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Productions and Operations Management: Unit-1: 1) Importance of Operations Management 2) Operations Strategy and Competitiveness 3) Product design and Process Selection 4) Facility layout and location Unit-2: 1) Forecasting 2) Inventory Management 3) Aggregate Planning
Prepared by: Prof. Rupesh Patel
Productio n and Operation s Managem ent
Frequently Asked Questions
Productions and Operations Management Rupesh Patel
Que-1: What are responsibilities of Production/Operations Manager? What are 5 P’s of Production and Operations Management?
The following are the major responsibilities of production managers: Planning: Capacity, location, products and services, make or buy, layouts, projects and scheduling Organizing: Degree of centralization, subcontracting Staffing: Hiring/laying off of employees Directing: Incentive plans, issue of work orders, job assignments Controlling: Inventory control, Quality control, Cost control Production managers are responsible for the amalgamation of five Ps namely Product, Plant, Processes, Programs and People. Product: The product is the most obvious interface between production and marketing. It includes characteristics such as performance, aesthetics, quality, reliability, selling price, deliver dates and or lead times. Plant: The plant should have the capacities to meet the present needs as well as that of the future. The considerations are: (i) design and layout of buildings, (ii) performance and reliability of machines and equipment, (iii) maintenance of machines and equipment, (iv) safety of installation and operation of machinery and equipment and (v) environment protection. Process: The processes include the transformation or conversion processes which convert the inputs into outputs. The factors to be examined in deciding upon a process are: (i) available capacity, (ii) available labour skills, (iv) layout of plant equipment, (v) safety requirements in operations and (vi) costs to be achieved. Programs: The programs consist of schedules and timetables which set times for delivery of products or services to customers. These delivery schedules in turn decide the time schedules for various activities such as design, purchase, manufacture, assembly, packing and dispatch etc. People: The people aspect of production management includes the skills, knowledge, intelligence, etc., of labour and managerial personnel which is crucial for the efficient and effective utilization of resources for the production of outputs.
Productions and Operations Management Rupesh Patel
Que-2: What is Production and Operations Management? What is the difference between goods and services?
Any process which involves the conversion of raw materials and bought-out components into finished products for sale is known as Production. Such conversion of inputs adds to the value or utility of the products produced by the conversion or transformation process. The utility or added value is the difference between the value of outputs and the value of inputs. The value addition to inputs is brought about by alteration, transportation, storage or preservation and quality assurance. The term operation refers to a function or system that transforms inputs into outputs of greater value. Operations are often demand as a transformation or conversion process wherein inputs such as materials, machines, labour and capital are transformed into outputs (goods and services). Difference between goods and services: 1) Services are usually intangible whereas goods are tangible 2) Services are often produced and consumed simultaneously, services cannot be stored whereas goods can be produced and inventoried before consumption or use. 3) Services are often unique, for example insurance policies, medical treatment procedures, haircut styles etc. 4) Services have high customer interaction, services are often difficult to standardize and automate because customer interaction demands uniqueness. The service product may have to be customized in most of the service offerings. 5) Services are often knowledge based, for example educational, health-care, legal and consultancy services and, therefore, difficult to standardize and automate. 6) Services are frequently dispersed because services may have to delivered to the client/customer at his/her place or office, a retail outlet or even at the residence of the customer/client. 7) Goods can be inventoried and can be resold whereas reselling of services is unusual and services cannot be inventoried. 8) Some aspects of quality of goods are measurable whereas many aspects of quantity of services are difficult to measure. 9) Selling and production are distinct in case of goods whereas in case of services selling is often a part of the service. 10) Goods can be transported whereas service cannot be transported but the service provider can be transported. 11) Location of facility to manufacture goods, affects costs whereas location of service facility affects customer contact. 12) Manufacturing of goods can be easily automated whereas service is often difficult to automate. -----------------------------------------------------
Que-3: What are the recent trends in Production/Operations Management?
Many recent trends in production/operations management relate to global competition and the impact it has on manufacturing firms. Some of the recent trends are:
Productions and Operations Management Rupesh Patel
Global Market Place: Globalization of business has compelled many manufacturing firms to have operations in many countries where they have certain economic advantage. This has resulted in a steep increase in the level of competition among manufacturing firms throughout the world
Production/Operations strategy: More and more firms are recognizing the importance of production/operations strategy for the overall success of their business and the necessity for relating it to their overall business strategy Total Quality Management (TQM): TQM approach has been adopted by many firms to achieve customer satisfaction by a never-ending quest for improving the quality of goods and services. Flexibility: The ability to adapt quickly to changes in volume of demand, in the product mix demanded, and in product design or in delivery schedules, has become a major competitive strategy and a competitive advantage to the firms. Time Reduction: Reduction of manufacturing cycle time and speed to market for a new product provides competitive edge to a firm over other firms. When companies can provide products at the same price and quality, quicker delivery (short lead times) provides one firm with competitive edge over the other. Technology: Advances in technology have led to a vast array of new products, new processes and new materials and components. Automation, computerization, information and communication technologies have revolutionized the way companies operate. Technological changes in products and processes can have great impact on competitiveness and quality, if the advanced technology is carefully integrated into the existing system. Worker Involvement: The recent trend is to assign responsibility for decision making and problems solving to the lower levels in the organization. Reengineering: This involves drastic measures or break-through improvements to improve the performance of a firm. It involves the concept of clean-slate approach or starting from scratch in redesigning the business processes. Environmental Issues: Today’s production managers are concerned more and more with pollution and wastes disposal which are key issues in protection of environment and social responsibility. There is increasing emphasis on reducing waste, recycling waste, using less-toxic chemicals and using biodegradable materials for packaging. Corporate Downsizing: Downsizing or right sizing has been forced on firms to shed their obesity. This has become necessary due to competition, lowering productivity, need for improved profit and for higher dividend payment to shareholders. Supply-Chain Management:
Productions and Operations Management Rupesh Patel
Management of supply-chain, from suppliers to final customers reduces the cost of transportation, warehousing and distribution throughout the supply chain. Lean Production: Production systems have become lean production systems which use minimal amounts of resources to product a high volume of high quality goods with some variety. These systems use flexible manufacturing systems and multi-skilled workforce to have advantages of both mass production and job production. ------------------------------------------------------
Although price is the competitive weapon used in the market place. Hence. and quality control methods. etc) that causes a product or service to be perceived by the customer as more suitable or attractive than the product or service offered by the competitors.e. the production function must be capable of producing the outputs at low cost. quality. Flexibility: This refers to the ability of a firm to respond to changes demanded by the customers. Following are the dimensions on which a firm can create a competitive advantage: Cost or Price: Price is the amount a customer must pay for the product or service. labour productivity. If two products are comparable in quality. special processes needed. Generally quality relates to the customer’s perceptions of how well the product or service will serve its purpose. special equipment. Operations is the plan that specifies location. 6 Que-4: What is Operation Strategy? How Production/Operations Management is helpful in gaining competitive advantage? What are the various competitive dimensions? The role of operations strategy is to provide a plan for the operations function so that it can make the best use of its resources. Productions management decisions regarding location. product design. equipment utilization and replacement. keeping the promised delivery schedule) or who has the capability to meet customer demand through of-the-shelf availability of the product has a strong competitive advantage. The operations strategy must be aligned with the company’s business strategy and enable the company to achieve its longterm plan. use of technology. convenience of use. customers will buy the product or service that has the lower price. size. Product or Service Differentiation: Refers to any special features (such as design. price) or even quality in order to obtain on-time delivery when they need an item. worker skills and talents required. Developing competitive dimensions through Operations management: Operations managers must work closely with marketing in order to understand the competitive situation in the company’s market before they can determine which competitive priorities are important.e. A firm having higher flexibility is . Generally customers are often willing to pay more for or wait for delivery of products or superior quality. and differ in price. Customers are often willing to compromise on cost(i. Reliability: A supplier who has a reputation for reliability (i. and type of facilities available. Operations management is responsible for managing the resources needed to produce the company’s goods and services. Quality: Quality refers to the ability of the product or service to meet the requirements of customers and achieve customer satisfaction for the firm selling the goods or services. warranty. process technology and tools all contribute to the reduction of costs. cost. The changes might relate to increase or decrease in volume demanded or to changes in the design or product or service or changes in the deliver time. inventory control.Productions and Operations Management Rupesh Patel Prof. profitability is related to the difference between price and cost.. Operations strategy specifies the policies and plans for using the organization’s resources to support its long-term competitive strategy.
