CHAPTER 1

OPERATIONS
MANAGEMENT

1
 Introduction
 Operations system:The part of an organization
that produces the organization’s physical goods or
services
Variation:
Random,Assignable

Adjustments
Monitor
Inputs (4Ms) Needed? Output
•Man Conversion Outputs
•Material Process •Goods
•Machine (Value Adding) •Services
•Method

Comparison:
•Measurement Actual vs desired
•Money (Capital)
2
 HISTORICAL OUTLINE
 Historical development of Operations Management
1776 Specialisation of Labor in manufacturing Adam Smith
1832 Division of Labor by skill, assignment of Charles Babbage
jobs by skill
1900 Scientific management Frederick W
Taylor
1900 Motion study of jobs Frank B Gilbreth
1901 Scheduling of jobs, machines Henry L. Gantt
1915 Economic lot sizes for inventory control F.W.Harris
1927 Human relations: Hawthorne studies Elton Mayo

3
 HISTORICAL OUTLINE
 Historical development of Operations Management

1931 Statistical Quality Control W.A.Shewart

1935 Inspection sampling plans H.F.Dodge and
H.G.Romig
1940 Operations Research P.M.S Blacket and
others
1946 Digital computer John Mauchly and
J.P.Eckert
1947 Linear programming Dantzig, Orchard-
Hays and others
1950 Mathematical programming, non linear Charnes, cooper,
and stochastic processes raiffa and others
1951 Commercial digital computer Univac

4
 HISTORICAL OUTLINE
 Historical development of Operations Management

1960 Organizational behavior Cummings, Porter and

others
1970 Integrating operations into overall Skinner, Orlicky and
strategy, computer applications to Wright
manufacturing, MRP
1980 Quality and productivity applications from W.E.Deming and J.
Japan, robotics, CAD/CAM, Kaizen, 5S, Juran, Taichi Ohno,
Quality Circles, JIT Taguchi, Ishikawa
1990- TQM- practices and awards, Malcolm
2000 Baldrige, EFQM, Deming etc
ISO 9000, QS, ISO 14000, BPR
TPM

5
 HISTORICAL OUTLINE
 Historical development of Operations Management
2000 Six Sigma
onwards ISO 9001:2000
ISO/TS 16949
Technology Management
ERP solutions, IT applications in Operations,
Supply Chain Management
Automation in manufacturing and services
Customer focus and customer orientation
Time compression, flexibility in operations

6
 TYPES OF MODELS IN POM

 Verbal /Written.
– For example, writing directions in words, Operating
procedures
 Schematic.
– For example, charts, diagrams, maps
 Iconic Models – scaled physical replicas of
objects/ process.
– For example, Building Model, Bridge model, factory
model

7
 TYPES OF MODELS IN POM
 Mathematical Models – show functional relationship
among variables. The mathematical model helps in
working out a large number of possible outcomes in a cost
effective manner and then selecting the best solution under
the circumstances.
– Optimisation: Algorithm for problem solving
– Heuristics – a way of using rules of thumb or defined
decision procedures to attack a problem. This way we
reach a satisfactory solution quickly
 Uncertainty of Outcomes
Expected value = Outcome * Probability of Outcome

8
 ECONOMIC ANALYSIS IN
OPERATIONS
 Opportunity Costs: Returns that are lost or
foregone as a result of selecting one alternative
over another
 Sunk Cost: Past expenditures that are irrelevant to
current decision
 Salvage Value: Income from selling an asset
 Depreciation: An accounting procedure to recover
expenditures for an asset over its lifetime
 Incremental Cash flows

9
 ECONOMIC ANALYSIS IN
OPERATIONS
 Life of the Asset
 Life Cycle Cost
 Time value of Money
– Present Value = Future Value/(1+i)n
 Break Even Point
 IRR
 Payback Period
– Payback period = Net Investment/Net Annual Income
from investment

10
 STRATEGIC PERSPECTIVE
 Strategic Perspective

INDUSTRY Business Potential

Market & Competition

ORGANIZATION STRATEGY Quality,

Profit or Return
 Cost Efficiency
Source of Funds (low product price),
oduct, Service Quality
Dependability
(reliable, timely
delivery),
OPERATIONS POLICY Flexibility
Product Design Flexibility (response to
Delivery Capability changes),
Location of Facilities Productivity,
Processing technology Safety,
Control Systems
Morale

MANAGING CONVERSION OPERATIONS

Quality, Productivity/Efficiency, Schedule/Delivery Time – A Critical
Information Cost, Safety, Morale Dimension
Feedback

RESULTS

11
 Operations Pyramid
 Operations Pyramid
Survival of
PROFIT Enterprise
Target
Quality Cost Delivery
Elements
Man Machine Material Method

Elimination of Waste Visual Management

5S
(5S as a Habit)
Foundation of all
12
Improvements
 CHAPTER 2

OPERATIONS
STRATEGIES
FOR
COMPETITIVE
ADVANTAGE
13
 Quality Concept
 Quality is external and internal customer
satisfaction. Quality is fitness for use.
 Quality is making what the customer wants so as to delight
the customer.
 It means near 100% accuracy in the first run.First time right
and Quality first attitude. Meeting standards.
 No rework
 No complaints or reprocessing requirement from the
customer
 Quality means pursuing what is ideal. Not making any
compromises.

14
 Quality Concept
 Two components of Quality.
 Product features and freedom from deficiencies are the
main determinants of customer satisfaction.
 Product Features
– Performance
– Reliability
– Durability
– Ease of use
– Serviceability
– Aesthetics
– Availability of options and expandability
– Reputation

15
 Quality Concept
 Two components of Quality.
 Freedom from deficiencies.
 Product free of defects and errors at delivery, during use
and during servicing
 Sales, billing and other business processes free of errors.
 Freedom from deficiencies refers to quality of
conformance. Increasing the quality of conformance
results in lower costs, fewer complaints and increased
customer satisfaction.

16
 Productivity Concept
 Productivity = Output/Input
 Productivity of:
 Land …. How effectively land is used and returns on the
project capital investment may depend on Location, area
 Building ….. How effectively space is used depends on
effectiveness of Plant Layout
 Plant, Machinery, Tools …. Their productivity depends on
Precision, Quality, Cycle Time, Downtime.
 Materials : Low productivity because of more Wastage,
rejects, poor quality, unreliable vendors

17
 Productivity Concept
 Productivity = Output/Input
 Productivity of:
 People .. Productivity goes down because of idleness,
absenteeism, rework, misfit, lack of skill/training.
 Partial or factoral productivity; Outputs relative to one or
more inputs are partial measures of productivity
 Total factor productivity is the ratio of outputs to all inputs
 Productivity = Outputs/(Labor+Capital+materials+Energy)
 Output per labor… Labor productivity.
 Similarly for materials, energy, machine and so forth.

18
 Quality Concept
 Relationship between Quality, Productivity
and Cost
Common Concepts P C Q
Q P C

Reality Q P C

19
 Quality Concept
 Productivity goes down when quality improvement
is planned through 100% inspection, screening,
defect etc.
 When quality is built in the process itself it results
in productivity improvement.
 Meaningless to raise productivity when defective
products are being produced.
 When Quality improves, Productivity increases
because Waste is eliminated. However Capability
should exist (example-typist)
20
 Quality Concept
 Factors/Effect of Poor Quality
 Internal Failures
 Rejections
– At Receipt
– At Source
 Rework
– At receipt
– At line/source
 Loss of Contribution through Lost Production
21
 Quality Concept
 Factors/Effect of Poor Quality
 Internal Failures
 Reduction in Value because of Downgraded
products or services
 Low customer satisfaction resulting in loss
of market share
 Excess material consumption provision due
to inadequate process.
22
 Exercise
 The manager of a cola bottling plant came to work early on
Friday, and checked labor efficiency figures:
 Mon 102%
 Tue94%
 Wed 87%
 Thurs 96 hours worked and bottled 1025
 cases.
 Standard labor output is 12.5 cases per hour. Plot
daily efficiency and comment on the productivity
values with likely reasons for high/low
productivity.

