Name Roll No. Course & Semester Subject Name & Code Assignment No.

LC name & Code Date of Submission Session

Anil Kumar Joshi 520949950 Master of Business Administration ± MBA Semester 3 OM0001 ± Operations Management (Book ID: B1073) Set ± 1 & 2 NIPSTec Ltd. 1640 14.12.2010

Assignment Set - 1

OM0001 ± Operations Management
Q 1. Do most of the principles, tools and techniques of Operations Management apply to both manufacturing and service sectors? Justify with examples. Answer: Manufacturing & Service are the major economic activities in any country. In India, manufacturing and services together constitute nearly 75% of the GDP. In recent years, growth in GDP has been primarily due to the growth in these sectors of the economy. Therefore, managing manufacturing and service operations are important economic activities. Utilising appropriate methods for planning and control of Operations in manufacturing and service organizations can result in significant productivity improvements and cost savings. It can also positively influence the overall health of the economy. ÄOperations Management is a discipline that focuses on this aspect Operations Management is an exciting and vital field, especially in the new millennium that we have entered. Operations have become increasingly competitive on a global basis. Therefore, it becomes necessary for students of MBA courses to understand the field of Äoperations ± an essential function in every business. The importance of Operations Management ± both for organizations and for society ± should be fairly obvious: the consumption of goods & services is an integral part of our society. Operations management is responsible for creating those goods and services. Organizations exist primarily to provide services or create goods. Hence, Operations is the core function of an organization. Furthermore, the operations function is responsible for a major portion of the assets in most organizations. Operations Management, as a field, deals with the production of Goods & Services. The abundant variety and types of Goods & Services that we see everyday are produced under the supervision of operations managers. A modern industrialized society cannot exist without effective management of Äoperations. Operations managers have important positions in every company. The Plant Manager, Production Manager, Inventory Control Manager, Quality Manager and Line Supervisors ± are all operations managers. This group of managers, (plus a few more factory managers), is collectivelyresponsible for producing the supply of products in a manufacturingbusiness. We need to include in this group, those managers at the corporate level (e.g. Vice President) who are overall in charge or are holding staff functions related to operations. Wealth is created in the global economy through excellent operations management, when the value of outputs in goods & services exceeds the cost of the inputs used. Wealth can only be created by manufacturing and service operations that add more value than the costs of the inputs they use. The wealth created is reflected in the standard of living of the people, and is a function of constantly increasing productivity.

Raising productivity of operations, - the ratio of output to input, - is therefore, the primary basis for creating wealth. Thus, in the global economy, a company or a country cannot prosper in the long run unless it has higher productivity than its domestic and foreign competitors. The primary task of Operations Manager, therefore, is one of the wealth creators. Operations should lead the way in enhancing our ability to create wealth, improve productivity, and raise the standard of living for all people. This is the challenge for the coming years. In the early days of manufacturing, goods were produced using craft production: highly skilled workers using simple, flexible tools produced goods according to customer specifications. Craft production was slow & costly. And when parts failed, the replacements also had to be custom made, which was again slow & costly. Also, production costs did not decrease as volume increased; i.e. there were no ÄEconomies of Scale , which might have provided incentives for companies to expand. Instead, many companies emerged, each with its own set of standards. A major change occurred that gave the industrial revolution a boost: the development of Ästandard gauging systems . This greatly reduced the need for custom-made goods. Factories began to spring up and grow rapidly, providing jobs for countless people. Despite the major changes that were taking place, management theory and practice had not progressed much from early days. What was needed was an enlightened and more systematic approach to management. The scientific-management era brought widespread changes to the management of factories. The movement was spearheaded by the efficiency engineer and inventor Frederick W. Taylor, who is often referred to as ³the father of scientific management´. Taylor¶s methods emphasized maximizing output. They were not always popular with workers as the latter felt they were exploited. Eventual, the public outcry reached the halls of congress, and hearings were held on the matter. In 1911, Taylor s classic book,. The Principles of Scientific Management, was published; and the publicity from the hearings actually helped scientific management principles to achieve wide acceptance in the industry. The function of an operating system is a reflection of the purpose it serves for its customer, i.e. the utility of its output to the customer. Four principal functions can be identified: Manufacture, in which, the principal common characteristic is that something is physically created, i.e. the output consists of goods which differ physically ± in form or content ± from those materials which form the inputs to the system. Manufacture, therefore, requires some physical transformation, or a change in Äform utility of resources.

