Introduction to Operations

Management
Lesson 1

1
 What is Operations Management?

The business function responsible for planning,

coordinating, and controlling the resources
needed to produce a company’s products and
services

2
 What is Operations Management?

• It is a management function

• Organization’s core function

• Every organization has OM function

– Service or Manufacturing

– For profit or Not for profit

3
Typical Organization Chart

4
 What is Operations Management Role?

• OM Transforms inputs to outputs

– Inputs are resources such as
• People, Material, and Money

– Outputs are goods and services

5
OM’s Transformation Process

6
 OM’s Transformation Role

• To add value
– Increase product value at each stage
– Value added is the net increase between output product value and
input material value

• Provide an efficient transformation

– Efficiency – perform activities well at lowest possible cost

7
 Differences between Manufacturers and
Service Organizations
• Manufacturers:
• Services:
• Tangible product
• • Intangible
Product product
can be inventoried
• Low• customer
Product cannot
contactbe
• Longerinventoried
response time
• • High
Capital customer contact
intensive
• Short response time
• Labor intensive

8
OM Decisions

9
 Why OM?
• For long-run success companies must place much
important on their operations
– The 1950-1960 era was the U.S. golden era where primary
opportunities were marketing
– The 1970-1980 U.S. companies experienced a large decline
in productivity growth – international firms began to
challenge in many markets
– The 1970-1980 era saw U. S. firms lagging behind in
methods and processes
– The resurgence of American business in the 1990’s
capitalized on improved operations

10
Historical Development of OM

• Industrial revolution Late 1700s

• Scientific management Early 1900s
• Human relations movement 1930s to
1960s
• Management science Mid-1900s
• Computer age 1970s
• Environmental Issues 1970s

11
Historical Development of OM

• Just-in-Time Systems (JIT) 1980s

• Total quality management (TQM) 1980s

• Reengineering 1990s

• Global competition 1980s

• Flexibility 1990s
12
Historical Development of OM

• Time-Based Competition 1990s

• Supply chain Management 1990s

• Electronic Commerce 2000s

• Outsourcing and
flattening of the world 2000s

13
 Today’s OM Environment
• Customers demand better quality, greater speed, and
lower costs
• Companies implementing lean systems concepts – a
total systems approach to efficient operations
• Recognized need to better manage information using
ERP and CRM systems
• Increased cross-functional decision making

14
 OM in Practice
• OM has the most diverse organizational function
• Manages the transformation process
• OM has many faces and names such as;
– V. P. operations, Director of supply chains, Manufacturing
manager
– Plant manger, Quality specialists, etc.
• All business functions need information from OM in
order to perform their tasks

15
 OM Across the Organization
• Most businesses are supported by the
functions of operations, marketing, and
finance
• The major functional areas must interact to
achieve the organization goals

16
Types of Production System

Lesson 2

17
 PRODUCTION
A production process consists of activities
that are required in transforming an input
set (human resources, raw materials,
energy, money,information, etc.) to
valuable outputs with the help of
processors.

18
 The Production System
• Definition:
– The set of resources and procedures involved in
converting raw material into products and delivering
them to customers

• Production and delivery of products are central to the

firm
– Functions have value only if they enhance the ability
to do this profitably

19
 Types of Production Systems
1. Project
2. Job Shop
3. Batch Production or disconnected Line
4. Assembly Line
5. Continuous Flow
6. Cell Manufacturing ( Group Technology)
7. Flexible Manufacturing Systems (FMS)

20
Types of Production Systems

2.Intermittent
1. Flow Process
Production
A. Mass Production A. Job Production

B. Assembly B. Project
production Production

C. Batch Production
21
 Basic Types of Production Processes
Intermittent Production System
 Production is performed on a start-
and-stop basis, such as for the
manufacture of made-to-order
products.
 Done to produce small volume and
high diversity products.
Mass Production
 A special type of intermittent
production process using
standardized methods and single-use
machines to produce long runs of
standardized items.
 Usually used to produce small
volume and low diversity products. 22
 Project Process
• Different employees and
machineries are employed to
produce perform a specified task
or project.

23
 Job and Batch Process
• Specified types are services or tasks are
performed in different departments.
• In Batch production batches are produced in
different time by same machineries. Exp-
tablet production in pharmaceutical
industries.

24
Assembly production
It is a type of Production
system in which the
assembly of different
equipment takes place
to produce the final
product
Exp- Manufacturing of
car.
25
 Basic Types of Production Processes (cont’d)
Continuous Production Processes
 A production process, such as those
used by chemical plants or
refineries, that runs for very long
periods without the start-and-stop
behavior associated with
intermittent production.
 Enormous capital investments are
required for highly automated
facilities that use special-purpose
equipment designed for high
volumes of production and little or
no variation in the type of outputs

26
 GROUP TECHNOLOGY
Group technology is a manufacturing
Technique and philosophy to increase
production efficiency by exploiting the
“underlying sameness” of component
Shape, dimensions, process route, etc.

27
28
 Production System
Input (2)
Raw materials Processing (3)
Labor Plant with processing
Power Production and assembly Output (4)
data equipment Product

Modification of input or
Evaluation of product
processing

Performance

Goal (1)

Control (5)
29
Product and Product Design

Lesson : 3

30
PRODUCT DESIGN

31
 WHY ?

• WE NEED TO DESIGN THE PRODUCT

BEFORE MANUFACTURING IT

32
 FROM WHERE IDEAS FOR NEW PRODUCT
COMES ?

FROM>
• CUSTOMER’S SUGGESTIONS
• R & D DEPARTMENT
• FROM FEEDBACK OF EXISTING PRODUCT IN
MARKET

33
 Product design
• Design has a very great impact on the quality
of a product
• If the design is poor, it may not satisfy the
customers
• If the design is costly then the product will be
overpriced
• If the design process is lengthy, the competitor
may capture the market

34
 Product design
• “Product design is concerned with the determination
of what a product would look like, how it will be
made, what function the product will perform and
how it will perform”
• Product design is the process of creating a new
product to be sold by a business or enterprise to its
customers. It is concerned with the efficient and
effective generation and development of ideas
through a process that leads to new products

35
 Objectives of product design
1. To achieve the desired product quality
2. To reduce the cost of the product
3. To ensure the availability of the product
according to the needs of customer
4. To generate profit in the long run
5. To implement the idea of a new product

36
 Importance of the product design
• Product design is crucial for success in the
global competition
• It directly affects product quality, production
costs and customer satisfaction
• An appropriate design provides competitive
advantage to the manufacturer

37
 Importance of the product design
• It helps in bringing new ideas in the market
• It is a result of business strategy
• New products provide growth opportunities
and a competitive advantage for the firm
• It has close relationship with marketing,
finance and other functions
• It can be integrated with decisions regarding
process, quality, capacity, and inventory
38
 Steps for product design
1. Idea generation
2. Feasibility study
3. Form design
4. Functional design
5. Production design
6. Final design
7. Design review
8. Launching of product
39
 Process planning and process design

• Process: it is a sequence of activities which are

performed to achieve some result
– It converts input into output
• Process planning: it is the complete
description of specific stages of in the
production process
– It determines how a product will be produced or a
service will be provided

40
– Process planning is required mostly for the new
products and services
– Process planning is the base for designing factory
buildings, facility layouts and selecting production
equipment.
– It also affects the job design and quality control