23
 Exercise
 For a 12 month period last year, ABC restaurant averaged
224 customers served each day: Hours are 8a.m to 11p.m
spread over two shifts, and 6 employees make up the total
staff with 3 persons in each shift.Performance has been as
under:
• Customers Strength
 Mon 264 6 regular
 Tue 232 4 people full time + 2
 persons for 4 hours each
 Wed 220 6 regular + 2 casual
 Thurs 200 6 regular
 Fri 180 5 regular ( 1 absent).
 Will the result please the owner? What is the trend of labor
productivity? Likely reasons for low productivity?

24
 CHAPTER 3

FORECASTING

25
 Forecasting
 Why Forecasting:
 Planning and Scheduling
 Production

 Manpower

 Material

 Machines

 Product Design
 Process Design
 Equipment/ Facilities
 Capacity Planning
 Control
 Production, Inventory, Labour, Cost

26
 Forecasting
 Forecasting Horizon:
Type of Information
Decision Needs
Short Specific item
Run demands
Aggregate
demands

Long Strategic
Run facilities

Present 5 years hence

27
 Forecasting
 Forecast: Using past data to determine future
 Prediction – subjective estimates of future, for example,
new drug for cancer.
 Independent demand items need forecasting. Dependent
items demand is derived from independent demand.
Linear
Seasonal
Characteristics
Demand
of demand
over time (Units)
Constant

Time
28
 Forecasting
 High Noise
 Low Noise


 
  

Production 
demand   
(units)  

Time
29
 Forecast Error
 When we evaluate different forecasting methods, we
need a measure of effectiveness. Forecast error is the
numeric difference of forecasted demand and actual
demand. A forecast method yielding large errors is
less desirable than one yielding smaller errors.
 • MAD – MEAN ABSOLUTE DEVIATION
A forecast error measure that is the average forecast
error error without regard to direction; calculated as
the sum of the absolute value of forecast error for all
periods divided by the total number of periods
evaluated.

30
 Forecast Error
 • MAD – MEAN ABSOLUTE DEVIATION
MAD = sum of the absolute value of forecast error for all periods
Number of periods
n
= ∑ forecast errori 
i=1 n

n
= ∑  forecasted demandi  actual demandi 
 i=1 n

where n is the number of periods.

31
 Forecast Error
 MAD expresses the absolute magnitude but not
the direction of error .
 BIAS
 Bias is a forecast measure that is the average of
forecast error with regard to direction and shows
any tendency consistently to over- or under
forecast; calculated as the sum of the actual
forecast error for all periods divided by the total
number of periods evaluated.

32
 Forecast Error
 • Bias
Bias = sum of the algebraic value of forecast error for all periods
Number of periods
n
= ∑ (forecast errori )
i=1
n
n
= ∑ (forecasted demandi  actual demandi )
 i=1 n
where n is the number of periods.
Unlike MAD, Bias indicates the directional tendency of forecast errors. If
the forecast repeatedly overestimates actual demand, Bias will have a
positive value; consistent underestimation will be indicated by a
negative value

33
 Exercise
 An ice cream parlour experienced the following demand
for ice cream. The current forecasting procedure is to use
last year’s corresponding weekly sales as this year’s
forecast. Calculate MAD and Bias, and interpret results..
Week Forecasted Actual Demand
demand (Kgs) (Kgs)
March 1 210 200
March 8 235 260
March 15 225 215
March 22 270 300

34
Forecasting Methods-Quantitative
 Simple Average SA = (∑ Di) /n
 Where Di =demand for period i, n= no. of periods.
 Simple Moving Average MA = (∑ Di) /m,
 Where Di = demand for period i, m= chosen no. of periods
 Weighted Moving Average WMA = ∑ Wt Dt
 Where Dt = demand for period t, 0 ≤ Wt ≤ 1, and ∑ Wt =1
 Exponential Smoothing
 Ft = α Dt-1 +(1- α ) Ft-1
 Where t is the period and 0 ≤ α ≤ 1
 Ft is the forecast of next period’s demand; Dt-1 is the actual demand
for most recent period; Ft-1 is the demand forecast for most recent
period; α is the exponential smoothing coefficient.

35
Forecasting Methods-Quantitative
 Exponential Smoothing
 Expanding,
 Ft = α (1- α )0 Dt-1 + α (1- α )1 Dt-2 + α (1- α )2 Dt-3
+ α (1- α )3 Dt-3 and so on

 The weights α (1- α )0 , α (1- α )1 , α (1- α )2 become

successively smaller and they follow the exponential
curve.

36
 Regression Analysis
A forecasting model in which from historical data, a
functional relationship is established between
variables and then used to forecast dependent
variable values.
 Ft = a + bXt, where Ft is the forecast demand, and X
is the independent variable, t is time period.
 Using past demand figures Dt, the coefficients a and
b are found as under:
 b = [n (∑ Xt Dt)– (∑ Xt )(∑ Dt )]÷ [n(∑ Xt 2)-(∑ Xt )2

 a= [∑ Dt –b ∑ Xt] /n
37
 Exercise
 Demand for part no. 3710 was 200 in April, 50 in
May and 150 in June. The forecast for April was
100 units. With a smoothing constant of 0.20,
what is the forecast for July?
 A small electronics company produces pocket
calculators and records the demand monthly: Nov
45; Dec 57; Jan 60. Using 50 as the exponential
smoothing forecast for Nov, and using a
coefficient of 0.3, forecast Feb sales.

38
 Exercise
 Quarterly Advertising and Sales of company ABC is as
under.What is the forecast for sales for 11th quarter if
advertising is expected to be Rs 11 lakhs?
Quarter Advertising (Rs 100,000) Sales (Rs million)
1 4 1
2 10 4
3 15 5
4 12 4
5 8 3
6 16 4
7 5 2
8 7 1
9 9 4
10 10 2

39
 Qualitative Methods in
 Delphi Technique
Forecasting
 A qualitative forecasting technique in which a panel of experts
working separately and not meeting, arrive at a consensus
through the summarizing of ideas by a skilled coordinator.
 The experts with diverse backgrounds like physicist, economist,
engineer, chemist may make up a panel.
 The coordinator poses a question in writing to each expert on a
panel. Each expert writes a brief prediction.
 The coordinator brings the written predictions together, edits
them, and summarises them.
 On the basis of the summary, the coordinator writes a new set of
questions and gives them to the experts. These are answered in
writing. Again, the coordinator edits and summarises the
answers, repeating the process until the coordinator is satisfied
with the overall prediction synthesised from the experts.

