INDURTRIAL CHEMICAL OPERATIONS AND MANAGEMENT

CHE521

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 Background

• As the Industrial Revolution gathered pace thousands of factories sprang up

all over the country.
• There were no laws relating to the running of factories as there had been no
need for them before.
• As a result, dangerous machinery was used that could, and frequently did,
cause serious injuries to workers. To add to these dangers, people were
required to work incredibly long hours – often through the night.
• Perhaps one of the worst features of the then industrial age was the use of
child labour. Very young children worked extremely long hours and could be
severely punished for any mistakes.
• Arriving late for work could lead to a large fine and possibly a beating.
Dozing at a machine could result in the accidental loss of a limb.
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• People began to realise how bad these conditions were in many factories and
started to campaign for improvements. There was a lot of resistance from
factory owners who felt it would slow down the running of their factories
and make their products more expensive. Many people also did not like the
government interfering in their lives.
• Some parents, for instance, needed their children to go out to work from a
young age, as they needed the money to help feed the family.
• Not all factory owners kept their workers in bad conditions however. Robert
Owen, who owned a cotton mill in Lanark, Scotland, built the village of New
Lanark for his workers. Here they had access to schools, doctors and there
was a house for each family who worked in his mills.

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• By 1833, the Government passed what was to be the first of many acts
dealing with working conditions and hours.
• At first, there was limited power to enforce these acts but as the century
progressed the rules were enforced more strictly.
• Nonetheless, the hours and working conditions were still very tough by
the then standards, and no rules were in place to protect adult male
workers.

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 The Factories Act of U.K.
• The Factory Acts were a series of acts passed by the Parliament of the United
Kingdom for the regulations of industrial employment and the conditions.
• The early Acts focused on regulating the hours of work and moral welfare of
young children employed in cotton mills but were effectively unenforced until
the Act of 1833 established a professional Factory Inspectorate.
• The regulation of working hours was then extended to women by an Act of
1844. The Factories Act 1847 (known as the Ten Hour Act), together with
Acts in 1850 and 1853 remedying defects in the 1847 Act, met a long-
standing (and by 1847 well-organised) demand by the millworkers for a ten-
hour day.

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• A factory inspector is a professional who examines elements of a factory or
plant's operations to ensure safety, quality, and compliance with
regulations. The main job of any factory inspector is to help improve the
safety of a factory and its products for both workers and consumers.
• Factory inspectors became common in the late 19th century, when many
governments enacted the first laws regulating procedures within factories.
• Some of the first government-employed inspectors attempted to root out the
use of child labour; in the United Kingdom, the 1833 Factory Act became
one of the first to mandate the creation of inspector positions to ensure that
children under the age of nine were not used for factory labour.
• As government regulation of manufacturing expanded, the number of
inspectors increased vastly throughout the world. A modern factory may now
undergo government inspection for health compliance, safety preparedness,
labour law adherence, environmental standards, and quality assurance.
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• Listed in Table 1 are details laws that was introduced for the improvement
of the working conditions in factories.
Year Industry Legislation details

1833 Textiles No child workers under nine years of age

Reduced hours for children 9-13yrs
Two hours schooling for children each day
Four factory inspectors appointed
1844 Textiles Children 8-13 yrs could work 6.5 per day
Reduced hours for women and no night work

1847 Textiles Women and children under 18 years of age

could not work more than ten hours a day
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Year Industry Legislation details

1867 All industries No child workers under nine years of age

Reduced hours for children 9-13yrs
Two hours schooling for children each day
Four factory inspectors appointed
1901 All industries Children 8-13 yrs could work 6.5 per day
Reduced hours for women and no night work

• However, the passing of this act did not mean that the mistreatment of
children stopped overnight

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 Workman’s Compensation Insurance
• Workers' compensation or workers' comp is a form of insurance providing
wage replacement and medical benefits to employees injured in the course of
employment in exchange for mandatory relinquishment of the employee's
right to sue his or her employer for the tort of negligence. The figure below
show some workman’s compensation.