41
 Process Design
• Process design includes choice of process and
technology, analysis of flows through
operations and the associated job design in
operations
• It is said to be effective only when it is able to
accommodate the product/service design

42
Factors affecting the process design decisions

1. Nature of demand
2. Degree of automation
3. Desired quality level
4. Flexibility
5. Degree of customer contact

43
 Types of process design
• Product – focused
• Process – focused
• Group technology

44
 Product - focused
• In this type of process design, products or
services flow along linear path. Items follow a
similar production sequence.
– E.g. assembly line, pipeline
– It is generally designed for three forms of production
• Discrete unit manufacturing
• Process manufacturing
• Delivery of service
– It has many advantages like high volumes of
production, low unit cost, and flexibility in planning
– But, such design requires huge investment because
the processing equipments are expensive
45
 Process - focused
• In process focused design, all the operations are
grouped according to the type of process
– The system is also known as ‘job-shop’ as the products
move from one department to other in small batches
which are determined by the customer’s order
– It is generally used to produce small quantities of
different items on general purpose machinery
• Such designs are more flexible, and also requires
less capital
• But, waiting time can be a problem if the system
operates on more than one process at a time

46
 Group Technology
• In group technology layout, different machines
are grouped into work centers to work on
products with similar processing requirements
• It is similar to both; product layout and
process layout because each cell is dedicated
to a limited range of products and designed to
perform specific set of process

47
 Process Selection
• It is a strategic decision for organizations
• It determines
– the quality and quantity of employees
– The amount of capital required for the production
• These decisions are generally capital intensive
and con not be changed easily
• Hence, process selection is a long term decision
• Process can be classified in two main categories:
– Product Flow
– Type of customer order

48
 Product Flow
• There are three types of product flow
– Line flow: it is defined as a linear sequence of
operations like an assembly line.
• The product moves from one step to another in a
sequential manner
• E.G. : automobiles, refrigerators, computers
– Batch Flow: it is the production of the product in
batches or lots
• Each batch of the product flows from one operations or
work center to another
• A work center is a group of similar machines

49
 Product Flow
– Project: it is used for unique or creative products.
• Project itself is fixed, material and labor are brought to
the project site
• Each unit is made individually and is different from
other units
• Cost of production is high and sometimes difficult to
control
• E.G. construction of building, Aircraft and ships

50
Type of customer order - two types
Made to Stock (MTS):
– The MTS process has a
standard product line
specified by the producer, not
by customer
• The products are carried in
inventory to fulfill
customer demand
• When the customer orders
a product, it is delivered if
product is available in the
inventory,
• If it is not available, a back
order is generated
Made to order (MTO):
– In MTO, the cycle of
production and order
fulfillment begins with the
customer order
• After receiving the order,
the design must be
completed
• The performance
measures of an MTO are:
time taken to complete
the order (Lead Time)
and percentage of orders
completed on time 51
 Process Selection

• The major considerations are: capacity, flexibility,

lead-time, and efficiency in using resources
• The selection of process becomes a complex decision
due to the existence of many trade-offs
• It is also influenced by the environment
• Therefore the attempt should be made to select a
process which has acceptable levels of flexibility and
cost

52
 Process Management

• “Process management is the application of

knowledge, skills, tools, techniques and
systems to define, visualize, measure, control,
report and improve processes with the goal to
meet customer requirements profitably”

53
 Significance/Importance of Process
Management
• It is the differentiator and source of competitive
advantage
• It helps in the evaluation of processes and their
analysis
• It helps in saving of important resources like money,
labor etc.
• It improves the efficiency and effectiveness of the
complete production system
• It helps in the identification and removal of
inefficiencies

54
 Major Process Decisions

• There are five major process decisions:

1. Process Choice
2. Vertical Integration
3. Resource flexibility
4. Customer involvement
5. Capital intensity

55
1. Process Choice: it helps in determining whether
the resources are organized around the products
so that the flow strategy can be implemented. It
depends on the volume of products and degree
of customization. Five major process types are:
– Job Shop Process: it is used when we need low
volume of high variety products
– Each job requires different processing requirements

56
 – A job shop uses a flexible flow strategy, with resources organized
around the product
– EG. Tools shop, Dye shop
– Batch Process: it is used when a moderate volume and
variety of goods are required
• In batch processing, same or similar products are repeatedly
provided
• E.G. Oil Paints, Soft Drinks
– Repetitive Process: this is used when higher volume
standardized goods are needed. It is also known as line
process
• It includes production lines or assembly lines for mass
production
• E.G. Automobiles, computers

57
– Continuous Process: it is used when the product is highly
standard and required in high volumes
• For such process type, capital is required at large scale
• It is operated round the clock for optimum utilization of resources
and equipments
• E.G. Cement, Paper, Petroleum products
– Project Process: each unit is individually made and is
different from other units
• It is used when the customer desires customization and
uniqueness
• E.G. construction of shopping mall, Production of large aircraft

58
 Resource Flexibility

• Flexibility is desired by the firm about its

resources
• The degree of flexibility depends upon the
competitive priorities of the firm
• It is useful when there are fluctuations in the
workload
• But it is advisable to have certain amount of
permanent resources

59
 Customer Involvement

• The level of customer interaction with the

process is known as customer involvement
• It promotes customization of the process
• It also helps in gaining the competitive
advantage over the competitors
• Firms are allowing customers to specify their
requirements and even to be involved in the
designing process of the product

60
 Capital Intensity

• The level of capital resources used in the

manufacturing like equipments and machines
is known as capital intensity
• It is important for increasing productivity and
quality
• But it also imposes a risk of higher investment
cost for low volume operations

61
 Stages of Design
Concept Generation
Screening
Preliminary Design
Evaluation & Improvement

Prototyping & final design

The concept The package The Process

62
 Systems Life Cycle

A summary of what needs to be

done.

63
 Identify problems with
existing data

Evaluate the new system Carry out a Feasibility Study

Maintain the new system Analyse the new system’s

requirements

Design the new system

Implement the new system

Produce Documentation for Build the new system

the users

Test the new system

64
 Objectives Of A System
Data is processed faster

Less paperwork
Lower Costs

Objectives
Fewer mistakes with
Better stock control
orders

Fewer staff needed to

process orders

65
 Costs Associated

Installation costs Equipment costs

Costs of a
system
Costs of
developing Operating costs
system
Personnel costs

66
 Design
Input – How the Data is Captured
– Decide where the data will come from
– Design the data capture forms
– Decide how the data needs to be structured
– Decide how the data will be input
– Design the input screen
– Decide how the data will be validated

67
Process – What Happens To It
– List the tasks that need to be done – based on
original problem and objectives
– Write the commands that enable them to be
done – e.g. exchanging data between different
applications
– Produce a plan to test if the processing works –
typical data, extreme data and invalid data

68
Output – Let it Out
– Decide which data needs to be output
– Decide how to present the information
– Decide which output devices to use
– Design output screen – should be sketched first
and shown to the user to check.

