drawing,
schedules/work package equipment, etc., so that these can be tracked for
schedules/production completion as well as adherence to stipulated time/cost
schedules. /work targets.
System Schedules: System schedules establish the overall project completion target,
individual system target, and important milestones. For example, in case of a
construction project, this will take into account the process of location, site selection,
design and the construction sequence and interrelationship between various systems
comprising the electrical, sanitary engineering, sewage treatment, water and water
treatment, and other utilities and off site facilities. This serves as the 'mother
document' for development of further detailed schedules. These schedules are known
as master project schedules.
Resource Schedules: The resources that are required in the form of money,
manpower, equipment and materials etc., are identified in this schedule. The schedules
would, on the basis of the work load involved in execution by each of the agencies,
stipulate the progress to be achieved month by month and allocate resources to be
deployed. The purpose is two-fold:
1. Assess and provide adequate resources, and
2. Ensure the fullest utilisation of resources.
The resource requirement is assessed from input-output schedules and targets and
priorities from system schedules.
Resource schedule therefore provides a link between the system schedule and the
input-output schedule. Resource schedules show the performance expected to be
achieved month by month. When related to the financial budget, it becomes a
performance plan.
Input-output Schedule: The outputs produced by the various agents are identified in
physical terms or activities and target dates are affixed against each. For example, the
physical items may be drawings, purchase orders, foundations, road laying etc., and
the activities may be design, evaluation, excavation, concreting, etc.
Subsidiary Schedules: In addition, there may be other subsidiary schedules. The
preparation and monitoring of the subsidiary schedules should be done by the
functional unit responsible for a specific type of activity. The integration of the
subsidiary schedules into a master schedule must be done by a central planning team,
to ensure uniformity and consistency.
Check Your Progress 1 275
Project Management
Fill in the blanks:
1. A project is a multitask job that has performance, time, cost, and scope
requirements and that is done only ………………………………time.
2. Project Management is facilitating the planning, scheduling, and
controlling of all ………………………………. that must be done to
achieve project objectives.
3. The implementation-planning phase includes tactics and …………………
4. Risk management is the systematic process of identifying, analysing, and
………………………………. to project risk.
5. Plans are developed to achieve the end ………………………….
successfully.
12.4 NETWORK REPRESENTATION OF A PROJECT

There are basically two methods of scheduling, the Critical Path Method (CPM) and
the Program Evaluation and Review Technique (PERT). In a sense, the CPM
techniques owe their development to the widely used predecessor, the Gantt Chart.
But the Gantt Chart has certain limitations:
 The Gantt Chart has limitations in visualizing.
 It cannot work for projects that include more than 25 activities.
 Also, the Gantt Chart provides no direct procedure for determining the Critical
Path, which is of great practical value to identify bottlenecks and/or delays.
The Critical Path is defined as the longest series of activities (that can't be done in
parallel) and which therefore governs how early the project can be completed.
12.4.1 Advantage of Critical Path

 The Critical Path is of great importance in Project Management as it determines
whether or not a deadline, which is imposed on most projects, can be met.
 Furthermore, since the Critical Path Method helps identify which activities will
determine the end date, it also helps to guide how the project should be managed.
 Knowing where the critical path is in a project allows one to determine the impact
on the project of a scope or priority change.
 You know which activities will be impacted most heavily and what might need to
be done to regain lost time.
 In addition, managers can make informed decisions when one can tell them the
impact of changes on the project.
Thus, CPM can be an invaluable tool, when used properly.
In managing a project, there are important relationships among various activities that
are often better presented visually. An overall Project Network Diagram schedules the
work packages in order of precedence for the projects. For example, certain activities
may not begin before others are completed, while some activities may go on
simultaneously.
276
Production and
Figure 12.6: Network Arrow Diagrams
CPM and PERT, both use 'arrow diagrams' to capture the sequential and parallel
relationships among project activities. To show the sequence in which work is
performed, diagrams like those in Figure 12.6 are used. In these diagrams, task A is
done before B, while task C is done in parallel with them.
The network in the left half in Figure 12.6 has used an activity-on-node notation. This
shows the work or activity as a box or node, and the arrows show the sequence in
which the work is performed. Events are not shown in activity-on-node networks
unless they are milestones-points in the project at which major portions of the work
are completed.
The network in the right half uses activity-on-arrow notation, in which the arrow
represents the work being done and the circle represents an event. The arrows
represent the beginning point and the end points of events. As you will notice, we
have assigned numbers to the nodes, thereby designating them as events. An activity
is, therefore, not only represented by the arrow but also by the events that begin and
end it.
Table 12.4: Relationships between Event Oriented and Activity Oriented Network
Diagrams
Table 12.4 shows the relationships between Event Oriented and Activity Oriented
Network Diagrams. Different relationships between activities are shown both in the
arrow and node modes.
277
Project Management
Figure 12.7: Dummy Activity and Dummy Node
Dummy activities are those activities which consume no time. However, these are
added in the network to satisfy precedence relationships. Similar is the case for
dummy nodes. The network that is shown in the figure above shows how a dummy
activity finds application. If activity 'A' is followed by 'C', while activity 'B' is
followed by both 'C' and 'D' but before activity 'E', how can this be represented? The
problem comes for activity 'E' as its precedence activity is both C and D.
This situation can be handled by using a dummy activity (4-5), which takes zero time
to complete. Another way to handle this is to use a dummy node. A dummy activity
and a dummy node are shown in Figure 12.7.
Table 12.5 shows 5 activities, 'A', 'B', 'C', 'D', and 'E'. It also provides the precedence
relationships between the activities. How does one draw the network correctly?
Table 12.5: Network Relationships
Task A B C D E
Precedence Task - - A B A, B
Figure 12.8: Drawing a Network Diagram
Three network diagrams are shown in Figure 12.8. Please note that (a) and (b) have
not been correctly drawn. The correctly drawn network diagram is shown in (c).
278 An ‘event’ is ‘binary’; that is, it has either occurred or it has not. This is a special use
Production and
Operation Management of the word ‘event’ in Project Management. In scheduling terminology, an event is a
specific point in time where something has just started or has just been finished. An
activity, on the other hand, can be partially complete.
The two forms of diagrams simply happen because the two systems were developed
by different practitioners. Both forms are still used, although activity-on-node is used
a bit more than the other. This is simply because much of today's personal computer
software is programmed to use node notation.
12.4.2 Critical Path Method

There are certain rules for drawing a network diagram. We will first discuss the
Fulkerson rule, formulated by D.R. Fulkerson, which determines the numbering
sequence. These rules are used for numbering the events on a network:
1. Start with the initial event. This event will have arrow(s) coming out of it and
none will enter it. Number this "I"–it is the initial event. In any network, there will
be only one initial event.
2. Delete all arrow emerging out of the event already numbered. This will create at
least one more initial event.
3. Number these new events as "2, 3…"
4. Repeat step (ii) till an event is obtained from which there is no arrow emerging.
This is the end event.
Once we can number events, the other basic guidelines to construct a network have
been given below:
1. Prepare a list of all activities required to complete the project. Decide their time
relationship. Represent each activity by an arrow.
2. Determine the precedence relationship (logical order) of all activities. For this, use
these three questions for each activity:
(a) Which activity precedes this activity? This answers which activities, must be
completed before the start of activity under consideration.
(b) Which activity follows this activity? The answer would show activities that
cannot start before completion of the activity under consideration.
(c) Which activity should take place simultaneously with this activity? This
would be a list of activities which should be performed simultaneously while
the activity under consideration is being performed. It would also provide
guidance about the use of dummy activities, if any.
3. Draw the arrow diagram for the network on the basis of precedence relationship.
Encircle the starting and finishing of the activities.
4. Number each node as per Fulkerson rule.
5. Check the correctness of the number, using the following guidelines:
(a) Number at the head of any row is always greater than the node number at its
tail.
(b) No node is numbered until its all-preceding events are numbered.
(c) There is only one starting and one finishing node.
(d) All activities are uniquely represented by one starting and one finishing event.
(e) There is no duplicate number for a number.
Let us discuss the Garden project for which we developed the WBS. The background 279
Project Management
of the project is that Bhan Farms rents its gardens during the marriage season for
marriage celebrations. Normally, during the season the gardens are fully booked. The
old occupant vacates the premises by 9 AM and the new occupant is handed over the
garden by noon. The garden has to be cleaned and trimmed before it is handed over to
the next occupant. Mr. Bhan was interested how early the cleaning-up and preparation
of the garden can be completed so that the garden could be handed over to the new
occupant.
This small garden project might be thought of as having three phases:
 Preparation
 Execution
 Clean-up
There are three preparation tasks:
 Pick up trash
 Fill fuel in equipment and
 Get out hedge clipper etc.
The cleanup tasks include:
 Bag the grass
 Collect trash and
 Disposal
In making this schedule diagram, we have used a basic rule of scheduling i.e., diagram
what is logically possible and then deal with resource limitations.
For the Garden project, if your gardener is working alone, then there really can be no
parallel paths. On the other hand, if you are helping your gardener or you have other
help for the work, then parallel paths are possible. There are two rules to follow here.
The first is to go ahead and schedule as if it were possible to get help. This is
especially important in most work settings. The second is to keep all times in the same
units. Don't mix years, months, weeks, days, hours and minutes-schedule everything
in one unit. It is always possible to convert the unit as a last step. For example, in this
schedule, time has been given in minutes. It is good to keep in mind that there is no
single right solution, but a diagram can be said to be wrong if it violates logic.
12.4.3 Deciding Critical Path of the Network

Scheduling usually means trying to fit the work between two fixed points in time.
Whatever the case, we still want to know how long the project will take to complete; if
it won't fit into the required time frame, then we will have to do something to shorten
the critical path. Activity durations are a function of the level of resources applied to
the work.
Therefore, resource allocation is necessary to determine what kind of schedule is
actually achievable. Once the critical path in the schedule is determined, we need to
assess what kind of latitude is available for non-critical work, under ideal conditions.
The ideal situation is one in which unlimited resources are available. Using this
assumption, time estimates for each task are made by using historical data or best
estimates of how long each activity will take.
When the time estimate of each activity is known and network is constructed, it is
necessary to calculate the project duration and the critical path. We need to know the
280 earliest expected time (of an event) as a measure from the start of the project, and
Production and
Operation Management latest allowable completion time (of an event) as a measure from end of the project.
Figure 12.9: CPM Diagram for Garden Project
For the Garden project example, we will use node notations. Let us construct the
network diagram. This diagram has been shown in Figure 12.9. First, let us examine
the node boxes in the schedule. Each has the notation ES, LS, EF, LF, and DU.
These notations mean the following:
ES = Early Start
LS = Late Start
EF = Early Finish
LF = Late Finish
DU = Duration (of the task)
Consider a single activity in the network, such as picking up trash from the yard. The
duration (DU) is given in the right hand top corner node box. It takes fifteen minutes
to complete this activity. Each node box also is identified with an activity and duration
of the task. The activities for the garden project have been shown in a tabular form in
Table 12.6.
Table 12.6: Activity Chart for Garden Project
Predecessor Network Time

Activity Description
Activity Path (Min.)
A Pick up Trash - 15
B Fill Fuel - 5
C Fetch Hedge Clipper - 5
D Trim Weeds A, B A-D 30
E Mow Front A, B A-E 45
F Edge Sidewalk A, B A-F 15
G Trim Hedge C C-G 30
H Mow Backyard E A-E-H 30
I Bag Grass H, D, F, G A-E-H-I 30
J Collect Trash H, D, F, G A-E-H-I 15
K To Disposal I, J A-E-H-I-K 45
281
12.4.4 Calculation of Earliest Expected Time of an Event
Project Management
Once a suitable network has been drawn, with durations assigned to all activities, it is
necessary to determine where the longest path is in the network and to see whether it
will meet the target completion date.
Since the longest path through the project determines minimum project duration, any
activity on that path that takes longer than planned will cause the end date to slip
accordingly, so that path is called the critical path.
In order to compute network start and finish times, only two rules apply to all
networks. These are listed as rules 1 and 2. Other rules are sometimes applied by the
scheduling software itself. Such rules are strictly a function of the software and are not
applied to all networks.
Rule 1: Before a task can begin, all tasks preceding it must be completed.
Rule 2: Arrows denote logical precedence.
Start from the starting event,
 Early Start (ES) for the first event (i.e., A) is zero, as the starting time is zero.
 For the next events, the activity times are the summation for each possible path,
leading from the starting event to the given event.
 The largest sum is the earliest expected time for that event. For the scheduling
computations in the Garden project, for example, we assume that it starts at time =
zero, it can finish as early as fifteen minutes later. Thus, we can enter 15 in the
cell labeled EF. Putting fuel in the grass mower and collecting the hedge clipper
and other equipment takes only five minutes each.
The logic of the diagram says that both of these tasks must be completed before we
can begin trimming weeds, cutting the front grass, and edging the sidewalk.
The earliest finish time for activities, P and Q, is calculated as:
EFQ = Max {ES P + tPQ}
Where, ESP = Earliest Start time for activity 'P' (predecessor)
tPQ = Expected completion time for activity P – Q
In our Garden project example, for the initial events:

EFA = 0 +15 = 15 minutes
EF b = 0 + 5 = 5 minutes
EFc = 0 + 5 = 5 minutes
The Earliest Start (ES) time for an activity is the Earliest Finish (EF) time of the
immediately preceding activity. For example, if we consider Activity D in our
example, there are two preceding activities. Activity B has an EF of 5 minutes while
Activity A has an EF of 15 minutes. For activities with more than one preceding
activity, ES is the largest of the EF of the preceding activities.
This is the time at which an event can occur without delaying the scheduled
completion date of the project, if all succeeding events are completed as per plan. We
use backward pass or backward calculation from the finishing point of the network.
The clean-up task takes fifteen minutes, whereas the f ueling-up activity takes only five
minutes. How soon can the following activities start? Not until the clean-up has been
305
Facility Planning and
Layout
Unit V
Facility, Layout Location and
Work Measurement
306
Production and
307
LESSON Facility Planning and
Layout
13
FACILITY PLANNING AND LAYOUT
STRUCTURE
13.0 Objectives
13.1 Introduction
13.2 Facility Planning
13.3 Global Level
13.3.1 Factor Rating Analysis
13.3.2 Load-Distance Model
13.3.3 Geographic Information Systems (GIS)
13.4 Macro Level
13.4.1 Facility Master Plan
13.4.2 Impact Planning
13.4.3 Site Evaluation
13.5 Micro Level
13.6 Types of Layout
13.7 Process Layout
13.7.1 Process Layout and Material Handling Costs
13.7.2 Spiral Analysis
13.7.3 Computerised Relative Allocation of Facilities Technique (CRAFT)
13.7.4 CORELAP (Computerised Relationship Layout Planning)
13.7.5 Automated Layout Design Program (ALDEP)
13.7.6 Advantages and Disadvantages of Process Layout
13.8 Product or Line Layout
13.8.1 Defining the Layout Problem
13.8.2 Assembly Line Balancing
13.8.3 Graphic and Schematic Analysis
13.8.4 Limitations of Product Layout
13.9 Fixed Layout
13.10 Cellular or Group Layout
13.10.1 Advantages and Disadvantages
13.10.2 Comparison of Layouts
13.11 New Approaches to Layout Design
13.11.1 Flexibility
13.11.2 Mixed-model Line
13.12 Let us Sum up
13.13 Glossary
13.15 Questions
308
Production and 13.0 OBJECTIVES
 Understand the factors that need to be considered for site location; and the global
and macro factors that impact selection of the location
 Know what is site planning and how to determine these effectively
 Understand factors that go into facility layout design for cost-effective design and
operation
 Understand different types of facility layout and their characteristics
 Know models for properly selecting an efficient material flow in process l ayouts
 Know what is line balancing and how are product lines successfully balanced in
product layouts
 Understand different layout systems and how do they compare with each other
 Know what cellular or group layouts are and how are they planned
 Understand some new approaches to layout designs
 Understand the behavioural component in layout planning
13.1 INTRODUCTION
Facility planning is important not only for malls, restaurants, and other service
industries but for all transformation activities be it a factory or an office. As industry
gets more competitive every day, initial planning is extremely important and becomes
a key factor in determining the success or failure of an operation.
This lesson provides information on how to manage the complexities of facility
planning, to understand and make facility decisions. It tries to disseminate knowledge
on the design and planning of service and production facilities, blending
organisational expectations with effective use of space to create a work environment
that is efficient.
13.2 FACILITY PLANNING

Facility planning has developed, in the past decade, into a major thriving business
sector and discipline. One of the major reasons for new facilities is the global
economic boom that has been accompanied by an enhancement of capacity
worldwide.
In addition to the global economic boom, there are several other reasons for changing
or adding locations:
1. The cost or availability of labour, raw materials, and supporting resources often
change. These changes in resources may spur the decision.
2. As product markets change, the geographical region of demand may shift. For
example, many international companies find it desirable to change facility
location to provide better service to customers.
3. Companies may split, merge, or be acquired by new owners, making facilities
redundant.
4. New products may be introduced, changing the requirement and availability of
resources.
5. Political, economic and legal requirements may make it more attractive to change 309
location. Many companies are moving facilities to regions where environment or Layout
labour laws are more favourable.
‘Facility Planning’ , as used in this lesson, denotes the generic meaning of the term.
The term is used to include location, land, buildings, equipment, furnishings and all
other such provisions to the physical capability of the organisation that add to its
value.
Well-planned facilities enable an organisation to function at its most efficient and
effective level, offering real added value improvements to the organisation’s core
business.
Facilities are expensive. Their lifetime is in decades. They take years to commission.
Since an organisation normally must live with the facility for several years, any
mistakes in choices can be very costly to the organisation. This is why facility design
and the strategic thinking that should precede it are so important.
An objective assessment of the actual facility needs, supported by a foundation of
market, utilisation, operations, and financial data, can save millions in unnecessary
renovation and construction costs, as well as help create new revenue streams, and
reduce ongoing operational costs. A multidisciplinary approach to facility planning
integrates strategic business planning, operations redesign, financial analysis, and
equipment/technology planning.
The objective for any facility that is created should be the following:
 It should be located such that it provides better value to customers.
 It should be equipped such that it meets the needs of the population it services.
 Once located, the facility should ensure a blend of an efficient work environment
and maintain the most productive processing and flow in transformation or
manufacturing process.
Though factory layout is the focal point of facility design in most cases and it
dominates the thinking of most managers, yet factory layout is only one of several
detail levels. It is useful to think of facility planning at four levels, these are:
 Global (Site Location)
 Macro (Site Planning)
 Micro (Facility and Building Layout)
 Sub-Micro (Workstation Design)
In this lesson, we will limit ourselves to the first three levels only.
Table 13.1: Facility Planning Matrix
Level Activity Space Planning Unit Environment

Global Site Location & Sites World or Country
Selection
Macro Layout Site Planning Site Features, and Site and Building
Departments Concept
Micro Layout Facility, Building and Buildings, Workstations Plant or Departments
Factory Layout Features
Sub-Micro Workstation & Cell Tool & Fixture Locations Workstation & Cells
Layout Design
310 Ideally, the design progresses from global to sub-micro in distinct, sequential phases.
Production and
Operation Management At the end of each phase, the design is 'frozen' by consensus. Moving in a sequential
manner helps management in the following manner:
 Settling the more global issues first.
 It allows smooth progress without continually revisiting unresolved issues.
 It prevents detail from overwhelming the project.
Based on strategic importance, the macro layout is accepted to be the most critical and
strategically important aspect of facility planning. However, all the stages have their
own importance and significance.
13.3 GLOBAL LEVEL

At the global level, we select a site location. This initial planning stage involves
selecting the region or general area in which the plant or facility should be located.
The decision on where to add capacity, called the location decision, is complex and
involves many factors. Some of the factors are:
 The geographic coverage of your production capacity
 The source of inputs like raw materials, manpower and skill availability
 Freight costs
 The location of the market
 Government regulations
It is strategically important because it commits significant resources of the
organisation. Great care and consideration should be given to the long-term
implications.
Figure 13.1 summarizes the various steps taken to correctly make the facility location
decision. Though there could be numerous factors that go into the facility location
decision, some of them specific to the special requirements of the organisation, some
typical factors that affect the decision are shown in the figure.
Figure 13.1: Choice of Location
Let us discuss the global level factors for manufactured products and for service
operations separately, for the sake of convenience. Though the same principles are
applicable for both, there are greater complexities in the case of manufactured 311
products. Layout
Manufactured Products: Manufactured products differ from many service products as

production may take place at a location, and then the goods are distributed to the
customer. Often the source of raw materials is an important factor in deciding
locations. Very often, you want to locate your operation close to that source of raw
material. In aquaculture, for example, the incubation of salmon eggs and the first stage
lifecycle of the fish are done in fresh water. Therefore, it is advantageous to locate
hatcheries where there is an abundance of fresh water. The typical factors that require
consideration are shown in Figure 13.2.
Figure 13.2: Typical Factors Affecting the Location Decision
1. Location of markets: Locating plants and facilities near the market for a particular
product or service may be of primary importance for many products in the sense
that location may impact the economics of the manufacturing process. This may
be because of:
 Increased bulk or weight of the product.
 Product may be fragile.
 It susceptible to spoilage.
 Add to transportation costs.
 Increase transit time.
 Decrease deliveries.
 Affect the promptness of service.
 Affect the selling price of the product—the transportation cost often makes
the product expensive.
Assembly-type industries, in which raw materials are gathered together from
various diverse locations and are assembled into a single unit, often tend to be
located near the intended market. This becomes especially important in the case of
a custom-made product, where close customer contact is essential.
312 2. Location of materials: Access to suppliers of raw materials, parts, supplies, tools,
Production and
Operation Management equipment, etc., are very often considered to be of paramount importance. The
main issue here is the promptness and regularity of supply from suppliers and the
level of freight costs incurred. In general, the location of materials is likely to be
important if:
 Transportation of materials and parts represent the major portion of unit costs.
 Material is available only in a particular region.
 Material is bulky in the raw state.
 Material bulk can be reduced in various products and by products during
processing.
 Material is perishable and processing increases the shelf life.
Keeping in mind those materials may come from a variety of locations; the plant
would then be located such as to minimize the total transportation costs.
Transportation costs are not simply a function of distance—they can vary
depending on the specific routes as well as the specific product classifications.
For example, a Delhi-Patna consignment would be much more expensive than a
Delhi-Mumbai consignment, though the distances are similar. Sea freight from an
Australian port to an Indian port is comparable to the sea freight from an
Australian port to an English port, though the distances are not comparable.
3. Transportation facilities: Adequate transportation facilities are essential for the
economic operation of a production system. These can include—road, rail
waterways airports. The bulk of all freight shipments are made by rail since it
offers low costs, flexibility and speed.
For companies that produce or buy heavy and bulky low-value-per-ton
commodities as are generally involved in import and export activities, shipping
and location of ports may be a factor of prime importance in the plant location
decision. Truck transport for intercity transport is increasing as is airfreight and
executive travel. Traveling expenses of management and sales personnel should
also be considered in the equation.
4. Labour supply: Manpower is the most costly input in most production systems.
An ample supply of labour is essential to any enterprise. The following rule of
thumb is generally applied:
 The area should contain four times as many permanent job applicants than the
organisation will require.
 There should be a diversification between industry and commerce—roughly
50/50.
Organisations often take advantage of a location with an abundant supply of
workers. Labour costs and/or skills are often a very important consideration for
locating a facility. The type and level of skill possessed by the workforce must
also be considered. If a particular required skill is not available, then training costs
may be prohibitive and the resulting level of productivity inadequate.
In the call center business, the need of English speaking workers becomes a factor
in deciding the location of your business capacity. India has come on the map for
software development because it has a large number of skilled software personnel.
Microsoft, Texas Instruments, Cisco Systems, Oracle, etc., some of the best-
known names in software applications, have located facilities in India.
Many countries, like China and India, are turning out to be attractive locations for 313
industries that require large contingents of unskilled labour. Hyundai Motors Layout
recently announced that India would be its hub for supply of small cars and
automobile components worldwide. Companies like Nike, Reebok, etc., are
setting-up supply chains in Asia and South America. Many US automobile
manufacturers are moving production facilities to Mexico. Though, this is often
very appealing, you need to bear in mind that conditions can change in time. For
example, while labour costs may be low in a certain geographic location now, this
will change if the demand for labour grows significantly.
In considering the labour supply, the following points should be considered.
 Skills available – size of the labour force – productivity levels.
 Unionization – prevailing labour – management attitudes.
 History of local labour relations – turnover rates – absenteeism, etc.
Some organisations have relocated from a high skill/high cost area to a low
skill/low cost area without any decrease in productivity. Sometimes it has been
due to skill availability and labour-management relations but often it has been the
result of higher investment in mechanization.
Figure 13.3: Labour Costs of Manufacturing Workers in different Countries
5. Location of other plants and warehouses: Organisations need to look at their