40
 Qualitative Methods in
Forecasting
 Nominal Grouping Technique
 Like the Delphi technique, the nominal group technique involves
a panel of experts. Unlike the Delphi technique, the nominal
group technique affords opportunity for discussion among the
experts.
 Seven to ten experts are asked to sit around a table and the
facilitator hands them copies of questions needing a forecast.
Each expert writes down a list of ideas which the facilitator
writes in a flip chart so that every one can see them. The experts
give their ideas in a round robin manner.
 The experts then discuss these ideas and thereafter rank the ideas
in writing, according to priority. The group consensus is the
mathematically derived outcome of the individual rankings.
 The keys to the nominal group process are clearly identifying the
question, allowing creativity, encouraging discussion, and
ultimately ruling for consensus.

41
 Qualitative Methods in
Forecasting
 Historical Data
 Makes analogies to the past in a judgmental manner
 Precursor Events
 What happens to product A also happens to B.
 What happens in developed countries happens to
developing countries with a lag.
 <Example> Cryogenics – low temperature science, led to
IQF technology
 No IQF technology in India > no frozen peas
 IQF used for frozen peas > this led to frozen tomatoes,
lady fingers, beans > frozen vegetables led to frozen fruits
like mango pulp > frozen marine products, and so on.
42
 CHAPTER 4

DESIGNING
PRODUCTS, SERVICES
&
PROCESSES

43
 DESIGNING PRODUCTS, SERVICES
AND PROCESSES
 Product Life Cycle

Sales
Volume

Start Maturity Decline

Rapid
up Growth

44
 DESIGNING PRODUCTS, SERVICES
AND PROCESSES
Product Life Cycle
Start up Rapid Maturity Decline
Growth
Product Great High
Variety Standardiza
tion

Volume Low High

Volumes

Industry Small Survivors

Structure Competitors

Form of Product Product Price & Price

Competition Characteristics Quality, Dependabilit
Availability y

45
 DESIGNING PRODUCTS, SERVICES
AND PROCESSES

 RESEARCH AND DEVELOPMENT

Screening

Economic
Analysis

Development

Testing Commercial
Use

Decay Curve Of New Product Ideas

46
 DESIGNING PRODUCTS, SERVICES AND
PROCESSES

Research and Development (R&D)

– Basic Research (Knowledge oriented)
– Applied Research (oriented to specific commercial use)
– Development (converting research results into product)
– Implementation (Pilot plant, models)
R&D Organization
Centralised Decentralised
Corporate
Level
R&D
Corporate Level
Division X Division Y
Combination R&D Division X Division
R&D
Y
Corporate Level
R&D

R&D Division Y
Division X R&D
47
 Product Development Process

NEEDS CONCEPT CONCEPT

Identify Product Design

DETAILED ENGINEERING
DESIGN

PRODUCTION PRODUCT PRODUCT USE

PROCESS EVALUATION AND
DESIGN & & IMPROVEMENT SUPPORT
DEVELOPMENT

48
 Product Development Process
Detailed Engineering: For Product, Sub System, Components, Material,
Size, Shape, etc.
 Design for Function
 Design for Reliability
 Design for Maintainability
 Design for Safety
 Design for Producibility (Cost & Volumes)

Final Design Output: Drawings, Documentation, Working Prototype

Production Process Design & Development:
 Best Production Process
 Material Planning and Procurement
 Plan for Storage, Distribution, Transport
 PPC, MIS, HR Systems

49
 Product Development Process
Product Evaluation:
 Field Performance and Failure
 Technical Breakthroughs in Materials and Equipment

Product Use:
 Educate users on Applications
 Warranty and Repair Service
 Distribute Replacement Parts
 Upgrade Product with Design Improvements

50
 Design Factors: Reliability, Modular Design
and Standardisation
Product Reliability:
 Probability that product will perform as intended for prescribed lifetime under
specified operating conditions.

Initial Use
Failures

Failure Rate
Wear Out Failures

‘A’

Useful Performance Life

New Product Design is concerned with ‘A’. Reliability engineering determines least height
(failure rate) and greatest length (useful performance life) based on financial, technical and
consumer considerations.

Data is obtained from failure rate data based on test results and field use experience.
51
 Reliability
 Reliability of assembly of components A and B if arranged in series, that is, if one
component fails the system fails.
Reliability (assembly) = P( A ) * P( B )
 Reliability of components A and B if arranged in parallel, that is, the system fails only if
both components fail together.
Reliability (assembly) = P (A) + P (B) – P ( A ∩ B)
 Failure is performance below acceptable standard
 Failure Rate FR (%) =(No. of failures/ No. of units tested ) X 100
 FR(N) = (No. of failures/No. of units hours of operating time), where FR(N) is number of
failures during a period of time.
 MTBF, i.e Mean Time between failures, is a popular measure of reliability.
 MTBF = No. of unit hours of operating time/ No. of failures = 1/ FR(N)
 Higher the MTBF, better is the reliability.
Tactics for improving reliability:
 Improving individual components reliability through better design, better sourcing of material (purchase)
 Providing of redundancy
 Preventive Maintenance
 Increasing Repair Capabilities

52
 Reliability

< Exercise>
 A product has 3 subcomponents A, B and C.
Failure of A can cause the failure of the product.
Failure of either only B or C would not cause the
failure of the product. However the product fails if
both B and C fail simultaneously. The probabilities
of A, B and C performing successfully are 0.95,
0.85 and 0.80. What is the reliability of the system?

53
 Reliability
 < Exercise>
 Relectro Corporation produces a miniature electric motor
consisting of two critical components: coil and prime
circuit. Relectro promises its customers a two year motor
life with a probability of 0.98. Failure of any of these
components renders the motor useless.
 Engineers are considering redesigning and purchasing
components from new vendors X and Y. The objective is
to meet the customers requirement at minimum cost.
 Data collected is shown in next slide.
 1. Should the motor be redesigned? Why?
 2. Recommend the vendor, and compute the reliability
and cost of the solution suggested by you.

54
 Reliability
< Exercise>
 Data collected is as under:
Components
 with Unit cost ($) Two year failure
existing design probability
Coil 17.00 0.01
Prime Circuit 8.50 0.03
With new design Vendor Vendor Y Vendor X Vendor
and new vendors X Y

Coil 16 21 0.01 0.005

Prime Circuit 12 15 0.02 0.001

55
 Maintainability
 Maintainability refers to the ease with which the product can be put back into service again
after a breakdown.
 MTTR, i.e mean time to repair, is a measure of Maintainability.
Lower the MTTR, better is the maintainability.
Tactics for improving maintainability:
 Fault diagnostic must be quick
 Search time for tools etc. must reduce
 Access must be easy
 Design should be simple so that maintenance is easy
 Spares should be available
 Circuit diagrams, drawings, manuals should be available
 Training of repair personnel so that repair capability is enhanced
 Modular repair, so that module is replaced at the user end and detail component level repair is done
later
 Standardisation of items, spares
 System and procedures for maintenance
 Incentives and motivation for maintenance personnel

Availability = (running or operating time) / (running time + downtime)

56
Modular Design and Standardisation
Modular Design :
Creation of products from some combination of basic, preexisting subsystems.
For example, computers (monitors, RAM, hard disk, processor, video card, sound card,
keyboard, printer etc.); modular furniture which can be self assembled and build in
different sizes and designs depending on need from some basic modules.
Benefits:
Easy to build
Easy to maintain
Stabilise design
Simplified inventory control
Simplified production and material planning

Standardisation For example, screws, nuts, bolts, motors etc.