to get the desired output. Quality: After the progress of application of scientific principles to the manufacturing aspects. How quickly a product or service is delivered to a customer 2. and tried to standardize these motions into certain categories and utilize the classification to arrive at standards for time required to perform a given job. developed and launched to the market 3. Time: Time to perform certain activities refers to several aspects of an organization’s operations such as: 1.Productions and Operations Management Rupesh Patel Prof. By the end of the 19th century. the thought process progressed to control over the quality of the finished material itself. ‘Quality’ which is an important customer service objective. before a basic inventory model was presented by F. now also included the “effectiveness” criterion in addition to efficiency.Roming came up with the application of statistical principles to the acceptance and rejection of the consignments supplied by the suppliers to exercise control over quality this is now known as “acceptance sampling”. Individual Efficiency: Fredric W Taylor studied the simple output to time relationship for manual labour such a brick laying. How quickly new products or services are designed. the economic structure in most of the developed countries of today was fast changing from a feudalistic economy to that of an industrial or capitalistic economy. the worker efficiency still kept rising. Frank Gilbreth and his wife Lillion Gilberth examined the motions of the limbs of the workers in performing the jobs.Dode and H. The analysis of productive systems.Harris. In 193 Walter Shewart came up with his theory regarding control charts. Around the same time. Effectiveness as a function of internal climate: The Howthorne Experiments brought for the concept of effectiveness as a function of internal climate. H. In 1935. These experiments were conducted with purpose with the purpose of increasing the efficiency of the individual worker. These experiments showed that worker efficiency went up when the intensity of illumination was gradually increased. This puzzle could be . Collective Efficiency: Scientists such as Gantt shifted the attention to scheduling of the operations and focused on the aspects of collective efficiency. had also to be changed. This formed the precursor of the present day time study. came to be recognized for scientific analysis. It was almost in 1930s. The rate at which improvements in products or processes are made ----------------------------------------- Que-5: Discuss the historical development of POM. 7 able to have a competitive advantage over other firms. The considerations of efficiency in the use of materials followed later.G. This was the precursor to the present day ‘motion study’. This changed economic climate produced new techniques and concepts. The nature of the industrial workers was changing and methods of exercising control over the workers.W. for quality or what is known as process control. therefore. and even when it was gradually decreased. The ability to be flexible depends a great deal on the design of the productive system and the process technology employed by the firm.F.
mattered much to the workers who gave increased output. This made possible the complex repeated computations involved in various OR and other management science techniques. game theory. quening theory and the like developed by people such as George Dantzig. There is a web of relationships between the company. therefore. Service and Relationships Era: Advances in computing technology. Similarity. electronics and communication facilitated the manufacture of a variety of goods and its reach to the consumer. Productivity is an index or measure of the effective use of resources. In parallel. The type of products and services that need to be produced would . associated software. Production and Operations Management as a discipline has to respond to these requirements. the very fact that somebody cared. In effect. Productivity Outputs = ----------Inputs The outputs are goods and services whereas. it helped to spread the use of management science concepts and techniques in all fields of decision making. perhaps fundamental changes. manufacturing started emulating some of the practices and principles of the services industry. IBM developed digital computers. Developments in science and technology give rise to certain social moves. i.e. the inputs are resources such as materials. the changed social interactions and value systems give rise to changed expectations from the people. In fact. And WW Cooper have become indispensable tools for management decisions making today. Advent of Operations Research Techniques: The advent of Operations Research during the World War II period saw a big boost in the application of scientific techniques in management. labour. a ‘service’ represents certain other utility and group of characteristics these may undergo changes. ------------------------------------------- Que-6: What is Productivity? Measures? What are various Productivity The term productivity describes how well a production manager achieves productive use of the resources of his firm. Today a ‘product’ represents a certain group of characteristics. The Computer Age: Around 1955.Productions and Operations Management Rupesh Patel Prof. . Productivity Measures: 1) When productivity ratio is based on a single input it is called partial productivity. such as liner programming. A chanes. in the future. telecommunication and leisure activities also grew at a rapid pace. The service economy came to be treated at par as that of physical goods. 8 explained only through the angle of human psychology. mathematical programming. energy and other resources used to produce the outputs. its customers and its business associates. keep changing. Various techniques. Production and Operations Management is now getting to be increasingly ‘relationship oriented’. the demand for services such as transport. It is usually expressed as a ratio or output to input.
it is called total productivity. 9 2) When the ratio is between more than one input. it is called multifactor productivity. -------------------------------------------------- Que-7: Explain Product Development Process in context with Production and Operations Management.Productions and Operations Management Rupesh Patel Prof. 3) When the ratio is between all inputs and all outputs. A systematic new product development process has six major steps which are illustrated in following chart. .
Phase-3: Design detail: This phase includes the complete specification of the geometry. business goals. and an economic justification of the project. Products produced during production ramp-up are sometimes supplied to preferred customers and are carefully evaluated to identify any remaining flaws. and tolerances of all the unique parts in the product and the identification of all the standard parts to be purchased from suppliers. and a preliminary process flow diagram for the final assembly process. key assumptions. the product is made using the intended production system. The output of the planning phase is the project mission statement. Phase-2: System-level design: The system-level design phase includes the definition of the product architecture and the decomposition of the product into subsystems and components. A concept is a description of the form. The output of this phase is the drawings or computer files describing the geometry of each part and its production tolling. The purpose of the ramp-up is to train the workforce and to work out any remaining problems in the production processes. the specifications of purchased parts and the process plans for the fabrication and assembly of the product. materials. The output of this phase usually includes a geometric layout of the product. The final assembly scheme (which we discuss later in the chapter) for the production system is usually defined during this phase as well. Phase-4: Testing and refinement: The testing and refinement phase involves the construction and evaluation of multiple preproduction versions of the product. 10 The six phases of the generic development process are: Phase – 0: Planning: The planning activity is often referred to as “phase zero” since it precedes the project approval and launch of the actual product development process. Prototypes are tested to determine whether the product will work as designed and whether the product satisfies customer needs. This phase begins with corporate strategy and includes assessment of technology developments and market objectives. Early prototypes are usually built with parts with the same geometry and material properties as the production version of the product but not necessarily fabricated with the actual processes to be used in production.Productions and Operations Management Rupesh Patel Prof. Phase-1: Concept Development: In this phase the needs of the target market are identified alternative product concepts are generated and evaluated. and one or more concepts are selected for further development and testing. which specifies the target market for the product. a functional specification of each of the product’s subsystems. an analysis of competitive products. Phase-5: Production ramp-up: In the production ramp-up phase. The transition from production ramp-up to ongoing production is usually . function and features of a product and is usually accompanied by a set of specifications. A process plan is established and tooling is designed for each part to be fabricated within the production system. and constraints.
Examples of products produced in batches include paint. 3. Resources are organized around a product or service and materials move in a line flow from one operation to the next according to a fixed sequence with little work-in-progress inventory.Productions and Operations Management Rupesh Patel Prof. computers. In batch processing. high flexibility of equipment and skilled labour and low volume. television sets. A continuous process is the extreme end of high volume. mainly five basic process types: Job shop production Batch production Repetitive or assembly line production Continuous production Project production 1) Job Shop Process: It is use din job shops when a low volume of high-variety goods are needed. A job shop uses a flexible flow strategy. books and magazines. A job shop is characterized by high customization (made to order). Processing is intermittent. 4) Continuous Process: This is used when a very highly standardized product is desired in high volumes. A tool and die shop is an example of job shop where job process is carried out to produce one-of-a-kind of tolls. with resources organized around the process. etc. standardized production with rigid line flows. These systems have almost no variety in output and hence. A batch process differs from the job process with respect to volume and variety. the product is launched and becomes available for widespread distribution. The process often is capital intensive and operate round the clock to maximize equipment utilization and to avoid expensive shutdowns and start-ups. each job requires somewhat different processing requirements. ice cream. “assemble-to-order” strategy and “mass customization” are also possible in repetitive process. soft drinks. At some point in the transition. 2) Batch process: Batch processing is used when a moderate volume of goods or services is required and also a moderate variety in products or services. 3) Repetitive Process/Assembly line process: This is used when higher volumes of more standardized goods or services are needed. toys. Example of . -------------------------------------------- Que-8: Explain various Production Processes. 5. there is no need for equipment flexibility. Firms having job shops often carryout job works for other firms. Products produced include automobiles. 2. 4. This type of process is characterized by slight flexibility of equipment (as products are standardized) and generally low labour skills. volumes are higher because same or similar products or services are repeatedly provided. There are 1. 11 gradual. home appliances. However. This kind of process is suitable to “manufacture-to-stock” strategy with standard products held in finished goods inventory. Repetition process is also referred to as line process a sit include production lines and assembly lines in mass production.
000 hours Rs/Unit Rs. even the labour rate for limited car is also at higher side. sugar. 3. the large scope for each project and need for substantial resources to complete the project. Deluxe Labour. price per unit. a dam. Quantities sold.000/car Rs. a bridge. which clearly indicates that the car manufacturer is more conscious about quality of limited cars than that of deluxe cars.00. Quantity 4000 units sold 6000 units sold 20.000 hours 30. paper. publishing a new book. etc. hospital. If any organization is focusing on quality of its products that there will be trade-off with productivity.000/car Rs. and labour hours follow. fertilizers. cement. Examples of projects are. Projects tend to be complex. etc. 12 products made in continuous process systems include petroleum products. flour. 30/hour Rs. . 40/hour Deluxe car Limited Car Labour. construction of a factor. Equipment flexibility and labour skills can range from low to high depending on the type of projects. 4. developing a new product.Productions and Operations Management Rupesh Patel Prof. 5) Project Process: It is characterized by high degree of job customization. Limited Solution: 1) Deluxe car Productivity capital) = = = (4000 x 320000) (1280000000) 2133 = = (Deluxe car sales/year) / (Deluxe car labour / (20000 x 30) (600000) / 2) Limited car productivity capital) = = = (Limited car sales/year) / (limited car labour (6000 x 400000) (2400000000) 2000 / (30000 x 40) / (1200000) The labour productivity for deluxe car is better than that of limited car The price of limited car is higher than that of deluxe car. steel.20. building a shopping centre. What is the labour productivity for each car? Explain the problems associated with the labour productivity. ------------------------------------------------ Que-9: Two types of cars (Deluxe and Limited) were produced by a car manufacturer in 2005. take a long time and consist of a large number of complex activities.
