Production and total quality

Management

7th Dec2016
Topics for the Internal 20 Mark exam.
• Define what is quality and explain the three dimensions :From PPT Notes.
• What do you understand by quality control and quality assurance(.PPT
Notes)
• Objectives and uses of having a proper plant layout.(Text book)
• Types of plant layout.( Book or PPT notes) ( With diagrams from Book)
• Types of production systems. (Book or PPT Notes ).
• Three levels of a product.(PPT Notes )
• Objectives of product planning and Why do some products fail.
• New Product development process.(PPT or Text Book )
• Six R “s of Purchase ( PPT Notes ).
 Explanation

Inputs Converted Out Put

Explanation

Inputs could be raw material , money, land, men or machines

Out put could be a product , service, or selling price , quantity .

Productivity is the ratio of Output divided by Input

P = Output/Input
 Production and Productivity.
Month Input in man Out put in number Productivity Production Productivity
hours. of units produced =Output
Input eg pens out put Input

April 40000 80000 2

May 50000 95000 1.9 Increased Decreased

June 60000 108000 1.8 Increased Decreased

Quality.
• Quality is the most important part of production management.
• Without quality production or productivity has no meaning.
• Production has to be of good quality which is economical so that
profit is earned.
• Consumers should keep repeatedly buying the product and services.
Quality Defined and explained
• Quality is the “ performance of a product as per the commitment
made by the producer to the consumer”.
• There are three dimensions to this definition.
• 1. Performance of the product.
• 2. Commitment to the consumer.
• 3.Service and time dimension.
“Performance of the product”
• This is the functional aspect of the product.
• A pen has to write.
• A radio has to play.
• A washing machine has to wash clothes.
• Without the function no matter how attractive the product is of no
use.
• The consumer buys a product first because it fulfills the function
aspect.
“Commitment “
• Expensive products like TVs , laptop have commitment in the form of
warranty or guarantee cards.
• There is some document may be Purchase order or receipt.
• Even for a small product like a ball pen the customer checks on a pad
to see if it writes and fulfills the commitment.
“Service and Time dimension”
• Quality of a product should be available at a reasonable length of
time.
• It is no point producing a good quality product but that which takes a
very long time to reach the consumer.
• Any product may not last life long but has to work for a reasonable
period.
• Egg: Pen cannot last for a day only. TV working of only a year will be
short .
Quality Control
• It is one of the most important aspects of productivity.
• It is more production related.
• The control is more at the finished product level to ensure that
nothing goes out of the factory which is of poor quality.
• It is to do with quality checks and inspection.
Quality Assurance.
• This is more process related.
• To have processes in place so that the out put is of good quality.
• By having good manufacturing practices one has assurance that the
out put will be of good quality.
• The customer is also given assurance that the product will function as
per the intended use.
 Understanding quality and quality Philosophies.

Done
Projects.

30% 30%
30% Content creativity Presentation

10 % Hard copy .
 Plant layout

Book :Buy Rishab

Sunny Fernandes & Dr
Khushpat Jain.
Plant Layouts. Ref Page : 50
• It is the arrangement of Machinery and areas like store rooms,
quality checking, receiving and dispatch section to help in smooth
functioning of the production department.

• If things are not properly arranged there could be a waste of time and
resources.
Objectives of having a proper plant layout.

• To reduce the wastage of time in movement of goods from one place

to another.
• To Improve speed of production.
• It saves expenditure of moving material.
• Movement of material is smooth.
• Helps in better control of workers.
• Proper storage and packing .
• Working conditions are good and workers are motivated.
Uses of a proper Plant layout.
• Space is very expensive so proper use of space has to be made with
the help of engineers.
• Save on material handling cost: About 30% to 40% of manufacturing
cost is handling cost so long distance movement of material is to be
avoided.
• Avoid bottlenecks : These are cause when there is pile up of material
causing slow down of production this can be avoided.
Uses of a proper Plant layout.
• Quick processing of Orders :with proper Layout material moves fast
having quick delivery to customers.
• Better quality Control. There is better inspection of material.
• Better Supervision: there is better control of labour
Indicators of poor Layout of Plant.
• Space is not used properly.
• No proper flexibility in production.
• Working conditions for workers are not safe.
• Long processing time due to delays.
• Expensive material handling.
• No proper storage.
• Costly Inspection.
• Poor lighting, Ventilation and space
Types of Plant Layout.
Product layout

Function Layout./Process Layout

Combined Layout

Stationery Layout

Cellular Layout
Product layout.
• In this type of layout the equipment is arranged in a straight line
sequence in which they are used.
• The product will move forward from the receipt of raw material to the
finished goods.

• Flow of material is in a fixed sequence.

 Final
Raw
Product
Material Finished

Step 1 Step 2 Step 3 Step 4

Product Layout
Advantages of Product layout.
• Speed of Operation: product moves from first to last without any
interruption.
• The direction is in one way so automatic conveyor belts can be used.
• Reduces work in progress.
• Easy and economical.
• No bottle necks.
• Less material handling.
Limitations of Product layout.
• High initial capital Investment.
• If one machine breaks down then all others will also have to stop.
• There is no flexibility, production is in a fixed manner. No adjustments
can be made.
• Possibility of idle capacity.
• Eg Automibiles, paper, etc.
Process layout.

• The machines are arranges according to their functions.

