MS RAMAIAH INSTITUTE OF MANAGEMENT

OPERATIONS MANAGEFMENT

FACULTY

Prof. Dr. T.R.SHANMUGAM

B.E., M.B.A., M.Phil., PGDPE., Ph.D

Phone: 99808 20857 / 98443 82307

 POM-BOOKS
RECOMMENDED TEXT BOOKS:

1. OPERATIONS MANAGEMENT
BY William J. Stevenson
2. PRODUCTION & OPERATIONS MANAGEMENT
BY DR. K. ASHWATHAPPA
3. PRODUCTION & OPERATIONS MANAGEMENT
CHASE R.B AND N.J. AQUILANO
3. COURSE MATERIAL/PPts PROVIDED
BY FACULTY
 POM - SYLLABUS

MODULE 1
POM INTRODUCTION & OVERVIEW
1.1 POM AN INTRODUCTION
1.2 PRODUCTIVITY,
COMPETITIVENESS & STRTEGY
1.3 FORECASTING IN POM
 POM-SYLLABUS, CONTD.
MODULE 2
STRATEGIC DECISIONS, DESIGN OF PRODUCTION
SYSTEMS
2.1 DESIGNING & DEVELOPING
PRODUCTS/SERVICES
2.2 PRODUCTION TECHNOLOGY- SELECTION &
MANAGEMENT
2.3 LONG RANGE CAPACITY PLANNING &
FACILITIES LOCATION
2.4 FACILITIES LAYOUT- MANUFACTURING &
SERVICES
2.5 DESIGN OF WORK SYSTEMS LEARNING
CURVES AND ANALYSIS
 POM-SYLLABUS, CONTD.
MODULE 3
3.1 PRODUCTION PLANNING SYSTEMS,
AGGREGATE PLANNING & MASTER PRODUCTION
SCHEDULING
3.2 INDEPENDENT DEMAND INVENTORY SYSTEMS
3.3 MATERIALS REQUIREMENT PLANNING &
CAPACITY REQUIREMENT PLANNING
3.4 SHOP FLOOR PLANNING AND CONTROL
3.5 PLANNING & SCHEDULING OF SERVICE
OPERATIONS
3.6 JUST-IN-TIME MANUFACTURING SYSTEMS
3.7 SUPPLY CHAIN MANAGEMENT
3.8 PROJECT MANAGEMENT-PERT/CPM
 POM-SYLLABUS, CONTD.
MODULE 4
PLANNING & CONTROLLING OF
OPERATIONS
4.1 QUALITY MANAGEMENT
CONCCEPT OF TQM / SIX SIGMA
4.2 QUALITY CONTROL
ACCEPTANCE SAMPLING
4.3 MAINTENANCE MANAGEMENT &
RELIABILITY
 MODULE 1.1,
POM-AN INTRODUCTION
PRODUCTION :

IT IMPLIES THE CREATION OF GOODS AND SERVICES TO SATISFY

HUMAN NEEDS. IT INVOLVES CONVERSION OF INPUTS INTO
OUTPUTS.

IT IS A PROCESS BY WHICH, RAW MATERIALS AND OTHER INPUTS

ARE CONVERTED INTO FINISHED PRODUCTS.

THE OTHER WORD SYNONYMOUSLY USED WITH PRODUCTION IS

MANUFACTURING. MANUFACTRING REFERS TO THE PROCESS OF
PRODUCING ONLY TANGIBLE GOODS .

WHEREAS PRODUCTION INCLUDES CREATION OF BOTH TANGIBLE

GOODS AS WELL AS INTANGIBLE SERVICES.
NATURE OF PRODUCTION
THE NATURE OF PRODUCTION CAN BE
BETTER UNDERSTOOD BY VIEWING THE
MANUFACTURING FUNCTION AS :

1. PRODUCTION AS A SYSTEM
2. PRODUCTION AS AN ORGANIZATIONAL
FUNCTION
3. PRODUCTION AS A CONVERSION OR
TRANSFORMATION PROCESS
4. PRODUCTION AS A MEANS OF CREATING
UTILITY.
PRODUCTION AS A SYSTEM
A SYSTEM IS DEFINED AS THE
COLLECTION OF INTERRELATED
ENTITIES. A PRODUCTION SYSTEM
HAS THE FOLLOWING ELEMENTS OR
PARTS.
1) INPUTS
2)CONVERSION PROCESS
3) OUTPUTS.
 PRODUCTION AS AN
ORGANIZATIONAL FUNCTION

FOUR BASIC FUNCTIONS OF AN

ORGANIZATION ARE :