Productions and Operations Management Rupesh Patel Prof. which is contradictory.000 LDC 20.000 a) Calculate partial labor and capital productivity figures for the parent and subsidiary.000 20.000 $20.000 FC 20. 100000 2) Capital productivity = Output / Input = 100000 / 60000 = 1. Do the results seem misleading? b) Compute the multifactor productivity figures for labour and capital together.000 15. 13 So.33 20000 Output / .000 5. Explain why these figures might be greater in the subsidiary.66 Subsidiary Company: 1) Labour productivity = / Input = 15000 = 1.000 60. Are the results better? c) Calculate raw material productivity figure (units/Re where Re 1 = FC 10). ---------------------------------------------- Que-10: A US manufacturing company operating a subsidiary in an LDC (less developed country) shows the following results: Sales(units) Labour(hours) Raw materials (currency) Capital equipment (hours) US 100. the case presented here is a normal scenario. Solution: Case – a: Parent Company: 1) Labour productivity = / Input = 20000 = 5 Output / 2) Capital productivity = Output / Input = 20000 / 5000 = 4 a) There is huge difference between labour productivities of Parent company and subsidiary company b) Capital productivity of subsidiary is higher than that of the Parent company.
1 Re = 10 FC $ 1 = 10 FC (Foreign Currency) $2000 = 20000 FC Parent Company: 1) Raw materials productivity = = = Subsidiary Company: 1) Raw materials productivity = = = Output / Input 20000 / 2000 10 Output / Input 100000 / 2000 5 The raw-materials productivity is better n subsidiary than that of parent company. Which clearly suggests that the machineries and equipments are used in optimum manner in subsidiary as compared to parent company. o More output from the available capital equipment hours o Less damaged products o Less wastage of raw-materials So the better capital equipment usage leads the subsidiary to better rawmaterials productivity . Case – c:Rate of exchange is Therefore.25 = Output / (Labour + Capital) 20000 / (15000+5000) 20000 / 20000 1 Yes. the multifactor productivity of labour and capital of parent company and its subsidiary is very much similar to each other. The reasons might be as following: The capital equipment productivity of subsidiary is greater than that of parent company.Case – b:Parent Company: 1) Multifactor productivity = = = Subsidiary Company: 1) Multifactor productivity = = = = Output / (Labour + Capital) 100000 / (20000+60000) 100000 / 80000 1.
64 = 220000 / 144000 = 1.66 = Output / 220000 / 40000 5.000 6.000 5.000 50. capital. 200000 30.000 3.000 Solution: 2004 1) Total Productivity Input = 200000 / (30000+35000+5000+5000 0+2000) 2005 = Output / 1) Total Productivity Input = = Output / 220000 / (40000+45000+6000+5000 0+3000) = 200000 / 122000 = 1. 220000 40.55 = Output / 3) Raw Materials Prod.71 220000 / 45000 4. and raw-materials for this company for both years.000 50. Calculate the total productivity measure and the partial measures for labor. Input = = 200000 / 35000 5. the productivity of the company has been decreased because of fall in labour and raw-materials productivity While the capital productivity has been improved in 2005 than that of in 2004 ----------------------------------------------- . What do these measures tell you about this company? Output Input Sales Labor Raw materials Energy Capital Other 2004 Rs.000 2005 Rs.88 During 2004 to 2005.--------------------------------------------------- Que-11: Various financial data for 2004 and 2005 follow. Input = = 3) Raw Materials Prod.000 35.000 2.52 2) Labour Productivity Input = = = Output / 2) Labour Productivity Input = = = Output / 200000 / 30000 6.000 45.
56000 Fulltime workers = 8 (@ 40 hrs/week) Part-time workers = 9 (@ 15 hrs/week) Total Man-hours = ((8x40)+(9x15)) Months x 4 weeks = (320+135)x4 = 1820 man-hrs Productivity = Output / Input = 56000 / 1820 = [(30. The company just completed two contracts. what is the percentage change in productivity from April to May? May April Sales = Rs.31 Que . Using sales value as the measure of output.84 Sales = Rs.1 Contract . of week consumed No. of Output devices No. The store employs eight full-time workers who work a 40hour week. and in May the store had nine part-timers at 15 hours per week (assume four weeks in each month).76 . of hrs/week No.56000 in May.15 = = = Output / Input 5500 / 4200 1. of hrs/week No. of hrs/week No. of week consumed No.45000 Fulltime workers = 8 (@ 40 hrs/week) Part-time workers = 7 (@ 10 hrs/week) Total Man-hours = ((8x40)+(7x10)) Months x 4 weeks = (320+70)x4 = 1560 man-hrs Productivity = Output / Input = 45000 / 1560 % change in productivity = 28.76 – 28. of workers x No.84) / 28. = 2000 = hours hours Productivity = = = Output / Input Productivity 2300 / 2000 ------------------------------------1.45000 in April and Rs.Que-12: An electronics company makes communication devices for military contracts. of man-hours = x = = 2300 25 No. The navy contract was for 2300 devices and took 25 workers two weeks (40 hours per week) to complete. of hrs/week = 40 hrs = 3 weeks No. of workers x No. The army contract was for 5500 devices that were produced by 35 workers in three weeks. On which contract were the workers more productive? Contract . In April the store also had seven part-time workers at 10 hours per week.84] x 100 = 30. of weeks 35 x 40 x 3 4200 man- x No. of Worker workers No. of weeks = 25 x 40 x 2 = The productivity in contract-2 manis better than that of contract-1. of Output devices No. of man-hours = = = 5500 35 = 40 hrs = 2 weeks No. of Worker workers No.13: A retail store had sales of Rs.2 No.
(iii) exchange rates. bottling plants of soft-drink companies are located within the cities. oil and natural gas are sources of electric power in addition to generation of power through hydro electric power stations. The choice of a particular country for location depends on such factors as: (i) political stability. the firms must be located nearer to market to increase the speed of delivery. Nowadays. sugar. .000 deliveries with 96 drivers. paper and cement industries which use bulky raw materials should be located near the sources of raw materials. Also.65 % than that of April A parcel delivery company delivered 1. with the globalization of business this choice is significant because a location in any country in the world will be considered to have competitive advantages derived from location. Availability of Power: Power is essential for any manufacturing firm. (ii) export and import quotas. In 2005 the firm handled 112. Coal. The factors affecting the selection of a particular region are: Availability of raw materials and nearness to the sources of raw materials: This will reduce the cost of transportation of raw materials from its source to the place where the plant is located. For instance. Nearness to the market: For many firms producing consumer non-durable items such as bread. the next logical step is to decide about the country for location. If the decision is to choose an international location. Proximity to suppliers: Firms are located near their suppliers because of perishability. (iv) cultural and economic considerations. 2) Regional location decision: The selection of a particular region may involve choosing among many national regions or among several regions within a much smaller geographical area. fragile or perishable. steel.000 packages in 2004.= 6. etc. transportation costs. cost of labour etc. heavy. For example. when finished goods are bulky. (v) availability of natural resources. What was the percentage change in productivity from 2004 to 2005? Que – 14: What are the factors influencing while selecting a Facility Location? Following are the factors influencing the selection of Facility location: 1) Deciding on domestic or international location: First the management must decide whether the facility will be located internationally or domestically. ice-cream. or bulkiness of materials. when its average employment was 84 drivers.03.65 % The productivity of May is increased by 6. it is necessary to be located near the market to reduce the transportation costs as well as reduce the time required of transportation. eliminate. packed foods.
This factor may not be very important if the skilled labour are mobile (i. Suitability of Climate: Certain industries require particular climatic conditions because of the nature of their production. humid climate is required for cotton textile and jute industries. Ancillary and Competing Industries: Complementary and ancillary industries can accept job orders which are subcontracted by major industries. road and sea.e. Also. The attitude of labour (workers). cheap power and land. small and medium sized plants are attracted by these incentives. require adequate supply of electricity at a cheap rate. Competition between states: Many states compete among themselves to attract new industries by offering investment subsidies. union activities and industrial disputes play a major role in attracting an industry to be located in a community. educational facilities. power. the big industries can get raw materials. have encouraged industrialists to locate their industries in the backward regions (economically backward states). Also. For example. Even though the desired climatic conditions can be provided artificially. Competing industries which encourage healthy competition are advantageous to the new plants because they can jointly tackle certain problems regarding raw materials. labour. etc. 3) Selection of Community: The selection of a locality or a community in a region is influenced by the following factors: Availability of Labour: Labour having the appropriate levels of skills needed for the industry is an important consideration. The central government may influence plant location in backward states by their licensing policy. The location of the plant must be well connected by rail. medical facilities. wastage. institutional finance and subsidies. it would be quite costly to do so and hence. etc. Civic Amenities for Employees: Employees need facilities such as housing. disposal. tools and supplies from the small scale industries located in the vicinity of in the same community. natural climatic conditions are preferred. sports and recreational facilities. Existence of Complementary. . For example. The skilled labour influences the plant location (their availability and cost).. Such facilities will attract skilled labour and other employees to the plants which are located in places where all employee amenities are available.. Transport Facilities: Transport facilities are essential for transportation of raw materials and supplies and employees to the plant as well as for carrying finished goods from the plant to the market place. sales tax exemption. longer loan repayment period and low interest rates. dust free climatic conditions are favorable for electronic industries. petroleum refineries and fertilizer plants are located near the ports because they need shipping facility either to bring raw materials (such as crude oil) to the plant or ship the finished products (fertilisers) to other destinations (ports). willing to move).Some industries such as Aluminum extraction plants consume heavy amount of electricity and hence. freight rate policy. Government Policy: Some states in backward regions of our country.