• Machines performing the same operations are grouped together.
• In this way number of department are set up.
 Process Layout

Drilling Cutting Polishing

Welding Packing
Advantages of Process Layout.
• Less investment Needed: one can start with few machines and go on
adding machines.
• More flexibility : Changes in production can be made.
• Maximum Utilization of Machines.
• Limited loss of production due to break down.
• Easy handling of break downs as entire production line will not stop.
Limitations of process layout.
• Requires more floor space : There are different departments and
Material has to flow from one dept to another.
• More Production time is required.
• More inspection work.
• More production planning .
• Requires skilled labour.
Combined layout.

• This is a combination of both process and Function layout.

• In this a company can get the advantage of both the types of layouts.
• First there is grouping of machines then the products are put in
assemble line.
Static Layout.
• In this type there is no Motion.
• The men move to the product which is stationery.
• The major machine remains in a fixed place and men and material
move from operation to operation.
• Eg:Large shipping yard , Boiler, Eg Ship Building.
Advantages of Static layout.

• Capital investment is limited.

• Machine and men can be used for different operations.
• Adjustment can be done frequently.
• Workers remain busy through out the process.
Disadvantages of Static layout.
• Machine and men are taken to the place of production.
• It is difficult to carry heavy and costly equipment.

• This type is suitable for very few industries.

Cellular Layout.

• Cellular manufacturing lay out are grouped into cells or units.

• Each cell makes one part of the final product.
• The group of machines making similar parts is grouped in one cell or
unit.
Advantages of cellular layout.

• Less Inventory is required.

• Material handling cost is less.
• Production planning is simplified.
• Tool changes are limited.
Disadvantages of cellular layout.
• Less flexibility.

• Machine down time is more.

• If the final product changes cells become out dated.

 Production Management.

Aim of any Business

Customer Satisfaction. Return on Investment.

How do you Proper
Right quality,
achieve planning,
right quantity,
Customer organizing,
right time,
satisfaction Executing,
Right cost.
and ROI. Controlling.
Why is Production Management important.

It converts
Finished
raw
Goods
material
What is Production Management.
• Management of resources that converts raw material /Inputs into
Tangible products.
• Of late service factor has gained importance, what is produced has to
be sold.
• The term is extended to :Production and Operations management.
• “The function of planning, directing and controlling the process of
transforming inputs into finished goods and services”
Production Facilities and Systems.
Production Facilities and Systems.
• What aspects a company considers before setting up a production
facility?
• 1 The product: Is it big volume like car or small like a pen.
• 2 : How big is the Market.
• 3 : Who are the competitors: Are they big like MNCs or small.
• 4 : Where should be the location: Tax free zone
Production Facilities and Systems.

• 5. Is there a possibility of a collaboration with some other company:

• 6 : Does some other company have Idle capacity.
Different facilities of Production and factors
Involved.
• Machine : The main Factor is the machine for production.
• Tools : Tool making is a specialized job at times the tools are costlier
than the machine. Tools also get worn out so they have to be
replaced.
• Technology: The life of the technology should not be short.Eg
GlassBottles.
Different facilities of Production and factors
Involved.
• Inspection Tools: Proper Inspection for quality checks should be
available.
• SOPs : proper standard operating procedure.
• Operating personnel: Operating personnel should be well qualified
and have good skills and Knowledge.
• Operating Volumes : Every company to stay profitable should have
good volumes.
Types of production Systems.
Job Type Production.

Batch Production.

Mass Scale production.

Process Type production.

Job Type production.
• Made to order production.
• More labour & Lot of development is required
• Difficult to give exact cost estimation.
• The labour has to be skilled and motivated.
• You cannot have economy of production.
• Every order is different.
• It takes long time for production.
• Eg > Handicraft, Jewellery.
Batch Production.
• This is also made to order.
• This production is done to keep the production department busy.
• The machines have to be continuously be used.
• The inventory holding capacity decides the size of the batch.
Mass scale production.
• The production has to be done on large scale.
• The demand pattern is know well in advance.
• All raw material can be well planned.
• The machines are automatic .
• The labour may not be skilled.
• Eg: Watches and Music system
Process Type production.
• This is mass production.
• It cannot be produced in small quantities.
• Eg : Textile, paper,.
• Machinery is highly advanced.
• Control is automatic so labour is low skilled.
• Logistics management has to be good.
Product Planning and development.
• What is a product.

• A product is something that is sold by a firm to a customer.

• It satisfies a want or a need.

Levels of a product.
Core
product

Actual
product.

Augmented
product.
Core product
• Buyers view products as having a lot of benefits to solve their
problems.
• Marketers try to find out what are the core benefits.
• Research and development then design the product specifications.
• Product designer builds the actual product having all features.
Three levels of products.

Production Augmented product

Product Design is department converts includes customer
complete. the design into a service offered by
actual product marketing people.
Six R”s of Purchasing
 Right
Price

Right Right
Source Place

Purchasing

Right Right
Time Quality

Right
Quantity
Right Quality
• The best quality is not the right quality.
• A particular quality may be right for a particular Job but the same may
not be right for another Job.
• Unnecessary super quality is a waste of money.
• E.g, Box for carrying glass material and box for carrying cloth.
Right Quantity.

• Excess purchasing is to be Avoided as it may result in over stocking

and an extra cost to the company.

• Less quantity can also lead to shortages and stoppage of production.

Right Time

• The right time is when the material is required for consumption.

• Before time will be a cost as stocks will pile up.
• Late purchasing will result in stoppage of production.
Right Source

• Source means supplier.

• It means choosing the supplier who can supply at the right time at the
right quality and price.
Right Price
• The material bought at higher price will cut into the profit of the
company.

• Material at too low a price may not be very good in quality there
could be a risk
Right Place
• The material has to be delivered at the right place of consumption or
production.

• Delivery to the wrong place can add to the cost

Classification of products.