plant locations for the complete system point of view.
 Distribution and supply requirements require the support of sister-plants and
warehouses that complement the system.
 The system should be designed to minimize total system costs.
 The locations of competitor's plant and warehouses must also be considered
(what do they know, that you don't) the object being to obtain an advantage in
both freight costs and the level of customer service.
6. Climate: The recent typhoons in the Gulf of Mexico have indicated the need to
look at climatic conditions as a parameter for making location decisions.
Petrochemical plants near Houston were seriously threatened by Hurrican Katrina.
Japan has seismic regions that could be extremely risky for large fixed
investments in products that are hazardous or dangerous or uses raw materials or
produces by products that may have similar impacts.
7. Governmental controls and regulations: Exhibit 13.1 shows the composite
ranking of the business environment in 20 countries, based upon factors including
314 government controls, regulations and incentives and labour conditions. Labour
Production and
Operation Management conditions include skills, availability, unionization and history of labour relations.
Exhibit 13.1: Ranking of the Business Environment in 20 Countries, 1997-2001
1 Netherlands 11 Finland
2 Britain 12 Belgium
3 Canada 13 New Zealand
4 Singapore 14 Hong Kong
5 U.S. 15 Austria
6 Denmark 16 Australia
7 Germany 17 Norway
8 France 18 Ireland
9 Switzerland 19 Italy
10 Sweden 20 Chile
In another ranking, this time by the World Bank in their 'Doing Business in 2006'
ratings, India was ranked 116 out of the 155 countries in the listing. New Zealand was
number one, closely followed by Singapore. According to this report, starting a
business in India requires 11 procedures and around 72 days, the highest in the Asian
region. Business in India requires 20 procedures. In 'rigidity of employment' that
relates to hiring and firing people, India ranks 62 on an index of 100. Around
40 procedures and 425 days are required for a contract. Also, taxes must be paid 59
times during the year.
Tax regulations, environmental regulations or various other kinds of government
policies and regulations can be important factors in the location decision. There may
be a more favourable investment climate in a particular geographical or political
region that may attract industry to invest in that region.
Service Products: In service, the capacity to deliver the service to the customer must
first be determined; only then can the service be produced. What geographic area can
you realistically service? For example, a hotel room must be available where the
customer is when that customer needs it—a room available in another city is not much
use to the customer.
The primary parameters on which the geographical location decisions are based for
service products have been enumerated below:
1. Purchasing power of customer drawing area
2. Service and image compatibility with demographics of the customer drawing area
3. Competition in the area
4. Quality of the competition
5. Uniqueness of the firm's and competitor's locations
6. Physical qualities of facilities and neighboring businesses
7. Operating policies of the firm
8. Quality of management
Karim, a speciality restaurant in Delhi, had opened outlets in the major upcoming
markets in Delhi, Noida and Gurgaon. In the malls that are coming up in and around
Delhi, you see well known names like Marks and Spencer, McDonald's, Tissot, Canon
Nike, etc. These are all decisions related to capacity.
The location for particular franchise outlet is driven by the consideration of 315
geographic coverage. If you want to have intensive distribution, then the number of Layout
facilities that you have in a particular geographical location is very important.
Exhibit 13.2: Location Strategies – Service vs. Industrial
Service/Retail/Professional Industrial
Revenue Focus Revenue Focus
Cost determinants Costs
Rent Transportation cost of raw materials
Management caliber Operations policies Shipment cost of finished goods
(hours, wage rates) Energy and utility cost;
Cost of labour; raw material; taxes, etc.
Other Other
Volume/revenue Intangible and future costs
Drawing area, Infrastructure - roads, power etc.
purchasing power Labour-management attitudes
Competition; Quality of life
advertising/pricing Skill enhancement and education facilities
Physical quality Quality of State and Local government
Parking/access;
security/ lighting;
appearance/image
Analytic Techniques Analytic Techniques
Correlation analysis to determine Linear Programming and Transportation
importance of factors for a particular type of method
operation Load-distance models
Traffic counts Factor Rating
Demographic analysis of drawing area Breakeven analysis
Purchasing power analysis of drawing area Crossover charts
Assumptions Assumptions
Location is a major determinate of revenue Location is a major determinate of cost
Issues manifesting from high customer Most major costs can be identified
contact explicitly for each site
Low customer contact allows focus on
costs
Intangible costs can be objectively
evaluated
Exhibit 13.2 gives a comparison of the different parameters, revenue focus, cost
determinants, analysis techniques and basic assumptions relevant for location
strategies for both service as well as industrial units.
The difference in focus can be easily gauged from the comparison. In service
industries, location is generally a determinant of revenues, while in industrial
organisations location is a determinant of costs.
A very simple analytical method to relate the factors and their salience to the facility
location decision is provided by the Factor Rating Analysis method discussed below.
332 Space requirements also need to be computed. Based on the size and number of
Production and
Operation Management machines to be installed and the space available for the layout, the minimum space
required is worked out. The requirement of space for each department, for Anand
Parvat Industries, is shown in Table 13.6.
Table 13.6: Area Required by Different Departments
Department Area required in sq. ft.
A - Turning Department (Lathes) 1000
B - Shaping Department 900
C - Drilling Department 650
D - Milling Department 750
E - Grinding Department 1100
F - Inspection Department 1200
Store - Incoming 1200
Store - Finished Stock 1200
Total 8000
The spiral method works under following assumptions:

1. The department shape is a combination of square and rectangles.
2. The area of a department varies only slightly with peripheral changes in its shape.
The solution is arrived at by trial and error. The following steps are taken:
1. The activity area is located. Each activity is located in such a manner that the
serviced area and servicing areas are located wit h a common periphery.
2. Around each of the service activity areas arrange their subsequent servicing or
serviced areas, again maintaining necessary areas assignment for each.
This process is continued until all departments have been located. Using this
schematic, the departments should be so arranged that a department has at least some
common boundary with each of the departments from which it receives material or to
which it delivers material. This will ensure that material from a department is moved
to another department with minimum cost. This is a trial and error procedure. It does
not guarantee that an optimal solution will be obtained. Also, the solution may not be
unique. One of the possible arrangements by this method for our example is shown in
Figure 13.9.
Stores D
E Stock
A C F
Figure 13.9: A Feasible Arrangement by Using the Spiral Method

333
13.7.3 Computerised Relative Allocation of Facilities Technique (CRAFT)
Layout
A number of computerized layout programs have been developed since the 1970s to
help devise good process layouts. One such program that is widely applied is the
Computerized Relative Allocation of Facilities Technique (CRAFT). The CRAFT
method also follows the same basic idea as the 'Travel Chart Technique', but with
some operational differences. It requires a load matrix and a distance matrix as initial
inputs, but in addition, it also requires a cost to be computed per unit distance traveled,
say, Rs. 1.50 per meter moved.
With these inputs and an initial layout in the program, CRAFT tries to improve the
relative placement of the departments as measured by total material handling cost for
the layout. The relationship that it uses is similar to the Load Distance Model:
Material handling cost between departments
= Number of loads
× Rectilinear distance between department centroids
× Cost per unit distance.
The program simulates different arrangements of layout and then makes
improvements by exchanging pairs of departments iteratively until no further cost
reductions are possible.
Features of CRAFT
The major features of CRAFT are as listed below:
 Attempts to minimize transportation cost, where transportation cost = flow ×
distance × unit cost.
 Required the assumptions that: (1) move costs are independent of the equipment
utilisation and (2) move costs are linearly related to the length of the move.
 Distance matrix used in the rectilinear distance between department centroids.
CRAFT being a path-oriented method, the final layout is dependent on the initial
layout. Therefore, a number of different initial layouts should be used as input to the
CRAFT layout. CRAFT allows the use of dummy departments to represent fixed areas
in the layout. CRAFT input requirements are:
1. Initial layout
2. Flow data
3. Cost per unit distance
4. Total number of departments
5. Fixed departments and their location
6. Area of departments.
The procedures adopted for using CRAFT are:
1. Determine department centroids
2. Calculate rectilinear distance between centroids
3. Calculate transportation cost for the layout
4. Consider department sharing a common border
5. Determine transportation cost of each departmental interchange
334 6. Select and implement the departmental interchange that offers the greatest
Production and
Operation Management reduction in transportation cost.
7. Repeat the procedure for the new layout until no interchange is able to reduce the
transportation cost.
Major Disadvantages of using CRAFT

CRAFT, inspite of its popularity has some major drawbacks.
 Because the basis is the cost of materials handling, only production departments
are considered. No service departments are considered.
 An initial idea of the layout is required. Therefore, the technique only applies to
the modification of an existing layout or new layouts where the outline shape is
known.
 The distances between the departments is taken as straight lines whereas in
practice movement is usually rectangular along orthogonal lines.
To illustrate the approach to develop a layout, in CRAFT heuristics consider the initial
layout and flow data as in the following example. Assume that the cost per unit
transfer to be 1.
Example: Consider the following layout problem with unit cost matrix. Use CRAFT
algorithm to obtain layout. The initial layout is shown in figure below and the flow
matrix in table below.
7 7
A B 7
D C 7
Initial Layout
Flow Matrix
Department A B C D
A 30 25 45
B 20 15 20
C 10 20 10
D 100 10 5
Centroids of all the departments in the initial layout are calculated and presented as
given below:
( X A, Y A) = 10.5, 3.5
( X B, Y B) = 10.5, 10.5
( X C, Y C ) = 3.5, 10.5
( X D, Y D) = 3.5, 3.5
Using the rectilinear distance we draw the distance matrix as shown in table below. 335
Distance Matrix Layout
Department A B C D
A 0 7 14 7
B 7 0 7 14
C 14 7 0 7
D 7 14 7 0
Total material handling cost is calculated as follows:

Total cost = flow × distance × unit cost
Total Cost Matrix
Department A B C D Cost
A 0 210 350 315 875
B 140 0 105 280 525
C 140 140 0 70 350
D 700 140 35 0 875
Total Cost 2625
Consider various departmental interchange for improvement. Departmental

interchange is possible for departments having common boundary or equal area. The
possible department interchanges are as shown in table below.
Departmental Interchanges
Department pair Reason

A-B Common border and equal area
A-C Equal area
A-D Common border and equal area
B-C Common border and equal area
B-D Equal area
C-D Common border and equal area
For the purpose of calculating material handling cost, interchange would mean change
in the centroid. In the same way as we calculated the total cost for the initial layout,
we calculate the total cost for each of the possible interchanges, and select the layout
that gives the least total cost.
13.7.4 CORELAP (Computerised Relationship Layout Planning)