Benefits:
No need to re-design : buy standard
Simplify PPC, material planning
Reduce components production: Buy standard
Reduce inventory

57
 Ways to Organise Process Flows
Projecttechnology
Job Shop
Batch Process
Assembly line – standardised products, high volume
Continuous process

FMS: Flexible Manufacturing Systems

Computer controlled process technology suitable for producing moderate variety of
products in moderate volumes.
It consists of work stations – automation and programmable

Automated material handling for moving components

Robots for loading/unloading

Computer control system (for controlling machine tools, work stations, transfer of tooling
and components)

58
 Characteristics of Process Technologies

 Comparison
Characteristic Project Job Shop Batch Assembly line Continuous

A.Equipment and Layout

Size varies small moderate large Very large
Flow No pattern No pattern Semi fixed rigid Inflexible, technologically
oriented

Speed varies slow moderate fast Very fast

Rate of Change Very slow Slow medium medium fast Very fast
B. Work Force
Labour Intensiveness high Very high varies low Very low
Skill high high mixed low varies
Training Needs Very high high moderate low varies
C .Material & Information Control
Material Requirement varies Difficult to predict predictable predictable Easy to predict
Scheduling uncertain uncertain More certain More certain inflexible
Information Requirements Very high high moderate moderate low

D.Challenges Estimating Estimating, Fast Set up reduction, balance Productivity, line Avoiding downtime,
Sequencing response,labour utilization,stages, design procedure, balancing, adjust staffing timing expansion, cost
debottlenecking response to diverse needs levels minimization

59
 Computer Integrated Manufacturing (CIM)
 CIM Components:
– Manufacturing engineering
Group Technology

Computer Aided Manufacturing

Robotics

– Factory Production
Robots

CNC’s (machine tools)

Automated material handling

QA

Process Control

– Engineering Design : CAD (Computer Aided Design)

–Information Management
Database (routine system)

PPC

MIS

Decision support system

Group Technology
A way of organizing and using data for components that have similar properties and
manufacturing requirements.

60
 Learning Curve
 Learning Curve

Yi = k i b

Labour Where yi = labour

Hours hours to produce the I
ith unit,
K = labour hours to
produce the 1st unit
And
B = index of learning

Cumulative unit
Applications:
1.Determine work force size
2.Production planning and scheduling
3.Evaluating effect of changes in tasks/ alternatives and problem solving

61
 CHAPTER 5

OPERATIONS
CAPACITY

62
 OPERATIONS CAPACITY
 Capacity:Maximum productive capability in volume of
output per unit time.
 Need for capacity planning
 When you decide to produce more to meet customer
demand.
 When you decide to add a new product.
 When you change your product mix.
 Measures of Capacity
– In units of tons, numbers (of cars)
– In megawatts (for power plant)
– In number of seats (airlines, educational institutions, restaurant)
– In number of beds (hospitals, hotels)
– In cubic feet of storage space (warehouse)

63
 OPERATIONS CAPACITY
 Capacity affects:
 Cost efficiency of operations
 Scheduling of output
 Cost of maintaining facility
 Capacity build up requires investment
 Conduct investment analysis
 ROI, IRR, Payback, Break Even point
 Too much capacity requires ways to reduce
capacity- such as temporarily closing, selling.
 Capacity and Location
– Centralised in one place
– Spread over different locations

64
 OPERATIONS CAPACITY
 Capacity build up options:
 Step wise increase
 Increase in one go
Forecast of
capacity
requirement

Capacity
Capacity

Time period(year) Time period(year)

65
 OPERATIONS CAPACITY
 Short term shortfall in Capacity :

Demand
 Shortfall in
capacity
Planned use of short term
resources (overtime,
subcontract etc)
Capacity

Time period(year)

66
 OPERATIONS CAPACITY
 Production cost related to factory’s facility capacity.

P1 =optimal rate of
output
P1- = machine, labour
Cost
underutilised
per
unit of
output
P1+ = higher cost by
Overtime, inadequate
maintenance, excessive
P1- P1 P1+
congestion

67
 OPERATIONS CAPACITY
 Steps to Capacity Planning
1. Assessing existing capacity
2. Forecasting capacity needs
1. Using forecasting methods, market analysis, product life cycle,
technology etc
3. Identifying alternate ways to modify capacity
4. Evaluating alternatives (financial, economical,
technological)
5. Selecting capacity alternative most suited to achieve
strategic mission
6. Decide on plan for implementation

68
 OPERATIONS CAPACITY
 Short term strategies for modifying capacity
1. Inventories
Demand>
Capacity
Demand< Capacity
Capacity
2. Backlog –order booking excess of capacity and keep an
order backlog file. For example, Maruti cars; service units
3. Employment levels- hire, layoff
4. Work force utilization
5. Employee training
6. Process design
7. Subcontracting
8. Maintenance

69
 OPERATIONS CAPACITY
 Exercise
 Annual demand for manufacturing unit:
 Units demanded 8000 10000 15000 20000
 Probability 0.5 0.2 0.2 0.1
 Revenues are Rs 35 per unit. Existing facilities annual fixed operating cost
= Rs 200,000.
 Variable manufacturing cost:
 Output 8000 10000 15000 20000
 Variable cost/unit(Rs) 7.75 5.00 5.33 7.42
 An expanded facility under consideration would require Rs 250000 fixed
operating cost annually. Variable cost would be
 Output 8000 10000 15000 20000
 Variable cost/unit(Rs) 9.4 5.2 3.8 4.9
 To maximize net earnings, which size facility should be selected?

70
 OPERATIONS CAPACITY
 Decision Tree Analysis
 Decision Tree
 A diagram used to structure and analyze a decision
problem; a systematic, sequential laying out of decision
points, alternatives and chance events.
 Chance event
 An event leading potentially to several different outcomes,
only one of which will definitely occur; the decision maker
has no control over which outcome will occur.
Decision point
Chance Event
Alternatives

71
 OPERATIONS CAPACITY
 Decision Tree Analysis
 Decision Tree
Drop
sales

Don’t
expand
Same level sales

p=0.2, sales
Expand up 50%
p=0.5, sales up 10%

p=0.3, sales up 20%

72
 OPERATIONS CAPACITY
 Steps in decision tree analysis
 Tree diagramming
– Identify decision points and sequence
– Identify alternative decisions
– Identify chance events that occur after each decision
– Develop tree diagram
 Estimation
– Estimate probability for each possible outcome of each chance event
– Estimate financial consequences of each possible outcome and decision
alternative
 Evaluation and Selection
– Calculate expected value of each decision alternative
– Select the decision alternative offering the most attractive expected value.

73
 OPERATIONS CAPACITY
 Exercise C1 Rs 140000

0.6 Z1 D1 Rs 180000

A a C2 Rs 210000
0.4 Z2
D2 Rs 200000
1 Rs 200000
0.5
C3 Rs 100000
B 0.3 Rs 150000
b Rs 80000
0.4
0.2 Z3 c 0.3 Rs 70000

Analyze the above decision tree. D3

0.3 Rs 60000
The costs are shown at the end
of branches.

74
 MAKE OR BUY DECISION
 Quality considerations
 Quantity considerations
 Cost considerations
 Service considerations (assured supply of items to
production line)
 Availability of technical knowhow
 Save investment cost
 Short term overloads in capacity
 Speed of delivery
 Technical and management skills of vendor

75
 CHAPTER 6

LOCATING PRODUCTION
AND
SERVICE FACILITIES

76
 Plant Location

 Revenues and cost(fixed and variable) are affected by facility location

 No site will be best in both revenue and cost. Trade off is necessary.
 Plant Location Decision is required when:
– New project
– New product
– Increase in capacity required
– Change in resources(like cost of labor, raw materials, supporting
resources(subcontractors) may change)
– Change in demand geographically (for example, North/South, East/West);
change in location for better service
– Change in political and economic conditions

77
 Plant Location: Facility Location
Planning

 Preliminary Screening to identify feasible sites

 Critical Factors for screening: These factors are critical,
absolutely essential for a site. If not available, then that site should
be rejected. For example, electricity for aluminium smelting,
fertiliser units; water for photo films, chemical processing unit;
ancillary support for automobile unit.
 Objective factors: measurable factors which can be quantified.For
example,power tariff, wage rate, cost of land
 Subjective factors: qualitative factors which cannot be measured
in numerical terms. For example, industrial relations situation,
quality of manpower.