69
 Top Down – Main Tasks
• Looks at the whole system by identifying the
main tasks and then breaks them down into
smaller tasks.
• Reading from left to right tells you the order in
which they happen
• Shows what has to happen, but not how

70
 Testing
There are 2 types of testing
• Systems testing
– Tests to see if the design works.
– Test data is used – normal data (should work);
Invalid data (should be rejected)
• Acceptance Testing
– Does the system meet the needs of the user
– Often involves a trial

71
 User Documentation
Written to help people use the system. This can
consist of 3 guides
• Installation guide
– Installing the system and loading software
– Which peripherals required and how to install
• User guide
– How to perform tasks
• Tutorials
– Short training manual explaining how the system works

72
 Technical Documentation
• Written for computer engineers and
programmers who maintain the system after it
has been installed.
• Often full of technical language and systems
diagrams
• Gives advice on problems which may occur
and upgrading of the system

73
 Implementation
There are 3 different ways of implementing a
system:
• Direct – No change over. One begins as the
other finishes
– Advantages: Happens as quickly as possible
– Disadvantage: Disastrous effect if bugs not
found in testing

74
• Phased – Introduced in different parts
– Advantage: Time to fully test
– Disadvantage: Takes long time to introduce full
system
• Parallel – Run both systems together while
new one is tested
– Advantage: system can be tested quickly
– Disadvantage: Tasks need to be done twice

75
DFM with respect to Product Design
(Design For Manufacturability)

76
 Objective
• To design a product that can be easily,
efficiently, and cost effectively be
manufactured
• To reduce overall cost of a product – warranty,
engineering changes, factory floor space,
unnecessary parts, and service

77
 How
• Reduce the total • Avoid Separate
number of parts Fasteners
• Modular design • Minimize Assembly
• Standard components Directions
• Multi-functional parts • Maximize compliance
• Multi use parts • Minimize handling
• Ease of Fabrication

78
 Reduce the Total Number of Parts
• Designing a product with less parts means less
- Purchases - Assembly Difficulty
- Inventory - Service Inspection
- Handling - Testing
- Processing Time
- Development Time
- Equipment LEADS TO A CHEAPER
- Engineering Time PRODUCT

79
 Develop a Modular Design
• Using modules simplifies the manufacturing
process
• Allows for the use of standard components
• Allows for tests to be conducted prior to the
product being assembled

80
 Design Parts for Multi-use
• Using parts for the same or different
operations multiple times in a product
• Reduces the number of parts that need to be
developed
• Less machines - Less usage of factory floor
space

81
 Design for Ease of Fabrication
• Material Selection
• Avoid
– Post process operations (painting, polishing)
– Excessive tolerance requirements

82
 Avoid Separate Fasteners
• Fasteners reduce manufacturing efficiency
• Expensive due to operations required to
produce fasteners
• Instead use snap fits

83
 Minimize Assembly Directions
• Optimal assembly of a product occurs in one
direction
• Preferred direction is from above using gravity
to assist in the manufacturing process

84
 Maximize Compliance
• Errors in insertion due to positioning and
dimensional variability cause damage to parts
and to machinery
• Use tapers, chamfers and moderate radii to
ease insertion
• Example – utilization of a rigid base and tactile
and visual sensors in assembly

85
 Minimize Handling
• Positioning, orienting, and fixing a part are
time consuming and costly
• Use external guiding features to orient the
part
• Ideally the part should be placed one time

86
 Concurrent Engineering
• The process of designing the product and the
manufacturing process simultaneously to
increase the efficiency and reduce the time to
launch a product

87
Operations Technology and
Facility Location
Lesson : 4

88
 SELECTION OF TECHNOLOGY
• The first avenue is a method that has been
developed and applied to various vehicle
• concepts and is called Technology Impact
Forecasting (TIF). The latter method is the
• focus of this research and is the TIES method

• Technology Impact Forecasting (TIF)

89
 TIES method
• Technology (Technology Compatibility Matrix)
• Impact (System Impact of Technologies)
• Forecasting (Technology Forecasting)
• Technology (Technology Readiness)
• Identification
• Evaluation
• Selection

90
 facility planning at four levels
• Global (Site Location)
• Macro (Site Planning)
• Micro (Facility and Building Layout)
• Sub-micro (Workstation Design)

91
Facility Planning Matrix

92
 FACTORS AFFECTING LOCATION DECISIONS
Factors affecting Factors affecting Service Products
Manufactured Products
Location of Markets Purchasing power of customer drawing area.

Location of Materials Service and image compatibility with

demographics of the customer drawing area

Transportation Facilities Competition in the area.

Labour Supply Quality of the competition.
Location of other Plants and Uniqueness of the firm's and competitor's
Warehouses locations
Climate Physical qualities of facilities and neighboring
businesses
Governmental Controls and Operating policies of the firm
Regulations
Quality of management
93
 Capacity planning

• Capacity is the maximum output rate of a facility

• Capacity planning is the process of establishing the
output rate that can be achieved at a facility:
– Capacity is usually purchased in “chunks”
– Strategic issues: how much and when to spend
capital for additional facility & equipment
– Tactical issues: workforce & inventory levels, & day-
to-day use of equipment

94
 Measuring Capacity Examples

• There is no one best way to measure capacity

• Output measures like kegs per day are easier to understand
• With multiple products, inputs measures work better

Input Measures of Output Measures

Type of Business
Capacity of Capacity
Car manufacturer Labor hours Cars per shift
Hospital Available beds Patients per month
Pizza parlor Labor hours Pizzas per day
Floor space in
Retail store Revenue per foot
square feet

95
 Measuring Available Capacity

• Design capacity:
– Maximum output rate under ideal conditions
– A bakery can make 30 custom cakes per day when
pushed at holiday time
• Effective capacity:
– Maximum output rate under normal (realistic)
conditions
– On the average this bakery can make 20 custom cakes
per day

96
 Measuring Effectiveness of
Capacity Use
• Measures how much of the available capacity
is actually being used:
actual output rate
Utilizatio n  100%
capacity

– Measures effectiveness
– Use either effective or design capacity in
denominator

97
 Capacity Considerations

• The Best Operating Level is the output that results in the

lowest average unit cost
• Economies of Scale:
– Where the cost per unit of output drops as volume of output increases
– Spread the fixed costs of buildings & equipment over multiple units,
allow bulk purchasing & handling of material
• Diseconomies of Scale:
– Where the cost per unit rises as volume increases
– Often caused by congestion (overwhelming the process with too much
work-in-process) and scheduling complexity

98
 Best Operating Level and Size

• Alternative 1: Purchase one large facility, requiring one large

initial investment
• Alternative 2: Add capacity incrementally in smaller chunks as
needed
99
Other Capacity Considerations

• Focused factories:
– Small, specialized facilities with limited objectives
• Plant within a plant (PWP):
– Segmenting larger operations into smaller operating
units with focused objectives
• Subcontractor networks:
– Outsource non-core items to free up capacity for what
you do well

100
 Making Capacity Planning Decisions

The three-step procedure for making capacity

planning decisions is as follows:
1. Identify Capacity Requirements
2. Develop Capacity Alternatives
3. Evaluate Capacity Alternatives

101
 Identifying capacity requirements

• Forecasting Capacity:
– Long-term capacity requirements based on future demand
– Identifying future demand based on forecasting
– Forecasting, at this level, relies on qualitative forecast models
• Executive opinion
• Delphi method
– Forecast and capacity decision must included strategic implications
• Capacity cushions
– Plan to underutilize capacity to provide flexibility
• Strategic Implications
– How much capacity a competitor might have
– Potential for overcapacity in industry a possible hazard

102
 Developing & Evaluating Capacity
Alternatives

• Capacity alternatives include

– Could do nothing,
– expand large now (may included capacity
cushion), or
– expand small now with option to add later
• Use decision support aids to evaluate
decisions (decision tree most popular)

103
 Decision trees

Diagramming technique which uses

– Decision points – points in time when decisions are
made, squares called nodes
– Decision alternatives – branches of the tree off the
decision nodes
– Chance events – events that could affect a decision,
branches or arrows leaving circular chance nodes
– Outcomes – each possible alternative listed

104
 Location Analysis

Facility location is the process of identifying the

best geographic location for a service or
production facility

105
 Factors Affecting Location Decisions
• Proximity to source of supply:
– Reduce transportation costs of perishable or bulky raw
materials
• Proximity to customers:
– High population areas, close to JIT partners
• Proximity to labor:
– Local wage rates, attitude toward unions, availability of
special skills (silicon valley)

106
 More Location Factors

• Community considerations:
– Local community’s attitude toward the facility (prisons,
utility plants, etc.)
• Site considerations:
– Local zoning & taxes, access to utilities, etc.
• Quality-of-life issues:
– Climate, cultural attractions, commuting time, etc.
• Other considerations:
– Options for future expansion, local competition, etc.