A plethora of authors have developed procedures to facilitate the layout designer’s
job. In 1961 Muther introduced the method known as Systematic Planning Layout
(SPL) which has since been widely used; many of the algorithms used in software
programs having been based on it. The technique used the REL matrix, with boxes
where the desirability of two particular departments being next to each other in the
plant layout is marked using A-E-I-O-U-X proximity ratios, and the FROM-TO
matrix, which reflects the importance of materials flow between two departments.
CORELAP (Computerized Relationship Layout Planning) was launched by the
department of industrial engineering of Northeastern University under the leadership
of Professor James Moore. It is essentially a construction program. Generating a
layout with this program involves confronting the following two questions; firstly, the
order in which departments will be placed is defined. This is known as the Placement
Sequence Calculation. Then, the department’s relative position, its physical location in
336 space, must be established. Placement is made in a cell-scheme which is unaware of
Production and
Operation Management the original shape of the real plant. The program maintains the rectangular shape of
departments. Decisions as to the final positioning will be based on position ratios and
borderline length.
The plant distribution problem that we will use to compare the fitness of solutions
generated by genetic algorithms and the CORELAP program involves 6 departments:
1-Office (400 m2). 2- Reception (200m 2). 3- Polishing (800m 2). 4- Lathe Turning
(600m2). 5 -Assembly (1000m 2), and 6- Warehouse (1500m 2) to be fitted into a plant,
measuring 70m × 50m. The traditional table of interdepartmental relations
corresponding to the above example and produced by the expert according to this
experience and the information collected is showed in the Table 13.7:
Table 13.7: Interdepartmental Relations
Office Lathe
MATRIX REL Reception Polishing Assembly Warehouse
Turning
Office A U U U E
Reception E O U U
Polishing I U O
Lathe Turning I U
Assembly E
Warehouse
Starting at the REL matrix in Table 13.7 and with the numeric values assigned to the
proximity ratios (an option that Corelap offers the designer) the order of department
placements is 2. Reception, 1. Offices, 6 Warehouse, 5 Assembly, 3, Polishing and 4
Lathe turning. This order affects the ensuing replacement procedure. In the example a
matrix with squares that represent 50 m 2 has been used.
Warehouse Assembly
Assembly Polishing
g
i n
n
r
Recep u
Offices Lathe Turn ing T
tion e
Reception h t
Warehouse a
L
Polishing Offices
(a) CORELAP Solution (b) GA’s Solution
Figure 13.10
Evaluation of the above distributions is made by applying the following expression:
∑ ∑ CRij * d ij , where dij is the distance between departments that the program will
i j > i
calculate taking the centroids of each section as a reference point, and CRij is the
proximity ratio that unites them. A low value would indicate a good layout. The value
obtained using the traditional method (Table 13.7) is 1.545,65, whilst the one for the
solution obtained with genetic algorithms, which is shown in figure 13.10, is 824,4.
337
13.7.5 Automated Layout Design Program (ALDEP)
Layout
Now we will examine Automated Layout Design Program (ALDEP). ALDEP is
basically a construction algorithm but it can also be used to evaluate two layouts. The
algorithm uses basic data on facilities and builds a layout by successively placing the
layout using relationship information between the departments.
The procedures adopted for using ALDEP are:
Step 1: Input the following:
1. Length and width of facility
2. Area of each department
3. Minimum Closeness Preference (MCP) value
4. Sweep width
5. Relationship chart showing the closeness rating
6. Location and size of restricted area.
Step 2: One department is selected randomly and placed in the layout.
Step 3: In this step, the algorithm uses minimum closeness required between
departments for the selection of departments to be placed with an earlier placed
department. Select the department having maximum closeness rating. If there is no
department having minimum closeness preference then any department that remains to
be placed is selected.
Step 4: If all the departments are placed in the layout, go to step 5. Else, go to step 3.
Step 5: Compute the total score of the layout.
Step 6: If the total score required is the acceptable score, then go to step 7, else go to
step 2.
Step 7: Print the current layout and the corresponding score.
The following example illustrate the approach in ALDEP, heuristics.
Example: Develop a layout for the following problem.
1. Layout and area requirements are shown in Table below.
Layout Requirements
Department Area (sq. ft) Number of unit squares

1 1200 30
2 800 20
3 600 15
4 1200 30
5 800 20
6 1200 30
7 1200 30
Total 7000 175
Assume one square in the layout to be equal to 40 sq. ft.

Number of unit squares for a department = dept. area in sq. ft/area per square.
Let the size of layout be 15 × 12, and the sweep width be 2 (this means that we will
fill 2 columns simultaneously).
338 The relationship chart for the example is as follows:
Production and
Operation Management Department 1 2 3 4 5 6 7
1 E O I O U U
2 E U E I I U
3 O U U U O U
4 I E U I U U
5 O I U I A I
6 U I O U A E
7 U U U U I E
In ALDEP the closeness rating uses the following notations with the following values:
Chosen Closeness Rating
Absolutely necessary A 64
Especially important E 16
Important 1 4
Ordinary O 1
Unimportant U 0
Undesirable X –1024
Randomly select the first department in the layout. Place the first department in the
upper left corner and extend it downward. Width of the extension is determined by the
sweep width. The next department begins where the previous department ended and
follows the serpentine sweep pattern (shown in figure below.)
Sweep Pattern
Let department 2 be selected. Number of unit squares in department 1 be 20. Now,

20 square units are filled in 15 × 12 grids as shown in figure below.
Placing Department 2 in Layout

Since the minimum closeness between departments required for selection of 339
departments is I = 4, scan the relationship chart randomly to find the departments Layout
having closeness rating of 4 or greater with department 2. For the above case
closeness rating for the pair (1–2) = 16, (2–4) = 16, (2–-5) = 4 and (2–6) = 4.
Select any department say, department 1. Place department 1 in the layout in a
serpentine pattern as shown in the figure below.
Placing Department 1 in the Layout
Repeat the above procedure to get the final layout as shown in figure below.
Final Layout
After the final layout is obtained, the score is calculated. The score is the sum of the
closeness ratings of all the neighbouring departments as shown in table below.
Closeness Rating
Department pair Closeness rating

(1, 2) 16
(1, 4) 4
(1, 5) 1
(4, 5) 4
(5, 6) 64
(4, 6) 0
Contd….
340 (5, 7) 4
Production and
Operation Management (6, 7) 16
(7, 3) 1
(6, 3) 0
Total 110
From the above, the layout score is 2 × 110 = 220. A further iteration should be
carried out to check if a better score can be achieved.
13.7.6 Advantages and Disadvantages of Process Layout

Process Layout is best suited for non-standardized products; where there is a low
volume, high variety manufacturing environment; where the market requires frequent
change in product design; in job-shop manufacturing; and for setups where very
expensive or specialized machines like CNC milling, coordinate measuring machine
etc., are required to be used. Its advantages are:
1. Initial investment in process layout is low.
2. Varied degree of machine utilisation may be achieved in process layout, as
machines are not dedicated to any single product.
3. There is greater flexibility and scope of expansion.
4. High product variety can be easily handled, therefore different product designs
and varying production volumes can be easily adopted.
5. The overhead cost is low.
6. Breakdown of one machine does not result in total stoppage of production.
Maintenance of machines is relatively easy as it can be scheduled without greatly
impacting production.
7. Easy, effective and specialized supervision of each function area is easy to
achieve. With different departments for different processes, better teamwork can
be achieved.
8. There is low setup and maintenance cost compared to other layouts.
Though the advantages outweigh the disadvantages in job shops and batch production,
there are some disadvantages of Process Layout:
1. There is high degree of material handling. Parts may have to backtrack in the
same department.
2. Large work in process inventory is common. This may lead to more storage area.
3. Workers are more skilled. This is because of variety in products and difference in
design, therefore, labour cost is higher.
4. Total cycle time is high. This is due to waiting in different departments and longer
material flow.
5. Inspection is more frequent which result in higher supervision cost.
6. It is difficult to fix responsibility for a defect or quality problem. The work moves
in different departments in which the machine preference is not fixed. Therefore,
which machine or which operator was faulty during a quality lapse may be
difficult to trace in some cases.
7. The production planning and control is relatively difficult.
With the changing perceptions of consumers, many feel that process layout is best 341
limited to cases where the volumes are so low and the differences between products Layout
are so great that line flow processes, batching, and cellular manufacturing are not
feasible.
13.8 PRODUCT OR LINE LAYOUT

A product layout is also called a line layout. In this type of arrangement, the various
facilities, such as machine, equipment, work force, etc., are located based on the
sequence of operation on parts. Where the facility is needed again after few other
operations, the facility is duplicated as required by the sequence of operations.
Product layout is used for continuous operations, where the part variety is less,
production volume is high and part demand is relatively stable. Though Ransom E.
Olds created the first assembly line in 1901, Henry Ford is recognized for
revolutionizing industry by mass-producing automobiles.
Ford improved upon Olds' assembly line idea by installing conveyor belts and
converting Olds' idea into a moving assembly line. According to Ford, he developed
the idea by watching the sequence of operations in a meat factory. By using a moving
assembly line, Ford was able to cut the time of manufacturing a Model T from a day
and a half to a mere ninety minutes. The assembly line concept has remained more or
less similar since 1913.
The assembly line concept is applicable on products that can be produced with
identical parts. Since each part is identical and can be replaced with an identical part,
the entire production sequence can be predetermined in careful detail. This permits
each task to be minutely studied by engineers and managers to find ways to make the
sequence quicker and cheaper.
Using better work methods, specialized equipment and tools, and extensive employee
training the speed of producing the product can be increased and the cost decreased.
This is the basic concept of the assembly line.
13.8.1 Defining the Layout Problem

The layout-planning problem for assembly lines, is to determine the minimum number
of stations (workers) and assign tasks to each station, so that a desired level of output
is achieved. The design must consider the following aspects:
 It should focus on achieving a desired level of output capacity.
 The tasks assigned to stations and the sequence in which tasks must be carried out.
 The output should be attained efficiently, without using minimum input resources.
How this is achieved can be best understood with an example. ABC Electricals is a
medium-sized firm in Delhi. It has an established design of a contact breaker
assembly, used industry-wide to protect all electrical circuits. The company has
established an assembly line to manufacture the product.
The operator starts the assembly process with a molding half. Into this molding he
puts the contacts, springs, plastic levers, etc. The assembly is closed off with a similar
molding half. The final assembly, comprised up to four of these units, is secured with
four rivets passing through the sandwich. The assembly is then tested. Testing is a
critical operation, as the contact breaker assembly carries up to 415 volts. If the unit is
found acceptable, it is labeled and packed for despatch.
The method of assembly was on a series of benches with the sub-assemblies being
placed in boxes for transfer to the riveting press. The rivet operation involved the
342 manual placing of four long tubular rivets, pressing a 5 tonne press and securing the
Production and
Operation Management assembly. The product was again boxed for transfer to testing.
The demand for this was 3000 units per month. However, due to the high rate of
rejection and the highly labour intensive process, they were unable to meet the
demand. Table 13.8 gives the assembly line details for the product.
Table 13.8: Assembly Line for Contact Breaker
Work Preceding Task Assigned Predecessor Task Operators

Station Work Task Time/Unit per station
Station (Hours)
1 - A: Contact Breaker None 0.010 1
Assembly; Take Molding
Half and clean burrs etc.
2 1 B: Install contacts A 0.020 2
C: Install Springs B 0.020
D: Install plastic levers A,C 0.040
etc. on Molding Half.
3 1 E: Install contacts A 0.020 2
F: Install Springs B 0.020
G: Install plastic levers A,C 0.040
etc., on Molding Half.
4 2,3 H: Close with other G 0.050 2
Molding Half
5 4 I: Assemble 4 of the H 0.008 1

above units
6 5 J: Insert Rivets I 0.040 1

7 6 K: Rivet the sandwich J 0.098 1
units
8 7 L: Switching Test under E 0.050 1
load
9 8 M: Pack Contact Breaker F 0.020 1
unit
Total 0. 354
Is capacity adequate? The number of units this layout permits the company to produce
each day depends on the station whose tasks take the longest time to perform. From
Table 13.8 we know that:
 The task assigned to station1 requires 0.010 hours,
 Station 2 and station 3 are parallel paths and the tasks assigned take 0.080 hours,
 Station 4 requires 0.50 hours,
 The longest time is needed at station 6 that is 0.098 hours, and so on.
Since every unit passes through all stations, station 3 is the bottleneck operation. This
station restricts the rate of flow of the line. With this layout, a finished contact breaker
will flow to the end of the line every 0.098 hours. This time is called the cycle time of
the line.
The cycle time is, in fact, also the time after which the conveyor moves in a moving
assembly line. Cycle time is defined as the time period after which completed units
come off the assembly line. Completed units are available after each movement of the
conveyor, as the basic structure worked upon at the last workstation will become a
completed unit in that time.
360 4. …………………………………is the process of assessing the worker’s
Production and
Operation Management rate of working relative to the observer’s concept of the rate
corresponding to standard performance.
5. The standard time for a job is an ……………………………………..of
the basic time and has a different use.
14.5 ALLOWANCES
Allowances are additions to the basic time intended to provide the worker with the
opportunity to recover from the physiological and psychological effects of carrying
out specified work under specified conditions and to allow for personal needs. The
amount of the allowance will depend on the nature of the job. The way in which
relaxation allowance is calculated, and the exact allowances given for each of the
factors which determine the extent of the allowance, varies between different
organisations. Table 14.1 illustrates the allowance table used by one company which
manufactures domestic appliances. Every job has an allowance of 10 per cent, the
table shows the further percentage allowances to be applied to each element of the job.
In addition, other allowances may be applied for such things as unexpected
contingencies, synchronization with other jobs, unusual working conditions and so on.
Figure 14.1 shows how average basic times for each element in the job are combined
with allowances (low in this example) for each element to build up the standard time
for the whole job.
14.6 OTHER WORK MEASUREMENT TECHNIQUES