78
 Plant Location: Facility Location
Planning

 Factoral Analysis
 List all the site related factors:
– Nearness to market
– Nearness to materials
– Availability of materials in quality and quantity
– Availability of utilities in quality and quantity, like electricity,air,gas,water etc.
– Availability of labour in numbers, skill wise and quality
– Transportation facilities and cost (rail,road,port(sea),ICD (dry port)
– Land availability (clear title, area, flood history, price)
– Drainage
– Access to road, rail head
– Local and state taxes (sales tax etc)
– Government incentives, subsidies for backward areas

79
 Plant Location: Facility Location
Planning

 Site related factors (contd.)

– Industrial Relations situation, law and order, goondaism, strikes, go slow
– Work culture
– Productivity of work force
– Housing
– Bankers
– Social amenities-school,education,clubs,entertainment,medical facility
– Community-trade and business,local market,associations
– Availability and quality of professional manpower
– Site feasibility-foe example, no high tension power line overhead, no religious
monument, no forest or protected area, no infringement of state/municipal/local
authority bye-laws, agricultural land which cannot be converted to industrial use,
problems in environment clearance etc.

80
 Plant Location: Measures/Models for
Evaluation/Analysis
 Factoral Analysis
LMi = CFM i * ( X * OFM i + (1- X) * SFM i)

Where LMi is the location measure index

CFM i is the critical measure for site i (CFM i = 0 or 1)
OFM i is the objective factor measure for site i (0 ≤ OFM i ≤ 1 , ∑ OFM i = 1
SFM i is the subjective factor measure for site i (0 ≤ SFM i ≤ =1, ∑ SFM i=1
X = objective factor decision weight ( 0 ≤ X ≤ 1)
(determined by mangement Committee, past data, Delphi method, etc)

Site with largest LMi is selected

 Break Even Analysis (Effect of location on cost and revenues)
Lower the BEP, better is the location
Vbe = (Fixed cost) / (Sales per unit – Variable cost per unit)

81
 Plant Location: Measures/Models for
Evaluation/Analysis
 Simple Median Model
Minimise Total Transportation Cost = ∑ C i Li Di
Where Li is the number of loads to be shipped between facility F i and the new plant
C i is the cost to move a load one distance unit from or to F i
Di is the distance units between facility F i and the new plant
= |x0 - xi | + | y0 - yi |
assuming loads movement on rectangular paths
 Linear programming – Transportation problem
A special LP formulation for determining how sources should ship resources to destinations so that
the total shipping costs are minimised.
Min TC = ∑ ∑ CijXij
Xij = number of resource units allocated from i to j
Cij is the cost of allocating one unit of resource from source i to destination j

82
 Plant Location: Exercise
 Factoral Analysis: Exercise- Which is the best site?

Factor Weight % Possible Sites(Points Allocated)

Noida Gurgaon Alwar Bhopal Baroda

Market 15 8 8 6 7 7
Sourcing 10 8 8 5 6 8
Materials
Manpower 10 9 9 5 6 8
Availability
Infrastructure 10 8 8 5 8 8
Labour 15 4 6 7 8 9
problems
Cost of land 12 7 6 10 8 6
Cost of utilities 10 5 5 6 6 6

Freight cost 18 6 6 6 6 6

83
 Plant Location: Measures/Models for
Evaluation/Analysis
 Break Even Analysis-Exercise-Find the best site

Site A Site B Site C

Selling Price per unit Rs 50 Rs 50 Rs 50

Fixed cost Rs 100,000 Rs 120,000 Rs 150,000
Variable cost per unit Rs 30 Rs 20 Rs 25

84
Plant Location: Measures/Models for
Evaluation/Analysis
 Median Model: Exercise
 Raw material supplies from F1 and F2
 Finished goods to F3 and F4.
 Find location of new plant. Data is as under:
Existing Facility Loads Li Cost Ci Xi, Yi
F1 755 1 20, 30
F2 900 1 10, 40
F3 450 1 30, 50
F4 500 1 40, 60

85
Plant Location: Measures/Models for
Evaluation/Analysis
 Median Model: Exercise
 A site is sought for a temporary plant to supply cement to
three existing construction sites A, B and C.
 Find location of temporary plant. What total shipping cost
will result? Data is as under: Ci is cost to move one load
one km.
Existing Facility Loads Li Cost Ci Xi, Yi (km)
A 22 10 20, 10
B 43 10 10, 40
C 36 10 40, 20

86
Plant Location: Measures/Models for
Evaluation/Analysis
 Median Model: Exercise
 Find best location for a dairy processing center and
compute total cost. Transportation cost Rs 5 per km per
100 kgs..
Location Milk produced (in Xi, Yi (km)
100,000 Kgs)
L1 200 20, 0
L2 300 0, 400
L3 800 140, 20
L4 200 360, 80

87
 Plant Location: Measures/Models for
Evaluation/Analysis
 Median Model: Exercise
 Bubble Breweries has 2 distribution warehouses
on Bombay-Goa Highway. Warehouse A located
at KM Zero, receives 3000 standard beer
shipments annually from brewery.Warehouse B
located at KM 1200 receives 1000 standard
shipments annually from the brewery. What
should be the best brewery location for
minimizing annual transportation costs to
warehouses?.
88
 CHAPTER 7

LAYOUT
PLANNING
89
 Plant Layout
 Layout is physical location of departments, work centers,
equipments, in the conversion process; spatial arrangement of
physical resources including utilities like piping, wiring,
cabling, etc.
 Layout has to be designed tailor made to operations, broadly
categorised as:
– Intermittent operations : made to order, batch, low
volume, labor intensive products, having more variety in
product mix, using general purpose equipments,
interrupted product flow and frequent schedule changes
– Continuous operations: standardised, high volume, capital
intensive products, produce to stock/keep inventory, small
variety product mix, special purpose equipment, and
continuous product flow

90
 Principles of Good Plant Layout
 Moving shortest possible distance (minimum man-hours/cost in
man/material movement, high transportation efficiency); avoid
backtracking
 Adequate open space- for operators, materials, safe places, storage,
work in progress, aisles, etc.; avoid congestion
 Efficient space utilization
 Smooth production flow, follow the manufacturing process
 Flexibility for expansion
 Easy to manage/supervise
 Safety
 Environment, pollution control, effluent disposal
 Health
 Hygiene, illumination, ventilation
 Fulfillment of statutory requirements

91
 Types of Plant Layout
 Process Oriented or Functional Layout: equipments are
grouped together according to functional type
 Product oriented or Line Layout : equipments are in line to
provide a specialised sequence of tasks
 Fixed layout: the arrangement of facilities so that product
stays in one location: tools, equipments, workers are
brought to it as needed (for example, ships, aircrafts)
 Combination layout (product + process)
 Cellular layout: arrangement of facilities so that equipment
used to make similar parts or families of parts is grouped
together