1) HUMAN RESOURCES
2) FINANCE
3) PRODUCTION/OPERATION
4) MARKETING/SALES
 PRODUCTION FUNCTION

HUMAN RESOURCE FUNCTION TAKES CARE OF

EMPLOYEES ASPECT OF THE ORGANIZATION.
PRODUCTION IS CONSIDERED AS A CRUCIAL
FUNCTION WHICH CREATES GOODS AND
SERVICES.
MARKETING FUNCTION GENERATES DEMAND FOR
PRODUCTS OR OBTAIN CUSTOMER ORDERS.
FINANCE FUNCTION KEEPS TRACK OF HOW WELL
THE ORGANIZATION PERFORMS AND TAKES CARE
INFLOWS AND OUTFLOWS.
 PRODUCTION AS A
CONVERSION PROCESS
PRODUCTION SYSTEM
INPUTS----CONVERSION ----OUTPUTS
TRANSFORMATION SUB-SYSTEM IS THE
CORE OF A PRODUCTION SYSTEM.
IT CONSISTS OF PROCESSES OR
ACTIVITIES WHEREIN WORKERS,
MATERIALS, MACHINES AND EQUIPMENTS
ARE USED TO CONVERT INPUTS INTO
OUTPUTS.
 CONVERSION PROCESS
CONVERSION PROCESS MAY
INCLUDE CUTTING, DRILLING,
MACHINING, WELDING, PAINTING ETC.
EG: STEEL PLANT INPUTS ARE IRON
ORE, COAL / COKE
CONVERSION PROCESS ARE
SMELTING AND ROLLING
OUTPUTS ARE STEEL SECTIONS AND
SHEETS.
PRODUCTION AS A MEANS OF
CREATING UTILITY
PRODUCTION IS DEFINED AS THE PROCESS
OF ADDING VALUE TO THE OUTPUTS. THE
PROCESS OF CREATING UTILITY IN
OUTPUTS.
UTILITY IS THE POWER OF SATISFYING
HUMAN NEEDS.
DURING THE PROCESS OF
CONVERTINGTHE RAW MATERIALS INTO
FINISHED GOODS, VARIOUS TYPES OF
UTILITIES ARE CREATED WHILE ADDING
VALUE TO THE OUTPUTS.
 TYPES OF UTILITES:
1. FORM UTILITY WHICH IS CREATED BY
CHANGING THE SIZE, SHAPE, FORM,WEIGHT,
COLOUR, SMELL OF INPUTS IN ORDER TOMAKE
THE OUTPUTS MORE USEFUL TO THE
CUSTOMERS. EG: WOOD ---FURNITURE.
2. TIME UTILITY: WHICH IS CREATED BY STORAGE
OR PRESERVATION OF RAW MATERIALS OR
FINISHED GOODS.
3. POSSESSION UTILITY: WHICH IS CREATED BY
TRANSFERRING THE POSSESSION OR OWNERSHIP
OF AN ITEM FROM ONE PERSON TO ANOTHER
PERSON EG: WHEN A FIRM PURCHASES
MATERIALS FROM A SUPPLIER.
 TYPES OF UTILITIES
4.PLACE UTILITY: WHICH IS CREATED BY
CHANGING THE PLACES OF INPUTS OR
TRANSPORTING THE INPUTS FROM THE
SOURCE OF THEIR AVAILABILITY TO THE
PLACE OF THEIR USE TO CONVERT INTO
OUTPUTS.
5. SERVICE UTILITY: WHICH IS THE UTILITY
CREATED BY RENDERING SOME SERVICE
TO THE CUSTOMERS. EG: A DOCTOR, A
LAWYER OR AN ENGINEER CREATES
SERVICE UTILITY.
 PRODUCTION FUNCTION
IT MAY BE DEFINED AS THE CREATION OF USEFUL
PRODUCTS FOR SALE WITH THE HELP OF INPUTS
SUCH AS MATERIALS, MACHINES , LABOUR LAND,
CAPITAL AND MANAGEMENT
Q = f (a, b, c, d -------)
Q = QUANTITY OF OUTPUT
A, b, c, d, .represents the quantities of various inputs.
The efficiency of production process is known as
productivity.
PRODUCTIVITY IS DEFINED AS A RATIO OF OUTPUT
OVER INPUT
PRODUCTIVITY = OUTPUT/INPUT
PRODUCTION MANAGEMENT
IT REFERS TO THE APPLICATION OF
MANAGEMENT PRINCIPLES TO THE
PRODUCTION FUNCTION IN A PRODUCTION
SYSTEM.
ITCONSISTS OF APPLICATION OF
PLANNING, ORGANIZING, STAFFING,
DIRECTING AND CONTROLLING FUNCTIONS
IN THE PROCESS OF CONVERTING THE
INPUTS TO THE DESIRED OUTPUTS
EFFICIENTLY AND EFFECTIVELY.
 OBJECTIVES OF POM
MAXIMUM CUSTOMER SATISFACTION
THROUGH QUALITY, RELIABILITY, COST
AND DELIVERY.
MINIMUM SCRAP & REWORK RESULTING IN
BETTER QUALITY.
OPTIMUM INVENTORY LEVELS
MAXIMUM UTILIZATION OF ALL KINDS OF
RESOURCES NEEDED
MINIMUM CASH OUTFLOW
MAXIMUM EMPLOYEE SATISFACTION
HIGHER OPERATING EFFICIENCY
POM OBJECTIVES, CONTD.
MINIMUM PRODUCTION CYCLE TIME
MAXIMUM POSSIBLE PROFIT
CONCERN FOR PROTECTION OF
ENVIRONMENT
MAXIMUM POSSIBLE PRODUCTIVITY
UPDATING TECHNOLOGY,
PROCESSESS AND PROCEDURES
ESTABLISH A WELL DESIGNED
MAINTENANCE SYSTEM.
POM OBJECTIVES, CONTD.
PERFORMANCE OBJECTIVES
EFFICIENCY, EFFECTIVENESS
CAPACITY UTILIZATION
QUALITY, RELIABILITY
PRODUCTIVITY
RESOURCE UTILIZATION
LEAD TIMES
FLEXIBILITY
 COST OBJECTIVES
EXPLICIT COST (VISIBLE)
MATERIAL COST
DIRECT & INDIRECT LABOUR COST
SCRAP/REWORK COST
MAINTENANCE COST

IMPLICIT COST(INVISIBLE/HIDDEN)
INVENTORY CARRYING COST
COST OF STOCKOUTS, SHORTAGES, BACK-LOGGING, LOST SALES
COST OF MATERIALS HANDLING
COST OF INSPECTION
DOWNTIME TIME COSTS
OPPORTUNITY COSTS
COST OF GRIVENCES & DISSATISFACTION
DECISION AREAS IN POM
STRATEGIC(LONG -TERM) DECISIONS
PRODUCT & PROCESS SELECTION
PROCESS SELECTION & PLANNING
FACILITIES PLANNING & LOCATION
FACILITIES LAYOUT & MATERIALS
HANDLING
CAPACITY PLANNING
OPERATIONAL (SHORT-TERM ) DECISIONS
PRODUCTION PLANNING, SCHEDULING &
CONTROL
INVENTORY PLANNING & CONTROL
QUALITY ASSURANCE
WORK & JOB DESIGN
MAINTENANCE & REPLACEMENT
COST REDUCTION & CONTROL
OPERATIONS MANAGEMENT
IT IS THE PROCESS WHEREBY RESOURCES OR
INPUTS ARE CONVERTED INTO MORE USEFUL
PRODUCTS
DISTINCTION BETWEEN
PRODUCTIONMANAGEMENT AND OPERATIONS
MANAGEMENT ARE:
PM is more used for a system where tangible goods are
produced
OM is used where various inputs are transformed into
intangible services Eg. Banks, Airlines, Educational
Institutions, Hotels, Hospitals etc.,
OM is the term that is used recently. PM precedes OM in
the historical growth of the subject.
The terms PM & OM are used interchangeably.
 WHY STUDY POM
POM CONCERNS ITSELF WITH THE
CONVERSION OF INPUTS INTO OUTPUTS
USING PHYSICAL RESOURCES.
IT AIMS TO PROVIDE THE DESIRED UTILITY
OF FORM, PLACE, POSSESSION OR STATE
OR A COMBINATION THEREOF TO THE
CUSTOMER.
POM ALSO FOCUSSES ON MEETING THE
ORGANIZATIONAL OBJECTIVES OF
EFFECTIVENESS, EFFICIENCY AND
ADAPTABILITY
 VALUE ADDITION
OPERATION IS DEFINED THE PROCESS OF CHANGING
INPUTS INTO OUTPUTS AND THEREBY ADDING VALUE TO
SOME ENTITY
THIS CONSTITUTES THE PRIMARY FUNCTION OF VIRTUALLY
EVERY ORGANIZATION
THERE ARE FOUR MAJOR WAYS OF VALUE ADDITION
ALTER: CHANGE IN THE FORM OR STATE OF THE INPUTS
TRANSPORT: MOVEMENT OF PRODUCTS FROM SOURCE TO
DESTINATIONS
STORE: VALUE IS ENHANCED IF THE ENTITY IS KEPT IN A
PROTECTED ENVIRONMENT
INSPECT: THROUGH INSPECTION WE BETTER UNDERSTAND
ITS PROPERTIES AND CAN THEREFORE TAKE MORE
INFORMED ECISIONS REFGARDING THEIR PURCHASE, USE,
REPAIR ETC.,
 HISTORIC MILESTONES IN POM
EVOLUTION OF PRODUCTION FUNCTION