Service, in which the principal characteristic is the treatment or accommodation of something or someone. There is primarily a change in state utility of a resource. Unlike in supply systems, the state or condition of physical outputs will differ from inputs by virtue of have been treated in some way. The service sector encompasses a wide spectrum of activities in every country. The growth of the service sector in India in the last five years has been very significant. Between the years 1998 to 2004: the GDP growth of services of Trade, Hotels, Transport & Communication have consistently risen year after year at rates ranging between 6.8% and 11.8%; the corresponding growth of GDP in Community, Social & Personal Services have ranged between 3.9% and 12.2%; Financial Services have recorded GDP growth ranging between 3.5% and 10.6%; The GDP growth of overall services have ranged between 5.5% and 10.1%. Although services are often classified separately from manufacturing in a macroeconomic sense, from the perspective of operations management, the separation is artificial. From the operations management perspective, the notion of a pure product and pure service is just two ends of a spectrum. In reality, a vast majority of operations share a continuum of services and products. Therefore, most of the principles and tools and techniques of operations management apply to both these sectors. Service operations are different from manufacturing operations in terms of:
y y y y y y

tangible and intangible output customer consumption use of labor and equipment customer contact customer participation in conversion process measuring activities and resources

Manufacturing is characterized by tangible output, outputs that consumer consumes over time, jobs that use less labor and more equipment, little consumer contact, no consumer participation in conversion process (in production), and sophisticated methods for measuring activities and resource consumption as products are made. Service on the other hand is characterized by intangible outputs, outputs that customer consumes immediately, jobs that uses more labor less equipment, direct customer contact, frequent customer participation in conversion process and elementary methods for measuring conversion activities and resource consumption.
y y

Productivity is more easily measured in manufacturing operations than services. Quality standards are more difficult to establish and product quality is more difficult to evaluate in service operations.

y

Manufacturing operations can increase and decrease finished goods inventory levels in response to change in customer demand patterns. In services, the most expensive resource is people, while in manufacturing the most expensive resource is machinery.

y

Manufacturing is one where in production process service orientations is done where in service sector is to completely to serve with service and no production involved in this process.

Q - 2. Time taken by three machines on five jobs in a factory is tabulated below in table below. Find out the optimal sequence to be followed to minimise the idle time taken by the jobs on the machines.

Job A B C D E

Machin e 1 (M1) 6 4 5 3 4

Machin e 2 (M2) 8 5 5 4 3

Machin e 3 (M3) 7 3 7 6 4

Ans: Consider M1 and M3

Job A B C D E

Machin e 1 (M1) 6 4 5 3 4

Machin e 3 (M3) 7 3 7 6 4

JOB = D E C A B

Assignment Set - 2 Q1. One of the serious drawbacks of Indian manufacturing organizations compared to their counterparts in Japan and Korea was the predominant domestic focus in their approach to business. Elucidate. Site an example. Ans. India's economic advancement no longer rests on telephone call centers and computer programmers. Among villages with thatch-roofed huts and dirt roads on the outskirts of this city in central India, John Deere and LG Electronics have recently built factories turning out tractors and color television sets for sale in India and for export to the United States. In Hazira, in northwestern India, where some residents still rely on camels to carry traders' goods, the Essar Group is making steel to be used for ventilation shafts in Philadelphia, high-rise structural beams in Chicago and car engine mountings in Detroit. For decades, India followed a route to economic development strikingly different from that of countries like Japan, South Korea or China. While its Asian rivals placed their bets on manufacturing and exports, India focused on its domestic economy and grew more slowly with an emphasis on services. India's annual growth in manufacturing output, at 9 percent and accelerating, is close to catching growth in services, at 10 percent. Exports of manufactured goods to the United States are now rising faster in percentage terms than China's, although from a much smaller base. More than two-thirds of foreign investment in the last year has gone into manufacturing in India, not services. A prime reason India is now developing into the world's next big industrial power is that a number of global manufacturers are already looking ahead to a serious demographic squeeze facing China. Because of China's ''one child'' policy, family sizes have been shrinking there since the 1980's, so fewer young people will be available soon for factory labor. India is not expected to pass China in total population until 2030. But India will have more young workers aged 20 to 24 by 2013; the International Labor Organization predicts that by 2020, India will have 116 million workers in this age bracket to China's 94 million.