rocky and rough terrain is unsuitable and involves expenditure to level the site. topography and cost of land: For certain industries such as Agro industries. availability of land and cost of land are important considerations. lunch rooms. and also collectively negotiate with labour unions or government agencies. Disposal of waste: Some industries such as chemical plants. customer service areas. soil. offices. tool cribs. Community Attitude: The people living in the nearby areas surrounding the proposed site for the industry should not oppose the location of the plant. effluents and smoke emanated from the industries. adequate fire fighting facilities must be available Local taxes and restrictions: The municipality or local administration has its own tax structure for industries and regulations waste disposal.pollution control. cost and purity are considered regarding water supply to the plant. Topography is also considered because a hilly. aisles. have the problem of disposal of effluents and the site selected should have provision for this. The reasons for negative attitude could be pollution. etc. Plant layout or facility layout means planning for location of all machines. --------------------------------------------- Que – 15: What is facility layout? What are the needs for facility layout planning? Plant layout. coffee/tea bays. steel plants etc. financial institutions. 4) Selection of Exact Site: The selection of exact site for a plant is influenced by the following considerations: Area of land available. also know as “Facility Layout” refers to the configuration of departments. Regularity of supply. Finance and Research Facilities: Availability of banks.. fertile soil is necessary. workcenters and equipment and machinery with focus on the flow of materials or work through the production system. health hazards (such as radiation) dangerous fumes emanating from the industries etc. equipment utilities. and computer rooms and . leather industries. Availability of Water: Some industries such as chemical and paper industries require plenty of water for industrial use and hence must be located where water is available in abundance. For industries requiring large area of land. rest rooms. material storage areas. Availability of Fire Fighting Facilities: Since industrial units are prone to fire hazards. tool servicing areas. and research and development laboratories is also a factor which attracts new industries to a location. work stations. breweries.
methods or equipment 7) Changes in environmental or legal requirements 8) Low employee morale --------------------------------- Que – 16: Discuss various types of Facility Layout. Provides economy in materials and labour by minimizing waster. into and within the buildings. Reasons for redesign of layout: 1) Inefficient operations (high cost. Advantages of line of production layout: 1. The choice of a particular line depends on several factors. Once a machine is in line. flexibility and cost as well as quality of work life. fast response or flexibility. . A layout essentially refers to the arranging and grouping of machines which are meant to produce goods or services. 3) An effective layout can help an organization to achieve a strategic advantage that supports differentiation. The need for layout decisions: The need for layout planning arises both in the process of designing new plants and the redesigning of existing plants or facilities. 2) Layout has many strategic implications because it establishes an organization’s competitive priorities in regard to capacity. which is not designated in the sequence of operations. it cannot perform any operation. The methods of grouping or the types of layout are: 1) Product or Line Layout 2) Process or Functional Layout 3) Fixed position or static Layout 4) Cellular layout or Group Technology Layout 1) Line of product layout The position and order in the sequence for a machine performing particular operation is fixed. customer contact and image (in case of service organization). low cost. Grouping is done on different lines. Ensures smooth and regular flow of material and finished goods. bottleneck operations) 2) Accidents. health hazards and low safety 3) Changes in product design/service design 4) Introduction of new products/services 5) Changes in volume of output or product-mix changes 6) Changes in processes. 4) A well designed layout provides an economic layout that will meet the firm’s competitive requirements.also planning for the patterns of flow of materials and people around. processes. There is a continuous flow of material during the production process from start to finish. Reasons for design of new layouts: 1) Layout is one of the key decisions that determine the long-run efficiency in operations. 2.
Lower capital investment. Requires substantial production planning and control. machine tools etc. 6. 3.. 5. 6. transportation and inspection. 4. equipment and the raw-material is moved to a place where all the mfg activities are carried out e. constructions of dams etc. Short processing time. Machine breakdown doesn’t disrupt production.g. 3. Minimum need for buffer stock. 9. as more time s required for material handling. 5. Inspections more frequent and costlier. Reduces material handling. Wide flexibility in production facilities. Longer processing time. 2. Requires heavy capital investment 2) Functional or process layout Here machines performing same type of operations are installed at one place . Easy production control. This type of layout is most appropriate for intermittent (JOB and BATCH ) type of mfg systems where small qty’s of a large range of products are to be manufactured e. .3. Advantages of process layout: 1. Floor area is more production 8. all drilling machines are located at one place known as drilling section. 3.e. Supervision is more difficult.g. Ship building. 4. More material handling. plant is grouped according to functions e. 3) Stationary layout This type of layout is used in situations where the semi finished goods are of such a size and weight that their movement from one place to the other is not possible. Chances of production line to shut down. Product layout is inflexible in nature. Scope for more skilled labour leads to better quality in production. Disadvantages of process layout: 1. 4.. Each production unit of the system works independently and is not affected by the happenings in another section of the plant. 2. 2. Requires highly skilled labour creating difficulty in labour procurement. Disadvantages of line of production layout: 1. (less duplication of machines).i. 7. Effective supervision. 5. Lesser Inspection. 4.g. Here men. Requires more floor space. Low cost labour procurement and lesser training requirements 6.
There is increased operator responsibility. Quicker set-ups and fewer tooling changes 6. Estimating of future demand for products or services are commonly referred to as sales forecasts. The sales forecasts or demand forecasts are the starting point for the entire planning in production and operations management. Very cost effective when similar type products are being processed. all depend on sales forecasting. each at a different stage of progress. A reduction in materials handling costs 3. such as construction and shipbuilding etc. average utilization of capital equipment is limited. There is also the risk that the cells that may become out-of-date as products and processes change. it also has the potential to increase machine downtime 3. Disadvantages of Fixed layout: 1. Forecasting methods: . Forecasting is defined as estimating the future demand for products and services and the resources necessary to produce these outputs. material planning. For example. In this layout. and the disruption and cost of changing to cells can be significant 4. called part-family. This layout is flexible with regard to change in design. 2. where large capacity mobile equipment is required 3. Space requirements for storage of material and equipment are generally large 4) Cellular Layout Cellular Layout is a layout based on Group technology principles. financial planning and production scheduling. components that are similar in design or manufacturing operations. Due to long duration to complete a product. Forecasting is the first step in planning. are groped into one family. Lower work-in-progress inventories 2. operation sequence. Improved functional and visual control Disadvantages of Cellular Layout: 1. Advantages of Cellular Layout: 1. 3. Shorter flow times in production 4. and therefore behavioral aspects of management become crucial ------------------------------------------- Que – 17: What is forecasting? Explain various forecasting methods. manpower planning. Unless the forecasting system in place is extremely accurate.Advantages of Fixed Layout: 1. Capital investment may be for a one-off product. Reduced manufacturing flexibility 2. It is a combination of both process and product layout and incorporates the strong points of both. capacity planning. labour availability etc.. 2. Simplified scheduling of materials and labour 5. which can make it expensive. It is essential in large project jobs.
based on which a group estimate of demand is obtained as the forecast. sales people may deliberately underestimate their forecasts so that their performance will look good when they exceed their quotas which are fixe based on their estimates. Can be used for technological forecasting. Quantitative methods involve either projection of historical data or the development of association models which attempt to use causal variables to arrive at the forecasts. Sales territories often are divided into districts or regions and forecasts for districts or regions will be useful in inventory management.The two general methods to forecasting are: (i) Qualitative. Sales people may be unable to distinguish between what customers would like to do and what they actually will do. Qualitative methods consist mainly of subjective inputs. Market Research / Consumer Survey Methods: This is a systematic approach to determine consumer interest in a product or service by conducting a consumer survey and sample consumer opinions. often of non-numerical description. If the firm uses individual salesperson’s estimate as a performance measure. Each sales person estimates what sales will be in his or her territory. medium and long-term. distribution and sales force staffing. The sales persons are most likely to know which products or services. Qualitative Methods 1. Disadvantages Individual biases of sales people may affect the sales forecast (some are optimistic and some are pessimistic). Advantage: Uses experience and knowledge of two or more managers to arrive at a single forecast. 3. Advantages . and (ii) Quantitative. It sometimes gets out of control or gets delayed. sales people may be overly influenced by their recent experiences. Can be used for forecasting the demand for new products Can be used to modify an existing forecast to account for unusual circumstances Disadvantages Executive opinion can be costly because it takes valuable executive time. Difficult to obtain consensus opinion of several experts. Advantages: The sales force is the group closest to the customers. Jury of Executive Opinion: It is a forecasting technique in which the opinions of a small group of high-level executives (managers) are taken. This method may be used to forecast demand for the short. 2. Then they are combined at the district and national level to arrive at the overall forecast. customers will be buying in the near future and in what quantities. These estimates are then reviewed to ensure that they are realistic. Sales Composite Method: This is also known as “Pooled Sales force Estimate” method. Sometimes.