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 Workmen's Compensation Act 1906
• The Workmen's Compensation Act 1906 was an Act of the Parliament of the
United Kingdom which deals with the right of working people for
compensation for personal injury. The Act expanded the scheme created by
the Workmen's Compensation Act 1897.
• It fixes the compensation that a workman may recover from an employer in
case of accident giving to a workman, except in certain cases of "serious and
wilful misconduct", a right against his employer to a certain compensation
on the mere occurrence of an accident where the common law gives the right
only for negligence of the employer.

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 Inventory Control
• Inventory control or stock control can be broadly defined as "the activity of
checking a shop's stock." It is the process of ensuring that the right amount of
supply is available within a business.
• It is the process of ensuring that appropriate amounts of stock are maintained
by a business, so as to be able to meet customer demand without delay while
keeping the costs associated with holding stock to a minimum.

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Inventory control involves warehouse management. This includes:
(1) Barcode scanner integration
(2) Reorder reports and adjustments
(3) Product details, histories, and locations
(4) Comprehensive inventory lists and counts
(5) Variants, bundles/kitting
(6) Evaluating stock on hand with sales orders and purchase orders
• The goal of inventory control procedures is to maximize profits with minimum
inventory investment, without impacting customer satisfaction levels
• Inventory management, on the other hand, is a broader term that covers how you
obtain, store, and profit from raw materials and finished goods alike. The right
stock, at the right levels, in the right place, at the right time, at the right cost.

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 Inventory control systems and management

• Keeping control of your stock so that you’re able to hold the least amount of
inventory in your warehouses makes for easier organization, lower holding
costs, better cash flow, and more space within your warehouses. When it
comes to inventory control procedures, less is definitely more.
• To do this, two formulas stand out:
(1) Economic order quantity (EOQ)
• EOQ is the optimum inventory you should purchase to minimize the costs
of ordering and holding. You’ll need to know your annual fixed costs of
annual demand (D), in units, and carrying costs per unit or holding cost (H).
2 D S
EOQ 
H

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• Where D is the annual demand (units), S is the cost per order ($), C is the
cost per unit ($), I is the holding cost (%), H is the holding cost ($).
H=C*I

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EOQ Calculation (Class work)
• Determine the EOQ given the following information:
• F = the fixed cost to execute an order costs $40
• I = Finance determines the carrying % to be 20%
• C = the cost per unit is $1.50/each to purchase from the supplier
• H = Annual Holding (Carrying) Costs = I * C = $1.50 * 0.20 =
$0.30/each
• D = Annual demand is 10,000 pieces

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(2) Reorder point formula
• The Reorder point determines the right time to order more stock.
Calculating this means adding together your lead time demand in days
and safety stock in days:
Reorder point = lead time demand + safety stock
• Lead time by demand is to multiply the average daily usage rate for
an inventory item by the lead time in days to replenish it

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• What is the safety stock formula? The safety stock formula is [maximum daily
use x maximum lead time] – [average daily use x average lead time] = safety
stock

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 Managing purchasing of raw materials
• Materials Management includes planning, organising, communicating,
directing and controlling of all those activities mainly concerned with the
flow of materials into an organisation.
• Purchasing management is concerned with the planning and controlling of
the acquisition of suppliers' goods and resources, to fulfil the administrative
and strategic objectives of the organization.
• In practice, purchasing managers respond creatively to internal customers'
need on the one hand and to maintain a mutually profitable relationship with
suppliers on the other.

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 Importance of Purchase Management
• For Cost Effective Production: Purchasing is responsible for learning of the
internal requirements, locating and selecting suppliers, obtaining the materials,
parts, supplies and services needed to produce a product or provide a service.
A purchase manager is responsible for negotiation of price with suppliers too.
• For Strategic Purpose: Purchasing is a strategic issue. The manufacturers have
to procure capital items like plant and machinery for manufacturing facilities.
It requires heavy investment. So, purchasing is an important function.
Purchasing helps to determine a firm's cost structure through negotiations with
suppliers. Purchasing initiatives can lead to reducing inventory and improving
the quality of incoming parts and components through vendor selection and
supplier development. Purchasing also supports new product development by
encouraging supplier involvement in product development.