107
 Capacity Planning and Facility Location
Across the Organization

• Capacity planning and location analysis

affect operations management and are
important to many others
– Finance provides input to finalize capacity
decisions
– Marketing impacted by the organizational
capacity and location to customers

108
 NEED FOR A FACILITY LOCATION PLANNING
• The cost or availability of labour, raw materials, and supporting
resources often change. These changes in resources may spur
the decision.
• As product markets change, the geographical region of demand
may shift. For example, many international companies find it
desirable to change facility location to provide better service to
customers.
• Companies may split, merge, or be acquired by new owners,
making facilities redundant.
• New products may be introduced, changing the requirement and
availability of resources.
• Political, economic and legal requirements may make it more
attractive to change location.
• Many companies are moving facilities to regions where
environment or labour laws are more favorable. 109
PLANT LAYOUT

Lesson :5

110
 Plant layout
• Meaning-
Plant layout is the physical arrangement of
industrial facilities. It involves the allocation of
space & the arrangement of equipment in
such a manner that overall operating costs are
minimized.

L L M M D D

D D
L L M M

L L M M
G G

L L G G
A A
A A G G 111
 Objectives of plant layout
• An efficient layout can be instrumental in the
accomplishment of the following objectives-
1. Economies in materials, facilitate manufacturing
process & handling of semi-finished & finished goods.
2. Proper & efficient utilization of available floor space.
3. To avoid congestion & bottlenecks.
4. Provision of better supervision & control of
operations.
5. To meet the quality & capacity requirements in the
most economical manner.

112
 Principles of plant layout
1. Principle of integration (of 5M’s)
2. Principle of minimum distance
3. Principle of cubic space utilization( both
horizontal & vertical space).
4. Principle of flow( must be forward no
backtracking)
5. Principle of maximum flexibility
6. Principle of safety, security & satisfaction
7. Principle of minimum handling.
113
 Types of plant layout
1. Product layout
2. Process layout
3. Fixed Position/ Stationary layout
Product layout-
– Layout that uses standardized processing
operations to achieve smooth, rapid, high-volume
flow
– Here machines are arranged acc. To the needs of
product & in the same sequence as the
operations are necessary for manufacture.

114
 Product Layout

Raw Finished
Station Station Station Station
materials 1 2 3 4 item
or customer
Material Material Material Material

and/or and/or and/or and/or

labor labor labor labor

Used for Repetitive or Continuous Processing

115
 Advantages of Product Layout

1. High rate of output

2. Low unit cost
3. Labor specialization
4. Low material handling cost
5. High utilization of labor and equipment
6. Established routing and scheduling
7. Short processing time

116
 Disadvantages of Product Layout

1. Creates dull, repetitive jobs

2. Poorly skilled workers may not maintain
equipment or quality of output
3. Fairly inflexible to changes in volume
4. Highly susceptible to shutdowns
5. Needs preventive maintenance
6. Require large capital investment

117
 A U-Shaped Production Line

In 1 2 3 4

Workers

Out 10 9 8 7

118
Process layout-

– Layout that can handle varied processing requirements

– Here all machines performing similar type of operations
are grouped together at one location in the process
layout. Thus here facilities are grouped together acc. To
their functions. E.g. all drilling machines are located at
one place known as drilling section.

119
 Process Layout

Milling

Assembly
Grinding
& Test

Drilling Plating
Process Layout - work travels
to dedicated process centers

120
 Advantages of Process Layouts

1. Can handle a variety of processing requirements

2. Machines breakdown doesn’t result in
shutdown.
3. Equipment used is less costly
4. Wide flexibility in production facilities.
5. Each production unit of system works
independently.
6. High utilization of facilities
7. Variety makes the job interesting.

121
 Disadvantages of Process Layouts

1. In-process inventory costs can be high

2. Challenging routing and scheduling
3. Equipment utilization rates are low
4. Material handling is slow and inefficient
& is more.
5. More space is required
6. Longer processing time
7. Back tracking may occur.

122
 Comparison of product & process layout

factors Product layout Process layout

1. nature Sequence of facilities Similar work are
grouped together
2. Machines utilization Not to full capacity Better utilization
3. product standardized diversified
4. Processing time less more
5. Material handling less more
6. inventory High WIP Low WIP
7. breakdown Can’t tolerate Can tolerate
8. Production centre simple complex
9.flexibilty low high
10. floor space
Fixed position layout- Layout in which the product or
project remains stationary, and workers, materials,
and equipment are moved as needed. E.g.
• Employed in large project type organisation
• construction of DAMS.
• ISRO
• Helicopter
• Nuclear engg. Division of BHEL

The product, because of its size and/or weight,

remains in one location and processes are brought
to it.
124
 Factors affecting plant layout
1. Nature of product- e.g. some products need air-
conditioned plants.
2. Size of output-
• For bulk-product/line layout
• For small-functional layout
3. Nature of manufacturing system-
• For intermittent-functional layout
• For continuous-product/line layout
4. Localization of plant- e.g. there will be different
transportation arrangement if site is located near railway
line.
5. Machines or equipment- e.g. heavy machines need
stationary layout
6. Climatic conditions, need of light, temperature also affect
design of layout.
125
PRODUCTION PLANNING AND
CONTROL –
LESSON 6

ERP & MRP-II Overview

Lesson :7

126
 The Concept
• Planning: consideration of all input variables to
achieve predetermined output goals; a pre-
production activity to determine optimal
production schedule, operation sequence,
economic batch quantity, etc.
• Control: remedial action to prevent variance of
output from planned levels; tracking
operations to ensure compliance with planned
levels
127
 Production Planning Stages
• Defining objectives
• Setting priorities to attain objectives
• Examining internal & external environments of
planned system
• Determining achievable targets
• Determining inputs needed to achieve targets

128
 Objectives
• Effectiveness: goods to fulfill customers’ needs
• Maximising output: maximum output with minimum input
• Quality control: Product/service quality meets planned
quality specifications
• Minimise throughput time: conversion of RM to FG in
minimum time
• Capacity: full utilisation of men & machines
• Minimise cost: minimum cost of production
• Maintaining inventory: optimal inventory
• Flexibility: flexibility in production operations
• Coordination: between men & machines