General Motors and Motorola are preparing to build plants in western and southern India. Posco of South Korea and Mittal Steel of the Netherlands have each announced plans to erect giant steel mills in eastern India, where Reliance of India will soon construct one of the world's largest coal-fired power plants. They are finding India's labor force well suited to their goals. When LG set out in 2005 to fill 458 assembly line jobs at its factory here at a starting wage of $90 a month, it required that each applicant have at least 15 years of education -- usually high school plus technical college. Seeking a young work force, the company decided that no more than 1 percent of the workers could have had any prior work experience. Despite the limitation, 55,000 young people met its criteria for interviews. An Unexpected Boom In Manufacturing Sprawling across more than a square mile next to a gray tidal estuary, the scale of the Essar Group's complex in Hazira is already impressive. Essar has its own port to bring in iron ore and its own large gas-fired power plant for electricity. At the steel mill, giant buckets pour 150 tons of molten metal at a time to form slabs 2 yards wide and up to 10 yards long. But the complex is just starting to grow. Essar is quintupling steel production and pushing forward a sevenfold increase in power generation, most of it for sale to a national grid desperately short of electricity. Growth on that scale, especially in industries like steel and power but also in areas like car parts and household appliances, is what India has long lacked. Industrial production accounts for only a fifth of India's economic output, compared with two-fifths of China's. But this ratio is starting to rise in India as manufacturing, led by exports, grows faster than agriculture and even some service industries. But a result was hundreds of thousands of businesses too small to be competitive; India lags behind even the impoverished Bangladesh next door in exports of garments, a big creator of jobs for China. The Indian government has responded by narrowing the list of protected industries to 326 categories of goods from 20,000 and has lowered tariffs.

The drawback is that the nation's manufacturing boom, built on higher-quality goods made under more modern conditions than in China, is not likely to create as many factory jobs as India needs. The Essar steel mill, for example, has been replacing old, labor-intensive equipment with more modern gear. ''We were having it all done manually, but because the customers demand very high quality, we have to do it automatically,'' yelled Rajesh Pandita, an Essar manager, over the roar of a house-size machine that was stretching a minivan-size coil of steel back and forth through large rollers until it was little thicker than plastic kitchen wrap. The Whirlpool factory in Pune uses machines, not people, to fold the steel exteriors of refrigerators. It has some of the highest productivity per worker of any Whirlpool factory in the world, with just 208 line workers producing up to 33,000 refrigerators a month. Labor laws, however, discourage flexibility. They still ban companies from allowing manufacturing workers to put in more than 54 hours of overtime in a three-month period even if the workers want to earn extra money. Firing workers is extremely difficult. ''Companies think twice, 10 times before they hire new people,'' said Sunil Kant Munjal, the chairman of the Hero Group, one of the world's largest manufacturers of inexpensive motorcycles. Hero in Gurgaon, on the southern outskirts of New Delhi, and its archrival, the Lifan Group in Chongqing, a city in western China, produce comparable motorcycles but the similarity ends there. Hero markets heavily to its domestic market, protected from foreign competition by high import tariffs, while Lifan emphasizes exports. Resources: Are natural resources fundamental to the development of these economies? How were East Asian countries able to develop considering their relative lack of natural resources? If natural resources include human capital, e.g. educated workers, do you consider East Asian economies resource rich? Education: To nurture human capital, the government needs to educate the people. Almost all scholars agree on this issue. However, some East Asian governments put special emphasis on certain types of vocational education and special undergraduate and graduate schools focused on technology and engineering. Do you think these education programs helped their economic development? Also, there is a remarkable difference between East Asia and Latin America in terms of the quality of K-12 education. What are