The survey results may not reflect the opinions of the market. thus enlarging the scope of information on which participants can base their judgments. Time series models 1. Surveys can be expensive and time consuming. Linear regression analysis Time Series Models 1. Also. Advantages This method can be used to develop long-range forecasts of product demand and sales projections for new products. Judgmental Method/Delphi Method: In this method opinions are solicited from a number of other managers and staff personal. Exponential smoothing method Causal models 1. all of which use historical data. Moving averages method 3. They fall into two categories. Trend projection 2. Naïve approach 2. High accuracy may not be possible Poorly designed questionnaire will result in ambiguous or false conclusions. The response rate for mailed questionnaire may be poor. Disadvantages It may not be possible to contact every customer or potential customer and opinions are obtained from sample customers which may lead to forecast error if the sample size is inadequate Surveys require considerable amount of knowledge and skill to handle correctly. A panel of experts may be used as participants (respondents) Disadvantages: The process can take a long time Responses may be less meaningful because respondents are not accountable due to anonymity. Naïve Approach . The decision makers consist of a group of 5 to 10 experts who will be making the actual forecast.Consumer’s opinion regarding their future purchasing plans are better than executive opinion or sales force opinion because it is the consumers who ultimately determine demand. Quantitative Methods There are five quantitative forecasting methods. information that might not be available elsewhere can be obtained by consumer surveys. 4. Each new questionnaire is developed using the information extracted from the previous one.
• 2. Simple Moving Average Method • A moving average forecast uses a number of most recent historical actual data values to generate a forecast.Trend Projection Method (TPM) • The trend component of a time series reflects the effect of long-term factors on the series.4+0.Ft-1) Ft Ft-1 At-1 α = = = = Forecast for the this period (t) Forecast for the previous period (t-1) Actual demand for the previous period (t-1) Smoothing constant (value varies from 0 to1) Causal Models 1.20Ft-2 + 0. Moving Averages Method 1.3+0.1) 3. Exponential Smoothing Method • It is a sophisticated weighted moving average method that is still relatively easy to understand and use.50. • The actual demand for this period • α which is referred to as smoothing constant and having a value between 0 and 1. the current period). 4. the forecast demand for February 2011 will also be 100 units. • The moving average for ‘n’ number of periods in the moving average is calculated as: Moving average = Ʃ demand in previous n periods n n may be 3.2+0. F t+1 = (0. the second most recent period might be assigned a weight of 0. in a 3 period weighted moving average model. A simple plot of the data can often reveal the nature of a trend. Weighted Moving Average Method • Each historical demand in the moving average can have its own weight and the sum of the weight equals one.30Ft-1 + 0.30 and the third most recent period with a weight of 0. Ft = Ft-1 + α (At-1 . • Trend Equation : A linear trend can be expressed as Y = a + bx . 5 or 6 periods for 3. 5 or 6 period moving average 2. • It requires only three items of data • This period’s forecast.20 • Then forecast. • For example. 4.40Ft + 0.10Ft-3) / (0. the most recent period might be assigned a weight of 0.The simplest way to forecast is to assume that forecast of demand in the next period is equal to the actual demand in the most recent period (i.e. • The trend component may be liner or may not. For example: • If the actual sales for a product in January 2011 is 100 units. • Analysis of trend involves developing an equation that will suitably describe trend.
Now the 3 month moving average of the t+1th week is given by Ft= Xt + Xt-1 + Xt-2 3 . 338. & 5 Now the three periods moving average forecast is given in the following table Three-period moving average Forecast Week (t) Xt (Ft) 1 2 3 4 5 6 7 8 9 10 338 219 278 265 314 323 299 259 287 302 278.18. 323. Linear Regression Model • In a simple linear regression model. 287. Y = a + bx Y = Dependent variable X = Independent variable A = A constant value (a constant value) B = Slope of the line (a constant value) -------------------------------------------- Que .67 . 4. t=3. 219. 265.67 312.00 285.x = Specified number of time periods from x = 0 y = Forecast for period x a = Value of yt at x = 0 b = Slope of the straight line 2.67 281. The number of cans of soft drinks sold in a machine each week is recorded below. Develop forecasts using a three period moving average. 314. 259. the dependent variable (Y) is a function of only one independent variable (x) and the theoretical relationship is linear or a straight line.67 300.00 293. 302 Let Xt denote the number of cans of soft drinks sold in a machine of th the t week. 278. 299.33 254.
5783. t= 4. 5577. 75 1 6712 6149. 5 6 6519 6522. 6712. Now the Xt + Xt-1 + Xt-2 + Xt-3 Ft= 4 . and 7345 th Let Xt denote the number of viewers of baseball game of the t th 4 period mov. Historical records show 5346. 6 & 7 Now the four periods moving average forecast is given in the following table Four period moving average Perio Forec d X ast 1 5346 2 7812 3 6513 4 5783 5 5982 6363. 6513.Que – 19: Use a four period moving average to forecast attendance at baseball games. 5.ing average of the t+1 period is given by period. 6519. 6283. 0 5 1 7345 6197. 5982. 25 8 6283 6125. 7812. 1 75 . 75 9 5577 6250. 5 7 6219 6199.
4 A=actual data F=forecasted data t=period number Week Day 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Delive Ft by exponential ry15 smoothing 27 26 24 18 21 26 19 15 28 25 26 17 23 15 19. α= 0.50090252 21. 26.Que – 20: A hospital records the number of floral deliveries its patients receive each day. the records show 15.5015042 24.3958528 18.9884 8 22. 18. 15.96 8 20. 21.980 1 8 21.28 22. 26. 23 Use exponential smoothing with a smoothing constant of . 25. 24. 27. 17.α) Ft-1 Here.8 22.4 to forecast the number of deliveries. The formula is Ft=α*At-1+ (1. 28. 26. For a two week period. 19.50054151 8 20.99308 2 .50250701 23.83751168 22.
92.8 64.710 4 115.988416 . 65.55 2 95. α= 0. 121.7 6 86. 146 A Ft=Ft-1+α (At-1-Ft-1) Here. Use exponential smoothing with a smoothing constant of .8 Year 1 2 3 4 5 6 7 8 Attendan Ft by exponential ce 47 smoothing 68 65 92 98 121 146 47 63.8 to forecast attendance for the eighth year. 47. 98. 68.9420 8 139.Que – 21: The number of girls who attend a summer basketball camp has been recorded for the seven years the camp has been offered.
37936 64 54.7974 4 54.99189 76 59. Use exponential smoothing with smoothing constants of .4 8 52.798379 52 53.00810 2 7.7177 6 52.8 MSE 107.43027229 8 Week 1 2 3 4 5 6 7 8 9 10 11 Ft by exponential 58 55.6 -14.56 215. .18 4 50. 55.64413941 8 4. 52 Ft=Ft-1+α (At-1-Ft-1) α No of Pizza 58 46 55 39 42 63 54 55 61 52 0. Compare your forecasts using MSE.Que – 22: The number of pizzas ordered on Friday evenings between 5:30 and 6:30 at a pizza delivery location for the last 10 weeks is shown below. 46.0154305 5 0.0740564 7 8.2822 4 2.903493 12 54.79744 0.2 and .1234472 5 Squar ed Erro 144 0.32279 45 Error -12 -0. 63.004096 441.147 2 52. 39.194467 8 1.8147231 4 Week 1 2 3 4 5 6 7 8 9 10 11 Forecast using exponential 58 48.62063 4 2. 6 55.04051 2 6.8 to forecast a value for week 11.79838 It is clear by MSE that if α value increases the error is also increase.90349 α No of Pizza 58 46 55 39 42 63 54 55 61 52 0.987 2 58.10383322 7 58. 54.5024 0.5904 103.6 8 41.93 6 41.68 0. 4 53.48 -10.55967 59 Error -12 6. 42. 55.6 -16. Which smoothing constant would you prefer? 58.36 271.02579 2 7.2 MSE 84.064 21.0972944 5 60.012 8 4.9594 88 54.184 12.00164122 2 36.852 8 1.537763 8 23. 61.170372 1 Squared Error 144 43.71385 6 165.9742 08 53.
sub-contract. Within the intermediate time horizon (6 to 12 months) of the production plan. Aggregate production planning involves planning the best quantity to produce during time periods in the intermediate-range horizon (often 3 months to 1 year) and planning the lowest cost method of providing the adjustable capacity to accommodate the production requirements. For manufacturing operations. ---------------------------------------- Que – 24: What are the objectives of Aggregate Production Planning? 1. increase or reduce the working hours (add an extra shift.Que – 23: What is Aggregate Production Planning? It Is the process of determining output levels (units) of product groups over the next 6 to 18 months period on a weekly or monthly basis. To develop plans that are (a) Feasible: The plans should provide for the portion of demand that the firm intends to meet and should be within the capacity of the firm (b) Optimal: The firm should aim for plans which will ensure that resources are used as wisely as possible and cost kept as low as possible. The plan indicates the overall level of outputs level of outputs supporting the business plan. work force and finished goods inventory levels. it is feasible to hire or lay-off workers. Alternate plans must be examined in light of feasibility and cost. it is usually not feasible to increase capacity by building new facilities or purchasing new equipment. aggregate planning involves planning workforce size. -------------------------------------- . Then general plan in prepared to meet the demand requirement by setting output. over the intermediate time horizon. To increase the range of alternatives of capacity use that can be considered by the management of the firm ---------------------------------------- Que – 25: What are the purpose and scope of Aggregate Planning? Aggregate planning begins with a forecast of aggregate demand for a product. production rate (work hours per week) and inventory levels. use overtime) or build up or deplete inventory levels. 2. However.
Que – 26: What are the Inputs and Outputs for Aggregate Production Planning? --------------------------------------- Que – 27: Explain the process of Aggregate Planning? -------------------------------------------------- .