92
 Types of Plant Layout
 Process Oriented or Functional Layout
Automatics Milling Drills
Lathes Planers Heat treatment
Shop
Inspection Grinders Assembly

Recei- Raw Finished Goods Shipping to

ving Material Store customer
Store

Suppliers
93
 Types of Plant Layout
 Product or Line Layout

Line B Fabrication
Receipt

Ship
‘A’ Line ‘B’
  



  
Final Part
Assembly C
Line ‘C’
Line

94
 Cellular Plant Layout
 Process Layout

A A C C

A A D D

B B D E

95
 Cellular Plant Layout
 Cellular Layout

A C D E

A C D B

96
 Cellular Plant Layout
Advantages
– Lower Work In Progress
– Reduced Material Handling Cost
– Shorter flow time in production
– Fewer toolings, set up changes
– Simplified planning (material, labor)
– Overall cost is low, quality is better and delivery period is shorter
Disadvantages
– Reduces flexibility
– Reduces machine productivity as machines dedicated to cells may not
be used all the time

97
 Comparison of Different Types of Plant Layout
Layout
Product Process Fixed
Product Standard,large volume,stable rateDiversified product, varying Made to order, low volume
of output volume

Work Flow Sequential/linear, for each unit Variable flow. Different No flow. Equipment, men,
the same sequence sequence brought to site

Human Skills Routine/repetitive Adaptable high skills High skills, flexibility

Production Planning and Control Easy Complex Complex

Material Handling Automated Duplicate handling General equipment, heavy duty

Inventory Medium raw material and WIP High raw material and WIP High inventories

Space Utilization Efficient Medium Medium

Capital Requirement Large specialised equipment General purpose General purpose, mobile
Product Cost High fixed cost but low unit cost Low fixed cost but high unit cost Low fixed cost but high unit cost

Behavioral Job dissatisfaction, routine, Managers skilled in inter group Managers skilled in project
absenteeism, employee turnover coordination management

98
 Shapes of Plant Layout
 Shape of Layout
– Straight line
– Oval shape, Circular
– Zig Zag, S shape, L shape
– U shape
 Problem with straight line layout is that when the line
becomes too long, then trouble in component supply and
controlling line. Also when jigs must be returned to first
stage of production.
 Developing Layouts:
– Use of templates: 2D cutouts of equipments,man etc
– Load distance model

99
 Shapes of Plant Layout
 Load Distance Model
n n

Minimise cost C = (∑ ∑ Lij Dij )k

i=1 j=1

n=number of work centers

Lij = number of loads between work centers i and j
Dij = distance between work center i and j
K= cost to move load one distance unit
Computer Model –CRAFT: Computerised Relative
Allocation of Facilities Techniques

100
 Travel Chart
 For material movement analysis, for relationship among
activities. This helps in plant layout.
 Example:
Casting Drilling Machining Welding Inspection Total

Casting 5 8 2 8 23

Drilling 2 8 10

Machining 3 2 5 10

Welding 6 6

Inspection

Total 8 10 4 27 49
49

101
 Material Handling System
Principles of Material handling:
• Minimum Handling
• Minimum movement time and distance
• Move materials in lots than individual units
• Use gravity
• Avoid rehandling or backtracking of materials
• Select proper material handling equipment for safety, efficiency,
flexibility
• Design of container, pallet, drums to be economical and reduce transit
damages
• Safety
• Should not interfere with production flow
• Standby against power failure
• Proper maintenance

102
 Material Handling System
Types of Material handling equipments:
• Purpose
 Lifting (crane, jib crane)
 Holding (gantry crane)
 Dropping
 Loading, unloading
 Positioning
 Moving
 Stacking etc
• Types
 Cranes
 Belt conveyors
 Roller conveyors
 Bucket conveyors
 Chutes
 Trucks,tractors,trailors
 Fork lifts, pallet trucks
 Trolleys
 Ropeways
 rails

103
 Templates for Layout
Use of templates, String Diagram

104
 Templates for Layout
 Three Dimensional blocks

105
 Modelling Product Layout
• Heuristic:A procedure in which a set of rules is
systematically applied-an algorithm
  Is capacity adequate?
• Bottleneck operation- longest task time.
• Cycle time- time elapsing between completed units
coming off an assembly line
• Maximum daily output = Available Time/Cycle time
per unit
• <Example> Flow line for making aluminum windows
Stations 1 2 3 4 5 6

A B C D E F G H
Tasks
106
 Modelling Product Layout
 Desired Minimum Daily Output Capacity-320 windows (8
hours working per day)
Work Preceding Tasks Assigned Prede- Task
Station Work cessor Time
Station (secs)
1 - A: Assemble frame None 70
2 1 B:Instal Rubber Moulding A 80
3 2 C:Insert frame screws A 40
D;Instal frame latch A 20
4 3 E:Instal frame handle A 40
F:Instal Glass Pane B,C 30
5 4 G:Cover frame screws C 50
6 5 H: Pack window frame unit D,E,F,G 50

107
 Modelling Product Layout
 Longest time is at Station 2- 80 secs –
bottleneck operation
 Cycle time is 80 secs
 Output = 8hrsX 60X 60/80 = 360 units
 Required is 320 units daily. So capacity is
adequate.
 Is sequence of tasks feasible?
 Yes, it is, as the precedence requirements are
maintained.

108
 Modelling Product Layout
  Is the line efficient?
 Calculate idleness of man and machine. Idle time will
increase cost which ultimately may make the unit non
competitive.
 Balancing the Line
 Line balancing problem is assigning tasks among workers
in the assembly line stations so that performance times are
made as equal as possible.
 Longest Operation Time (LOT) Rule: A line balancing
heuristic that gives top assignment priority to the task
that has longest operation time.

109
 Modelling Product Layout
 Balancing the Line: Six Steps
 1. Define tasks
 2. Identify precedence relationships
 3. Calculate minimum number of stations required
to produce desired output
 4. Apply the LOT rule to assign tasks to each
station
 5. Evaluate effectiveness and efficiency
 6. Seek further improvement

110
 Modelling Product Layout
 Balancing the Line: Window frame assembly example
 Find minimum number of stations:
 Min. no.stations = Total processing time/Cycle time
 Time required = sum of total time of tasks= Sum of time
for A to H tasks= 380 seconds
 If cycle time is 90 secs, minimum no. of stations= 380/90=
4.22 I.e 5 stations.
 If cycle time is 80 secs, no. of stations = 380/80 =5
 Actual layout may need more because of precedence
requirements.
 Initial layout uses 6 work stations.
111
 Modelling Product Layout
 Balancing the Line: Window frame assembly example
 LOT 1: assign first the task that takes the most time to
the first station. Maintain precedence requirements.
 LOT 2: After assigning a task, determine how much
time the station has left to contribute (Time minus
Task Times)
 LOT 3: If the station can contribute more time, assign
it a task requiring as much time as possible. Maintain
precedence relationship. Else return to LOT 1 and
continue until all the tasks have been assigned to
stations.

112
 Modelling Product Layout
 Balancing the Line: Window frame assembly
example
 Solution for 90 sec cycle time:
 5 work stations: AD B CG EF H
 Efficiency=(380/450) * 100 = 84.4%
 Initial 6 work stations, efficiency was
(380/540)*100= 70.4 %.
 Find the solution for 80 second cycle time.