129
 Functions of Production Planning
• Product selection & design
• Process selection & planning
• Facility location
• Facility layout & materials handling
• Capacity planning
• Systems & procedures
• Estimating quantity/costs of production, men
• Routing operation sequence
• Job scheduling & loading
130
 Functions of Production Control
• Inventory control: MRP; JIT
• Time management
• Quality control
• Maintenance & Replacement
• Cost reduction & cost control
• Dispatch
• Expediting/Follow-up/Progressing

131
Scope of Production Planning & Control

• Material: RM, components, spares; right

quantity; right time
• Methods
• Machines & equipments
• Manpower
• Routing
• Estimating
• Loading & scheduling
132
 Scope of Production Planning & Control
(continued)
• Dispatching
• Expediting
• Inspection
• Evaluating
• Cost control

133
Phases in Production Planning & Control System
• Planning: Pre-planning – product planning &
development; demand forecasting; resource
planning; facilities planning; plant location & layout
Active planning – quantity planning; product mix;
routing; scheduling; material planning; process
planning; capacity planning; tool planning
• Action phase: execution – dispatching; progress
function
• Control phase; status reporting; material control;
tool control; inventory control; quality control;
labour output control; cost control
134
Benefits of Production Planning & Control

• Higher quality
• Better resource utilization
• Reduced inventory
• Reduced manufacturing cycle time
• Faster delivery
• Better customer services
• Lower production costs

135
Limitations of Production Planning & Control

• Based on assumptions
• Resistance to change
• Time consuming
• Difficult due to rapid environment changes

136
 Measuring Effectiveness of Production
Planning & Control
• Delivery
• Inventory levels
• Production/Operations Management

137
 Requirements for Effective Production
Planning & Control
• Sound organizational structure
• Delegation of authority
• Reliable, up-to-date feedback
• Standardisation
• Trained people
• Flexibility to adapt
• Appropriate management policies
• Accurate assessment of manufacturing/procurement lead
times
• Adequate plant capacity
138
 Techniques
• Planning & Control of Reserves; deterministic/non-
deterministic systems
• Network analysis:
PERT – Project Evaluation & Review Technique
CPM – Critical Path Method
• Reliability Theory: probability
Series structure – 1 2
Parallel structure – 1
2
139
 Master Production Schedule
The specific schedule of individual products and models
that is derived from the aggregate production plan
• It is a list of the products to be manufactured, when
they should be completed and delivered, and in what
quantities
• Master production schedule includes three categories
of items:
1. Firm customer orders
2. Forecasted demand
3. Spare parts

140
 Master Production Schedule

Specific schedule of individual products, quantities

and times
141
 Material Requirements Planning (MRP)

Computational technique that converts the master

production schedule for end products into a detailed
schedule for the raw materials and components used
in the end products
• Useful for dependent demand items, not independent
demand items
– Independent demand items
• Final products and spare parts
– Dependent demand items
• Component parts used in final products

142
Structure of an MRP System

143
 Inputs to the MRP System
1. Master production schedule
– Expressed in terms of time buckets
2. Bill of materials file – product structure and list of
component parts in each product
3. Inventory record file (item master file) – includes:
– Item master data – part number, order quantities, lead
times
– Inventory status – time-phased record of inventory
status
– Subsidiary data – purchase orders, engineering changes

144
Inventory Record File

145
 Complicating Factors in MRP
• Net requirements = gross requirements less on-hand
inventories and less quantities on order
• Common use items – raw materials and components
used on more than one product
• Lead times – scheduled delivery of end products must
be translated into time-phased requirements of
components and materials by factoring in lead times
– Ordering lead times – time between purchase requisition
and receipt from vendor
– Manufacturing lead times – time between order release
and completion

146
 MRP Outputs
1. Planned order releases
– Purchase orders – to buy raw materials and parts
– Work orders – to make parts and products
2. Report of planned order releases in future periods
3. Rescheduling notices
4. Cancellation notices
5. Inventory status reports
6. Performance reports
7. Exception reports
8. Inventory forecasts
147
 MRP Benefits Reported by Users
1. Reduction in inventory
2. Quicker response to changes in demand
3. Reduced setup and changeover costs
4. Better machine utilization
5. Improved capacity to respond to changes in
master production schedule
6. Aid in developing the master schedule

148
 Why Some MRP Systems
Do Not Succeed
1. Application was not appropriate
– Usually because product structure did not fit data
requirements of MRP
2. MRP computations based on inaccurate data
3. Master production schedule was not coupled
with capacity planning
– MRP generated an unrealistic schedule of work
orders that overloaded the factory

149
 Capacity Planning
Concerned with determining labor and equipment
resources required to meet the current master
schedule as well as long-term future production needs
of the firm
• Also serves to identify the limitations of the available
production resources so that an unrealistic master
schedule is not planned
• Accomplished in two stages:
1. Rough-cut capacity planning – to assess feasibility of master
production schedule
2. Capacity requirements planning – detailed capacity
calculation for individual departments and work cells
150
Two Stages of Capacity Planning

151
Short Term Capacity Adjustments Long Term Capacity Adjustments
• Employment levels – hiring vs. • New equipment investments
layoffs • New plant construction
• Temporary workers • Purchase of existing plants
• Number of work shifts per from other companies
period • Acquisition of existing
• Labor hours per shift – companies
overtime or reduced hours • Plant closings
• Inventory stockpiling – to
smooth production and
maintain steady employment
• Order backlogs
• Subcontracting – letting jobs
during busy periods, taking in
work during slack periods
152
 Shop Floor Control
Concerned with releasing production orders to the
factory, monitoring and controlling the progress of the
orders through the plant, and acquiring current
information on the status of the orders
• Manufacturing execution system (MES) - the computer
software that supports shop floor control
– Typically includes capability to respond to on-line inquiries
about the status of orders in the shop
– Other MES functions may include generation of process
instructions, real-time inventory control, and labor tracking

153
Three Phases in Shop Floor Control

154
Three Phases of Shop Floor Control
1. Order release
2. Order scheduling
3. Order progress

155
 Order Release
Provides documentation to process a production
order through the factory
• Documentation (shop packet):
– Route sheet – process plan
– Material requisitions – to draw raw materials from
inventory
– Job cards - to report direct labor hours expended on
order and track progress of order
– Move tickets - to authorize transport of parts
between work centers
– Parts list (if assembly)

156
 Order Scheduling

Assigns production orders to work centers in the plant

• Executes the dispatching function in production
planning and control
• Solves two problems in production control:
1. Machine loading – allocating orders to work centers
• Shop loading – loading all machines in the plant
2. Job sequencing – determining the sequence in which
orders will be processed through each work center

157
 Order Progress
Monitors the status of the orders in the plant, WIP,
and other parameters that indicate production
progress and performance
• Purpose is to provide information useful to manage
the factory based on data collected from the factory
• Reports generated by order progress module:
– Work order status reports – whether orders are on
schedule or behind
– Progress reports – number of orders completed vs.
number that should have been completed
– Exception reports – overdue jobs, other exceptions

158
 Factory Data Collection System

Consists of the various paper documents, terminals,

and automated devices throughout plant for
collecting data on shop floor operations
• Includes methods to compile and process the data
• Functions of factory data collection system:
1. To supply status and performance data to the shop floor
control system
2. To provide current information to production foremen,
plant management, and production control personnel

159
 Types of Data Collected
• Direct labor time on each order
• Parts scrapped or needing rework
• Piece counts completed at each work center
• Equipment utilization and downtime
• Time clocks for employees