IN ORDER TO TRACE THE EVOLUTION OF

PRODUCTION FUNCTION, WE IDENTIFY SIX
HISTORICAL DEVELOPMENTS:
1. THE INDUSTRIAL REVOLUTION
Production systems prior to the 1700 are referred to
as cottage system
From 1770 to 1800,a series of events took place in
England that led to Industrial revolution resulting in
two major developments.
Substitution of machine power for human and water
power
The establishment of Factory system
POM EVOLUTION, CONTD
2. SCIENTIFIC MANAGEMENT
CONTRIBUTION OF F.W.TAYLOR, KNOWN AS THE FATHER OF
SCIENTIFIC MANAGEMENT
SCIENTIFIC INVESTIGATION AND EXPERIMENTATION TO
IMPROVE MANUFACTURING OPERATIONS
A SYSTEMATIC APPROACH TO IMPROVE WORKER
EFFICIENCY EMPLOYED THE FOLLOWING STEPS:
Skill, Strength and learning ability were determined
Stop watch studies were used to set time standards
Instruction Cards, Routing sequences and material specifications
were used
Incentive pay systems were initiated to increase efficiency
Principles of scientific management

1. Developing a Science for each element

of a persons work
2. Selecting Workers Scientifically
3. Co-operating with workers
4. Dividing Work and Responsibility
POM EVOLUTION, CONTD.
3. HUMAN RELATIONS & BEHAVIOURALISM
DURING 1800 AND 1900, RIGID CONTROLS WERE
EFORCED ON WORKERS
BETWEEN WORLD WAR I AND II, THERE BEGAN A
PHILOSOPHY AMONG MANAGERS THAT WORKERS
WERE HUMAN BEINGS AND SHOULD BE TREATED
WITH DIGNITY WHILE ON THE JOB
1927 TO 1932, THE HUMAN RELATIONS MOVEMENT
BEGAN IN ILLINOIS WITH THE WORK OF ELTON
MAYO AT HAWTHRONE PLANT OF WESTERN
ELECTRIC COMPANY
PSYCHOLOGICAL AND SOCIOLOGICAL FACTORS
AFFECTED NOT ONLY HUMAN MOTIVATION AND
ATTITUDE BUT PRODUCTION AS WELL
POM EVOLUTION, CONTD.
4. OPERATIONS RESEARCH
IT IS A SCIENTIFIC APPROACH TO PROBLEM
SOLVING FOR EXECUTIVES AND MANAGERS
IT APPLIES APPROPRIATE TECHNIQUES
IT PROVIDES QUANTITATIVE INFORMATION BASED
ON SCIENTIFIC METHOD OF ANALYSIS FOR
DECISION MAKING
IT CONSTRUCTS A MODEL OF THE SYSTEMS
INVENTORY MODEL, QUEING MODEL, LINEAR
PRODRAMMING MODEL, TRANSPORTATION MODEL
ETC.,
POM EVOLUTION, CONTD.
5. SERVICE REVOLUTION
THE CREATION OF SERVICE ORGANIZATIONS ACCELERATED
SHARPLY AFTER THE WORLD WAR II
SHARE IN GDP IS MUCH HIGHER COMPARED TO
MANUFACTURING INDUSTRY
EG. AIRLINES, BANKS, IT INDUSTRY TRANSPORTATION,
TELECOM, HOTELS, HOSPITALS ETC.,

6. COMPUTER REVOLUTION
EXPLOSIVE GROWTH OF COMPUTER AND COMMUNICATION
TECHNOLOGIES
EASY ACCESS TO INFORMATION
SOFTWARE PACKAGES
 FACTORS EFFECTING
OPERATIONS MANAGEMENT
REALITY OF GLOBAL COMPETITION
QUALITY, CUSTOMER SERVICE AND COST
CHALLENGES
RAPID EXPANSION OF ADVANCED
TECHNOLOGIES
CONTINUED GROWTH OF SERVICE SECTOR
SCARCITY OF OPERATIONS RESOURCES
SOCIAL RESPONSIBILITY ISSUES
 APPROACHES TO
STUDY OF POM
THE FUNDAMENTAL APPROACHES ARE:

1. DECISION MAKING APPROACH

2. SYSTEMS APPROACH
3. CONTINGENCY APPROACH
4. DECISION MAKING APPROACH

MANAGEMENT IS THE PROCESS OF DECISION

MAKING
ANY ACTIVITY IS THE OUTCOME OF A DECISION
OR SET OF DECISIONS.
ONE DECISION LEADS TO ANOTHER DECISION.
 POM DECISIONS

DECISIONS TENDED TO FALL INTO THREE GENERAL

CATEGORIES:
STRATEGIC DECISIONS DECISIONS ABOUT PRODUCTS,
TECHNOLOGY, LAYOUT, PROCESSES, ALLOCATION OF
RESOURCES AND FACILITIES LONG TERM SIGNIFICANCE
FOR THE ORGANIZATION
OPERATING DECISION DECISIONS ABOUT PRODUCTION
INVENTORY, SHOP FLOOR, MATERIALS MANAGEMENT.
CONTROL DECISIONS DECISIONS ABOUT CONTROLLING
OPERATIONS DAY TO DAY ACTIVITIES OF WORKERS,
QUALITY OF PRODUCTS AND SERVICES, PRODUCTION AND
OVERHEAD COSTS AND MAINTENANCE OF EQUIPMENT.
 POM - APPROACHES
THE SYSTEMS APPROACH:
INPUTS ARE CHANGED IN A CONVERSION
SUBSYSTEM INTO THE DESIRED
PRODUCTS AND SERVICES
INPUTS ARE CLASSIFIED INTO THREEE
CATEGORIES EXTERNAL, MARKET AND
PRIMARY RESOURCES.
OUTPUTS ARE OF TWO FORMS TANGIBLE
GOODS AND INTANGIBLE SERVICES.
 Conversion/Transformation Process

Random Fluctuation

Adjustment Monitor
Needed Output
Inputs
-Land Conversion Outputs
-Labour -Goods
Process -Services
-Capital
-Management

Comparison
-Actual
-Desired

Feedback
 POM - APPROACHES

CONTINGENCY APPROACH:

LATEST APPROACH, SITUATIONAL

NO FIXED PLANS, ORGANIZATION
STRUCTURE, LEADERSHIP STYLES.
 INFLUENCE OF JAPANESE
MANUFACTURES
STANDARDIZED PRODUCTION METHODS.
MANUFACTURING OF HIGH QUALITY PRODUCTS
THE JUST-IN-TIME MANUFACTRING PHILISOPHY
STABILIZE PRODUCTION SCHEDULES
INCREASE PRODUCTION CAPACITIES OF
MANUFACTURING WORK CENTRES
PREVENTIVE MAINTENANCE PROGRAMS
TOTAL QUALITY MANAGEMENT
PARALLEL PROCESSING
JIT PURCHASING
USE OF AUTOMATED EQUIPMENT & ROBOTS IN
PRODUCTION PROCESSES.
POM CHARACTERISTICS

CHARACTERISTICS OF MODERN POM:

MANUFACTURING AS COMPETITIVE
ADVANTAGE.
SERVICE ORIENTED.
DISAPPEARANCE OF SMOKE STACKS.
SMALL HAS BECOME BEAUTIFUL.
PRACTICES AND CONCEPTS IN
TODAYS ORGANIZATION
ORGANISATION FUNCTION -CONCEPTS
AND PRACTICES FROM SCIENCTIFIC MGMT.
MANAGEMENT - EXCEPTION PRINCIPLE,
IDENTIFYING MANAGEMENT TASKS,
PLACING RESPONSIBILITY ON
MANAGEMENT FORMAL EDUCATION OF
MANAGERS, STAFF EXPERTS CONTROL
SYSTEMS, DECISION MAKING BASED ON
ANALYSIS, COST AND BUDGETING SYSTEM.
PRACTICES AND CONCEPTS IN
TODAYS ORGANISATION

INDUSTRIAL ENGINEERING -
TIME STRUDY, MOTION STUDY,
STANDADISATION.
PERSONNEL MANAGEMENT - INCENTIVE
PAY SYSTEMS, SCEIENCITIFIC SELECTION
EMPLOYEE TRAINING.
OPERATIONS SCHEDULING AND CONTROL,
LABOUR AND MATERIAL STANDARDS,
GRAPHIC SCHEDULING ETC.
 PRODUCTION AND
OPERATIONS MANAGEMENT
WERE ASSIGNED TO WORKERS ON
PRODUCTION LINES. THUS, THE
FACTORIES OF LATE 1700S NOT ONLY HAD
DEVELOPED PORDUCTION MACHINERY,
BUT ALSO WAYS OF PLANNING AND
CONTROLLING THE OUTPUT OF WORKERS.
THE IMPACT OF THE INDUSTRIAL
REVOLUTION WAS FIRST FELT IN ENGLAND.
FROM HERE, IT SPREAD TO OTHER
EUROPEAN CONTRIES AND TO THE UNITED
STATES.
 PRODUCTION AND
OPERATIONS MANAGEMENT
THE INDUSTRIAL REVOLUTION ADVANCED FURTHER WITH
THE DEVELOPMENT OF THE GASOLINE ENGINE AND
ELECTRICITY IN THE 1800S.
OTHER INDUSTRIES EMERGED AND ALONG WITH THEM NEW
FACTORIES CAME INTO BEING. BYTHE MIDDLE OF 1800S, THE
OLD COTTAGE SYSTEM OF PRODUCTION HAD BEEN
REPLACED BY THE FACTORY SYSTEM.
AS DAYS WENT BY, PRODUCTION CAPACITIES EXPANDED,
DEMAND FOR CAPITAL GREW AND LABOUR BECAME HIGHLY
DEPENDANT ON JOBS AND URBANISED.
AT THE COMMENCEMENT OF THE 20TH CENTURY, THE ONE
ELEMENT THAT WAS MISSING WAS MANAGEMENT-THE
ABILITY TO DEVELOP AND USE THE EXISTING FACILITES TO
PRODUCE ON A LARGE SCALE TO MEET MASSIVE MARKETS
OF TODAY.
SCIENTIFIC MANAGEMENT

THE MISSING INPUT, VIZ., MANAGEMENT,

WAS ABLY PROVIDED BY SCIENTIFIC
MANAGEMENT A PHILOSOPHY WHICH
WAS PROPOUNDED BY BUSINESS
LEADERS, CONSULTANTS, EDUCATORS
AND RESEARCHERS.
TABLE 1.4 PRESENTS THE PLAYERS AND
THEIR PARTS IN SCIENTIFIC MANAGEMENT.
 POM SCIENTIFIC
MANAGEMENT
THE ESSENTIAL PRINCIPLES OF SCIENTIFIC MANAGEMENT
ARE:
1. DEVELOPING A SCIENCE FOR EACH ELEMENT OF A
PERSONS WORK, WHICH WOULD REPLACE THE OLD RULE-
OF THUMB METHOD;
2. SELECTING WORKERS SCIENTIFICALLY AND TRAINING
AND DEVELOPING THEM;
3. COOPERATING WITH WORKERS SO AS TO ENSURE THAT
ALL THE WOR5K WOULD BE DONE ACCORDING TO THE
PRINCIPLES OF SCIENCE THAT HAVE BEEN DEVELOPED; AND
4. DIVIDING WORK AND RESPONSIBILITY ALMOST EQUALLY
BETWEEN MANAGEMENT AND WORKERS. MANAGEMENT
SHOULD TAKE OVER ALL THE WORK FOR WHICH, IT IS
BETTER FITTED THAN THE WORKERS.
 SCIENTIFIC MANAGEMENT
TABLE 1.4: CONTRIBUTION TO SCIENTIFIC
MANAGEMENT

CONTRIBUTOR LIFE SPAN CONTRIBUTIONS

1. F.W TAYLOR 1856-1915 SCIENTIFIC MGMT PRINCIPLES,
EXCEPTION PRINCIPLE, TIME STUDY,
METHODS ANALYSIS, STANDARDS,
PLANNING AND CONTROL.
2.FRANK 1868- 1924 MOTION STYDY, METHODS,
B.GILBRETH THERBLINGS, CONSTRUCTION
CONTRACTING,CONSULTING.