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The optimality criterion for raw materials purchase

• A raw material, also known as a feedstock or primary commodity, is a basic material

that is used to produce goods, finished products or intermediate materials which are
feedstock for future finished products.
• Manufacturers want their finished products to be of high quality for their consumers.
This begins with a careful vetting process to qualify suppliers of raw materials
• The optimality criterion for raw materials purchase has so far been based on
subjective prices, quality of raw materials and on-time delivery.
• However, each supplier has different performance, especially in terms of price,
quality, and on-time delivery. The selection of suppliers who have poor performance
can harm the company in terms of the cost of purchasing raw materials.
• Losses caused by the quality and number of raw material orders that have not met
the expected criteria is the reason why supplier selection is based on supplier
performance to reduce the cost of purchasing raw materials.

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• Activities within the purchasing department can play a key role within a
firm’s efficiency since they have a direct effect on optimizing the targeted
criteria when selecting the right suppliers.

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 SUPPLIER SELECTION METHODS
• Supplier selection is a multi-criteria problem including both qualitative
and quantitative factors.
• In Supplier selection, there an increase in trends toward supplier
partnership and the factors which make this process more complicated;
when for example, taking to account supplier’s capacity constraints and
the buyer’s quality and service limitations.

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 SUPPLIER SELECTION METHODS
• Data envelopment analysis (DEA) evaluates the efficiencies of multiple decision-
making units (DMUs) involving multiple inputs and outputs. The DEA measures
the relative efficiency of each of the DMUs and compares it with the other DMUs.
The efficiency is defined as the weighted sum of outputs divided by the weighted
sum of inputs and weight must be assigned.
• For the supplier selection, the DEA compares the performances of different
suppliers and leaves to the manager the decision-making process once he is aware
of the efficiency of each of the suppliers considered.
• The data assessed for the evaluation is based on a questionnaire/survey sent to the
concerned suppliers. The evaluation is finally presented in a four-field matrix
where the suppliers are ranked as high/low performing-efficient/inefficient.
• DEA is mainly a quantitative method used to assess observed data with the
objective of optimizing the overall score of a DMU being evaluated on the input-
output factors/criteria.
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•Mathematical programming: In this method a mathematical objective function
must be set as the goal to be maximized or minimized during the supplier selection
process (e.g. maximize delivery rates, minimize costs, etc.) by choosing the best set
of values for the variables involved in the decision-making process (e.g. number of
suppliers, quantity order to the supplier X, mean of transport for the deliveries
coming from supplier Y, etc.).
•In order to build a good model, the right variables must be defined and selected.
There are many different types of mathematical approaches to address the supplier
selection issue, but the most common ones found in the literature are:
(i) linear programming used to evaluate different suppliers taking into account
performance variability.
(ii) integer linear programming were the models used to address the supplier
selection problems in a supplier bidding situation and the selection of the adequate
number of supplier and capacity allocation, respectively.

•
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(iii) integer nonlinear programming: used to solve a multi-criteria sourcing problem allocating
the products to different suppliers to minimize the costs.
(iv) goal programming is another alternative for the supplier selection process used to
evaluate a set of suppliers and select the ones to be used afterwards, considering three
different goals, cost, quality, and delivery reliability.
(v) multi-objective programming, where more than one objective function is set to be
minimized or maximized by selecting the right suppliers,
• Analytic hierarchy process (AHP): is a systematic and analytic approach to rank criteria
with respect to each other thus leading to a more structured comparison of criteria and
decision making. In AHP, the buyer only must provide a qualitative analysis regarding the
importance of the different criteria compared to other criteria in order to give the weights
for the different criteria.
• After that is done, the suppliers are given scores according to that criteria and then a total
score for each supplier is calculated according to the weights determined in the previous
steps.