113
 CHAPTER 8

JOB DESIGN,
PRODUCTION AND
OPERATIONS
STANDARDS, AND
WORK
MEASUREMENT
114
 Job Design
 Concept
 Task or Activity. Example:Tighten nut

 Job,that is,group of tasks.Example:Repetitive tightening of

nut and placing assembly on tray constitutes a job in motor
assembly

 Department,that is,group of jobs.Example:motor assembly

department

 Function of an organization.Example: motor assembly is

the production function of an organization that finances,
markets and produces washing machines
115
 Job Design

 In job design, method analysis is used,that

is,establishing the proper method for getting the
job done.
 After establishing method and standardising it,
work measurement is done.
 Doing work measurement without method study,
and then redesigning constitutes wasted effort.

116
 Job Design
 Job Design follows planning and design of product,
process and equipment. It involves activities that specify
the content of each job and determine how work is
distributed within the organization.It also takes into
account the skill set and specialization of labor.
 Method Analysis Aids
– Operation chart-graphic tool to analyse and time elementary
motions of LH and RH(example:Reach, Grasp, Lift, Position,
Release) in performing routine, repetitive, short cycle tasks
– Activity Chart: man machine chart, to identify idle time, analyse
and time actions of worker and machine
– Flow process charts: to analyse and categorise interstation
activities so that the flow of the product throughout the overall
production process is represented

117
 Job Design
 Operation Chart (Two Hand Operation Chart):Assemble
nut and bolt.Can you improve the situation?
 <Existing Situation>
Left Hand Right Hand
Reach for nut ⇒ Idle D
Grasp nut O Idle D
Move towards bolt ⇒ Idle D
Hold nut ∇ Reach for bolt ⇒
Hold nut ∇ Grasp bolt O
Hold nut ∇ Move towards nut ⇒
Hold nut ∇ Hold bolt ∇

Assemble nut and bolt O Hold assembly ∇

Idle D Inspect
Idle D Release assembly ⇒
118
 Man Machine Activity Chart
<Example: Machining a casting>Not drawn to scale. Can you improve
the situation? Time is in mins.
Time(Cum.) Man Machine Working

1 Unload job Idle

Idle
3 Clean job Idle
4 Clean machine Idle
% working
14 Inspect job Idle
15 Put aside job Idle M/C 40
16 Pick new job Idle
17.8 Man 60
Load job Idle
18 Start machine Idle
Total
30 Idle Machine running cycle
time 30
mins

119
 Flow Chart

⇒ O Weld
D
Machining O
⇒ D

⇒
Cut O D
O Paint
O Fabricate
⇒

D
⇒
R.M ∇
Store F.G Stores

120
 Job Design
 Symbols used in charting:
 ° point of origination
 O Operation
 ∇ Storage
 ⇒ Transportation
 Inspection
 D Delay
 Principles of Motion Economy
 Use the human body the way it works best
– Use natural rhythm of movement
– Symmetrical movement and opposite movement of arms starting and ending at same
time
– Neither hand should be idle
– Eye contacts should be few and grouped together
– Minimise number of motions
– Minimise degree of precision and control

121
 Job Design
 Principles of Motion Economy
 Arrange the workplace to assist performance
– Definite place for all tools and materials
– Tools,materials located close to point of use
 Use mechanical devices to reduce human effort
– Vises and clamps to hold work precisely
– Guides to assist in positioning work without close operator attention
– Controls and foot operated devices can relieve hands of work
 Use gravity
 Work Study
– Method Study
– Work Measurement
 Work Study: Examination of work systematically investigating factors
which affect efficiency in order to effect improvement.

122
 Job Design
 Method Study
 Systematic recording and critical examination of existing and
proposed ways of doing work, as a means of developing and applying
easier and more effective methods and reducing costs.
 Critical Examination
 Questioning technique of ‘Make Ready’, ‘Do’, ‘Put Away’ activities.
One should ask a series of primary and secondary questions
 Purpose What is done? Why? Eliminate unnecessary parts
– What Else? What should?
 Place Where is it done? Why? Combine wherever possible
– Where else?Where should?
 Sequence When is it done? Why? Rearrange/change sequence
– When else?When it should?
 Person Who is doing? Why? Simplify the operation
– Who else? Who should?
 Means How is it done? Why?
– How else?How should it be done?

123
 Job Design
 Work Measurement
 Work Measurement is the application of techniques designed to establish time
for a qualified worker to carry out a specified job at a designed level of
performance.
 Techniques:
– Time Study
– Work Sampling
– Synthesis from standard data
– Pre-determined motion time systems
 Time Study
– Selecting job:new job,change material or method,incentive,plant
utilisation/bottleneck operation study, excessive cost
– Qualified representative worker:has physical attributes, intelligence,education,skill
and knowledge to carry work to satisfactory standards of safety,quality,quantity
– Obtaining, recording all information about job, operator, surrounding conditions.
– Checking method
– Breaking job into elements
– Timing
– Rating

124
 Job Design
 From Time Study to Standard Time
 Time study requires a study board, time study sheet and time
measuring device. Time can be measured using Stop Watch method
and Video Camera method.
 Stop watch method can use snap back method and continuous time
method
 Observed Time OT
 Normal Time (NT) = OT X Rating
 Standard Time = NT + Allowances
 Allowances: Male Female
 Constant: Personal needs 5% 7%
Basic Fatigue 4% 4%

125
 Job Design
 From Time Study to Standard Time
 Allowances: Male Female
 Variable additions to basic fatigue allowance
– Standing 2% 4%
– Abnormal position(bending/lying) varies 0~7%
– Weight/force (eg. 10Kg) 3% 4%
varies 0~18%
– Light conditions varies 0~5%
– Air conditions varies 0~15%
– Visual strain varies 0~5%
– Aural strain varies 0~5%
– Mental strain varies 1~8%
– Monotony mental varies 0~4%
– Monotony physical varies 0~5%
– Special allowances
 Start up
 Shut down
 Set up
 Tool change

126
 Job Design
 Work Sampling
 Work Sampling is a technique in which a large number of instantaneous
observations are made over a period of time of a group of machines, processes
or workers.
No. of observations Total %
Machine Running  5 62
Machine stopped  3 38

S*p = 2 * √ p(1-p)/N
where S is the accuracy, N is the number of observations, p is the
percentage working or idle time, and confidence level is 95.4%.
Predetermine Motion Time Systems (PMTS). This is used to build up standard
time for manual work, based on time standards available for basic human
motions.One of the techniques under PMTS is Method Time Measurement
(MTM). MTM analyses basic human motions and measures time in TMU
(Time measurement unit: 1 TMU = 0.0006 mins or 0.00001 hrs)

127
 Job Design
 Procedure of Work Study
Basic Step Method Study Work Measurement
1 Select jobs for study  
2 Record  
Various charts, Diagrams, Movement analysis
3 Examine (critical examination, 5W1H) 
4 Develop 
5 Measure(stop watch, PMTS,Work sampling, etc.) 
6 Define  
7 Instal  
8 Maintain  
9 Charts: Operation Process Chart/Outline process chart 
Flow Process chart
Two Handed process charts

Multple Activity Chart 

Travel chart, flow Diagram, String Diagram 

128
 CHAPTER 10

SCHEDULING SYSTEMS
AND AGGREGATE
PLANNING FOR
PRODUCTION AND
SERVICES
129
 Production Planning and Control
 PPC concerns with volume and timing of outputs; matching of
resources namely materials, manpower and equipments to meet
desired output as per schedule; utilization of operations capacity to the
maximum and balancing outputs with capacity; maintaining cost
effectiveness and meeting customer’s schedule deadlines.
 PPC is planning production, fixing route/sequence, scheduling (start
and end timings) and follow up.
 Planning function includes planning, loading, routing, scheduling,
process planning, material planning, tool planning, demand
forecasting, inventory planning
 Control function includes coordinating entire production, sales, stores,
link to all functions, progressing, follow up, expediting, material
control, inventory control, ensuring production targets, delivery
deadlines, capacity utilization.