Consumer Products
•Convenience products, shopping
products, Speciality products
Industrial products.
•Raw material, Parts, Capital, supplies.
Consumer Products.

• Convenience Goods: Food Items, Over the counter items.

• Shopping Goods : Garments, Automobiles.
• Specialty Goods : Expensive Goods, Suits, Mobiles.
Industrial or Business Goods.

• Raw materials.
• Spare Parts.
• Installations.
• Material handling equipment.
• Supplies : Oils, Stationery. Etc.
What is Product Strategy.

• All decisions regarding features, benefits.

• How to communicate these benefits.
• Quality , Style, Designing.
• Selecting the proper product mix.
New products for manufacturing.
• Product selection is choosing a good or service to provide customers
or clients.
• Some companies focus of few products and work towards specializing
in them.
• Some have a broad range product mix.
• However most products have a limited life cycle so firms must be
constantly looking out for new product design and new markets.
Need for Product Planning.

• Every product has a life cycle.

• Introduction, Growth, maturity,saturation,decline and obsolescence.
• Products which are at the latter stage of their life like saturation have
to be replaced.
Objectives of product planning.
• To increase profits and Growth.
• To meet the changing needs of Customers.
• To improve Customer satisfaction.
• To maximize sales.
• To replace obsolete products.
• To improve brand Image .
• To utilize extra capacity.
• To diversify business and reduce risk.
Characteristics of successful product
development.
• A) product Quality: Does the product satisfy customer needs.
• B )Product Cost :How high is the product cost
• C)Development Time: How quickly can the team complete
development.
• D) Development cost. How much did the firm spend on development.
• E) Development capability: Is the team capable of development
/technical Know how.
Why do some new products fail.
• Trade offs: To get some thing you should be willing to loose some
thing. Example: The manufacturing of a car may be costly but it may
give good fuel efficiency.
• Dynamics: Customer preference change fast, competition is on its
toes.
• Details : Some time small details are over looked , even cost of nuts
and bolts are important.
Why do some products fail.
• Time pressure: Due to pressure product development at time is done
in a hurry.
• Team Diversity : At times different skill sets are required from diverse
people from different departments and people may not know each
other.
• Motivation: Motivation at times is not high.
 New product development process

Idea Idea Concept

generation developmen
Screening t

Product Business Marketing

Design Analysis Strategy

Commercialization.
 New Product development process in detail.

1
:Idea Generation. The new product development
starts from Idea generation.
Ideas can be Internal from Employees, R&D,
Marketing, Engineers.
Or can be from external such as customers,
distributors /Suppliers.
Idea Screening.

• Idea Screening: From the various ideas received a few good ones
are short listed. All ideas are reviewed by a committee. The ideas
are evaluated on the basis of estimated market size, development
cost, time taken etc.
3.Concept development

Concept development : A good idea is

developed into a concept. Example :
Second family car, Fuel efficient car,
best prices of the day ( Walmart).
4 . Marketing strategy development.
• Marketing Strategy Development : Description of
the target market, Positioning, Market share,
estimate profits in first few years.
5
Business Analysis: Review of
sales and profit projection by
experts, check if it falls in line
with company objectives.
6. Product design.
• Product Design: Product concept as a word
description, prototype developed and tested,
consumer test marketing.
7. Test marketing.
• Test Marketing: Test marketing is conducted at
this stage a product is produced in a small batch
known as pilot batch. The product is tested for
all parameters such as positioning, price,
advertising, distribution
8. commercialization.
• Commercialization: Based on the results of test
Marketing the company takes a decision if the
product is to be launched or not.
Group Roll Nos
A 1,7,14,20,24,28,35,67,70
B 3,9,12,18,22,32,42,68
C 4,8,15,45,49,52,62,69
D 2,5,6,10,11,13,16,40,71
E (17),19,21,23,25,26,27,29
F 31,30,33,34,36,37,60
G 38,39,43,50,53,55,57,72
H 56,58,59,54,51,47,46
I 44,41,61,63,64,65,66,48
MATERIAL HANDLING.
Material Handling

• Movement and storage of material at the lowest possible cost

through the use of proper methods and equipments.
 The three perspectives of Material
Handling.
• The traditional Point of View.

• Flow of material in the Plant.

• The system point of View.

The Traditional Point of View.
• The focus is on carrying of moving material from one point to another
within the company complex.

• The importance is given for the best way to move the material inside
the plant.
The system point of View.
• Distribution activities were also included in Material handling scope.
• The focus also shifted to handling material from Vendors to
manufacturing site.
• It also included the distribution of Material to customers.
• The scope was from end to end.
Flow of Material in the plant.
• Focus is on solving problems of moving material.

• Making a overall material handling plan.

• More Macro View than Traditional View.

 Why is proper Material handling
important.
• Efficient Material handling can save cost.
• Inefficient Material handling can add to cost.

• Material when brought into the plant moves through various

locations.

• If inefficiently handled can add to cost while unloading , moving from

one point to another.
How does Material handling Impact cost.

Unloaded Move to
Inbound Move to
and kept Q C Check product
Material stores
aside area
What is the way out
• To reduce impact on cost due to Material handling we need to have :

PROPER PLANT DESIGN

Objectives of Material Handling.
• Lower per unit Material handling costs.
• Reduce distance through which material moves.
• Improve production time reduce work in progress
material costs.
• Have better safety measures.
• Avoid damage to material.
• Improve storage capacity.
 Seven Principals of Material
handling.
I Do away with Handling: If this is not possible then reduce the
handling to the shortest possible distance.
2. Keep Moving. Reduce the distance between various terminals as far
as possible.
3 .Use simple moving route: Move as far as possible in a straight line
Seven Principals of Material
handling.
4 :Carry loads both ways :If not reduce empty trips.
5 : Carry Full Loads : Reduce the number of time each
unit material is handled or moved.
6 : Use Gravity : If not see if another cheaper source of
power is used.
7 : System Flexibility There should be flexibility in the
system as there could be some unforeseen
circumstance.
Material Handling Costs: Two Sources.