Other techniques are used to estimate standard times. They include the following:
Synthesis from Elemental Data – is a work measurement technique for building up
the time for a job at a defined level of performance by totaling element times obtained
previously from the studies in other jobs containing the elements concerned or from
synthetic data.
Predetermined Motion–Time Systems (PMTS) – is a work measurement technique
whereby times established for basic human motions (classified according to the nature
of the motion and the conditions under which it is made) are used to build up the time
for a job at a defined level of performance.
Table 14.1: An allowances table used by a domestic appliance manufacturer
Allowance factors Example Allowance (%)

Energy needed
Negligible none 0
Very light 0–3 kg 3
Light 3–10 kg 5
Medium 10–20 kg 10
Heavy 20–30 kg 15
Very heavy Above 30 kg 15–30
Posture required
Normal Sitting 0
Erect Standing 2
Continuously erect Standing for long periods 3
Lying On side, face or back 4
Difficult Crouching, etc. 4–10
Contd…..
Visual fatigue 361
Work Measurement
Nearly continuous attention 2
Continuous attention with varying focus 3
Continuous attention with fixed focus 5
Temperature
Very low Below 0°C over 10
Low 0–12°C 0–10
Normal 12–23°C 0
High 23–30°C 0–10
Very high Above 30°C over 10
Atmospheric conditions
Good Well ventilated 0
Fair Stuffy/smelly 2
Poor Dusty/needs filter 2–7
Bad Needs respirator 7–12
Analytical Estimating – is a work measurement technique which is a development of

estimating whereby the time required to carry out the elements of a job at a defined
level of performance is estimated from knowledge and experience of the elements
concerned.
Packing Departmen t FWT

Observe r: ..........................
Pack 20 × pt # 73/2A Loca tion: ..........................
Job: ..........................
Observation Average Element

Element Allowances
Basic standard
1 2 3 4 5 6 7 8 9 10 Time time
Make Box Observed time 0 .7 1 0 .7 1 0.7 1 0 .6 9 0 .7 5 0 .68 0 .7 0 0.72 0.70 0.68
Rating 90 90 90 90 80 90 90 90 90 90
Basic time 0.64 0.64 0.63 0.62 0 .6 0 0 .6 1 0 . 63 0 .6 5 0.63 0.61 0.626 10% 0.689
Pack × 2 0 Observed time 1.30 1.32 1.25 1.33 1.33 1.28 1 .32 1.32 1.30 1 .30
Rating 90 90 100 90 90 90 90 90 90 90
Basic time 1.17 1. 19 1 .2 5

1.20 1.20 1.15 1.19 1 .1 9 1 .1 7 1 .1 7 1.168 12% 1.308
Seal and Secure Observed time 0.53 0.55 0.55 0.56 0.55 0.53 0.60 0.56 0.49 0.51
Rating 90 90 90 90 90 90 85 90 100 100
Basic time 0.48 0 .5 0 0 .50 0 .50 0 .4 8 0.4 8 0 .51 0 .50 0 .4 9 0 .5 1 0.495 10% 0.545
Assemble outer Observed time 1 .12 1 .2 1 1.2 0 1 .25 1.4 1 1 .27 1 .11 1 .15 1 .2 0 1 .2 3
Fix and Lab el Rating 100 90 90 90 90 90 100 1 00 90 90
Basic time 1.12 1.09 1.08 1.13 1.27 1.14 1.11 1.15 1.08 1.21 1.138 12% 1.275
Raw standard time 3.817
Allowances for total job 5% 0.191
Standard time for job 4.01 SM
Figure 14.1: Time Study of a Packing Task – Standard Time for the whole Task
calculated
Activity Sampling – is a technique in which a large number of instantaneous

observations is made over a period of time of a group of machines, processes or
workers. Each observation records what is happening at that instant and the percentage
362 of observations recorded for a particular activity or delay is a measure of the
Production and
Operation Management percentage of time during which that activity or delay occurs.
Notwithstanding the weak theoretical basis of work measurement, understanding the
relationship between work and time is clearly an important part of job design. The
advantage of structured and systematic work measurement is that it gives a common
currency for the evaluation and comparison of all types of work.
14.7 NECESSITY OF WORK MEASUREMENT

Why should we need to know how long a job should take? The answer to this question
lies in the importance of time in our everyday life. We need to know how long it
should take to walk to the train station in the morning, one needs to schedule the day's
work and even when to take out the dinner from the oven.
In the business world these standard times are needed for:
 planning the work of a workforce,
 manning jobs, to decide how many workers it would need to complete certain
jobs,
 scheduling the tasks allocated to people
 costing the work for estimating contract prices and costing the labour content in
general
 calculating the efficiency or productivity of workers - and from this:
 providing fair returns on possible incentive bonus payment schemes.
On what are these standard times set? They are set, not on how long a certain
individual would take to complete a task but on how long a trained, experienced
worker would take to do the task at a defined level of pace or performance.
Who sets these standard times? Specially trained and qualified observers set these
times, using the most appropriate methods or techniques for the purpose i.e. "horses
for courses".
How it is done depends on circumstances that obtain. The toolkit available to the
comprehensively trained observer is described below.
14.7.1 Activity Sampling

Activity Sampling is a statistical technique that can be used as a means for collecting
data. It is defined as:
“A technique in which a large number of observations are made over a period of time
of one group of machines, processes or workers. Each observation records what is
happening at that instant and the percentage of observations recorded for a particular
activity or delay is a measure of the percentage of time during which that activity or
delay occurs.”
It is normally used for collecting information on the percentages of time spent on
activities, without the need to devote the time that would otherwise be required for any
continuous observation.
One of the great advantages of this technique is that it enables lengthy activities or
groups of activities to be studied economically and in a way that produces statistically
accurate data.
Fixed and Random Interval Sampling 363
Work Measurement
Activity Sampling can be carried out at random intervals or fixed intervals. Random
activity sampling is where the intervals between observations are selected at random
e.g. from a table of random numbers. Fixed interval activity sampling is where the
same interval exists between observations. A decision will need to be made on which
of these two approaches is to be chosen. A fixed interval is usually chosen where
activities are performed by a person or group of people who have a degree of control
over what they do and when they do it. Random intervals will normally be used where
there are a series of automated tasks or activities as part of a process, that are have to
be performed in a pre established regular pattern. If fixed interval sampling were to be
used in this situation there is a danger that the sampling point would continue to occur
at the same point in the activity cycle.
Confidence Levels
Remember, that activity sampling is used for assessing the percentage of time spent on
activities. Because activity sampling conforms to the binomial distribution it is
possible to use a calculation to determine how many observations will be needed to
operate within specified limits of accuracy.
The formula for the number of observations is as follows:
4×p× (100-p )
=
L2
Where p is the estimated % time spent on the activity
Where L is the limit of error, expressed as a %
Once the above calculation has been completed the observations can begin and
activities are recorded at the agreed time intervals. When they have been completed a
further calculation can be used to determine the error rate, as follows:
Error Rate = ± 2 × √( p × (100 – p) )
Number of Observations
This is very much an overview to the topic of activity sampling, with a definition of
what it is, its advantage over continuous observation and the formulae that can be used
to establish the confidence levels that can be obtained.
14.7.2 Analytical Estimating

Analytical estimating is a structured work measurement technique. The formal
definition states that it is a development of estimating, in which the time required to
perform each constituent part of a task at a defined rate of working is estimated from
knowledge and practical experience of the work and/or from synthetic data.
An important feature of this technique, which helps to improve accuracy, is that a
whole job should be broken down into smaller individual tasks. This is because any
errors in the time estimates may be seen as random and will therefore compensate for
each other.
How can it be used?

Analytical estimating would normally be used for assessing work over a reasonably
lengthy period of time, where it may be difficult and more expensive to collect the
information required using other measurement techniques. Also, in some work
environments the presence of an individual carrying out work measurement in the
work place could be unacceptable. In these cases, analytical estimating may be an
364 appropriate method to use, assuming someone with experience of the work is available
Production and
Operation Management to apply their experienced judgment. (This may be work measurement personnel who
have previous experience of this particular work).
However, the work content of some jobs cannot be estimated in advance because one
is unclear about what is required until an assembly operation has been tested or
stripped down. For example, during the progress of repair unforeseen and non
standard difficulties can arise. Removing a wooden door from its frame by unscrewing
8 or 12 screws could take five minutes if the screws were recently inserted, or a great
deal longer if the screws are rusted and clogged with paint.
In summary, the technique is used most commonly in any work environment where a
lengthy time (and associated high cost) is needed to collect data.
Advantages and Disadvantages

Perhaps the most significant advantage of using analytical estimating is its speed of
application and low cost. Using trained and experienced personnel process and
measurement data can be quickly assembled and applied.
However, the use of experienced judgment when determining the time necessary to
perform a task is the technique's most obvious source of weakness when compared
with a more precise technique such as time study. This is why the technique would not
normally be used when a more precise and accurate alternative is a feasible and
economic alternative, particularly to highly repetitive, standardized operations. Many
jobs, such as craft work in the maintenance field, consist of a group of tasks which are
periodically repeated but the precise nature of each task varies each time in minor
respects ( see research on Natural & Normal Variation for further explanation). In this
example, since it is impractical, in terms of time and cost, to allocate one time study
observer permanently to each craftsman, the alternative is to use a time-study basis
plus the experienced judgment of an ex-craft work-study observer to allow for detailed
task variations.
14.7.3 Business Planning

Business (Corporate) Planning is the process of deciding what tactical action and
direction to take, in all areas of business activity, in order to secure a financial and
market position commensurate with the strategic objectives of the organisation. To put
it another way, it is the comprehensive planning for the whole of the business and
involves defining the overall objectives for the organisation, and all the actions that
must be adopted in order that those objectives are achieved.
Illustration
If only we spent as much time doing our jobs, as we waste in these budget meetings,
we would be a lot better off. This planning stuff is all very well, but has anyone ever
worked out how much it costs? Anyway, all we can ever do is write down what we
think will happen, then wait until it hasn’t happened, and finally argue about why it
didn’t.
Statements like these occur because:
 No one has taken the trouble to explain the purpose and benefits of planning;
 The planning methods are wrong;
 Plans are imposed from above, rather than worked out and agreed with the people
who are going to have to carry them out;
 So-called planning is often no more than totaling up the various departments’ 365
Work Measurement
forecasts, and calling them the company plan.
In general it can be assumed that FIVE important features of Corporate Planning
prevail, they are:
1. Objectives and objective setting;
2. Flexibility - the ability to be adaptable within the plan;
3. Growth - anticipating opportunities for new markets;
4. Synergy - the sum of joint efforts being greater than either one;
5. Time span - the critical length of the plan - long termism is increasingly risk
managed in today’s business environment.
Corporate planning is, like most business activities, only as good as the people who do
it. Its methods and approach do, however, stack the cards in its favour. In nearly every
business, competition and technical change has increased, is increasing, and will
continue to increase, and won’t stop. It cannot be ignored, so better to be part of a
success story through effective corporate planning than flounder with those
competitors who have failed to grasp the nettle. It really is the case that “Failing to
Plan is planning to fail”.
14.7.4 Predetermined Motion Time Systems (PMTS)