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• Case-based reasoning (CBR): is a subset of knowledge-based systems that uses
a cognitive model to describe how people use and reason from experience with
technology for finding and presenting that experience. CBR solves new
problems using the knowledge gained from experience and encodes basic
competence in a collection of previous problem-solving experiences called case-
base.
• This method is incremental as it incorporates the new experience to the case-base
once the problem is solved and makes this new approach available for future
problems to be solved.
• The work cycle of CBR could be summarized in four steps: (i) retrieve the most
cases that are similar to the new case to be solved and examine the similarity
with it, (ii) reuse those cases to attempt to solve the problem if the solution may
be applicable to the problem, (iii) revise the proposed solution and check its
validity to solve this new problem, and (iv) if the solution is suitable for the new
problem, the solution is kept as part of the new case solved and incorporate it to
the case base.
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• Analytic Network Process (ANP) can be understood as a more sophisticated
version of the AHP that uses pairwise comparisons between the different
suppliers, measuring the criteria in terms of its specific unit of analysis. As the
name quotes, ANP is a network model that demonstrate interrelationships
between criteria as nodes rather than seeing the criteria as separate ranked
units at different levels of importance. The ANP also supports a feedback
system where the evaluated alternatives can affect the weighting of the criteria,
in opposition to AHP that is a strictly top-down analysis structure.
• It is of the fact that AHP does not account for the interrelations of the criteria
and therefore uses ANP as a more realistic approach for strategic supplier
selection as performance metric such as price, quality, time and flexibility
affect the planning horizon metrics short term and long term and vice versa.

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• Fuzzy set theory (FST): provides a precise way of modelling the preferences
and cope with uncertainty measured variables. This method gives room for
variability when determining the performance scores and assigning weights
to the importance of the different criteria. Fuzzy number sets, as opposed to
crisp number sets, define a degree of membership to each element of the set,
where a crisp set would assume the same degree of membership to all
elements and therefore not take account to uncertainty.
• Simple multi-attribute rating technique (SMART), this approach uses both
quantitative and qualitative criteria. Rating of the different alternatives is
assigned directly on a scale in which the criteria is available. The advantage
of this method is that the rating for the criteria does not depend on the rating
of the alternatives in the same criteria. For the selection of the measures to
be used, record exists of scholars using the AHP for determining them.

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• The SMART technique is based on a linear additive model. This means that an overall
value of a given alternative is calculated as the total sum of the performance score
(value) of each criterion (attribute) multiplied with the weight of that criterion.
• The main stages in the analysis are (adapted from Olson (1996)):
• Stage 1: Identify the decision-maker(s)
• Stage 2: Identify the issue of issues: Utility depends on the context and purpose of the
decision
• Stage 3: Identify the alternatives: This step would identify the outcomes of possible
actions, a data gathering process.
• Stage 4: Identify the criteria: It is important to limit the dimensions of value. This can
be accomplished by restating and combining criteria, or by omitting less important
criteria. It has been argued that it was not necessary to have a complete list of criteria.
Fifteen were considered too many, and eight was considered sufficiently large. If the
weight for a particular criterion is quite low, that criterion need not be included. There
is no precise range of the number of criteria appropriate for decisions.
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• Stage 5: Assign values for each criteria: For decisions made by one person, this
step is fairly straightforward. Ranking is a decision task that is easier than
developing weights, for instance, this task is usually more difficult in group
environments. However, groups including diverse opinions can result in a more
thorough analysis of relative importance, as all sides of the issue are more likely
to be voiced. An initial discussion could provide all group members with a
common information base. This could be followed by identification of
individual judgments of relative ranking.
• Stage 6: Determine the weight of each of the criteria: The most important
dimension would be assigned an importance of 100. The next-most-important
dimension is assigned a number reflecting the ratio of relative importance to the
most important dimension. This process is continued, checking implied ratios as
each new judgment is made. Since this requires a growing number of
comparisons there is a very practical need to limit the number of dimensions
(objectives). It is expected that different individuals in the group would have
different relative ratings.
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• Stage 7: Calculate a weighted average of the values assigned to each
alternative: This step allows normalization of the relative importance into
weights summing to 1.
• Stage 8: Make a provisional decision
• Stage 9: Perform sensitivity analysis
• The simplest and most widely used form of a value function method is the
additive model, which in the most simple cases can be applied using a linear
scale (e.g. going from 0 to 100).