Cost of the equipment

Cost of maintaining and running the

equipment.
How to reduce Handling costs

Reduce Handling

Go for Automation

Make the current handling more efficient.

While selecting material handling system what factors
would you consider.
• Production Problem.

• Capability of handling the equipment available.

• Human element involved.

Production Problem Factors.

• A) Volume of production to be achieved.

• B) Type of Material to be handled.

• C) Layout of the plant and building.

Capability of handling the equipment
available.
• Adaptability.
• Flexibility.
• Load Capacity.
• Power.
• Speed.
• Space Requirements.
• Supervision required.
• Maintenance cost and Environment factors
The human Element.
• The skill of the people who will handle the system.

• How safe it is for the people handling the equipment.

Fork Lift Truck
Hand Pallet Trucks.
Loaders
Hydraulic Lifting Table
load capacity varying from 300 kgs to 2000
kgs.
Hydraulic Jib Crane/ floor crane are available up to 3000
kgs. Capacity.
Effective presentations
 S Y BMS A

Serial Number Group Topic.

1 Mahindra & Mahindra Cars

mfg.
2 Maruti Cars
3 Samsung
4 Mac donalds
5 Bajaj Auto
6 VIP Industries
7 Apollo Tyres
8
9 Lenova Laptops
10 Air India
 Systems View
Inputs
Client. Out Put

Materials.
Labour.
Equipment
Conversion process Goods and
Money
Services.
Information.

Feedback
Decision Maker . Feedback
Production Management.

External Environment.
Production as a System.
• This view is know as a system concept of production.
• The system is a cyclic interaction of departments and outsiders.
• The different entities interact with each other.
• Inputs are converted into outputs.
• It has the following parts : Inputs, Conversion, outputs,
Transportation, Communication, &decision making.
Production as a means of creating utility.
• Production keeps adding value in different ways.
• Form Utility : By changing size, shape, colour, smell.
• Place utility: By transportation.Eg Coal to steel plant.
• Time Utility : To store raw material or finished goods in excess so that
they can be used later.
Production as a means of creating utility.
Possession Utility: The possession changes from one entity to another.
Eg: When material is bought from a supplier.
Service Utility: Here utility is created by giving some service. Eg
Consultancy.
Knowledge Utility: here knowledge is transferred. EG sales person
given knowledge about a product.
Objectives of production Management.
• Maximum customer satisfaction through quality, cost delivery time.
• Minimum wastage in production.
• Minimum Inventory.
• Maximum employee satisfaction.
• Maximum ROI.
• Concern for protecting environment.
• Maximum Output.
Responsibilities of production Managers.

• Meeting requirements of quality demanded by customers.

• Realistic delivery dates.
• Producing required volume to meet demand.
• Selection of most economical production process.
• Controlling cost of Inputs.
Decision Making in production.
Strategic Decisions.

Operating Decisions.

Control Decisions.
Strategic Decisions.

• Decision on long range production strategies.

• New product launch.
• New design.
• Decision on new equipment's.
• Decisions on Labour/manpower.
Operating Decisions.
• Related to solving issues about customer demands.
• How much Inventory to carry.
• Next Months production plan.
• Hiring of casual labour.
• Deciding volume of purchase from each vendor.
Control Decisions.
• These decisions are concerned with problems of productivity.
• Product quality.
• Frequent Break downs.
• Production variations.
• Faliure to meet Planned labour cost.
• Deciding about frequent preventive maintainance.
Functions of production Managers
• Designing production techniques.
• Capacity management.
• Production Planning and control.
• Inventory Control.
• Quality Control.
• Maintenance.
Functions of Business Organizations
• Business organizations work towards producing goods or services for
profit.
• There are a few non profit organizations.
• Different companies goals and products may not be similar but more
or less they operate is a similar way.
• Ultimately its people who make organizations successful.
Three basic functions of a typical business organization

Finance

Marketing

Production
The success of organizations
• The success of organizations depend not only on how each dept
performs but on how well they interact with each other.
• Production may produce goods and services for which there is no
demand.
• Marketing may promote goods which the company cannot deliver.
• Finance may not provide necessary funds.
Production Function.
• Production function has the basic function of adding value.
• Value addition takes place when the cost of the output is more than
the input.
• Its responsible for creation of organizations goods.
• Functions which are service oriented are classified under Operations
Functions.
Finance Function
• The primary function is to source resource at a favourable price.
• Finance and production have to coordinate for functions such as:
• Budgeting.
• Investment proposals.
• Funding various activities.
Marketing Function.
• The marketing Function focuses on selling goods and services.
• It finds out customer needs.
• Develops demand for the organizations goods.
• Develops responsive working relationships with customers.
Interdependency in production , Marketing &
Finance.
• One may have funds but no market for the product.
• There may be market and Finance but if the firm cannot produce the
goods then its of no use.
• If one has the ability to produce goods but no necessary capital to
employ people it a problem.
• Marketing conveys the needs of customers to design the product.
• Planning has to be done to know the lead time for production.
Recent Trends in production.
• Going Global : Presence in many countries for economic advantage.
• TQM: Total quality Management for customer satisfaction.
• Flexibility : Called agile manufacturing , that which can adjust and
change to market demands.
• Time reduction: Reducing manufacturing time or delivery time.
Recent Trends in production.
• Technology : Advances in technology have had impact on the quality
of products and has brought in automation.
• Worker involvement: More responsibilities and decision making.
• Corporate right sizing; having optimum workforce.
• Reengineering; starting from scratch and redesigning the business
process.
• Lean production: minimum resources to produce high volume and
high quality products.
Economic Order Quantity
Economic order quantity. E O Q

• “Economic order quantity is a concept that tells you the optimum

order quantity to be ordered so that your inventory carrying cost is
not too high”
Inventory carrying cost.