160
 Manual (Clerical)
Data Input Techniques

Production workers read and fill out paper forms

indicating order progress data - examples:
– Job traveler – workers must record their time spent,
piece counts, rejects, etc., onto log sheet that travels
with shop packet
– Employee time sheets – workers fill out daily time
sheet indicating orders worked on, pieces completed
– Operation tear strips – preprinted sheets that can be
separated from shop packet, filled out, and turned in
– Prepunched cards – similar to tear strips

161
 Automated and Semi-Automated
Data Collection Systems

• Hardware and technology includes:

– Specialized keypads or conventional keyboards
– Optical bar code readers
– Other AIDC systems
• Configurations:
– One centralized terminal
– Satellite terminals
– Workstation terminals

162
 Inventory Control
• Concerned with achieving an appropriate
compromise between two opposing objectives:
1. Minimizing the cost of holding inventory
• Implies keeping inventory to a minimum
2. Maximizing customer service
• Implies keeping large stocks on hand so the customer
can immediately take possession

163
 Costs of Holding Inventory
1. Investment costs
– Cost of money tied up in inventory until the customer
pays for the finished product
2. Storage costs
– Cost of space to store the inventory
3. Cost of possible obsolescence or spoilage
– Reduction in value of inventory when it cannot be used
• Collectively, these costs are referred to as carrying
costs or holding costs
164
 Order Point Inventory Systems
• Concerned with two related problems that
must be solved when managing inventories of
independent demand items:
1. How many units should be ordered?
• Often solved by using economic order quantity
formulas
2. When should the order be placed?
• Can be solved using reorder point methods

165
Inventory Model in Make-To-Stock

Inventory level over time in a typical make-to-

stock situation
166
 Economic Order Quantity Formula
• Situations when EOQ formula is appropriate:
1. Demand rate for the item is fairly constant
2. Rate of production is significantly greater than the
demand rate

167
 EOQ Formula
• By taking the derivative of TIC with respect to Q
and setting the derivative equal to zero, the
minimum cost order quantity can be
determined 2 Da Csu
Q  EOQ 
Ch

168
 Reorder Point Systems
• The actual demand rate for the item is not
constant throughout the order cycle
• The time to reorder occurs when the actual
inventory level falls below a point known as the
reorder point

169
Operation of Reorder Point System

When inventory level reaches the reorder point, the next

order for quantity Q is placed
170
 Extensions of MRP
• Manufacturing resource planning (MRP II)
• Enterprise resource planning (ERP)

171
 Manufacturing Resource Planning (MRP II)

Computer-based system for planning, scheduling, and

controlling the materials, resources, and supporting
activities needed to meet the master production schedule
• Typical modules in MRP II:
– Management planning – aggregate production planning,
master production scheduling
– Customer service – sales forecasting, order entry, finished
goods inventory
– Operations planning – MRP enhanced with capacity
requirements planning
– Operations execution – purchasing, production scheduling and
control, shop floor control

172
Enterprise Resource Planning (ERP)
Defined as a computer software system that organizes and
integrates all of the data and business functions of an
organization through a single, central database
• The functions include:
Sales Marketing Purchasing
OperationsLogistics Distribution
Inventory control Accounting Finance
Human resources
• ERP runs as a client-server system - users access the system
through their PCs
• ERP operates company-wide, not just plant-based

173
 ERP Uses a Single Database
• Avoids problems such as
– Data redundancy or conflicting data in different
databases
– Time delays in entering the data
– Communication issues between different databases
• Everyone in the organization has access to the
same sets of data according to their individual job
responsibilities
– Not all of the data can be accessed by all employees

174
 ERP Systems Include
Multiple Software Modules
• Each module is focused on a different business
function or group of functions
• Modules are integrated through the ERP framework
• Modules can be classified into four main groups
1. Production and materials management - MRP II, master
production scheduling, process planning
2. Sales and marketing - order input, customer service,
delivery, invoicing, product returns
3. Finance and accounting - budgeting, cost control, asset
management, accounts payable
4. Human resources - payroll, benefits, training, job
descriptions, employee personal data
175
INTRODUCTION TO MATERIALS
MANAGEMENT
Lesson : 8

176
 Materials Management Definition
Materials Management can be said to be
that process of management which
coordinates, supervises and executes the
tasks associated with the flow of materials
to, through, and out of an organisation in
an integrated fashion.
This approach follows the progressive
production-distribution system from its
conception stage to final embodiment (a
tangible or visible form of an idea) into a
product, when it is finally delivered for
end-use. 177
 Objectives of Materials
Management
1. Regular uninterrupted supply of raw-materials
to ensure continuity of production.
2. By providing economy in purchasing and
minimising waste. It leads to higher productivity.
3. To minimise storage and stock control costs.
4. To purchase items of optimum/ useable
Quality at the competitive price.
5. To help minimise cost of production to
achieve breakeven and profits as a whole.

178
 Stages of Materials
Management
• Decision Stage
• Sourcing Stage
• Production Planning Stage
• Stage of Ordering
• Receiving Stage
• Inventory Control
Inventory Control system as a part of Materials
Management must have the appropriate
procedures, documentation, information and
organisational structure to support it.
179
INVENTORY CONTROL

LESSON : 9

180
 Inventory means…

All the materials , parts, suppliers, expenses

and in process or finished products recorded
on the books by an organization and kept in its
stocks, warehouses or plant for some period
of time.

181
Definition of inventory control

Inventory control is the technique of

maintaining the size of the inventory at some
desired level keeping in view the best
economic interest of an organization.

182
Type of Inventory Reason for holding the Inventory
(1) Raw materials

To reap the price advantage

available on seasonal raw
materials.

(2) Work in progress To balance the production flow.

(3) Ready made components When the components are bought rather
than made.
(4) Scraps They are disposal of in bulk.

(5) Finished Goods Lying in stock rooms and waiting

dispatches
183
 Objectives of inventory control

• Protection against fluctuations in demand;

• Better use of men, machines and material;
• Protection against fluctuations in output;
• Control of stock volume;
• Control of stock distribution.

184
 Major activities of inventory control
• Planning the inventories;
• Procurement of inventories;
• Receiving and inspection of inventories;
• Storing and issuing the inventories;
• Recording the receipt and issues of inventories.
• Physical verification of inventories;
• Follow-up function ;
• Material standardization and substitution.

185
 Inventory Decisions
Executive decide two basic issues while dealing with inventories;
(a) How much of an item to order when the inventory of that item is to be
replenished.
(b) When to replenish the inventory of that item.
By definition, inventory facilitate production or satisfy customer demands.
Inventory system is a set of policies and controls which monitors and determines the
levels of inventory. Inventory conventionally include raw materials, work-in-progress,
components parts, supplies and finished goods. Operations is a transformation
process in which the inputs are raw materials and output is the finished goods.

Suppliers Raw materials Finished good customers.

Production
Work-in-progress

186
 Steps in Inventory control
• Deciding the maximum- minimum limits of
inventory;
• Determination of Reorder point;
• Determination of reorder quantity;
• Perpetual inventory control;
• ABC analysis;
• Method of control through turn over.