PMT Systems are methods of setting basic times for doing basic human activities
necessary for carrying out a job or task.
It is defined as the 'Tables of time data at defined rates of working for classified
human movements and mental activities. Times for an operation or task are derived
using precise conventions. Predetermined motion time data have also been developed
for common combinations of basic human movements and mental activities'.
The principle of analysing work into basic actions was first published by F. Gilbreth in
1920, as his Therbligs. The first commercial and internationally recognized system
was devised in the 1930's to circumvent the banning by the government of the United
States time study and the stop-watch as the means of measuring work performed on
US government contracts. It was devised by Quick, Malcolm and Duncan under the
title Work-Factor and appeared in 1938. Other methods followed, the main one, some
ten years later, being Methods-Time Measurement (MTM). Both systems share basic
similarities but are based on different standards of time.
Description of PMTS
The concept of PMTS is to analyse a job into its fundamental human activities, apply
basic times for these from tables and synthesize them into a basic time for the
complete job. The basic elements include the following:
 reach for an object or a location,
 grasp an object , touching it or closing the fingers around it,
 move an object a specified distance to a specified place,
 regrasp an object in order to locate it in a particular way, usually prior to:
 release an object to relinquish control on it,
 other elements for assembling to, or inserting an object into, its intended location.
366 For each of these actions basic times are tabled. For example, in Work-Factor the time
Production and
Operation Management unit is one thousandth of a minute (the Work-Factor Time Unit) whereas in MTM the
unit is one hundred-thousandth of an hour (time measurement unit, tmu).
The times for basic actions are adjusted for other factors which take into account such
variables as:
 distances moved, in inches or centimetres
 difficulty in performing the actions, such as avoiding obstacles during moves,
closeness of fit during assembling, weight of the object, all of which increase the
times to carry out the basic actions.
The above basic motions cover most of the actions performed by humans when
carrying out work. Other basic activities include:
 walking to a specified place
 bending down and stooping
 kneeling on one knee and kneeling on both knees
 foot and leg motions
 sitting down and standing.
Mental activities include times for: See, Inspect, Identify, Nerve Conduct, React, Eye
focus, Eye travel times, Memorize, Recall, Compute (calculate) and others, mostly
from Work-Factor.
Levels of detail in systems

In order to speed up measurement time the major systems all include different levels
of detail, such as:
1. Most detailed systems: MTM and Detailed Work-Factor
2. Second level systems: MTM-2 and Ready Work-Factor (abridged versions)
achieved usually by the four methods of combining, statistically averaging,
substituting and/or eliminating certain basic motions.
3. Third level systems: MTM-3 and Abbreviated Work-Factor (even more abridged)
4. "Higher level" systems, usually times for complete activities.
One example of simplifying in the second level system MTM-2 is the combining of
MTM elements reach, grasp and release to produce a new MTM-2 element of "Get".
PMTS is often used to generate synthetic data or (standard data banks) which are
overall basic times for more complex tasks such as maintenance or overhauling of
equipment. This is achieved by synthesizing the hundreds of small jobs measured
using PMTS into a time for the complete project.
Basic times produced by PMTS need to have relaxation allowances and other
necessary allowances added to produce standard times.
14.7.5 Time Study

Time study is a tried and tested method of work measurement for setting basic times
and hence standard times for carrying out specified work. Its roots are back to the
period between the two World Wars. The aim of time study is to establish a time for a
qualified worker to perform specified work under stated conditions and at a defined
rate of working.
This is achieved by a qualified practitioner observing the work, recording what is done 367
Work Measurement
and then timing (using a time measuring device) and simultaneously rating (assessing)
the pace of working.
The requirements for taking a time study are quite strict.
Conditions
 The practitioner (observer) must be fully qualified to carry out Time Study,
 The person performing the task must be fully trained and experienced in the work,
 The work must be clearly defined and the method of doing the work must be
effective
 The working conditions must be clearly defined
There are two main essentials for establishing a basic time for specified work i.e.
rating and timing.
Some Terminology Explained

 Timing: The observer records the actual time taken to do the element or operation.
This usually is in centiminutes (0.01 min.) and is recorded, using a stop-watch or
computerized study board.
 Rating: When someone is doing work his/her way of working will vary
throughout the working period and will be different from others doing the same
work. This is due to differing speeds of movement, effort, dexterity and
consistency. Thus, the time taken for one person to do the work may not be the
same as that for others and may or may not be 'reasonable' anyway. The purpose
of rating is to adjust the actual time to a standardized basic time that is appropriate
and at a defined level of performance. Rating is on a scale with 100 as its standard
rating.
 Elements: A complete job usually will be too long and variable to time and rate in
one go, so it would be analysed into several smaller parts (elements) which,
separately, will each be timed and rated.
 Basic time: This is the standardised time for carrying out an element of work at
standard rating.
Example: An observer times an element as 30 centiminutes (cm) and because it is
performed more slowly than the standard 100, he rates it as 95. Thus the basic time is
95% of 30 or 28.5 basic cm. The formula is: (actual time × rating)/100.
Allowances
Extra time is allowed for various conditions which obtain, the main ones being
relaxation allowance for:
1. recovery from the effort of carrying out specified work under specified conditions
(fatigue allowance)
2. attention to personal needs
3. adverse environmental conditions, and
4. others concerned with machine operations
Frequency
The basic time is the time for a complete cycle to be performed but as not all elements
are repeated in every cycle their times per average cycle must be pro rata. In the
368 example which follows, element 2 only occurs once every eight cycles so its basic
Production and
Operation Management time is one eighth of the element time, per cycle. Similar treatment for element 7 (one
twelfth).
Standard Time
Basic time + allowances
An example of a time study – extracts from the two main documents in time study
follow:
Table 14.2: Time Study Observation Sheet
Department: Main Section: Goods Summary

Stores Inwards
A study ends: 10.35 am
Section head: Tushar
B study starts: 10.03 am
Analyst John Date: 12 July
C study time: 32 min.
Operation: Raise and process Goods Received Note
D check times: 1.68 min.
E total study time: 33.68
min.
F elapsed time: 34 min.
G difference F-E 0.32 min.
H timing error: 0.9%
G/F%
Element Element Description Rating Observed time Basic time
number (cm) (cm)
1 Look out relevant Purchase 90 30 27.0
Demand (PD)
2 Obtain pad of Goods Received 80 95 76.0
notes (GR)
3 Make out GR note 80 45 36.0
4 Pin green copy to PD and place in 90 10 9.0
internal post bin
5 File white copy 75 22 16.5
6 Pin other 3 copies to goods and 80 17 13.6
place goods on pallet
1 repeat 80 33 26.4
3 75 46 34.5
4 75 10 7.5
Table 14.3: Time Study Analysis Sheet
Department: Main Stores Section: Goods Inwards

Section head: Tushar Date: 12 July
Operation: Raise and process Goods Received Analyst John
Note
El. Element Description basic times (b.min) RA% std.
mins.
basic frequency b.t. x (sm)
t. freq.
1 Look out relevant Purchase 29 1/1 0.290 10 0.319
Demand (PD)
2 Obtain pad of Goods Received 75 1/8 0.094 10 0.103
notes (GR)
Contd…..
369
3 Make out GR note 38 1/1 0.380 10 0.418
Work Measurement
4 Pin green copy to PD and place 9 1/1 0.090 10 0.099

in internal post bin
5 File white copy 15 1/1 0.150 10 0.165
6 Pin other 3 copies to goods and 17 1/1 0.170 15 0.196
place goods on pallet
7 Move pallet to stores 96 1/12 0.080 18 0.094
total sm 1.394
=
14.8 SELECTING THE MOST APPROPRIATE METHODS

OF WORK MEASUREMENT
The method chosen for each individual situation to be measured depends on several
factors which include:
1. The length on the job to be measured in time units
2. The precision which is appropriate for the type of work in terms of time units (i.e.
should it be in minutes, hundredths or thousandths of a minute)
3. The general cycle-time of the work, i.e. does it take seconds, minutes or days to
complete
The length of time necessary for the completion of the range of jobs can vary from a
few seconds in highly repetitive factory work to several weeks or months for large
projects such as major shutdown maintenance work on an oil refinery. It is quite clear
that using a stop-watch, for example, on the latter work would take several man-years
to time to measure! Thus, more "overall" large-scale methods of timing must be
employed.
The precision is an important factor, too. This can vary from setting times of the order
of "to the nearest thousandth of a minute" (e.g. short cycle factory work) to the other
end of the scale of "to the nearest week" (e.g. for large project work).
These are the dominant factors that affect the choice of method of measurement.
14.8.1 The Methods

PMTS: At the "precision" end of the scale is a group of methods known as
predetermined motion time systems that use measurement units in ten thousandths
(0.0001) of a minute or hundred-thousandths of an hour (0.00001 hour).
The resulting standard times can be used directly, for very short-cycle work of around
one minute total duration such as small assembly work. However, they often are used
to generate regularly used basic tasks such using assembling or disassembling nuts
and bolts, using a screwdriver and similar. Tasks of this type are filed as standard or
synthetic data-banks.
Estimating: At the other end of the scale (long-cycle and project work) we need
something which is quick to use. Such a method is estimating. This can exist in three
main forms.
370 1. Analytical estimating relies on the experience and judgment of the estimator. It is
Production and
Operation Management just of case of weighing up the work content and, using this experience, stating a
probable time for completion, such as "this job will take about eight days to
complete".
2. Category estimating: This is a form of range estimating and requires a knowledge
of the work. Estimators may not feel comfortable with overall, analytical
estimates upon which may depend the outlay of a great deal of money. They often
prefer giving a range estimate such as "this job should take between 12 weeks and
14 weeks to complete", which provides a safety net should things go wrong. Such
ranges are not just picked upon at random but are statistically calculated and based
on probability theory.
3. Comparative estimating: This is another example of range estimating. Again,
estimators rely on experience of the work in order to produce estimates. This
experience can be augmented by the provision of each time-range with a few
typical, descriptive, jobs that would guide estimators to the most appropriate
range. The estimator would compare the work to be estimated with those in the
various ranges until the most appropriate fit is found.
Timing
The intermediate method between the two groups above, is timing the work in some
way, usually with a stop-watch or computerized electronic study board. This method
is retrospective in that the job must be seen in action in order to be timed whereas the
other methods are prospective and can be used for timing jobs before they start.
The observer times each element of the work and obtains times that the observed
operator takes to do the elements. Each timing is adjusted (rated) by the pace at which
the operator was working as assessed by the observer. This produces basic times for
the elements and hence the whole job, which are independent of the operator and can
be used as the time for a trained, experienced worker to carry out the same elements.
Another method of assessing the work is using activity sampling and rated activity
sampling. This is a method based on the observer making snap observations at random
or systematic sample times, observing what the operator is (or operators are) doing at
the times of those observations.
Models
A most useful method for standard or synthetic data-banks of job or element times is
using computer models of the jobs. These are generated as mathematical formulae in
which the observed data are inserted to compile a time for completion of the task or
project. It is a useful method for recycling time standards for elements of basic work
over and over again, only changing the values of the variables to suit each project.
14.9 LEARNING CURVES

T.P. Wright first documented the idea of learning curves and its effect on efficiency in
the American aircraft industry in 1936. Wright found that there was a pattern in the
way that people learned; he found that per unit production time reduced at an
unvarying rate. Researchers took Wrights’ idea and expounded upon it during World
War II, where the emphasis was primarily on cost efficiency.
Since World War II, the term learning curve has been expanded to other business and
non-business applications such management, distribution, team learning, health care,
investing, and even exercise. These more general applications of learning curves are
more accurately described by the term experience curve or practice curve. For the
purposes of this paper a learning curve describes the nonlinear relationship between 371
Work Measurement
labor hours per unit and units of output, we assume a single driver units of output for
our purposes though more complex formulas exist.
14.9.1 How would a Company use Learning Curves?