• The more Inventory you stock the more you pay. The cost rises
because you have to pay for rent, cost of stocks , plus Interest cost,
plus security, maintenance electricity , loading and unloading etc
Ordering cost

• The more quantity you order the less you pay per unit because you
get discounts on large quantity.

• If you order less you pay more per unit

 Terms Used in Inventory Management.
Lead Time

Quotation Order Manufacturing Transport

• Lead Time : The time taken from from the point of approval to the point
of delivery is lead time.
 Buffer Stock

• Buffer stock is also called safety stock. It is the term used to describe
the extra level of stocks needed to be maintained to take care of the
certain shortages.

• Having too much safety stock will involve cost and having too little
safety stock may lead to stoppage of production.
Reorder Level.
• When should the new order be placed. At what point of stock level it
should be placed .

• Reorder level = Lead time (Number of days ) x Daily average

production + Safety stock.

• A company has a total stock of 5000 kgs of sugar If lead time to

supply sugar is 27 days, and the average daily production is 150 Kgs ,
Safety stock is 1000 Kgs . What should be the reorder level.
Formula for Economic order quantity

• EOQ = 2 x Annual Consumption x Cost per order

Price per unit x carrying cost in percentage
Example
• XYZ consumes 4000 units of a particular item every year. The cost per
order is 240. The price of that unit is Rs10 per unit . The inventory
carrying cost of the company is 30%. Find the EOQ.
 Inventory Management.

17th Jan 2019

Inventory Management.

• Definition: Inventory is the stock of any item or resource used in an

organization:
• EG: Raw material, Finished goods, Components, etc.
Purpose of holding Inventory:
• 1. Economies of scale : If you buy in large quantities the per unit cost
is low.
• 2. Protection from uncertainties. Strikes, floods .
• 3. Seasonal Inventory : Some products are manufactured during the
year and sold during the season. Eg Wool.
• 4. Opposite also holds good : Fruit Juices.
Objectives of Inventory
Objectives of Inventory.
1. To keep sufficient stocks so that there is no shortage. This ensures
that the customers get the product as an when required.

2. To control inventory levels and avoid keeping excess stocks. This is

because excess inventory leads to increase in cost like warehousing
/rent etc.
Objectives of Inventory
• 3. Movement of goods.Goods should move in and out of the
Warehouse quickly and efficiently.
• 4. Increase in Profit. If Inventory is well handles the company saves
money and there is increase in profit.
• 5 To take care of unforeseen circumstances and have sufficient
quantity so that production does not come to a halt.
6: To save time during Inspection and Testing.
• The Incoming Material has to be tested.
• At times there are outside inspectors.
• At times the material is send to some out side agency….IIP .
• Time is also lost in inspection.
• Material is also used for inspection and checking this has to be
factored.
.
Selective control of Inventory
ABC Analysis. 1

• The basis is close to Prato Principle.

• “Vital few trivial many “… Eg :Cooking Oil
• Studies show that a few items account for major bulk annual expenditure
on materials.
• These few items are called ‘A “.
• “B”items are slightly more than A and account for expenditure less than
“A”.
• “C “items are more than B but account for less than B for expenditure.
“A “ Items
• They are usually 5 to 10% of the total Items.
• Expenditure is 70 to 75%.
• Need to be stocked in small quantities.
• Its better to have a just in time approach for these items.
• Alternatively we have frequent purchasing.
• This is only if the demand is steady.
“B” Items
• 10 % to 15% of the total Items..

• 10% to 15% of total expenditure.

• The control may not be as detailed or vital/tight as A.

“C” Items
• These are 70 ton80% of total items.
• Expense wise hardly 5% to10% of total expenditure.
• Not important.
• Should be procured in bulk.
• Buyer can get price discount.
Conducting ABC analysis.
• 1st : Prepare a list of Items to be purchased and write the same in one
column.
• 2nd : next to each item write the annual consumption.
• 3rd : Multiply unit item price with consumption so you get each items
annual value.
• 4th : Arrange in ascending order and total.
• 5th : You can calculate each items % with the total.
 Annual
Annual Consumption of Ascending
Items Consumption Price each order
Pipes 100 250 25000 600000A
0
Ball Berings 5000 35 175000 175000A
0
Belts 2000 300 600000 150000B
0
Nuts 7000 20 140000 140000B
0
Oil 30 800 24000 25000 C
0
Boxes 6000 25 150000 24000 C

1114000
Items Annual Consumption Price Annual Cost of each Ascending order

Pipes 100 250 25000 600000 A

Ball Berings 5000 35 175000 175000 A

Belts 2000 300 600000 150000 B

Nuts 7000 20 140000 140000 B

Oil 30 800 24000 25000 C

Boxes 6000 25 150000 24000 C

1114000
How to use ABC analysis.
A Items B Items C Items
Only exact requirement to be Moderate Control Not very critical.
purchased.

Constant check on production Broad check Check on random basis.

schedules
Keep low buffer stock Low buffer Large buffer
Tight follow up with vendors Tight follow up Loose follow up.