3.LILLAN M. 1878-1973 FATIGE STUDIES, HUMAN FACTOR IN

GILBRETH WORK, EMPLOYEE SELECTION AND
TRAINING.
 SCIENTIGIC MANAGEMENT

TABLE 1.4: CONTRIBUTION TO SCIENTIFIC

MANAGEMENT

CONTRIBUTOR LIFE SPAN CONTRIBUTIONS

4. HENRY 1861-1919 GANTT CHARTS, INCENTIVE
L.GANTT PAY SYSTEMS, HUMANISTIC
APPROACH TOLABOUR,
TRAINING.
5. CARL 1860-1939 MATHEMATICAL ANALYSIS,
G.BARTH SLIDE RULE, FEEDS AND
SPEEDS STUDIES,
CONSULTING TO AUTOMOBILE
INDUSTRY.
SCIENTIFIC MANAGEMENT
TABLE 1.4: CONTRIBUTION TO
SCIENTIFIC MANAGEMENT

CONTRIBUTOR LIFE SPAN CONTRIBUTIONS

6. 1885-1931 PRINCIPLES OF
HARRINGTON EFFICIENCY,MILLION
EMERSON DOLLARS-A-ADAYSAVINGS IN
RAIL ROADS, METHODS
CONTROL
7. MORRIES 1872-1960 SCIENTIFIC MANAGEMENT ITS
L.COOKE APPLICATION TO EDUCATION
AND GOVERNMENT
 MODULE 1.2 PRODUCTIVITY,
COMPETITIVENESS AND STRATEGY

TODAYS GLOBAL BUSINESS CONDITIONS

1. REALITY OF GLOBAL COMPETITION
CHANGING NATURE OF WORLD BUSINESS
EXPORTING PRODUCTS & SERVICES
ADVANCED COMMUNICATION TECHNOLOGY
POLITICAL AND ECONOMIC DEVELOPMENTS HAVE MADE
MANY FOREIGN MARKETS ATTRACTIVE
GENERAL AGREEMENTS OF TARIFFS AND TRADE(GATT) IS
AIMED AT EASING WORLD TRADE ACROSS NATIONAL
BORDERS
THE RAPID GDP GROWTH
INTERNATIONAL TRADE HAS RESULTED IN GLOBAL
ECONOMY THAT INTERCONNECTS THE ECONOMIES OF ALL
NATIONS - GLOBAL CILLAGE
 REALITY OF GLOBAL
COMPETITION-CONTD.
INTERNATIONAL COMPANIES
SEARCH OUT OPPORTUNITIES FOR PROFITS RELATIVELY BY
NATIONAL BOUNDARIES
GLOBAL EXPANSION HAS A GREAT IMPACT ON OPERATIONS
MANAGERS WHO MUST COORDINATE GEOGRAPHICALLY
DISPERSED OPERATIONS
STRATEGIC ALLLIANCE AND PRODUCTION SHARING
SHIFT OF FIRMS OPERATIONS FROM NATIONAL TO GLOBAL NEED
FOR THE FORMATION OF STRATEGIC ALLIANCES, JOINT VENTURES
AMONG INTERNATIONAL COMPANIES TO EXPLOIT GLOBAL
BUSINESS OPPORTUNITIES
PRODUCTION SHARING, A TERM COINED BY PETER DRUCKER,
MEANS THAT A PRODUCT MAY BE DESIGNED AND FINANCED BY
ONE COUNTRY, RAW MATERIALS MAY BE PRODUCED IN MANY
COUNTRIES AND SHIPPED TO OTHER COUNTRIESFOR FURTHER
PROCESSING, PARTS MAY BE SHIPPED TO ANOTHER CONTRY FOR
ASSEMBLY AND THE PRODUCT MAY BE SOLD THROUGH OUT THE
WORLD MARKETS.
FLUCTUATION OF INTERNATIONAL FINANCIAL CONDITIONS
INFLATION, FLUCTUATING CURRENCY EXCHANGE RATES, TURBULENT
INTEREST RATES, VOLATILITY OF INTERNATIONAL STOCK MARKETS, HUGE
NATIONAL DEBTS OF MANY CONTRIES

THE PROS & CONS OF GLOBALIZATION

PROS:
Increase in productivity
Increase in Standard of living
Competitive Prices
An open economy spurs innovation with fresh ideas from abroad
Increased turnover due to exports
CONS
Many have lost jobs due to imports or Production shifts abroad
Working under competitive pressure
Reduction of benefits
 2. QUALITY, CUSTOMER
SERVICE & COST CHALLENGES
REPLACEMENT OF ADEUATE QUALITY OBJECTIVE
WITH PERFECT PRODUCT AND SERVICE QUALITY
THE COMMITMENT TO CONTINUOUS
IMPROVEMENT OF THE QUALITY OF PRODUCTS
AND SERVICES HAD TO BE ORGANIZATION WIDE
DEVELOPMENT OF INNOVATIVE PRODUCTS AND
TO RESPOND QUICKLY TO CUSTOMER NEEDS
MULTI DISCIPLINED TEAMS DESIGN, DEVELOP
AND INTRODUCE NEW PRODUCTS
DOWNSIZING OF CORPORATIONS TO REDUCE
OVERHEAD COSTS AND TO INCRESE AUTOMATION
OF PROCESSES
3. ADVANCED TECHNOLOGIES
AUTOMATION OF PROCESSES
REDUCTION IN LABOUR COSTS, REDUCED
SCRAP AND MATERIAL COSTS, FASTER
RESPONSE TO CUSTOMER NEEDS
ADVANCED COMPUTER TECHNOLOGIES
AND SOFTWARE APPLICATIONS EX.
COMPETERISATION OF PAYROLL SYSTEMS,
BILLING SYSTEMS, INVENTORY CONTROL
SYSTEMS AND MAINTENANCE
MANAGEFMENT SYSTEM
4. CONTINUED GROWTH OF THE
SERVICE SECTOR
THE EMERGENCE OF A VARIETY OF
PRIVATE AND PUBLIC ORGANIZATIONS TO
SUPPLY SERVICES
SERVICE COMPANIES EXIST ONLY
BECAUSE THE MANUFACTURING SECTOR
BUYS THEIR SERVICES
A STRONG AND VIGOROUS
MANUFACTURING SECTOR IS NECESSARY
TO SUPPORT SERVICE SECTOR
5. SCARCITY OF OPERATIONS
RESOURCES
FUNDS, EMPLOYEES, RAW MATERIALS
TITANIUM, NICKEL, COAL NTURAL GAS,
WATER, PETROLEUM PRODUCTS
SOCIAL RESPONSIBILITY ISSUES
CONSUMER ATTITUDES, GOVERNMENT
REGULATIONS AND SELF INTERESTS
ENVIRONMENTAL AND SAFETY IMPACT
EMPLOYEE IMPACT
 STRATEGIC OPERATIONS
MANAGEMENT
A STRATEGY IS A WAY OF DOING
SOMETHING. IT INCLUDES THE
FORMULATION OF GOALS AND A SET OF
ACTION PLANS FOR ACCOMPLISHMENT OF
GOAL
STRATEGIC MANGEMENT IS SET OF
MANAGERIAL DECISIONS AND ACTIONS
THAT DETERMINES THE LONG TERM
PERFORMANCES OF A CORPORTION. IT
INVOLVES THE FOLLOWING STEPS:
 STEPS IN
STRATEGIC MANAGEMENT
ENVIRONMENTAL SCANNING
EXTERNAL ENVIRONMENT
INTERNAL ENVIRONMENT
STRATEGY FORMULATION
CORPORATE STRTEGY
BUSINESS UNIT STRATEGY
FUNCTIONAL LEVEL STRATEGY
STRATEGY IMPLEMENTATION
PROCEDURES, PROGRAMS AND BUDGETS
EVALUATION & CONTROL
STRATEGIC CONTROL PROCESS AND
PERFORMANCE
 OPERATIONS STRATEGY
Corporate Mission
Assessment of Distinctive
Global Business Strategy Competencies or
Business Weaknesses
Conditions
Product/Service Plans