The most important question in regards to learning curves is how would a company
use learning curves in their business? One practical application of learning curves is in
forecasting budgets if companies can accurately estimate the rate of learning they can
also estimate product cost. Understanding cost is also paramount to pricing decisions,
should the company follow a prestige pricing or price skimming strategy. Determining
human resource needs is another application in which learning curves can be used, as
companies become more efficient they may eliminate jobs or choose to move them to
other functional areas. However as G.J. Steven points out, “It is important to
appreciate that the learning curve is not a cost-reduction technique since the rate of
future time reduction can be predicted by the learning curve model. Cost reduction
only occurs if management action is taken, for example, to increase the rate of time
reduction by providing additional training, provision of better tools etc” (Steven 65).
14.9.2 Basic Learning Curve Calculations

There are different models for learning curves that have been proposed and used by
businesses. None are generally accepted as being superior. For explanatory purposes
we will use the Incremental Unit-Time Learning Model. The following mathematical
background is borrowed in part from Horngren, Foster, and Datars’ Cost Accounting
textbook.
This model is based on the equation:
y = aX b
where
y = the time to produce the last unit of output,
a = the time to produce the first unit of output,
X= cumulative number of units produced, and
b
= the rate of learning.
The rate of learning is calculated by taking the natural log of the percentage of
learning and dividing by the natural log of 2 (ln (% of learning)/ ln2). Ultimately what
this equation is describing is that the incremental unit time decreases at a constant rate
each time the quantity of units produced doubles. The lower your percentage of
learning is the faster individual units are produced and thus the faster average time per
unit. As a practical matter there is no hard and fast rule for determining the percentage
of learning, in Table 14.4 a 90% learning curve is assumed.
Table 14.4: Learning Curves
Cumulative units Individual unit time Cumulative total Cumulative average

(y): Labor hours time: Labour time per unit: Labour
hours hours
1 10 10 10.00
2 9 19 9.50
3 8.46 27.46 9.15
4 8.1 35.56 8.89
5 7.83 43.39 8.68
Contd….
372 6 7.62 51.01 8.50
Production and
Operation Management 7 7.43 58.44 8.35
8 7.29 65.73 8.22
9 7.16 72.89 8.10
10 7.05 79.94 7.99
11 6.95 86.89 7.90
12 6.85 93.74 7.81
13 6.77 100.51 7.73
14 6.7 107.21 7.66
15 6.63 113.84 7.59
16 6.56 120.4 7.53
Once the percentage of learning is established the numbers can be easily generated
using an excel spreadsheet. The individual unit times are based on the equation y = a
X b where a and b will be constant throughout the range of units. Notice how quickly
the effects of the learning curve takes place by the time just 16 units are produced the
average time per unit has dropped by almost 25%. If the right percentage of learning
has been applied a manager could now take this data and produce production
schedules, delivery plans, personnel staffing schedules, as well as budget forecasts.
The benefits of learning curves were underscored by professor Charles Bailey at the
University of Central Florida when he stated, “The potential applications of learning
curves far outstrip their current usage” (Anthes).
The learning curve is effected by several outside forces not the least of which is
human attributes. As Roark and Briscoe explain, “Just as the areas of standard costing
and budgeting have had to incorporate behavioral concepts to increase their
effectiveness, so must learning curve applications include behavioral considerations”
(Briscoe 32). In other words even the most accurate performance estimates does not
insure that our estimates will be accurate. Because we are dealing with human beings
planned performance and actual performance can vary for a myriad of reasons.
A discussion of learning curves would not be complete without mentioning that all
learning is not created equal. For example, a computer custom manufacturing facility,
if an engineer designs a way put an external jumper wire into a board it leads to
greater effects on the learning curve than would a single production worker learning to
solder on the external jumper wire faster. In fact the engineers breakthrough would
negate the learning of the production worker by eliminating the need for the soldering
altogether. Learning is influenced in different magnitudes at various points in the
production process. Briscoe and Roark define these points as sources of learning,
which they break into three basic categories preproduction, intratask, and exoteric
learning. These sources could easily be termed before, during, and after production.
Briscoe and Roark reinforce the manufacturing facility example when they state,
“Learning that is achieved from one type will tend to reduce the learning that can be
obtained from another”).
14.9.3 Real World Application

As previously mentioned learning curves can be used for a number of applications,
perhaps the most basic of these is budgeting. According to G.J. Steven one company
that is utilising the benefits of learning curves is Above & Beyond Ltd., a
manufacturer of high-technology guidance systems. For companies who budget for
high-technology projects, knowing the labor costs associated with that project is
critical. Labor time and cost tend to be very high because such projects are highly
technical and are being performed by very highly paid specialists. Using learning
curves helps Above & Beyond determine more realistic task times, which improves 373
Work Measurement
pricing decisions and the overall competitiveness of the firm.
The idea behind learning curves is that people get better at producing products as
they get more experienced. Learning curves first introduced in the 1930’s by T.P.
Wright and were used initially in the aircraft production industry. While several
methods exist no one learning curve model is generally accepted as the best.
Learning curves are very easy to calculate using computer spreadsheets, and the
information provided can be used in making decisions on everything from
procurement to packaging. While learning curves are useful it is not a cost-
reduction technique, human attributes must be considered and not all learning is
equal to the organisation. Learning curves can be used to answer a myriad of
questions for organisations, and their use will only continue to grow as efficiency
continues to become more of a requirement and less of a goal.
14.10 USING WORK MEASUREMENT TO INCREASE

PRODUCTIVITY
Nowhere is the application of work measurement likely to generate more productivity
improvement and cost reduction than in maintenance. Maintenance represents the
largest single variable operating cost in most enterprises when you include physical
plant value, maintenance labor, materials and overhead. And yet, maintenance does
not receive a proportionate amount of higher management attention. High productivity
maintenance contributes to better customer service, higher quality, on-time delivery
and ultimately, satisfied customers. They will not only keep coming back but will
spread the word to other potential customers.
Essentials of a High-Productivity Maintenance Program

Any program that focuses on lasting results is based on sound principles. Productivity
in organisations work and output is no exception. There are several principles that, if
followed, lead to spectacular results that not only last but also grow in value far into
the future. Successful production managers are very familiar with some of these
because they apply to measuring direct operations. Some serve the special needs of the
production work. These principles are as follows:
Scientific principle: Best productivity result when each worker has a definite job to do
in a definite way and a definite time. Frederick Taylor’s principle applies to all work;
maintenance is no exception.
Measurement before control: The measurement of an activity is basic to its control.
Lord Kelvin saw this in the 1700’s as applied to his scientific investigation of the laws
of physics. It is universal.
Activity responsibility: The responsibility for each activity in the life of a work order
is necessary to ensure that the work order continues to move toward resolution without
delay.
Delegate, educate: If you delegate responsibility for an activity or function, you must
educate the staff in means to carry out that responsibility.
Customer/service relationship: A customer/service relationship exists between the
beneficiaries of the work—customers--and those who perform maintenance work—
service providers. The customer decides what is needed from an operational
viewpoint, and maintenance decides how the service is provided. Together the
customer and maintenance decide when--the priority—based on resources available
and urgency of each specific task compared to other current work.
374 Crew size: The optimum crew size for a maintenance job is the smallest that can
Production and
Operation Management perform the work using a good method in a safe, efficient manner. The standard crew
size is one. Other crew sizes are applied as exceptions to this general rule.
Timeliness: Large maintenance jobs or projects are divided into smaller work orders.
Smaller work orders are easier to plan accurately. They highlight problems or
roadblocks early enough to enable making adjustments that result in on-time
completion of the project.
14.11 PRODUCTIVITY CONCEPTS AND MEASURES

Productivity is an overall measure of the ability to produce a good or service. More
specifically, productivity is the measure of how specified resources are managed to
accomplish timely objectives as stated in terms of quantity and quality. Productivity
may also be defined as an index that measures output (goods and services) relative to
the input (labor, materials, energy, etc., used to produce the output).
Hence, there are two major ways to increase productivity: increase the numerator
(output) or decrease the denominator (input). Of course, a similar effect would be seen
if both input and output increased, but output increased faster than input; or if input
and output decreased, but input decreased faster than output.
Organisations have many options for use of this formula, labor productivity, machine
productivity, capital productivity, energy productivity, and so on. A productivity ratio
may be computed for a single operation, a department, a facility, an organisation, or
even an entire country.
Productivity is an objective concept. As an objective concept it can be measured,
ideally against a universal standard. As such, organisations can monitor productivity
for strategic reasons such as corporate planning, organisation improvement, or
comparison to competitors. It can also be used for tactical reasons such as project
control or controlling performance to budget.
Productivity is also a scientific concept, and hence can be logically defined and
empirically observed. It can also be measured in quantitative terms, which qualifies it
as a variable. Therefore, it can be defined and measured in absolute or relative terms.
However, an absolute definition of productivity is not very useful; it is much more
useful as a concept dealing with relative productivity or as a productivity factor.
Productivity is useful as a relative measure of actual output of production compared to
the actual input of resources, measured across time or against common entities.
As output increases for a level of input, or as the amount of input decreases for a
constant level of output, an increase in productivity occurs. Therefore, a "productivity
measure" describes how well the resources of an organisation are being used to
produce input.
Productivity is often confused with efficiency. Efficiency is generally seen as the ratio
of the time needed to perform a task to some predetermined standard time. However,
doing unnecessary work efficiently is not exactly being productive. It would be more
correct to interpret productivity as a measure of effectiveness (doing the right thing
efficiently), which is outcome-oriented rather than output-oriented.
Productivity is usually expressed in one of three forms: partial factor productivity,
multifactor productivity, and total productivity. Each one is now discussed.
Partial-factor Productivity
The standard definition of productivity is actually what is known as a partial factor
measure of productivity, in the sense that it only considers a single input in the ratio.
Managers generally utilise partial productivity measures because the data is readily 375
Work Measurement
available. Also, since the total of multifactor measures provides an aggregate
perspective, partial factor productivity measures are easier to relate to specific
processes. Labor-based hours (generally, readily available information) is a frequently
used input variable in the equation. When this is the case, it would seem that
productivity could be increased by substituting machinery for labor. However, that
may not necessarily be a wise decision. Labor-based measures do not include
mechanization and automation in the input; thus when automation replaces labor,
misinterpretation may occur.
Other partial factor measure options could appear as output/labor, output/machine,
output/capital, or output/energy. Terms applied to some other partial factor measures
include capital productivity (using machine hours or dollars invested), energy
productivity (using kilowatt hours), and materials productivity (using inventory
dollars).
Multifactor Productivity
A multifactor productivity measure utilises more than a single factor, for example,
both labor and capital.
A subset of inputs might consist of only labor and materials or it could include capital.
Obviously, the different factors must be measured in the same units, for example
dollars or standard hours.
Total Factor Productivity

A broader gauge of productivity, total factor productivity is measured by combining
the effects of all the resources used in the production of goods and services (labour,
capital, raw material, energy, etc.) and dividing it into the output. One example, is a
ratio computed by adding standard hours of labor actually produced, plus the standard
machine hours actually produced in a given time period divided by the actual hours
available for both labor and machines in the time period.
Total output must be expressed in the same unit of measure and total input must be
expressed in the same unit of measure. However, total output and total input need not
be expressed in the same unit of measure. Resources are often converted to dollars or
standard hours so that a single figure can be used as an aggregate measure of total
input or output. For example, total output could be expressed as the number of units
produced, and total input could be expressed in rupees, such as tons of steel produced
per rupee input. Other varieties of the measure may appear as rupee value of good or
service produced per rupee of input, or standard hours of output per actual hours of
input.
Total productivity ratios reflect simultaneous changes in outputs and inputs. As such,
total productivity ratios provide the most inclusive type of index for measuring
productivity and may be preferred in making comparisons of productivity. However,
they do not show the interaction between each input and output separately and are thus
too broad to be used as a tool for improving specific areas.
Productivity Measures
It has been said that the challenge of productivity has become a challenge of
measurement. Productivity is difficult to measure and can only be measured indirectly,
that is, by measuring other variables and then calculating productivity from them. This
difficulty in measurement stems from the fact that inputs and outputs are not only
difficult to define but are also difficult to quantify.
376 Any productivity measurement system should produce some sort of overall index of
Production and
Operation Management productivity. A smart measurement program combines productivity measurements
into an overall rating of performance. This type of system should be flexible in order
to accommodate changes in goals and policies over time. It should also have the
ability to aggregate the measurement systems of different units into a single system
and be able to compare productivity across different units.
The ways in which input and output are measured can provide different productivity
measures. Disadvantages of productivity measures have been the distortion of the
measure by fixed expenses and also the inability of productivity measures to consider
quality changes (e.g., output per hour might increase, but it may cause the defect rate
to skyrocket). It is easier to conceive of outputs as tangible units such as number of
items produced, but other factors such as quality should be considered.
Experts have cited a need for a measurement program that gives an equal weight to
quality as well as productivity. If quality is included in the ratio, output may have to
be defined as something like the number of defect-free units of production or the
number of units which meet customer expectations or requirements.
The determination of when productivity measures are appropriate performance
measures depends on two criteria. The first is the independence of the transformation
process from other processes within the organisation. Second is the correspondence
between the inputs and outputs in the productivity measurement process.
Use of Productivity Measures