An alternative approach to managing these requirements is to plan for procurement or manufacture of the specific components that will be required to produce the required quantities of end products as per the production schedule indicated by the master production schedule(MPS).Que – 28: What is Materials Requirements Planning? For a manufacturing company to produce end items to meet demand. ------------------------------------- Que – 30: What are the Inputs and Outputs of MRP system? MRP system Inputs: . the availability of materials. fabricated parts or sub-assemblies are required. The technique is know as material requirements planning technique. ------------------------------------- Que – 29: What are the objectives of Materials Requirements Planning? The objectives of MRP in operations management are: 1) To improve customer service by meeting delivery schedules promised and shortening delivery lead times 2) To reduce inventory costs by reducing inventory levels 3) To improve plant operating efficiency by better use of productive resources. One approach to manage the availability of these items is to keep a high stock of all the items that might be needed to produce the end items.
schedules receipts and planned order releases for the item. Bill of Material File or Product Structure File: Provides the information regarding all the materials. e. etc. parts and sub assemblies that go into the end product. Two primary outputs are: Planned order schedule which is a plan of the quantity of each material to be ordered in each time period.e. 3.g. Inventory Status File: Gives complete and up-to-date information on the on-hand quantities. percentage of delivery promises kept and stock-out incidences. gross requirements. It also includes other information such as lot sizes. safety stock levels and scrap allowances... 2. ------------------------------------- . purchase commitment reports. etc. MRP system Outputs: 1. 2 The secondary outputs are: Exception reports which list items requiring management attention to control Performance reports regarding how well the system is operating. Planning reports such as inventory forecasts. lead times. modification of previous planned orders. inventory turnovers.1. The order may be a purchase order on the suppliers or production orders for parts and sub-assemblies on production departments Changes in planned orders – i. Master Production Schedule: MPS specifies what end products are to be produced and when.
. parts. inventory records file. It contains the information to identify each item and the quantity used per unit of the item of which it is a part. The BOM file is often called the product structure file or product tree because it shows how a product is put together. The second source is forecast demand. These orders usually carry promised delivery dates.Que – 31: Explain Materials Requirements Planning process? The Materials Requirements Planning portion of manufacturing activities most closely interacts with the master schedule. There is no forecasting involved in these orders-simply add them up. The demand from the known customers and the forecast demand are combined and become the input for the master production schedule. 1) Demand For Products: Product demand for end items comes primarily from two main sources. customers also order specific parts and components either as spares or for service and repair. The first is known customers who have placed specific orders. listing not only the materials. and the output records as shown in the above chart. This BOM file is one of the three main inputs to the MRP program. bill of materials file. or from interdepartmental transactions. and components but also the sequence in which the product is created. 2) Bill of Materials File: The bills of materials (BOM) file contains the complete product description. such as those generated by sales personnel. In addition to the demand for end products.
bought-out components. liquid funds such as cash and also inventory of plant and equipment. (c) Semifinished goods or work-in-process. an automobile dealer maintains inventory of automobiles. The inventory status file keeps data about the projected use and receipts of each item and determines the amount of inventory that will be available in each time bucket. inventory of skilled labour. medical supplies. a manufacturing firm maintains inventory of raw materials. ----------------------------------- Que – 32: What is Inventory? What is Nature and Importance of Inventory management? The term inventory refers to any resource that has certain value. 2) Inventories allow for smooth flow of production process by ensuring that adequate supply of raw materials. finished goods. parts and component which become part of the firm’s finished product in the production process. thereby locking up substantial working capital. (b) Bought-out components or subassemblies. the MRP program will recommend that the item be ordered. and when orders should be released. (e) maintenance spare parts. A department stores or retail store carries inventories of all the retail items it sells. 1) Inventories represent resources acquired at a cost. ------------------------------------ Que – 33: What are the types of different inventories needs to be managed in an organization? Inventories are usually classified as: (a) Raw materials. a family household maintains inventories of food. spare parts for maintenance of equipment and machinery. In an organization. . Alternatively inventory may be defined as “stock of items kept on hand by an organization to be used to meet customer demand”. If the projected available inventory is not sufficient to meet the requirement in a period. semi finished goods or work-in-progress items. the importance of inventory management can be recognized for the following reasons. (d) Consumable stores. (f)Finished goods stored or in transit to warehouses or customers. Following are lists of various types of inventories: (A) Based on nature of materials: Production Inventories: Raw materials. clothing.3) Inventory Status File: This file contains important information such as what items should be ordered. components and manufactured items are available to the production lines. 3) Inventories serve as buffers against uncertain and fluctuating usage and reduce stockout situations. thereby avoiding production hold-ups and loss of customer goodwill. Virtually every type of organization maintains some form of inventory. which can be used at a future occasion when the demand arises.
but which do not become part of the finished product (e. -------------------------------------- Que – 34: What are the functions of Inventory Management? The objective of maintaining inventories in organizations is that it is rarely possible to predict sales levels. quantity ordered). In such cases also. inventory serves as a buffer against uncertain and fluctuating and keeps a supply of items available in case items are needed by the organization or its customers. lubricants. repair and operating supplies which are consumed in the production process. (B) Classified by how it is created Cycle Inventory: The position of total inventory which varies directly with lot size (i. production levels. an inventory of finished goods held in the warehouses will act as a buffer against the uncertainties in demand. if Q is the order quantity or the lot size and the supply is received exactly when the stock is nil. inventories fill the gap between supply and demand. For example. Safety Stock Inventory: Safety stock inventories are held to avoid stock-out conditions which cause production stoppages and to project against uncertainties in demand. spare parts for machine repars). Finished Goods Inventories: Completed products kept in stores ready for shipment. In such situations. Materials move from supplier to a plant. grease cotton waste. then the minimum inventory is nil.g. lead time. the customer demand for the goods may increase suddenly which affects the ability of the manufacturer to meet the customer demand.e.MRO Inventories: Maintenance. Pipe line inventories also include materials that have been ordered but not received. . demand and usage patterns exactly. supply and consumption rates. In-process Inventories: Also known as “work-in-process” or work-in-progress or semifinished goods inventories – these are parts or sub assemblies found at various stages in the production process. Also. Anticipation Inventory: Inventory of materials purchased in bulk quantities in anticipation of price rise and products having seasonal demand produced in quantities more than the demand during off-seasons and held in inventory to meet higher demand rate (more than production rate) during seasons of high demand. from one operation to the next in the plant and from the plant to the warehouse or distribution centre of to the customer. The many functions that inventories perform can be summarized as follows: 1) Smoothing out irregulations in supply: Inventories provide a buffer to overcome the problems of uncertainties in supplies such as delayed deliveries and supply of short quantities by vendors as against the promised delivery schedules and quantities. Thus.. Fluctuation Inventory: Inventory held as reserve stock to meet the unexpected fluctuating demand over a period which cannot be predicted accurately. Pipe-line Inventory: Inventory moving from point to point in the materials flow system. maximum inventory is Q and the average cycle inventory is half of quantity ordered.
but do not cause any immediate loss in production. 4) HML analysis (Based on unit cost): .2) Buying or producing in lots or batches: When the demand for an item does not justify its continued production through-out the year. 3) SDE analysis (Based on procurement aspects): S means scarce items which are generally imported. as a hedge against anticipated price increase in the future. --------------------------------- Que – 35: Explain the techniques of inventory control The various techniques of inventory control are: 1) ABC analysis: The most recent technique for controlling the inventory is a value item analysis (which is based on annual usage value). Vital means items that. demands are meet from the inventory which is accumulated by batch production. These are also called insurance items. 2) VED analysis (Based on criticality of the items): VED stands for Vital Essential and Desirable. Desirable means items that are necessary. Essential means non available items. It is ideally suited for classification of maintenance spare parts. production is held up. E means easily available items. D means difficult to procure items for which reliable supply source is not available. when not available. which dislocate production work. In some cases large quantities are ordered becaue the cost of an order may be very high and it is more cost-effective to have higher inventories than to order small quantities several numbers of times in a year. it is produced in batches or lots on an intermittent basis. 3) To meet seasonal or cyclical demand: Companies will produce items at a constant production rate more than the demand rate in order to meet the seasonal demand occurring at a later period for which the production capacity its insufficient. popularly known as ABC analysis which attempts to relate how the inventory value is concentrated among the individual items. During the time when the item is not being produced. 4) To take advantage of price discounts while buying items: A company will often purchase large amounts of inventory to take advantage of price discounts. 5) To maintain continuity to operations in production processes: Many companies find it necessary to maintain in-process inventories at different stages in a manufacturing process to provide independence between operations and to avoid work stoppages or delays and to continue production smoothly if there are temporary machine breakdowns or other work stoppages.