Competitive Priorities
Cost, Time, Quality & Flexibility

Operations Strategy

Positioning the Production System

Product/Service Plans
Outsourcing Plans
Process & Technology Plans
Strategic Allocation of Resources
Facility Plans: Capacity, Location & Layout
 CORPORATE MISSION
SET OF LONG-RANGE GOALS
KINDS OF BUSINESS THE COMPANY
WANTS TO BE IN
WHO ITS CUSTOMERS ARE
BELIEFS ABOUT BUSINESS
GOALS OF SURVIVAL, GROWTH AND
PROFITABILITY
 BUSINESS STRATEGY
IT IS A LONG RANGE GAME PLAN OF AN ORGANIZATION
IT PROVIDES A ROAD MAP OF HOW TO ACHIEVE THE
CORPORATE MISSION
IT INCLUDES A PLAN FOR EACH FUNCTIONAL AREA
ASSESSMENT OF GLOBAL BUSINESS CONDITIONS,
MARKETS, COMPETITION, ECONOMIC, POLITICAL AND
SOCIAL DEVELOPMENT
DISTINCTIVE COMPETENCIES OR WEAKNESS, AUTOMATED
PRODUCTION TECHNOLOGY, A SKILLED AND
DEDICATED WORKFORCE

COMPETITIVE PRIORITIES
LOW PRODUCTION COST, DELIVERY PERFORMANCE
HIGH QUALITY, CUSTOMER SERVICE AND FLEXIBILITY
 ELEMENTS OF OPERATION
STRATEGY
OPERATIONS STRATEGY COMPRISES OF
SIX COMPONENTS
1. POSITIONING THE PRODUCTION SYSTEM
IT MEANS, SELECTING THE TYPE OF
PRODUCT DESIGN, TYPE OF PROCESSING
SYSTEM, AND TYPE OF FINISHED GOODS.
INVENTORY POLICY FOR EACH PRODUCT
GROUP IN THE BUSINESS STRATEGY
TYPE OF PRODUCT DESIGN
1. CUSTOM BUILT PRODUCTS:
EX. A LUXURY CRUISE SHIP, SUPER
COMPUTER, & MANY INDUSTRIAL
PRODUCTS
THEY ARE DESIGNED ACCORDING TO THE
NEEDS OF INDIVIDUAL CUSTOMERS
RESULTS IN MANY DIFFERENT PRODUCTS
PRODUCED IN SMALL BATCHES, HIGHER
PRODUCTION COST
STANDARD PRODUCTS:
Ex. Television receiver, microwave oven,
washing machine etc.,
FEW PRODUCT MODELS
CONTINUOUS OR BATCH
PRODUCTION
FAST DELIVERY AND LOW
PRODUCTION COST
TYPE OF PRODUCTION PROCESSES:

1. PRODUCT FOCUSSED OR LINE FLOW PRODUCTION

THE MACHINES AND WORKERS ARE GROUPED TOGETHER
NO FLEXIBILITY FOR PRODUCING ANY OTHER PRODUCT

2. PROCESS FOCUSSED PRODUCTION

SUITED FOR MANUFACTURING A WIDE VARIETY OF PRODUCTS
DEPARTMENT PERFORM ONLY ONE TYPE OF PROCESS
OFFERS GREAT FLEXIBILITY, SIMPLE TO COMPLEX PRODUCTS CAN
BE PRODUCED IN VARYING BATCH SIZES

TYPE OF FINISHED GOODS INVENTORY POLICIES

1. PRODUCE TO STOCK
2. PRODUCE TO ORDER
PRODUCT/SERVICE PLANS
PRODUCT DESIGN INCLUDES DETAILED
CHARACTERISTICS OF PRODUCT, PRODUCT
PROCESS, & DESIGN OF THE PRODUCTION
SYSTEM.
PRODUCT DESIGN IS THE HEART OF THE
OPERATIONS STRTEGY
PRODUCT LIFE CYCLE STAGES
INTRODUCTION: MOBILE PHONES WITH FM AND
CAMERA
GROWTH: COLOUR COPIERS, MICROAVE OVENS
MATURITY: CELL PNONES, REFRIGERTORS
DECLINE: USE OF VALVE VERSION RADIOS, P3
COMPUTERS, DOT MATRIX PROINTERS
3. OUTSOURCING PLANS
IT REFERS TO HIRING OUT OR
SUBCONTRACTING SOME OF THE WORK
THAT A COMPANY NEEDS TO DO
DETERMINE THE BEST LEVEL OF
OUTSOURCING TO ACHIEVE THEIR
OPERATIONS AND BUSINESS GOALS
CONTROL OVER QUALITY AND OTHER
PRODUCTION ISSUES
4. PROCESS & TECHNOLOGY PLANS
DETERMINATION OF HOW PRODUCTS AND SERVICES ARE
PRODUCED
COMBINING HIGH TECHNOLOGY EQUIPMENT WITH
CONVENTIONAL EQUIPMENT

5. STRATEGIC ALLOCATION OF RESOURCES

LIMITED RESOURCES AVAILABLE FOR OPERATIONS
MAXIMISE THE ACHIEVEMENT OF THE OBJECTIVES OF
OPERATIONS
6. FACILITY PLANS: CAPACITY, LOCATION & LAYOUT
ENORMOUS CAPITAL INVESTMENT IS REQUIRED
THE INTERNAL ARRANGEMENT OF WORKERS, PROCESS AND
DEPARTMENTS
OPERATIONS STRATEGY FOR
SERVICES
COMPETITIVE PRIORITIES FOR SERVICES:
LOW COST, QUICK AND QUALITY SERVICE
PROVIDE ALL THE PRIORITIES
SIMULTANEOUSLY TO CUSTOMERS
A SET OF PRIORITIES MUST BE CHOSEN TO
PROVIDE GREATEST MARKET ADVANTAGE
TRADE-OFF BETWEEN COST AND SERVICE
QUALITY
 SERVICES STRATEGY
POSITIONING STRATEGIES FOR SERVICES
TYPE OF SERVICE DESIGN-STANDARD OR
CUSTOM SERVICES, AMOUNT OF
CUSTOMER CONTACT, MIX OF PHYSICAL
GOODS AND INTANGIBLE SERVICES
TYPE OF PRODUCTION PROCESS
QUASI MANUFACTURING, CUSTOMER AS A
PARTICIPANT AND CUSTOMER AS A
PRODUCT
 SERVICES STRATEGY
SERVICES & ORGANIZATIONS
AIRLINES, BANKS, HEALTH CARE, HOUSING,
HOTEL, ENTERTAINMENT, FINANCIAL
SERVICES, INSURANCE, BROADCASTING,
COMPUTER SERVICES, DISTRIBUTION,
ADVERTISING, MARKET SEARCH,
PUBLISHING,
TELECOM,TRANSPORTATION,UITILITIES,
POLLUTION CONTROL, WARESHOUSING,
POLICE, DEFENCE, MEDIA ETC.,
 FORMING OPERATIONS
STRATEGIES
EVOLUTION OF POSITIONING STRATEGIES