Productivity is a required tool in evaluating and monitoring the performance of an
organisation, especially a business organisation. When directed at specific issues and
problems, productivity measures can be very powerful. In essence, productivity
measures are the yardsticks of effective resource use.
Managers are concerned with productivity as it relates to making improvements in
their firm. Proper use of productivity measures can give the manager an indication of
how to improve productivity: either increase the numerator of the measure, decrease
the denominator, or both.
Managers are also concerned with how productivity measures relate to
competitiveness. If two firms have the same level of output, but one requires less input
thanks to a higher level of productivity, that firm will be able to charge a lower price
and increase its market share or charge the same price as the competitor and enjoy a
larger profit margin.
Within a time period, productivity measures can be used to compare the firm's
performance against industry-wide data, compare its performance with similar firms
and competitors, compare performance among different departments within the firm,
or compare the performance of the firm or individual departments within the firm with
the measures obtained at an earlier time (i.e., is performance improving or decreasing
over time?).
Productivity measures can also be used to evaluate the performance of an entire
industry or the productivity of a country as a whole. These are aggregate measures
determined by combining productivity measures of various companies, industries, or
segments of the economy.
Productivity Index
Since productivity is a relative measure, for it to be meaningful or useful it must be
compared to something. For example, businesses can compare their productivity
values to that of similar firms, other departments within the same firm, or against past
productivity data for the same firm or department (or even one machine). This allows 377
Work Measurement
firms to measure productivity improvement over time, or measure the impact of
certain decisions such as the introduction on new processes, equipment, and worker
motivation techniques.
In order to have a value for comparison purposes, organisations compute their
productivity index. A productivity index is the ratio of productivity measured in some
time period to the productivity measured in a base period. For example, if the base
period's productivity is calculated to be 1.75 and the following period's productivity is
calculated to 1.93, the resulting productivity index would be 1.93/1.75 = 1.10. This
would indicate that the firm's productivity had increased 10 percent. If the following
period's productivity measurement fell to 1.66 the productivity index of 1.66/1.75 =
0.95 it would indicate that the organisation's productivity has fallen to 95 percent of
the productivity of the base period. By tracking productivity indexes over time,
managers can evaluate the success, or lack thereof, of projects and decisions.
Factors Affecting Productivity

There is quite a variety of factors which can affect productivity, both positively and
negatively. These include:
 Capital investments in production
 Capital investments in technology
 Capital investments in equipment
 Capital investments in facilities
 Economies of scale
 Workforce knowledge and skill resulting from training and experience
 Technological changes
 Work methods
 Procedures
 Systems
 Quality of products
 Quality of processes
 Quality of management
 Legislative and regulatory environment
 General levels of education
 Social environment
 Geographic factors
The first 12 factors are highly controllable at the company or project level. Numbers
13 and 14 are marginally controllable, at best. Numbers 15 and 16 are controllable
only at the national level, and 17 is uncontrollable.
Improving Productivity
Productivity improvement can be achieved in a number of ways. If the level of output
is increased faster than that of input, productivity will increase. Conversely,
productivity will be increased if the level of input is decreased faster than that of
output. Also, an organisation may realize a productivity increase from producing more
378 output with the same level of input. Finally, producing more output with a reduced
Production and
Operation Management level of input will result in increased productivity.
Any of these scenarios may be realized through improved methods, investment in
machinery and technology, improved quality, and improvement techniques and
philosophies such as just-in-time, total quality management, lean production, supply
chain management principles, and theory of constraints.
A firm or department may undertake a number of key steps toward improving
productivity. William J. Stevenson (1999) lists these steps to productivity
improvement:
 Develop productivity measures for all operations; measurement is the first step in
managing and controlling an organisation.
 Look at the system as a whole in deciding which operations are most critical, it is
over-all productivity that is important.
 Develop methods for achieving productivity improvement, such as soliciting ideas
from workers (perhaps organising teams of workers, engineers, and managers),
studying how other firms have increased productivity, and reexamining the way
work is done.
 Establish reasonable goals for improvement.
 Make it clear that management supports and encourages productivity
improvement. Consider incentives to reward workers for contributions.
 Measure improvements and publicize them.
 Don't confuse productivity with efficiency. Efficiency is a narrower concept that
pertains to getting the most out of a given set of resources; productivity is a
broader concept that pertains to use of overall resources. For example, an
efficiency perspective on mowing the lawn given a hand mower would focus on
the best way to use the hand mower; a productivity perspective would include the
possibility of using a power mower.
As a cautionary word, organisations must be careful not to focus solely on
productivity as the driver for the organisation. Organisations must consider overall
competitive ability. Firm success is categorized by quality, cycle time, reasonable lead
time, innovation, and a host of other factors directed at improving customer service
and satisfaction.
14.12 CRITICISM OF WORK MEASUREMENT

The criticisms aimed at work measurement are many and various. Among the most
common are the following:
 All the ideas on which the concept of a standard time is based are impossible to
define precisely. How can one possibly give clarity to the definition of qualified
workers, or specified jobs, or especially a defined level of performance?
 Even if one attempts to follow these definitions, all that results is an excessively
rigid job definition. Most modern jobs require some element of flexibility, which
is difficult to achieve alongside rigidly defined jobs.
 Using stopwatches to time human beings is both degrading and usually
counterproductive. At best it is intrusive, at worst it makes people into ‘objects for
study’.
 The rating procedure implicit in time study is subjective and usually arbitrary.
It has no basis other than the opinion of the person carrying out the study.
 Time study, especially, is very easy to manipulate. It is possible for employers to 379
Work Measurement
‘work back’ from a time which is ‘required’ to achieve a particular cost. Also,
experienced staff can ‘put on an act’ to fool the person recording the times.
Fill in the blanks:
1. Activity Sampling is a statistical technique that can be used as a means for
collecting ………………………..
2. Activity Sampling can be carried out at ……………………………..
intervals or fixed intervals.
3. Activity sampling is used for assessing the ………………………………
of time spent on activities.
4. Analytical estimating is a …………………………………………. work
measurement technique.
5. Time study is a tried and tested method of work measurement for setting
basic times and hence standard times for ………………………………
specified work.
14.13 LET US SUM UP

Work measurement is the process of establishing the time that a given task would take
when performed by a qualified worker working at a defined level of performance.
There are various ways in which work may be measured and a variety of techniques
have been established. The basic procedure, irrespective of the particular measurement
technique being used, consists of three stages; (a) an analysis phase in which the job is
divided into convenient, discrete components, commonly known as elements; (b) a
measurement phase in which the specific measurement technique is used to establish
the time required (by a qualified worker working at a defined level of performance) to
complete each element of work; and (c) a synthesis phase in which the various
elemental times are added, together with appropriate allowances (see below), to
construct the standard time for the complete job.
The techniques used to measure work can be classified into those that rely on direct
observation of the work, and those that do not. For example, some techniques, such as
predetermined motion-time systems and the use of synthetic or standard data can
provide times from simulation or even visualization of the work. However, the data on
which such techniques are based were almost certainly based on earlier observation of
actual work.
The advantage of structured and systematic work measurement is that it gives a
common currency for the evaluation and comparison of all types of work. The results
obtained from work measurement are commonly used as the basis of the planning and
scheduling of work, manpower planning, work balancing in team working, costing,
labor performance measurement, and financial incentives. They are less commonly
used as the basis of product design, methods comparison, work sequencing and
workplace design.
380
Production and 14.14 GLOSSARY
Work Measurement: A branch of work study that is concerned with measuring the
time that should be taken for performing jobs.
Method Study: The analytical study of methods of doing jobs with the aim of finding
the ‘best’ or an improved job method.
Work Study: The term generally used to encompass method study and work
measurement, derives from the scientific management school.
Qualified Worker: Term used in work study to denote a person who is accepted as
having the necessary physical attributes, intelligence, skill, education and knowledge
to perform the task.
Standard Performance: Term used in work measurement to indicate the rate of output
that qualified workers will achieve without over exertion as an average over the
working day provided they are motivated to apply themselves, now generally accepted
as a very vague concept.
Basic Time: The time taken to do a job without any extra allowances for recovery.
Time Study: A term used in work measurement to indicate the process of timing
(usually with a stopwatch) and rating jobs, it involves observing times, adjusting or
normalizing each observed time (rating) and averaging the adjusted times.
Rating: A work study technique that attempts to assess a worker’s rate of working
relative to the observer’s concept of standard performance, controversial and now
accepted as being an ambiguous process.
Allowances: Term used in work study to indicate the extra time allowed for rest,
relaxation and personal needs.
Predetermined Motion–time Systems (PMTS): A work measurement technique were
standard elemental times obtained from published tables are used to construct a time
estimate for a whole job.
CYP 1
1. specified
2. motivated
3. basic time
4. Rating
5. extension
CYP 2
1. data
2. random
3. percentage
4. structured
5. carrying out
381
14.15 SUGGESTED READINGS Work Measurement
Chase, R.B., Aquilano, N.J., Jacobs, F.R., Production and Operations Management ;
Meredith, J.R. and Shafer, S.M., Operations Management for MBAs, J. Wiley, 2002.
Slack, N. and Lewis, M., Operations Strategy, Prentice Hall, 2003.
Slack, N. et al., Operations Management , Prentice Hall, 2001.
Taylor, Bernard W., Introduction to Management Science, Prentice Hall, 1996.
Tersine, Richard J., Production/Operations Management , North-Holland, 1985.
Vollmann, T.E., Berry W.L., and Whybark, D.C., Manufacturing Planning and Control
Systems, Richard D. Irwin, Inc..
Waters, C.D.J., An Introduction to Operations Management , Addison-Wesly, 1991.
Waters, D., A practical introduction to management science, 2nd, Addison-Wesly, 1998.
14.16 QUESTIONS
1. What is work measurement? Explain the significance of work measurement in
organisational production system.
2. Explain the method and significance of time study.
3. Explain the terms standard time and allowances in regard to work measurement.
4. Explain the methods of work measurement.
5. What are learning curves? Explain their significance in work measurement?
6. How the work measurement techniques can be used in increasing productivity?

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St.

St. PETER’S INSTITUTE OF DISTANCE EDUCATION

No Part of this publication

Unit I: Introduction to Production and Operation Management

Lesson 1 Production and Operations Management: An Introduction 3

Unit II: Material and Inventory Management

Lesson 5 Materials Management 71

Unit III: Planning and Forecasting

Lesson 8 Production and Operations Planning 147

Unit IV: Scheduling and Project Management Methods

Unit V: Facility, Layout Location and Work Measurement

Lesson 13 Facility Planning and Layout 307

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UNIT I: INTRODUCATION TO PRODUCTION AND OPERATION MANAGEMENT

Time: 3 Hours Maximum: 100 marks

Answer ALL the questions

PART – A (10 × 2 = 20 Marks)

11. (a) Explain the different types of Production System.

15. (a) Discuss the objectives of Plant Layout.

Principal Principal Customer Wants

Generally an organisation will aim reliably and consistently to achieve certain

The customer service objective The resource utilisation objective

1.8 MANAGING GLOBAL OPERATIONS

1.9 SCOPE OF PRODUCTION AND OPERATIONS

1.9.1 Location of Facilities

1.9.2 Plant Layout and Material Handling

1.9.3 Product Design

1.9.4 Process Design

1.9.5 Production Planning and Control

1.9.6 Quality Control

1.9.7 Materials Management

1.9.8 Maintenance Management

1. Operating system converts inputs in order to provide outputs which are

1.10 LET US SUM UP

1.12 SUGGESTED READINGS

2.2 THE COMMUNICATION PROCESS

Figure 2.1: The Process Model of Communication

A Sender, such as a boss, co-worker, or customer, originates the Message with a

2.3 BARRIERS TO EFFECTIVE COMMUNICATION

2.3.3 Information Overload

2.3.4 Emotional Disconnects

3.6 MANAGING A COMPUTER INTEGRATED

3.7 COMPUTER CONTROL SYSTEMS TECHNIQUES AND

3.8 MANUFACTURING CONTROL SYSTEM

3.9 QUALITY IN THE MANUFACTURING

5.2 MATERIALS HANDLING

5.2.1 Objectives of Material Handling

5.2.2 Principles of Material Handling

5.3 SELECTION OF MATERIAL HANDLING

5.7.1 Common Benefits of Automated Storage & Retrieval Systems

Method and Implementation Approach

Implications for Environmental

5.7.3 ABC System

Inventory Control Application: The ABC classification system is to grouping items

5.8 LET US SUM UP

5.10 SUGGESTED READINGS