The minimum quantity in established in the same way as at any re-order point. N means non moving items (not issued over a 2 year period). Non moving items are examined with a view to their disposal as early as possible. One bin is just enough for the stock to last from the date of placement of a new order to the date of receipt of inventory. 9) Minimum-Maximum technique: The minimum maximum system is used for manual inventory control system.ABC analysis works on the basis of total annual usage value. 6) For fast moving items. Some costs increase as inventory increases and others decreases. The next bin covers a quantity of stock large enough to satisfy probable demand during the period of replenishment. CD analysis: These combine 2 of the above mentioned classifications and give a more powerful analysis. 10) Two Bin Techniques: An earlier system of inventory control. a crude method is the 2 bin system. 12) Just-in-time (JIT): It is a broad philosophy to seeking excellence and eliminating waste in the manufacturing process. It is also known as standard order quantity. It was used for c group inventories (ABC analysis). The best lot size will result in adequate inventory to reduce some costs. S means slow moving items. (i)People involvement (ii) Total Quality Control (iii) JIT production . L means low unit cost items. there is no ideal order size. 5) FSN analysis (Based on consumption rate): This analysis helps in arrangement of the stock in stores and its distribution and handling methods. yet will not be so large that it results in needless expenses for holding inventory. EOQ is an important factor in inventory control. 8) Economic Order Quantity (EOQ): When the size of an order minimizes the total inventory cost it is known as the EOQ. 11) Material Requirements Planning (MRP): MRP is a technique of working backward from the scheduled quantities and need dates for end items specified in a master production schedule to determine the requirements for components needed to meet the master production schedule. H means high unit cost items. unit cost in considered. A compromise must be drawn b/w conflicting costs. CZ or AV. In HML analysis. economic lot size or economic ordering quantity. but the individual items cost is ignored. Maximum is worked out as the total of minimum quantity and the optimum lot size. F means fast moving items. M means medium unit cost items. rate contracts will be of great help in arranging for ready procurement. BY. 7) AX. BE. Stock of each item is put into two bins. It includes.
EOQ Model Equations: Optimal Order Quantity Q = Expected number of orders N = D/Q . The nature of ordering costs is that per order the cost remains same: However the move the number of orders. Placed during a year. Hence. these costs can be reduced. it tries to equate both procurement and carrying costs. constant and independent o Lead time is known and constant o Receipt of material Instantaneous o No quantity discounts o Only order (set up) cost and holding cost o No stock-outs if orders are placed at the right time o Order quantity received all at once. both together.The JIT philosophy of continuous improvement and minimization of waste considers waste to be any activity that does not add value to the product or serve the customers in some way. EOQ is also known as Economic batch Quantity or economic lot size. EOQ Model: EOQ is a widely used technique for inventory control. EOQ seeks to balance order quantity is the best quantity techniques. it pays to procure more at point so that least orders can be placed. Effective inventory management is essential in the operation of any business. It is that quantity where these costs are equal or least. Que – 36: Discuss in detail the EOQ model and ABC analysis as the two important techniques of inventory management. more will be the total costs. EOQ Assumptions: o Demand is known. Inventory carrying costs related to those costs which are incurred to hold the stock. By holding less quantity.
in an attempt to identify the small number of items that will account for most of the sales volume and that are the most important ones to control for effective inventory management. Conventionally.C stand for three different classes.Where. ABC analysis refers to the annual consumption value of the items.3 65 0.000 33.500 46. -------------------------------- INVENTORY MANAGEMENT SUMS Que . D=Demand per year S=Setup (order) cost per order H=Holding (carrying cost) --------------------------------- Que – 37: When to reorder EOQ ordering: Re-order point – It is the level where the stock level reaches a stage indicating the replenishment of over consuming stock because there is always a gap between placing an order and actually getting it.2 53 0.2 9. a positive impact can be made in inventory investment reduction reducing one or two A items can and will have a bigger impact on inventory reduction.B. The idea is not to place the order too early or too because in both the cases the form is danger zone.8 620 2.1 30 0. ABC Analysis: The principle of management by exception is better suited here items inventory are classified into A. however they only account for normally 10 to 20% of inventoried items B items usually make up 30 to 40 of inventory rupees and only account for normally 30 to 40% of inventoried items. C items usually make up 5 to 50% of inventory rupees and account for normally 40 to 50% of inventories items. investment can be broken down to a manageable level A items usually make up 50 to 60% of inventory rupees. By managing the A items.8 1.550 5.0 What are the appropriate ABC groups of inventory items? .200 11. ABC analysis is based on the relative importance of the materials.38: Stock Number J24 R26 L02 M12 P33 T72 S67 Q47 V20 ABC Analysis Annual $ Volume Percent of Annual $ Volume 12. managing inventory.1 = 100.3 3.2 32 0. By ranking the inventory items in rupee terms A items being the most expensive to C items being the least expensive.
500 4. M12 P33.750 800 Class A B C Items J24. --------------------------------- Que . It might be considered a B item by some organizations.0 Item P33 is a judgment call.5 17.000 “A” items (which it counts every week.9 = 100. R26 L02.00 per unit Order cost = $100 per order What is the EOQ for this product? Solution: EOQ = 2* Demand *Order Cost 2*360*100 = = 72000 = 268.000 Policy Number of Items to Count Per Day Every 5 days 1000/5 = 200/day Every 40 days 4000/40=100/day Every 100 days 8000/100=80/day Total items to count: 380/day --------------------------------- Que .000 “B” items (counted every 40 days). 4. i.e. and 8. V20 Percent of $ Volume 79.000 “C” items (counted every 100 days).000 8. 5 days)..39 A firm has 1.33 items Holding cost 1 . the modern tendency is to move items to as low a level as possible thereby reducing inventory management costs. How many items should be counted per day? Solution: Item Class A B C Quantity 1.40 Assume you have a product with the following parameters: Annual Demand = 360 units Holding cost per year = $1.000 4. S67. Q47. T72. However.6 2.Solution: ABC Groups Annual Volume 21.
--------------------------------- Que . 500 units instead of 360 units)..41 Given the data from Problem 3.34 orders per year Q 268 Working days = 300 /1. In the following Problems an EOQ of 268 is assumed.42 What is the total cost for the inventory policy used in Problem 3? Solution: TC = Demand *Order Cost (Quantity of Items) *(Holding Cost) + Q 2 360*100 268*1 = + = 134 + 134 = $268 268 2 Notice that at the EOQ Total Holding Cost and Total Ordering Cost are equal. what would cost be if the demand was actually higher than estimated (i. but the EOQ established in problem 3 above is used? What will be the actual annual total cost? Solution: . and assuming a 300-day work year.The EOQ model assumes any real quantity is feasible.43 Based on the material from Problems 3 – 5.34 = 224 days between orders Expected number of orders --------------------------------- Que .e. how many orders should be processed per year? What is the expected time between orders? Solution: N= T= Demand 360 = = 1. The actual quantity ordered may need to be an integer value and may be affected by packaging or other item characteristics. --------------------------------- Que .
50 1 − Holding Cost 1 − 300 Daily Production Rate --------------------------------- .44 If demand for an item is 3 units per day. Each extinguisher requires one handle (assume a 300 day work year for daily usage rate purposes). and a daily production rate of 300. annual cost increases by only 20% (320 / 268 = 1. What is the optimal production order quantity? Solution: The equation used differs from the basic EOQ model by allowing for gradual replenishment. which affects the average level of inventory.TC = Demand *Order Cost (Quantity of Items) *(Holding Cost) + Q 2 500*100 268*1 = + = 186. production setup cost of $150.50 per handle. --------------------------------- Que . and delivery lead-time is 15 days. what should we use for a simple re-order point? Solution: ROP = Demand during lead-time = 3 * 15 = 45 units --------------------------------- Que .45 Assume that our firm produces Type C fire extinguishers.000 of these fire extinguishers per year. We make 30. 000)(150) = = 3000 units 100 Daily Usage Rate 1. Q* = p 2* Demand *Order Cost (2)(30. Assume an annual carrying cost of $1.57 268 2 Note that while demand was underestimated by nearly 50%.57 + 134 = $320.20 ) an illustration of the degree to which the EOQ model is relatively insensitive to small errors in estimation of demand.
200 = $52. the Total Cost equation must include the cost of the item since this is not a constant. 498 (1000)(100) (120)(0. We need to compare the total costs for the two alternatives. 000 + $833 + $1.15 respectively. The carrying cost per unit per year . 248 = $80.46 We use 1.4)(50) Ordering 100 units at $50 per unit is not possible. --------------------------------- Que . Q($78) and Q = 120. and 0. 250 + $1. In this situation. The ordering cost for these is $100 per order and the carrying cost is assumed to be 40% of the per unit cost.033.2. Assuming no safety stocks.350 of its special decorator light switch per year and places orders for 300 of these switches at a time. Should we take advantage of the quantity discount? Solution: Q* ($78) = p Q* ($50) = p (2)(1000)(100) = 80 units (0.4)(78) (2)(1000)(100) = 100 units = 120 to take advantage of quantity discount. the discount does not apply until 120 units are ordered.000 electric drills per year in our production process.4)(50) + = 120 2 $50.15.4)(78) + = 80 2 $78. 0. and 15 units as 0.Que . we should order 120 each time at a unit cost of $50 and a total cost of $52. for orders of 120 or more the cost drops to $50 per unit. (0. 10. 033 Total cost($50) = (1000)(50) + Therefore. drills cost $78 per unit. Litely estimates a 50% chance of no shortages in each cycle and the probability of shortages of 5.47 Litely Corp sells 1. Total cos t = Demand * Cost + Total cost($78) = (1000)(78) + Demand * Order Cost ( Quantity of Items) * ( Holding cos t ) + Q 2 (1000)(100) (80)(0. 000 + $1. In orders of less than 120. Notice that Total Holding Cost is not equal to Total Ordering Cost at the lowest cost alternative (Q = 120) since this is not an EOQ.