Accurate consumption Past consumption pattern is On rough estimate.

planning ok
 Purpose of ABC analysis.
• To separate the major items from those whose consumption is low but
are many in number.
• To have control on purchases.
• Better clarity of inventory so that follow up with the suppliers can be
done.
• To plan better so that low cost /low consumption items can be bought in
larger lots for price benefit and to reduce repeat buying expenditure.
H M L Analysis: High/Medium/Low
• This is similar to ABC analysis but only thing here instead of consumption
they are grouped as per unit price only.
• Eg: Management may decide to buy all items above Rs1000 as H class on
credit.
• All between 500 to 100 as M class on cash.
• All between 10 to 500 as L class on advance.
Use of H M L analysis.
• High priced products can be kept with special security.
• To have levels of sanction Eg All H class items approval by VP Only, M Class
By GM and L class By senior Manager.
• To have buying policies.
• To plan finances /funds.
V E D Analysis :Vital/Essential /Desirable.
• This Classification is based on Criticality.
• The products are classified into three groups : Vital, Essential and
Desirable.
• Vital items are those without which production will come to a halt.
• Essential are those which impact of stock out is very high.
• Desirable are those without which there will not be major loss.
 S D E Analysis : Scarce /Difficult/Easy.
• Parameters are based on Scarcity, Geographical location and reliability of
suppliers.
• Scarce :In short supply, Imported or need government License.
• Difficult ;Those which are produced locally but not easy to procure.
• Easy are readily available.
GOLF :Analysis.

• G: Bought from Government agency.

• O :procured from non government agency.
• L : procured from local supplier.
• F : procured from Foreign supplier.
GOLF :Analysis.
• G: Government purchase requires long time.
• O :from non Government agencies moderate time.
• L : Local suppliers mainly on cash purchase.
• F : Foreign suppliers , procedures, Custom clearance, opening of LC.
• Clearing documents, Port Clearance , documents.
S-OS Analysis.
• This is based on seasonality.
• There are two classifications.

• A : Seasonal .

• B : Off Season.
S-OS Analysis.
• Seasonal : These are available only during a particular season.
• Particular agricultural products .
• Some are available all throughout the year but are needed only at
some stages.
• You need to study inventory carrying cost Vs procuring cost during off
season.
F-S-N Analysis.
• In this analysis the products are grouped into :

• F : Fast Moving.

• S : Slow Moving.

• N; Non Moving
Working out FSN analysis.
• In this the last date of receipt is taken into account.
• Then the date when the product has moved out is noted.
• The period in months is noted.
• With this the FSN analysis is plotted.
F-S-N Analysis.
• This analysis helps in planning procurement.
• It helps in Inventory control.
• Most important once the non moving items are identified these can
be disposed off /sold in some cases.
• The value of non moving items is huge in many cases.
X Y Z Analysis.
• X Y Z Analysis is based on the value of stocks in hand.
• High inventory values are : X.

• Moderate inventory values are : Y.

• Low inventory values are : Z

Using XYZ analysis in conjunction with ABC
Class of items A B C

Efforts to be made to Efforts to be made to Steps to be taken to

X reduce stock to Z category. reduce stock to Y category. dispose off surplus stocks.

Efforts to be made to Control to be further

Y reduce stock to Z
category.
tightened.

Review stock level

Z
H M L Analysis: High/Medium/Low
• This is similar to ABC analysis but only thing here instead of consumption
they are grouped as per unit price only.
• Eg: Management may decide to buy all items above Rs1000 as H class on
credit.
• All between 500 to 100 as M class on cash.
• All between 10 to 500 as L class on advance.
Use of H M L analysis.
• High priced products can be kept with special security.
• To have levels of sanction Eg All H class items approval by VP Only, M Class
By GM and L class By senior Manager.
• To have buying policies.
• To plan finances /funds.
V E D Analysis :Vital/Essential /Desirable.
• This Classification is based on Criticality.
• The products are classified into three groups : Vital, Essential and
Desirable.
• Vital items are those without which production will come to a halt.
• Essential are those which impact of stock out is very high.
• Desirable are those without which there will not be major loss.
 S D E Analysis : Scarce /Difficult/Easy.
• Parameters are based on Scarcity, Geographical location and reliability of
suppliers.
• Scarce :In short supply, Imported or need government License.
• Difficult ;Those which are produced locally but not easy to procure.
• Easy are readily available.
GOLF :Analysis.

• G: Bought from Government agency.

• O :procured from non government agency.
• L : procured from local supplier.
• F : procured from Foreign supplier.
GOLF :Analysis.
• G: Government purchase requires long time.
• O :from non Government agencies moderate time.
• L : Local suppliers mainly on cash purchase.
• F : Foreign suppliers , procedures, Custom clearance, opening of LC.
• Clearing documents, Port Clearance , documents.
S-OS Analysis.
• This is based on seasonality.
• There are two classifications.

• A : Seasonal .

• B : Off Season.
S-OS Analysis.
• Seasonal : These are available only during a particular season.
• Particular agricultural products .
• Some are available all throughout the year but are needed only at
some stages.
• You need to study inventory carrying cost Vs procuring cost during off
season.
F-S-N Analysis.
• In this analysis the products are grouped into :

• F : Fast Moving.

• S : Slow Moving.