INTRODUCTION:
CUSTOM BUILT PRODUCTS, VERY LOW VOLUME, PROCESS
FOCUSSED, TO ORDER SMALL BATCHES
GROWTH:
SLIGHTLY STANDARDIZED PRODUCTS, LOW VOLUME,
PROCESS FOCUSSED, SMALL BATCHES
STANDARDISED PRODUCTS, HIGH VOLUME PRODUCTION,
PRODUCT FOCUSSED, LARGE BATCHES
MATURITY & DECLINE
HIGHLY STANDARDIZED PRODUCTS, HIGH VOLUME,
PRODUCT FOCUSSED, CONTINUOUS PRODUCTION
 COMMON POSITIONING
STRATEGIES
LINKING OPERATIONS & MARKETING STRATEGIES
ALL ELEMENTS OF OPERATIONS STRATEGY MUST BE
CREFULLY LINKED
THE POSITIONING STRATEGY MUST BE LINKED WITH THE
MARKET STRATEGY

PRODUCT FOCUSED TO STOCK, STANDARDISED PRODUCTS,

HIGH VOLUME
MARKETING STRATEGY: Competition based largely on production
cost, fast delivery of products and quality. EX. TV, Motor cycles etc
PRODUCT FOCUSED TO ORDER, STANDARDISED PRODUCTS,
LOW VOLUME
MARKETING STRATEGY: COMPETITION BASED LARGELY ON
PRODUCTION COST, KEEPING DELIVERY PROMISES AND
QUALITY. EX. School buses
 POSITIONING STRATEGIES,
CONTD.
PROCESS FOCUSSED TO STOCK, CUSTOM
PRODUCTS, HIGH VOLUME
MARKETING STRATEGY: Competition based,
largely on flexibility, quality and fast delivery of
products. EX. Medical Instruments
PROCESS FOCUSSED TO ORDER, CUSTOM
PRODUCTS, LOW VOLUME
MARKETING STRATEGY: Competition based
largely on keeping delivery promises, Quality &
Flexibility EX. Super Computers
 TYPES OF PRODUCTION
SYSTEMS

MASS PRODUCTION OR FLOW

LINE PRODUCTION SYSTEM
BATCH PRODUCTION
JOB SHOP PRODUCTION
UNIT MANUFACTURE OR
PROJECTS
MASS PRODUCTION:THESE SYSTEMS HAVE
SIMPLEST FLOW CHARACTERISTICS
CONSTITUTING STRAIGHT LINE FLOW.
FACILITIES ARE ARRANGED ACCORDING TO
SEQUENCE OF OPERATIONS WHERE THE
OUTPUT OF ONE STAGE BECOMES INPUT
TO THE NEXT STAGE. THE SHOLE SYSTEM
IS CASCADED
EX. CEMENT, FERTILIZER, SUGAR, LPG,
PETROLEUM PRODUCTS, WATER
TREATMENT PLANT, POWER GENERATION,
MILK PRODUCTION, TOR STEEL
PRODUCTION
BATCH PRODUCTION:
IF A VARIETY OF PRODUCTS ARE MADE WITH
RELATIVELY SMALL VOLUME OF PRODUCTION, IT
MAY NOT BE POSSIBLE TO LAYOUT A SEPARATE
LINE FOR EACH PRODUCT.
IN SUCH CASES BATCH PRODUCTION CONCEPT IS
USED WHEN A PRODUCT IS MADE IN A CERTAIN
QUANTITY CALLED AS BATCH QUANTITY ON A
MACHINE AND AFTER A WHILE IT IS DISCONTINUED
AND ANOTHER PRODUCT IS SCHEDULED IN A
CERTAIN BATCH QUANTITY.
EX: CONSUMER DURABLES, GARMENTS, PHARMA
PRODUCTS , WATCHES
JOB SHOP PRODUCTION:
A JOB SHOP DOES NOT HAVE ITS OWN
STANDARD PRODUCT BUT ACCEPTS
WHATEVER CUSTOMER ORDERS COME IN.
Thus it is essentially a group of facilities and
processes a wide variety of customers orders in
varying batch sizes.
EACH ORDER MAY BE A NEW ORDER
REQUIRING PROCESS PLANNING, TOOLING
AND SEQUENCING.
MATERIAL FLOW IN JOB SHOP LIKE
SITUATION IS QUITE COMPLEX
A DYNAMIC JOB SHOP WHERE EVEN
CUSTOMERS ORDERS COME IN A RANDOM
FASHION IS A VERY DIFFICULT SYSTEM TO
ANALYSE AT LEAST FROM THE POINT OF
VIEW OF PRODUCTION PLANNING AND
CONTROL
EX: ALL SSI UNITS, FABRICATION SHOPS,
CONSULTANCY ORGANIZATIONS, JEWELRY,
TAILORING, HOUSE BUILDING,MEDICAL AND
LEGAL CONSULTANCY
UNIT MANUFACTURE OR PROJECTS:
SUPPOSE WE WANT TO MAKE A SHIP.
OBVIOUSLY DUE TO LARGE SIZE OF THE
PRODUCT, THE ENTIRE CONCEPT OF
MATERIAL FLOW SHOULD CJANGE. IN THE
PREVIOUS THREE CASES THE MANPOWER
AND FACILITIES WERE FIXED AND
PRODUCT OR MATERIAL WAS MOVING
FROM PLACE TO PLACE.
HERE PRODUCT REMAINS FIXED AND MAN
POER AND FACILITIES PUT WORK ON IT
SOME CHOSEN SEQUENCE.
SINCE SUCH PRODUCTS ARE NOT
PRODUCED IN LARGE NUMBERS AND HAVE
LONG THROUGHPUT TIME WE CAN TREAT
EACH PRODUCT AS A PROJECT. THUS
PROJECT PLANNING, SCHEDULING AND
MONITORING TECHNIQUES BASED ON
NETWORK MODELS SUCH AS PERT / CPM
CAN BE USED FOR PLANNING AND
CONTROL OF SUCH PRODUCTION
SYSTEMS
EX: BRIDGES , FLYOVERS, NATIONAL HIGH
WAY, POWER GENERATION, SHIP BUILDING,
AIR CRAFT MAKING, RAIL COACH BUILDING
STAGES IN SYSTEM LIFE CYCLE
BIRTH OF THE SYSTEM
PRODUCTION DESIGN AND PROCESS
SELECTION
DESIGN OF THE PRODUCTION SYSTEM
MANNING THE SYSTEM
SYSTEM START UP
SYSTEM IN STEADY STATE
REVISION OF THE SYSTEM
DEATH OF THE SYSTEM
 MODULE 1.3
DEMAND FORECASTING
FORECASTING IS FUNDAMENTAL TO PLANNING.
FORECASTS ARE STATEMENTS ABOUT FUTURE.
FORECASTING IS A SCIENTIFICALLY CALCULATED
GUESS. IT IS BASIC TO ALL PLANNING ACTIVITY
FORECASTING IS ESSENTIALLY THE STUDY OF
INTERNAL AND EXTERNAL FORCES THAT SHAPE
DEMAND AND SUPPLY.
WITH DIFFERENT STRATEGIES, THE FORECASTING
WILL BE DIFFERENT OFFERING MULTIPLE
SCENARIOS FOR MANAGEMENT DECISION
MAKING.
FORECASTING IS DEFINED AS ESTIMATING THE
FUTURE DEMAND OF PRODUCTS AND SERVICES
AND THE RESOURCES NECESSARY TO PRODUCE
THESE OUTPUTS.
 NEED FOR DEMAND
FORECASTING
NEW FACILITY PLANNING
PRODUCTION PLANNING
WORK FORCE SCHEDULING
FINANCIAL PLANNING