187
 Maximum stock level
• Quantity of inventory above which should not be
allowed to be kept. This quantity is fixed keeping in view
the disadvantages of overstocking;
Factors to be considered:
• Amount of capital available.
• Godown space available.
• Possibility of loss.
• Cost of maintaining stores;
• Likely fluctuation in prices;
• Seasonal nature of supply of material;
• Restriction imposed by Govt.;
• Possibility of change in fashion and habit. 188
 Minimum stock level
• This represents the quantity below which
stocks should not be allowed to fall .
• The level is fixed for all items of stores and the
following factors are taken into account:
1.Lead time-
2. Rate of consumption of the material during
the lead time.

189
 Re-ordering level
• It is the point at which if stock of the material
in store approaches, the store keeper should
initiate the purchase requisition for fresh
supply of material.
• This level is fixed some where between
maximum and minimum level.

190
 Economic Order Quantity
• It is also known as standard order quantity ,
optimum quantity or economic lot size.
• By definition economic order quantity that
size of order for which the total cost is
minimum.

191
 Computation of EOQ
• The widely used formula is

EOQ =√{2RCp/Ch}
Where ,
R= Annual quantity to be used in units.
Cp=Cost of placing an Order.
Ch= cost of holding one unit for one year.

192
 Perpetual Inventory System

It is a method of recording stores balances

after every receipt and issue, to facilitate
regular checking and obviate closing down for
stock taking.
-Wheldon

193
 Factors which help helpful to make system
successful
• Stores ledger, stores control, cards or bin cards
are properly maintained ;
• Quantity balance store shown in the store
ledger; stock control and bin cards are
reconciled;
• Exploring the cause of discrepancies if any
physical balances and book balances.

194
 Inventory Turnover method

It means how many times a company’s inventory

is sold and replaced (finished product)

195
 Continued …..
Inventory ratio (Raw material)-

The value of material consumed during a period

Average value of inventory during that period

High ratio = fast moving stock

196
 Definition
Material mgt is concerned with planning, organizing
and controlling the flow of materials from their initial
purchase through internal operations to the service
point through distribution.
OR

Material management is a scientific technique,

concerned with Planning, Organizing &Control of flow of
materials, from their initial purchase to destination.

197
 Objective of material management
Primary Secondary
AIM OF MATERIAL
MANAGEMENT Right price Forecasting

To get High turnover Inter-departmental harmony

1. The Right quality Low procurement & storage Product improvement

cost
2. Right quantity of
supplies Continuity of supply Standardization

3. At the Right time Consistency in quality Make or buy decision

4. At the Right place Good supplier relations New materials & products

5. For the Right cost

Development of personnel Favorable reciprocal
relationships
Good information system
198
 Four basic needs of Material management
1. To have adequate materials on hand when needed
2. To pay the lowest possible prices, consistent with
quality and value requirement for purchases materials
3. To minimize the inventory investment
4. To operate efficiently

199
Elements of material management
1. Demand estimation
2. Identify the needed items
3. Calculate from the trends in Consumption during last 2 years.
4. Review with resource constraints

200
Functional areas of material management
1. Purchasing

2. Central service supply

3. Central stores
4. The print shops
5. The pharmacy
6. Dietary
& Linen services

201
Points to remember while purchasing
•Proper specification
•Invite quotations from reputed firms
•Comparison of offers based on basic price, freight & insurance, taxes and
levies
•Quantity & payment discounts
•Payment terms
•Delivery period, guarantee
•Vendor reputation
(reliability, technical capabilities, Convenience, Availability, after-sales
service, sales assistance)
•Short listing for better negotiation terms
•Seek order acknowledgement
202
Storage
•Store must be of adequate space
•Materials must be stored in an appropriate place
• in a correct way
•Group wise & alphabetical arrangement helps in
•identification & retrieval
•First-in, first-out principle to be followed
•Monitor expiry date
•Follow two bin or double shelf system, to avoid
•Stock outs
•Reserve bin should contain stock that will cover
•lead time and a small safety stock
Issue & use
Can be centralized or decentralized
203
 ABC ANALYSIS
(ABC = Always Better Control)
This is based on cost criteria.
It helps to exercise selective control when
confronted with large number of items it
rationalizes the number of orders, number of items
& reduce the inventory.
About 10 % of materials consume 70 % of resources
About 20 % of materials consume 20 % of resources
About 70 % of materials consume 10 % of resources

204
 ‘A’ ITEMS
Small in number, but consume large
amount of resources
Must have:
• Tight control
• Rigid estimate of requirements
• Strict & closer watch
• Low safety stocks
• Managed by top management
205
 ‘B’ ITEM
Intermediate
Must have:
• Moderate control
• Purchase based on rigid requirements
• Reasonably strict watch & control
• Moderate safety stocks
• Managed by middle level management

206
 ‘C’ ITEMS
Larger in number, but consume lesser
amount of resources
Must have:
• Ordinary control measures
• Purchase based on usage estimates
• High safety stocks 
ABC analysis does not stress on items
those are less costly but may be vital

207
 VED ANALYSIS
•Based on critical value & shortage cost of an item
– It is a subjective analysis.
• Items are classified into:
Vital:
• Shortage cannot be tolerated.
Essential:
• Shortage can be tolerated for a short period.
Desirable:
 Shortage will not adversely affect, but may be using more resources.
These must be strictly Scrutinized

  V E D   ITEM COST

A AV AE AD CATEGORY 1 10 70%

B BV BE BD CATEGORY 2 20 20%

C CV CE CD CATEGORY 3 70 10%

CATEGORY 1 - NEEDS CLOSE MONITORING & CONTROL

CATEGORY 2 - MODERATE CONTROL.
CATEGORY 3 - NO NEED FOR CONTROL
208
SDE ANALYIS
Based on availability
Scarce
Managed by top level management
Maintain big safety stocks
Difficult
Maintain sufficient safety stocks
Easily available
Minimum safety stocks
FSN ANALYSIS
Based on utilization.
Fast moving.
Slow moving.
Non-moving.
Non-moving items must be periodically reviewed to prevent expiry
& obsolescence
HML ANALYSIS
Based on cost per unit
Highest
Medium
Low
This is used to keep control over consumption
at departmental level for deciding the frequency of physical verification. 209
 Material management is an important management tool
which will be very useful in getting the right quality &
right quantity of supplies at right time, having good
inventory control & adopting sound methods of
condemnation & disposal will improve the efficiency of
the organization & also make the working atmosphere
healthy any type of organization, whether it is Private,
Government ,Small organization, Big organization and
Household.

Even a common man must know the basics of material

management so that he can get the best of the available
resources and make it a habit to adopt the principles of
material management in all our daily activities
210
TOTAL QUALITY MANAGEMENT

Lesson :10

211
 Definition:
Total Quality Management
• Total Quality Management (TQ, QM or TQM) and
Six Sigma (6) are sweeping “culture change”
efforts to position a company for greater customer
satisfaction, profitability and competitiveness.
• TQ may be defined as managing the entire
organization so that it excels on all dimensions of
products and services that are important to the
customer.
• We often think of features when we think of the
quality of a product or service; TQ is about
conformance quality, not features.
212
 Total Quality Is…
• Meeting Our Customer’s Requirements

• Doing Things Right the First Time; Freedom from

Failure (Defects)

• Consistency (Reduction in Variation)

• Continuous Improvement

• Quality in Everything We Do

213
 A Quality Management System Is…

• A belief in the employee’s ability to solve problems

• A belief that people doing the work are best able

to improve it

• A belief that everyone is responsible for quality

214
 Elements for Success
• Management Support
• Mission Statement
• Proper Planning
• Customer and Bottom Line Focus
• Measurement
• Empowerment
• Teamwork/Effective Meetings
• Continuous Process Improvement
• Dedicated Resources

215
The Continuous Improvement Process
Measurement

Empowerment/
Shared Leadership

Measurement
Measurement

Customer
Satisfaction

Business
Results Process
Team Improvement/
Management
Problem
Solving

...
Measurement
216
 What is Six Sigma?
• A goal of near perfection in meeting customer
requirements
• A sweeping culture change effort to position a company for
greater customer satisfaction, profitability and
competitiveness
• A comprehensive and flexible system for achieving,
sustaining and maximizing business success; uniquely driven
by close understanding of customer needs, disciplined use of
facts, data, and statistical analysis, and diligent attention to
managing, improving and reinventing business processes

(Source:The Six Sigma Way by Pande, Neuman and Cavanagh)

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 Is 99% Quality Good Enough?