00 + $0 = $75.75 = $85.75 300 300 Total Cost = Carrying cost + Stockout cost = $25 + $60.25 Safety stock = 15: Carrying cos t = 15* 5 = $75. --------------------------------- .00 + $20.00 Stockout cost: S10 = 6* 5* 015* .) Solution: Safety stock = 0 units: Carrying cost equals zero.15* = $128.is calculated as $5 and the stockout cost is estimated at $6 ($3 lost profit per switch and another $3 loss of goodwill or future sales). 1350 = $20.2* 1350 1350 1350 + 6*10*0.00 Therefore: Minimum cost comes from carrying a 10 unit safety stock. and 15 units.25 300 Total Cost = Carrying cost + Stockout cost = $50.75 Safety stock = 10 units: Carrying cos t = 10 * 5 = $50.25 300 300 300 Safety stock = 5 units: Carrying cos t = $5 per unit * 5 units = $25 Stockout cost: S5 = 6*5*0.00 Stockout cos ts = 0 (There is no shortage if 15 units are maintained) Total Cost = Carrying cost + Stockout cost = $75. 10. Total Stockout Costs = (stockout costs * possible units of shortage * probability of shortage * number of orders per year) S0 = 6*5*0. 5.25 = $70.15* = $60.15* + 6*15*0.15* 1350 1350 + 6*10*0. What level of safety stock should Litely use for this product? (Consider safety stock of 0.
What safety stock should Litely carry to achieve a 95% service level? Solution: To find the safety stock for a 95% service level it is necessary to calculate the 95th percentile on the normal curve. Work scheduling is defined as the assignment of starting and completion time for the various operations to be performed. The anticipated demand during lead-time can be approximated by a normal curve having a mean of 180 units and a standard deviation of 40 units. 3) To minimize the production cost 4) Co-ordination with other departments 5) To arrange for product development and design 6) To arrange the activities of the quality control and inspection department 7) To determine economical batch size and ascertain sequence of operations so that the set up cost is reduced. Objective of scheduling: 1) To meet the pre-determined demand 2) To keep the inventory of raw materials at the optimum level. --------------------------------- Que – 49: What is Operation Schedule? Explain its significance also explain scheduling.95 is 1. we find the Z value for 0. The safety stock is then given by: (165* 40) + 180 = 66 + 180 = 246 Ceiling Lamps . Scheduling is performed in two stages: a) Loading b) Dispatching Loading is assigning to a particular work centre the task to be performed during some gross scheduling period.65 standard units. 9) To arrange for proper guidance and control 10) To work out a schedule --------------------------------- Que – 50: Discuss various methods of operation scheduling . say a week. It involves developing and assigning specific dates for the start or completion of the necessary work tasks. Using the standard Normal table from the text. 8) To eliminate delays in production.48 Presume that Litely carries a modern white kitchen ceiling lamp that is quite popular.Que . Scheduling is the next technique of production control after routing.
then forward scheduling and backward scheduling yield the same result. setup times. and so on. With forward scheduling. no difficulty is presented. lead time. number of shifts. queue and setup times) add to the job lead time and process time is assumed to occur at the end of process time. downtime. With finite loading the scheduler loads the job that has the highest priority on all work centers it will require.Scheduling pertains to establishing both the timing and use of resources within an organization. the scheduler selects a planned order release date and schedules all activities from this point forward in time. if process lead times (move. Of course there are other variables to consider other than due dates or shipping dates. Then the job with the next highest priority is loaded on all required work centers. The scheduler using finite loading can then project the number of hours each work center will . This process is referred to as horizontal loading. However. scheduling objectives deals with tradeoffs among conflicting goals for efficient utilization of labor and equipment. and processing times. Finite loading projects the actual start and stop times of each job at each work center. resource availability. This is known as vertical loading. finished goods) is produced. While issues relating to facility location and plant and equipment acquisition are considered long term and aggregate planning is considered intermediate term. The scheduler needs some way to assign jobs to the centers in such a way that processing and setups are minimized along with idle time and throughput time. scheduling relates to use of equipment and facilities. Finite loading considers the capacity of each work center and compares the processing time so that process time does not exceed capacity. Generally. and there are multiple jobs to process. As long as the concepts are applied properly. Jobs are loaded at work centers according to the chosen priority rule. the choice of methods is not significant. With infinite loading jobs are assigned to work centers without regard for capacity of the work center. until he or she reaches the point where the order will be released. If a job can be processed on only one machine. if a job can be loaded on multiple work centers or machines.. according to the required processing times. Other factors which directly impact the scheduling process include: the types of jobs to be processed and the different resources that can process each. Two approaches are used for loading work centers: infinite loading and finite loading. Under the operations function (both manufacturing and services). processing times. inventory levels. With backward scheduling. the scheduling of human activities and receipt of materials. LOADING Loading involves assigning jobs to work centers and to various machines in the work centers. In fact. in the decision-making hierarchy. process routings. and planned maintenance. changeover times. There are two general approaches to scheduling: forward scheduling and backward scheduling. Priority rules are appropriate for use under the infinite loading approach. As such. the scheduler begins with a planned receipt date or due date and moves backward in time. operations scheduling is considered to be a short-term issue.g. the assignment process becomes more complicated. scheduling is usually the final step in the transformation process before the actual output (e.
already running three shifts). The slack time is divided by the number of operations remaining until the job is complete with the smallest values being scheduled first. An extension of SPT. and the potential for disruptions. There are a number of priority rules or heuristics that can be used to select the order of jobs waiting for processing. average throughput time. This rule is another variant of SPT. it utilizes a variable known as slack. . The job with the shortest processing time requirement goes first. • Fewest operations remaining (FOR). Berry. When work centers are heavily loaded and lengthy jobs are involved. this would mean that a higher priority job would then have to wait to be processed since the work center was already busy. subcontracting. This rule is a variant of EDD. A drawback of horizontal loading is that jobs may be kept waiting at a work center.. If the firm has limited capacity (e. finite loading would be appropriate since it reflects an upper limit on capacity. and average job lateness. This seems to work well if the firm performance is judged by job lateness. Pick any job in the queue with equal probability. or expansion. the earlier the job is scheduled. it sequences jobs based on the number of successive operations remaining until the job is considered complete. This rule is often used as a benchmark for other rules. the number of jobs and work centers. this rule dictates that work be scheduled according to the processing time remaining before the job is considered to be complete. and Jacobs (2005): • Random (R). This rule is widely used in practice. If infinite loading is used. the situation can become complicated. Of course. • First come/first served (FC/FS). • Earliest due date (EDD). The scheduler will have to weigh the relative costs of keeping higher priority jobs waiting. This is a variant of ST. new jobs and cancellations. The job with the earliest due date goes first. SEQUENCING Sequencing is concerned with determining the order in which jobs are processed. • Slack time (ST). This rule tends to reduce work-in-process inventory. • Least work remaining (LWR). the cost of idle work centers. capacity may have to be increased through overtime. Whybark. • Shortest processing time (SPT). or work may have to be shifted to other periods or machines. To use this rule one must calculate a priority index using the formula (due date–now)/(lead time remaining). This rule is sometimes deemed to be fair since jobs are processed in the order in which they arrive. The less work remaining in a job. The fewer operations that remain. With vertical loading the work center would be fully loaded. Slack is computed by subtracting the sum of setup and processing times from the time remaining until the job's due date.operate. Jobs are run in order of the smallest amount of slack. The work center is kept idle so that it will be ready to process the higher priority job as soon as it arrives. even though the work center is idle. • Critical ratio (CR).g. This happens when a higher priority job is expected to arrive shortly. the earlier it is in the production schedule. The order of processing can be crucial when it comes to the cost of waiting to be processed and the cost of idle time at work centers. • Slack time per operation (ST/O). Some well known ones are presented in a list adapted from Vollmann. Not only must the order be determined for processing jobs at work centers but also for work processed at individual work stations.
and no jobs are canceled. there will be no interruptions in processing. the chart does not directly reveal costs of alternate loadings nor does it consider that processing times may vary among work centers. The chart must be repeatedly updated to keep it current. GANTT CHARTS Gantt charts are named for Henry Gantt. the priority rules also assume that setup time and processing times are deterministic and not variable. no new jobs arrive after processing begins. Appropriately. Least setup (LSU). they do have some limitations. this is not always the case. Also. The process calls for scheduling first the job that minimizes changeover time on a given machine. Managers are able to use the Gantt chart to make trial-and-error schedules to get some sense of the impact of different arrangements. Jobs that require similar setups can reduce setup times if sequenced back to back. In addition to this assumption. One then selects the job for processing that is going to the smallest queue. measured either in hours or jobs. However.• • Next queue (NQ). However. A load chart displays the loading and idle times for machines or departments. He proposed the use of a visual aid for loading and scheduling. this visual aid is known as a Gantt chart. On this type of Gantt chart. The idea is to consider queues (waiting lines) at each of the succeeding work centers at which the jobs will go. NQ is based on machine utilization. Generally. the set of jobs is known. time is represented horizontally with scheduled resources listed vertically. A schedule chart is used to monitor job progress. . but the most common ones. are the load chart and schedule chart. While little of this is true in practice. and the ones most appropriate to our discussion. it does make the scheduling problem manageable. This can help the scheduler redo loading assignments for better utilization of the work centers. Gantt charts are the most widely used scheduling tools. this shows when certain jobs are scheduled to start and finish and where idle time can be expected. This rule maximizes utilization. A quick glance at the chart reveals which jobs are on schedule and which jobs are on time. a management pioneer of the early 1900s. This Gantt chart is used to organize and clarify actual or intended use of resources within a time framework. the vertical axis shows the orders or jobs in progress while the horizontal axis represents time. These rules assume that setup time and setup cost are independent of the processing sequence. There are a number of different types of Gantt charts.
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