• N; Non Moving
Working out FSN analysis.
• In this the last date of receipt is taken into account.
• Then the date when the product has moved out is noted.
• The period in months is noted.
• With this the FSN analysis is plotted.
F-S-N Analysis.
• This analysis helps in planning procurement.
• It helps in Inventory control.
• Most important once the non moving items are identified these can
be disposed off /sold in some cases.
• The value of non moving items is huge in many cases.
 Factors that influence the level of safety stock.
Imp
• A) A Category of Items: If “A” category items are under better control
there is no need to keep more inventory.
• B) Lead Time: Longer the lead time more is the requirement of safety
stock and there could be fluctuation in demand.
• C) Number of Suppliers: Incase number of suppliers are more there is
less chance of stock out.
 Factors that influence the level of safety stock.
• D : Safety stock of critical Items: The safety stock of critical items needs
to be high; Eg Outer Boxes of pizzas , in case there is a stock out no
matter what the inner finished product the sales will take a major
beating.
• In the case of Lubricants or Glue one can manage .
 Factors that influence the level of safety stock.
• E: Availability of substitutes; In case no or few substitutes are available
then safety stocks should be high.
• Possibility of Back ward integration: At times its better to go for making
the product in house Eg Binding Operations.
• Chances of Obsolescence.
• Management Policy.
Productivity & Quality Management.
Explanation

Inputs Converted Out Put

Inputs could be raw material , money, land, men or

machines

Out put could be a product , service, or selling price ,

quantity

Productivity is the ratio of Output divided by Input P = Output/Input

Quality.
• Quality is the most important part of production management.
• Without quality production or productivity has no meaning.
• Production has to be of good quality which is economical so that
profit is earned.
• Consumers should keep repeatedly buying the product and services.
Quality Defined and explained
• Quality is the “ performance of a product as per the commitment
made by the producer to the consumer”.
• There are three dimensions to this definition.
• 1. Performance of the product.
• 2. Commitment to the consumer.
• 3.Service and time dimension.
“Performance of the product”
• This is the functional aspect of the product.
• A pen has to write.
• A radio has to play.
• A washing machine has to wash clothes.
• Without the function no matter how attractive the product is of no
use.
• The consumer buys a product first because it fulfills the function
aspect.
“Commitment “
• Expensive products like TVs , laptop have commitment in the form of
warranty or guarantee cards.
• There is some document may be Purchase order or receipt.
• Even for a small product like a ball pen the customer checks on a pad
to see if it writes and fulfills the commitment.
“Service and Time dimension”
• Quality of a product should be available at a reasonable length of
time.
• It is no point producing a good quality product but that which takes a
very long time to reach the consumer.
• Any product may not last life long but has to work for a reasonable
period.
• Egg: Pen cannot last for a day only. TV working of only a year will be
short .
Quality Control
• It is one of the most important aspects of productivity.
• It is more production related.
• The control is more at the finished product level to ensure that
nothing goes out of the factory which is of poor quality.
• It is to do with quality checks and inspection.
 Quality Assurance.
• This is more process related.
• To have processes in place so that the out put is of good quality.
• By having good manufacturing practices one has assurance that the
out put will be of good quality.
• The customer is also given assurance that the product will function as
per the intended use.
Quality Organization
• Quality is not only the function of production department.
• The whole organization has to be committed to quality.
• Right of the concept stage to introduction of the product quality is
built into the product.
• Continuous training of people in all departments is an important
aspect to produce quality products or services.
Impact of quality on productivity.
• Poor manufacturing practices will add to the cost and also produce
poor quality.
• More scrap results in low productivity.
• Poor service, disruptive production schedules, delayed deliveries, cost
of return of goods , wastage of man power.
• The above adds to the cost of the product and will end up with a
dissatisfied customer.
 Production and Productivity.

Month Input in Out put in Productivit Production Productivity

man number of y
hours units =Output
produced Input
April 40000 80000 2
May 50000 95000 1.9 Increased Decreased
June 60000 108000 1.8 Increased Decreased
P Q M: Productivity and Quality Management.
• Production and operations of the company are carried out in such a
way that productivity increases.
• Control of scrap and waste.
• Proper deliveries.
• No wastage of man hours.
• Proper GMPs( Good manufacturing practices)
Importance of productivity.
• Increased Profit : Better productivity leads to cost savings leading to
more profit.
• Competition from Global Players : There are more countries
entering Indian Markets hence companies have to be competitive.
• Cannot afford Failure : Companies cannot afford to take chances as
any product failure will lead to cutting into the profits.
Importance of productivity.

• Demanding Customers : Customers are more aware of the options

available.
• Option of Online buying: Because of this option customers have more
buying power and can easily access information of other products
which are cheaper.
Benefits of increased Productivity.
• To the company : It leads to cost saving and increased profit so that
companies can expand and invest in more areas.
• To the workers : They get better wages, better working conditions,
better morale. They are satisfied and motivated.
• To the consumer : better quality and satisfaction.
• To the Nation : Higher employment, more per capita income, better
standard of living.
Gaps Model of service quality.
It’s A Matter Of Perspective
 Gap Model
Expected Service

Gap 5
Perceived
Service

Service delivery External communications

Gap 4 With the customer
Gap 3
Gap 1 Service Standards

Gap 2
Management perceptions of
Consumer expectations.
 Service Gap.

What the What the

customer customer
receives. Expects
 Not Knowing what customer expects .
Gap 1
Management
What Consumer
perception of
expects from the
service offered what consumer
expects
Why does the Gap exist.
• Lack of Market research.
• When promises do not match delivery.
• No consumer orientation.
• Lack of communication between top management and down the line.
How to close Gap1.
• Understanding customer needs through Research and customer
feedback.
• To understand why people complain.
• What they expect when they complain.
• Have a complaint handling procedure.
• Look for ways to compensate for failure in service : Cake /Card with
“Sorry”.
• Empower employees to rectify on the spot.
Service Gap 2 :The wrong service Quality
standard.

companies
understanding Actual service
of Service level desired by
the customer
desired by the
customer
Service Gap 2 :The wrong Quality standard.
• Management feels customer expectations are unreasonable.
• Management feels service cannot be standardized.
Service Gap 2 :How to rectify

• Make physical presence of service in the form of complaint box,

Internet, Ambience that supports customer.
• Feed back forms
Service Gap 3 :Not delivering to standards.
Service performance gap.