the key differences? How does the rate of literacy in a country effect its economic development? Why is K-12 education so important relative to higher education? Is basic education related to income distribution? Is it related to the quality of products produced by a given economy? Development Strategy: What kind of role do you think government should play in economic development? Do you agree with neoliberal economists who would limit the role of government in order to promote the growth of a market economy? Or do you agree with the development state argument that emphasizes the role of government in selecting, nurturing, and encouraging particular industries? Are you convinced that some governments have displayed an ability to predict which industries will grow? Or do you think it was mere coincidence that East Asian governments seem to have chosen the ³right´ industries? Another relevant issue here is export. Do you think East Asia¶s economic success is related to its focus on export? Was it a strategic choice for East Asian governments or did they have to focus on exports given their relatively small domestic markets? What kind of benefits have exports had? Does the focus on exports help improve the quality of products in foreign markets? How about the relationship between government intervention and export? Do export results provide a dependable gauge by which governments can judge economic performance? Culture: Can the superior performance of East Asian economies to those of Latin America be solely attributed to the cultural differences? Do you think Confucianism and/or Buddhism are better suited to economic development than Christianity and Catholicism, which are predominant in Latin America? If so, why did it take East Asian economies centuries to become economic powers in the world? International Environment: Would rapid economic development have been possible in East Asia without security and development assistance from the United States? Would East Asian governments have been so serious about economic development without the fear of Communism? Alternatively, in spite of the lack of damage caused by World War II, why did Latin American economies fail to continue develop at high rates? Why did the United States funnel its economic support to East Asia rather than Latin America? Society and Government: What kind of social legacy affected economic development in East Asia and Latin America? Do you think the colonial legacy in Latin America hindered the long-term economic development in the region? In spite of devastating losses of life

and property, do you think World War II contributed to post-war economic development in East Asia? How do you explain the relatively egalitarian income distribution in East Asia even under dictatorial regimes? Almost all countries in East Asia and Latin America achieved high-economic growth under authoritarian governments. Do you think it is necessary to have an authoritarian government to achieve rapid economic growth? Why or why not? If yes, why haven¶t all dictatorships produced economic expansion?

Q2. List the assumptions on which Break Even Analysis is based. Explain breakeven point with a sketch. Ans. There are several assumptions that affect the applicability of break-even analysis. If these assumptions are violated, the analysis may lead to erroneous conclusions. A primary key to detecting the applicability of linearity is determining the relevant range of output. If the forecast of demand suggests that 100 units will be demanded, but quantity discounts on materials are applicable for purchases over 500 units from a single supplier, then linearity is appropriate in the anticipated range of demand (100 units plus or minus some fore-cast error). If, instead, quantity discounts begin at 50 units of materials, then the average cost of materials may be used in the model. A more difficult issue is that of volume sales, when such sales are frequently dependent on the ordering patterns of numerous customers. In this case, historical records of the proportionate quantitydiscount sales may be useful in determining average revenues. Linearity may not be appropriate due to quantity sales/purchases, as noted, or to the step-function nature of fixed costs. For example, if demand surpasses the capacity of a one-shift production line, then a second shift may be added. The second-shift supervisor's salary is a fixed-cost addition, but only at a sufficient level of output. Modeling the added complexity of nonlinear or step-function costs requires more sophistication, but may be avoided if the manager is willing to accept average costs to use the simpler linear model. One obviously important measure in the break-even model is that of fixed costs. In the traditional cost-accounting world, fixed costs may be determined by full costing or by variable costing. Full costing assigns a portion of fixed production overhead charges to each unit of production, treating these as a variable cost. Variable costing, by contrast, treats these fixed production overhead charges as period charges; a portion of these costs may be included in the fixed costs allocated to the product. Thus, full costing reduces the denominator in the break-even model, whereas the variable costing alternative increases the denominator. While both of these methods increase the breakeven point, they may not lend themselves to the same conclusion. Recognizing the appropriate time horizon may also affect the usefulness of break-even analysis, as prices and costs tend to change over time. For a prospective outlook incorporating generalized inflation, the linear model may perform adequately. Using the earlier example, if all prices and costs double, then the break-even point Q = 200 ÷ (20 í 12) = 200 ÷ 8 = 25 units, as determined with current costs. However, weakened market demand for the product may occur, even as materials costs are rising. In this case, the price may shift downward to $18 to bolster price-elastic demand, while materials costs may rise to $14. In this case, the break-even quantity is 50 (200 ÷ [18 í 14]), rather than 25. Managers should project break-even quantities based on reasonably predictable prices and costs. It may defy traditional thinking to determine which costs are variable and which are fixed. Typically, variable costs have been defined primarily as "labor and materials." However, labor may be effectively salaried by contract or by managerial policy that supports a full workweek for employees. In this case, labor should be included in the fixed costs in the model.