DEMAND FORECASTING IS ONE OF THE

BASIC BUILDING BLOCKS OF ALL
PRODUCTION AND MARKETING DECISIONS.
PRODUCTION PLANS MOST FREQUENTLY
USE ESTIMATES OF SALES.
ONE OF THE BASIC PRODUCTION TASK IS TO
ESTIMATE HOW MUCH OF A PRODUCT
CONSUMERS AND ORGANIZATIONAL BUYERS WILL
ACTUALLY PURCHASE.
FORECASTING CONSISTS OF PREDICTING WHAT
BUYERS IN A TARGET MARKET ARE LIKELY TO DO
UNDER A GIVEN SET OF CONDITIONS.
SALES FORECASTING NORMALLY INVOLVES A
PROGRESSION THROUGH SEVERAL DEGREES OF
SPECIFICITY, PROCEEDING FROM A MACRO VIEW
OF THE EXTERNAL ENVIRONMENT TO THE MICRO
ENVIRONMENT FOR AN INDIVIDUAL PRODUCT.
FIGURE SHOWS THE FLOW OF INFORMATION AND
FORECASTS AMONG LEVELS. USING THE
ASSUMPTIONS OF A GENERAL
ENVIRONMENTAL FORECAST, PLANNERS
ESTIMATE TOTAL MARKET DEMAND.
FROM THAT QUANTITY, THEY CAN FORMULATE A
PROJECTION OF SALES BY PRODUCT OR
PRODUCT LINE.. THESE FORECASTS CAN
SUBSEQUENTLY BE COMBINED INTO A COMPANY
SALES FORECAST.
PLANNERS MAY USE THE HISTORICAL EVIDENCE
OF THE COMPANYS SHARE OF THE TOTAL
MARKET TO MAKE A COMPANY SALES FORECAST.
AFTER THAT THEY WILL DEVELOP FORECASTS
FOR INDIVIDUAL PRODUCTS
 GENERAL ENVIRONMENTAL FORECAST
(THE NATIONAL ECONOMY)

TOTAL MARKET DEMAND

(INDUSTRY SALES)

TOTAL COMPANY FORECAST

(ANNUAL SALES)

PRODUCT A PRODUCT B PRODUCT C

SALES SALES SALES
TOTAL MARKET DEMAND;
GIVEN ENVIRONMENTAL
PROJECTIONS, PLANNERS AT THE
SBU AND FUNCTIONAL LEVEL
COMPILE A PICTURE OF THE
MAXIMUM AMOUNT OF PRODUCT ALL
COMPETITORS IN THE MARKET
COULD EXPECT TO SELL AT A
SPECIFIED LEVEL OF EFFORT.
FORECASTING METHODS
QUALITATIVE OR JUDGMENTAL METHODS
THESE METHODS ARE USUALLY BASED ON
JUDGMENTS ABOUT THE CAUSAL FACTORS
THAT UNDERLIE THE SALES OF
PARTICULAR PRODUCTS OR SERVICES ON
OPINIONS ABOUT THE RELATIVE
LIKELIHOOD OF THOSE CAUSAL FACTORS
BEING PRESENT IN THE FUTURE. THE
VARIOUS QUALITATIVE METHODS ARE AS
FOLLOWS:
EDUCATED GUESS / EXTRAPOLATION
EXECUTIVE COMMITTEE CONSENSUS
DELPHI METHOD
SURVEY OF SALES FORCE
SURVEY OF CUSTOMERS
HISTORICAL ANALOGY
MARKET RESEARCH
QUANTITATIVE METHODS
THESE FORECASTING MODELS ARE
MATHEMATICAL MODELS BASED ON
HISTORICAL DATA. SUCH MODELS ASSUME
THAT PAST DATA ARE RELEVANT TO THE
FUTURE. THE VARIOUS METHODS ARE:
LINEAR REGRESSION & CORRELATION
MOVING AVERAGE
WEIGHTED MOVING AVERAGE
EXPONENTIAL SMOOTHING
EXPONENTIAL SMOOTHING WITH TREND
FORECAST ACCURACY:
IT REFERS TO HOW CLOSE FORECASTS COME TO
ACTUAL DATA.
BECAUSE FORECASTS ARE MADE BEFORE
ACTUAL DATA BECOME KNOWN, THE ACCURACY
OF FORECAST CAN BE DETERMINED ONLY AFTER
THE PASSAGE OF TIME.
IF THE FORECASTS ARE VERY CLOSE TO THE
ACTUAL DATA, WE SAY THAT THEY HAVE HIGH
ACCURACY AND THAT THE FORECAST ERROR IS
LOW.
IF THE ACCURACY OF A MODEL IS LOW, WE
MODIFY THE METHOD OR SELECT A NEW ONE.
LONG RANGE FORECASTS:
IT REFERS TO ESTIMATING FUTURE CONDITIONS
OVER TIME SPANS ARE USUALLY GREATER THAN
ONE YEAR.
LRF IS REQUIRED IN POM TO SUPPORT STRATEGIC
DECISIONS ABOUT PLANNING PRODUCTS,
PROCESS, TECHNOLOGIES AND FACILITIES.

SHORT RANGE FORECASTS:

SRF ARE USUALLY ESTIMATES OF FUTURE
CONDITIONS OVER TIME SPANS THAT RANGE
FROM A FEW DAYS TO SEVERAL WEEKS.
THESE FORECASTS MAY SPAN SUCH SHORT
PERIODS OF TIME THAT CYCLES, SEASONALITY
AND TREND PATTERNS HAVE LITTLE EFFECT