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• Genetic algorithm (GA) is a metaheuristic method in which a population of
candidate solutions for the problem are evolved towards a better solution.
Each solution compounded with a set of characteristics and individuals (in
this case different suppliers with different characteristics) is evaluated
according to some criteria and then the solution is altered in several ways,
and the ones with the higher objective function value are selected and saved.
• Then those selected are modified again creating a new set of different
solutions whose values of the objective function are evaluated again. This
method is an iterative process which ends when a certain level of conformity
when the value of the objective function is reached or after a determined
number of iterations have occurred, and at that moment the solution saved
with the highest value is considered the best solution.

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• This method is widely used for the supplier selection, as the metaheuristics
are commonly more used to solve complex problems with many possible
combinations, while the supplier selection decision is usually done within a
reduced number of candidates after having screened supplier benchmark

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 Risk in purchasing raw materials
• Companies face increased exposure to supply risk due to business trends like
globalisation and increased supply chain complexity.
• Understanding the term ‘risk’ can be confusing as the concept can be
interpreted differently and no explicit agreed definition is currently present.
• In daily terms risk is explained by the Oxford English Dictionary as:
“(exposure to) the possibility of loss, damage, injury, or other adverse or
unwelcome circumstance; a chance or situation involving such a
possibility”21. This explanation consists of multiple elements that can’t be
applied directly without further explanation.

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• Review of academic literature show that supply risk management systems
typically consist of four phases (see figure)

• Phase 1: Risk identification Despite the exponential growth in scientific

articles most studies remain exploratory of nature and primarily focus on the
risk identification phase. The goal of this phase is creating awareness on the
potential supply risks to which companies are exposed. Risk identification
helps management to become conscious about the events that cause the
uncertainty.
• Phase 2: Risk assessment Subsequently, the buying firm should assess the
risks that have been identified in the previous step. Risk assessment is needed
before selecting suitable actions. A Variety of methods can be applied for
assessing supply risk.
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• These techniques can be quantitative, qualitative of or a combination of both.
• Phase 3: Risk mitigation When the risks are identified and assessed, suitable
mitigation actions should follow. In general these can be described as risk
transferring, risk taking, risk elimination, risk reduction or further analysis of
individual risks. It is important note here that management should be aware of
the fact that risk mitigation actions might lead to a risk increase in another
risk category.

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• Phase 4: Risk monitoring Ideally, the buying firm should then monitor the
selected risks by the use of indicators. However, the risk monitoring-phase is
often neglected even though studies show that proactive risk monitoring
positively influences supply risk management performance.
• To conclude, supply risk management literature reveals that firms with
structured supply risk management capabilities applying a comprehensive
approach by taking into account all phases of supply risk management are
more likely in successfully managing supply risk and improving firm
performance.

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Risk categorization to structure the complexity of supply
risk
• Due to the complexity of the topic nearly all studies start by categorizing
supply risk for which a variety of methods can be found in literature. It
should be noted that there does not seem to be one way of categorizing
supply risk. It seems that the applicability of the categorization scheme is
dependent on the industry, company and/or management purposes.
• Risks related to the specific supplier were found to be from such a
complexity that a subdivision was needed. To structure the individual
supplier risks Hofmann developed a system that distinguishes four
dimensions. The study describes that risks related to the individual supplier
can be operational, financial, strategic, and environmental of nature.

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• As these risks are not specifically related to one supplier only the category on
the highest level was applied as shown in figure below.

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