Service Service
Standard Delivery
Reason for gap 3.
• Lack of Motivation both monetary and non Monetary to the
employees.
• Lack of team work.
• Role conflict.
• No proper policies.
How to close Gap 3

• Have better policies such as Payment, Promotion, Benefits.

• Have better training and development programs.
• A satisfied employee and a happy employee is a strong asset to the
company and can always serve better.
Service Gap 4 : When promises do not match
delivery

What a firm
promises What it
about delivery actually
through its delivers
advertising
Reasons for Gap 4
• Over promising in advertising or personal selling.

• Over promising leads to over expectations.

How to close Gap4.

• Company should focus more on utility of actual service.

• Educating the customer about the services available.

Service Gap 5 : Expected service and
perceived service gap

What customer
What customer perceives that
expected about she received. The
service perception that is
formed
Reasons for this Gap
•.
• Customers expect certain services from certain companies.
• Eg , If a customer goes to McDonalds often and has Big Mac and is
used to getting his order delivered in less than five minutes and it
takes 15 minutes , his perceived service is going to crash.
Q: Explain what you understand by Quality
Circles.
• It’s a voluntary employee participation program.
• The aim is to improve quality and productivity.
• It aims at tapping the full potential of employees.
• It develops skills of employees by giving them right sort of training
and leads to more creativity and confidence of the employees.
• It is not applicable to production only but in other institutions like
Hospitals, Schools, Colleges, Service sector also.
Method of operating quality circle.
• A small group of six to 12 employees is made.
• They should have similar work generally from the same department.
• They meet on a regular planned intervals.
• They identify the difficulties and challenges faced by each one.
• After discussion and analyzing the problem a solution is chalked out.
• They take one step at a time.
• The concepts believes that every individual has potential only thing it
has to tapped.
Philosophy of quality circles
• It is voluntary and self motivation.
• It is not compulsory for an employee to participate and the company
need not pay the employee also for participating.
• It is a way of life in some companies.
• It works better where people are given the liberty to take decisions.
• Employees should be willing to make changes in their life style and
culture.
• The work atmosphere is made in such a way that it encourages
employees to improve.
The objective of quality circles.
• 1. Change in attitude: The attitude should change towards a
willingness to make small improvements on a continuous basis.
• 2.Self development: People learn to discover them selves and explore
so that there is self development.
• 3.Development of Team sprit: As the meetings are held in teams and
there is willingness to improve there is better understanding of each
other and better team sprit.
The objective of quality circles.

• 4.Improved work culture. There is a better culture which is conducive

to development and progress. This culture is very important in view of
globalization taking place.
Introduction to lean Thinking.
Introduction to Lean Thinking.
• ‘Becoming Lean is a process of eliminating waste with the goal of
adding value”.
• Any thing that does not add value has to be eliminated.
• Only useful productive activities are to be done.
• The stress is on creating Value
Lean Manufacturing
• Term is Borrowed from Toyota Production.
• Its using less of every thing.
• Less man power.
• Less Human Effort.
• Less wastage.
• Less Manufacturing space.
• Less Investment.
The seven waste of manufacturing

• Over Production.
• Inventory.
• Extra Process Steps.
• Motion.
• Waiting.
• Transportation.
Add Nothing but Value.
• Eliminate waste.
• Minimize Artefacts.
• Satisfy all Stake holders.
• Deliver as fast as possible.
• Decide as late as possible.
• Decide as low as possible.
• Deploy Training.
• Learn by experimentation.
• Measure Business Impact.
• Optimize across Organizations.
Fish Bone Diagram

Ishikawa Bone Diagram

 Low Salary
Quality Issues

No Bonus Customer complaints

No Awards Breakages

Workers
Are not
Motivated

No Training
Working conditions

Lack of skills
No AC
No Safety No Training Manager
Steps in constructing Fish Diagram

• Learn from Page Number 189 & 190

Benefits of cause and effect Diagram

• Study from Page Number 192

Six Sigma
• Meaning 212 : Study just two sentences .
• Definition centre box page number 212.
• Sigma performance level Take selected one line each .
• DMAIC : Process : page 215 & 216 .
• Goals of six sigma 224 & 225.
ISO 9000
• Page Number 230. : Benefits of ISO.

• Steps in ISO Registration Page 231.

• QS 9000 page Number 239.

Japans Deming Prize
• 247.

• Case Studies :
Case study
• Case Study.
• Kamath Steel Manufacturing Company
• Kamath Steel has been in the steel business for the past 30 years. The
company was run by the founder Mr Kamath. The company had been
getting steady growth around 10%. Since the past two years the sons
took over the company. The wanted fast growth and made the
following rapid changes.
Following changes were made.
• The bonus for workers was reduced.
• They went in for very low inventory due to which the company used
to have frequent product shortages
• They cut cost on Training and development of workers.
• Some products Inventory was high where as some products there was
shortage.
• The layout of the factory was changed by an interior decorator who
did not have production experience.
Answer the below mentioned questions five
Marks each.
• Sales have started declining.
• What changes you suggest so that the sales pick up?
• How will you get the workers Motivated by implementing quality
circles project?
• What will be the process of quality circles in Kamath to be followed.
Steel Manufacturing company