Complicating the analysis further is the concept that all costs are variable in the long run, so that fixed costs and the time horizon are interdependent. Using a make-or-buy analysis, managers may decide to change from in-house production of a product to subcontracting its production; in this case, fixed costs are minimal and almost 100 percent of the costs are variable. Alternatively, they may choose to purchase cutting-edge technology, in which case much of the variable labor cost is eliminated; the bulk of the costs then involve the (fixed) depreciation of the new equipment. Managers should project break-even quantities based on the choice of capital-labor mix to be used in the relevant time horizon. Traditionally, fixed costs have been allocated to products based on estimates of production for the fiscal year and on direct labor hours required for production. Technological advances have significantly reduced the proportion of direct labor costs and have increased the indirect costs through computerization and the requisite skilled, salaried staff to support company-wide computer systems. Activity-based costing (ABC) is an allocation system in which managers attempt to identify "cost drivers" which accurately reflect the appropriate usage of fixed costs attributable to production of specific products in a multi-product firm. This ABC system tends to allocate, for example, the CEO's salary to a product based on his/her specific time and attention required by this product, rather than on its proportion of direct labor hours to total direct labor hours. Break-even analysis typically compares revenues to costs. However, other models employ similar analysis.

Crossover Chart of Three Options In the crossover chart, the analyst graphs total-cost lines from two or more options. These choices may include alternative equipment choices or location choices. The only data needed are fixed and variable costs of each option. In Figure 2, the total costs (variable and fixed costs) for three options are graphed. Option A has the low-cost advantage when output ranges between zero and X units, whereas Option B is the least-cost alternative between X and X units of output. Above X units, Option C will cost less than either A or B. This analysis forces the manager to focus on the relevant range of demand for the product, while allowing for sensitivity analysis. If current demand is slightly less than X Option B would appear to be the best choice. However, if medium-term forecasts indicate that demand will continue to grow, Option C might be the least-cost choice for equipment expected to last several years. To determine the quantity at which Option B wrests the advantage from Option A, the manager sets the total cost of A equal to the total cost of B ( F A + V A × Q = F B + V B × Q ) and solves for the sole quantity of output ( Q ) that will

make this equation true. Finding the break-even point between Options B and C follows similar logic. The Economic Order Quantity (EOQ) model attempts to determine the least-total-cost quantity in the purchase of goods or materials. In this model, the total of ordering and holding costs is minimized at the quantity where the total ordering cost and total holding cost are equal, i.e., the break-even point between these two costs.

Q3. Define Stastical Quality Control and explain the various methods associated with it. Ans. Statistical Quality control (SQC) is the application of statistical methods to the monitoring and control of a process to ensure that it operates at its full potential to produce conforming product. Under SQC, a process behaves predictably to produce as much conforming product as possible with the least possible waste. While SQC has been applied most frequently to controlling manufacturing lines, it applies equally well to any process with a measurable output. Key tools in SQC are control charts, a focus on continuous improvement and designed experiments. Much of the power of SQC lies in the ability to examine a process and the sources of variation in that process using tools that give weight to objective analysis over subjective opinions and that allow the strength of each source to be determined numerically. Variations in the process that may affect the quality of the end product or service can be detected and corrected, thus reducing waste as well as the likelihood that problems will be passed on to the customer. With its emphasis on early detection and prevention of problems, SQC has a distinct advantage over other quality methods, such as inspection, that apply resources to detecting and correcting problems after they have occurred. In addition to reducing waste, SQC can lead to a reduction in the time required to produce the product or service from end to end. This is partially due to a diminished likelihood that the final product will have to be reworked, but it may also result from using SQC data to identify bottlenecks, wait times, and other sources of delays within the process. Process cycle time reductions coupled with improvements in yield have made SQC a valuable tool from both a cost reduction and a customer satisfaction standpoint. The various methods associated with statistical quality control are:y Process control y Process capability y Quality assurance y Quality control y ANOVA Gauge R&R y Sampling (statistics) y Stochastic control y Electronic design automation y Reliability engineering y Six sigma y Process Window Index

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