• 22,000 checks will be deducted from the

wrong bank accounts in the next 60
minutes.

• 20,000 incorrect drug prescriptions will be

written in the next 12 months.

• 12 babies will be given to the wrong

parents each day.

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 Six Sigma Quality
The objective of Six Sigma quality is 3.4 defects per
million opportunities!

(Number of Standard Deviations) 3 Sigma 4 Sigma 5 Sigma 6 Sigma

0.0 2700 63 0.57 0.002
0.5 6440 236 3.4 0.019
1.0 22832 1350 32 0.019
1.5 66803 6200 233 3.4
2.0 158,700 22800 1300 32

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 But is Six Sigma Realistic?
· IRS – Tax Advice (phone-in)

·
Defects Per Million Opportunities (DPMO)

100K (66810 ppm)

····
Restaurant Bills
Doctor Prescription Writing
10K
41 Payroll Processing

···
Order Write-up
Average Journal Vouchers
Company Wire Transfers
1K
31 Air Line Baggage Handling

·
Purchased Material
Lot Reject Rate
100
21 (233 ppm)

10
11

Best in Class Domestic Airline

1 Flight Fatality Rate
1
(3.4 ppm)
2 3 3 4 4 5 5 6 6 7
(0.43 ppm) 7
SIGMA 220
 Six Sigma Improvement Methods
DMAIC vs. DMADV

Define

Measure

Analyze

Continuous Improvement Reengineering

Improve Design

Control Validate

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 Six Sigma DMAIC Process

Control Define: Define who your customers

are, and what their requirements are
for your products and services – Their
Improve expectations. Define your team goals,
project boundaries, what you will focus
on and what you won’t. Define the
Define process you are striving to improve by
mapping the process.
Analyze

Measure

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 Six Sigma DMAIC Process
Measure: Eliminate guesswork and
assumptions about what customers need
Control and expect and how well processes are
working. Collect data from many sources
to determine speed in responding to
Improve customer requests, defect types and how
frequently they occur, client feedback on
how processes fit their needs, how clients
Define rate us over time, etc. The data collection
may suggest Charter revision.
Analyze

Measure

223
 Six Sigma DMAIC Process
Analyze: Grounded in the context of the
Control customer and competitive environment,
analyze is used to organize data and look
for process problems and opportunities.
Improve This step helps to identify gaps between
current and goal performance, prioritize
opportunities to improve, identify sources
Define of variation and root causes of problems
in the process.
Analyze

Measure

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 Six Sigma DMAIC Process

Control

Improve: Generate both obvious and

Improve creative solutions to fix and prevent
problems. Finding creative solutions by
correcting root causes requires
Define innovation, technology and discipline.

Analyze

Measure

225
 Six Sigma DMADV Process
Design: Develop detailed design
Validate for new process. Determine and
evaluate enabling elements.
Create control and testing plan for
Design
new design. Use tools such as
simulation, benchmarking, DOE,
Define Quality Function Deployment
(QFD), FMECA analysis, and
cost/benefit analysis.
Analyze

Measure

226
 Six Sigma DMADV Process

Validate
Validate: Test detailed design
with a pilot implementation. If
Design successful, develop and execute a
full-scale implementation. Tools
in this step include: planning
Define tools, flowcharts/other process
management techniques, and
Analyze work documentation.

Measure

227
Concept of ISO
Relation with Quality Control

CONCEPT OF ISO

228
 Formulated by International Standards Organization
(founded in 1946 in Geneva, Switzerland).
 The first standards were issued in 1987.
 The current version of the standard is known as the
ISO 9000 series.
 The three standards of ISO 9000 are:
 ISO 9000:2000 Quality. Management System-
Fundamentals and Vocabulary
 ISO 9001:2000 Quality Management System-
Requirements
 ISO 9004:2000 Quality Management System-Guidelines for
Performance Improvement

229
• ISO:9000 series standards call for integration of all activities
which have a direct or indirect effect on the quality of a
product or services.
• It defines the basic concepts and specifies the procedure and
criteria to ensure that the outgoing product meets the
customer’s requirements.
• The quality standards are designed to be user-friendly.
• There is no compulsion to get ISO:9000 certification.
• ISO:9000 series standards tells the suppliers and
manufactures what is required of quality oriented working
system.

230
• Management
• Responsibility
• Quality system
• Contract Review
• Design Control
• Document Control
• Purchasing
• Purchaser’s Supplied Products
• Product Identification and Traceability
• Process Control
• Inspection and testing
• Inspection 231
• Measuring and Testing Department
• Inspection and Test Status
• Non-Conformity Control
• Corrective Actions
• Handling
• Storage
• Packing and Delivery
• Quality Records
• Internal Quality audits
• Training
• Services and Statistical techniques

232
 Benefits of ISO:9000
It is internationally accepted series of quality
standards.

It helps in achieving consistency, economy and cost

effectiveness.

It increases customers confidence.

It reduces the need for inspection by the buyers.

The ISO certification by a company is a source of

motivation.
233
 Drawbacks of ISO:9000

It adds cost but not value

It causes over certification
It needs lot of internal
audits
It increases involvement
of Government
It is not foolproof or hall
mark of quality
234
 CONCEPTOF QUALITYCONTROL
• Refers to the process of striving to
produce a perfect product.
• Requires a series of measures requiring
an
organized effort.
• Prevent or eliminate errors at every stage
in the production.

235
 Quality Management Principles of
ISO:9000

• •Customer Focus
• •Leadership - A Commitment To Quality By
The Leaders Of The Organization.
• •Involvement Of People - Everyone In The
Organization Having A Part To Play.
• •Making Sure That Those Processes
Which Create Quality Are Identified.
• •Continual Improvement Of The System.
236
Pursuit of excellence through constant,
never ending improvement by all the
employees in an organization.

237
Links between ISO:9000 and TQM
 In the context of philosophy of TQM,
International Organization for Standards
(ISO) has made a comprehensive
and integrated approach to achieve TQM.
 ISO:9000 series lay down guidelines, codes,
standards and specifications to evolve TQM
system, necessary to manufacture quality
products ensuring cost effectiveness and
customer satisfaction
238
Links between ISO:9000 and TQM
 ISO system is thus a component of TQM
aiming at continuous improvement.
 International Organization for Standards
(ISO) has published a series of standardized
documents called ISO-9000 series in the year
1987.
 ISO-9000 Standards on quality provide a
sound basis for TQM.
 Strict compliance with ISO leads to TQM.
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