130
 Production Planning and Control
 Coverage of PPC
Business Plan

Output Capacity
Planning Planning

Aggregate Aggregate
Output Planning Capacity Planning

Master Production Rough cut capacity

Scheduling planning

Material Requirement Detailed capacity

Planning planning

Loading Short term

Shop
Sequencing floor capacity control
Detailed scheduling control
Expediting
131
Production Planning and Control
 Business Plan:Overall business level for next 12 months
expressed in money value for various product groups
 Product group:set of products that share common blocks of
capacity in manufacturing process
 Aggregate production output planning: determines demand
side of firm’s activities, output levels of product groups on
weekly/monthly basis, to support business plan
 Aggregate capacity planning:process of testing feasibility
of aggregate output plans and evaluating overall capacity
utilization.
 Capacity and Output must be in balance

132
 Production Planning and Control
 Master production Schedule: shows week by week how many of each
product must be produced according to customer orders and demand
forecasts. This is a more detailed level of planning and disaggregates
the product groups into individual products.
 Rough cut capacity planning (also called resource requirements
planning) is process of testing feasibility of MPS in terms of capacity.
To check if MPS causes overload of any work center/machine/deptt
making MPS unworkable. Check generally applied to bottleneck
facilities.
 MRP shows time phased requirements for releasing materials and
receiving materials for implementing MPS.
 Shop floor control: coordinates weekly and daily activities that get
jobs done
 Loading: the cumulative amount of work currently assigned to a work
center for future processing

133
Production Planning and Control
 Routing: the processing steps of stages needed to create a
product or do a job
 Sequencing:this stage establishes priorities for jobs in
queues (waiting lines) at work centers
 Detailed scheduling: determines start times, finish times,
for all jobs at each work center
 Expediting: tracking a job’s progress and taking special
actions to move it through the facility
Distribution/ H.R Production
Despatch
Maintenance
I.E
Marketing PPC
Utilities
Quality Stores
Purchase Material Planning
134
 Production Planning and Control
 Aggregate Production Scheduling Alternative 2

Cumulative Alternative 1
Demand

Cumulative
Demand

Time
Alternative1: constant production rate; constant work force.Results in inventory build up during lean period
which feeds demand during peak period.Benefit is no shortage, demand met.Demerit is inventory build up.
Alternative 2: producing as per demand.No inventory cost.Demand met.Cost of adjusting work force.
Output of aggregate planning is to develop master schedule which describes no. of units to be produced and
work force levels in each period.
135
Production Planning and Control
 PPC in mass production: assembly line should not stop;
line should run balanced.
 PPC in batch production: decision on lot/batch size;
reduction of set up time; control of WIP
 PPC in job shop: sequencing, process planning, machine
and manpower loading. Most challenging.
 PPC prepares the Route card, job card or Work Order,
process planning, make or buy decisions, material
planning based on BOM and MPS, and specifies the
machine/processing time, operation to be done in which
machine and in what sequence.

136
Production Planning and Control
 Operation and Route Sheet/Card
Ref. OPERATION AND ROUTE SHEET Date

Component/Job. No. Drawing No.

Name of Job Quantity

Material Delivery by

Routing Operation Tools AccessoriSet up Operati Total

es time on time
Time

137
 Production Planning and Control
 Line of Balance
– Used to study progress of jobs at regular intervals, to compare actual
progress versus plan and to take countermeasures where progress is tardy,
to meet the delivery commitments
 Scheduling
– External factors affecting scheduling
 Customer demand

 Delivery requirements

 Inventory with dealers

– Internal factors
 Stock of finished goods

 Total processing time

 Availability of material

 Availability of capacity(machines, manpower)

 Economical lot size

 Subcontractors available

138
 Fabricate Final
Assembly Test
Assemble Ship
Assemble

Stages I II III IV V VI VII

Lead 10 9 8 7 6 5 4 3 2 1 0
Time Process Plan

Cumulative Line of
Cumulative
production
production
Balance

Review
period
139
Months Progress steps
 Production Planning and Control
 Scheduling procedure
 From aggregate plan, master schedule is prepared. This gives overall schedule
 Detailed schedules for each day and for each hour are also prepared for each
facility.
 Scheduling charts

 Gantt chart
Section Week 1 Week 2 Week 3 Week 4

140
 Production Planning and Control
 Some sequencing rules (for setting priority of job processing)
– First come first served basis
– Earliest due date
– Shortest processing time
– Least slack (slack is defined as the difference of length of time remaining from due
date and length of its operation time)
Waiting jobs in Processing time Flow time (days) Due date(in days
FCFS sequence (days) from now)
A 4 4 6 Exercise:
draw
B 17 21 20 Gantt
C 14 35 18 chart for
schedule.
D 9 44 12
E 11 55 12

141
Production Planning and Control
 For the previous situation, find:
 Total completion time
 Average flow time (flow time is processing time + waiting
time). This would be sum of flow times of all jobs divided
by number of jobs.
 Average number of jobs in the system each day (waiting or
being processed)
 Average job lateness
 Then find the same parameters and draw the Gantt chart
for sequencing using shortest processing time rule and
compare the two rules

142
Production Planning and Control
 Next Best Rule
 A priority rule that gives top priority to the waiting job
whose set up cost is least
 Exercise (matrix of set up cost is given: find the best
schedule)
Predecessor job Successor Job
A B C D E

A 0 29 20 18 24
B 0 0 14 19 15
C 0 35 0 37 26
D 0 15 10 0 10
E 0 18 16 40 0
143
 Production Planning and Control
 Processing n Jobs through 2 machines (S.M.Johnson rule)
 Select the shortest processing time job. If it lies in the first machine, schedule
it first. If in the second machine, schedule it last.
 Continue the process till all the jobs are covered.
 Then draw the Gantt chart showing the schedule and idle time in the two
machines
 Exercise: schedule the jobs below to get the least idle time and minimum
completion time.Each job is processed in order A first and then B
Job Machine A (hours) Machine B (hours)

1 5 2
2 1 6
3 9 7
4 3 8
5 10 4

144
 CHAPTER 12

INVENTORY

145
 Inventory Control
 Why Inventory?
 To meet random demand variations, seasonal demand.
 Maintain smooth production flow
 Decouple operations- create buffer
 Prevent stockouts (missed delivery, lost sales, dissatisfied
customer, production loss)
 Prevent overstock (blocked capital, opportunity loss)
 Take benefit of bulk purchase, and economic lot sizes (for
both production and purchase)
 Take advantage against price increase
 Better service to customers, provide more variety

146
 Inventory Control
 Inventory Model
Consumption

Q
Inventory
Production
Time
Re-order Average Usage
Point
Max Demand Usage
Q
Reorder level

Safety Stock

Lead Time
Reorder point depends on:
•Usage during lead time
•Safety stock 147
R=Annual demand/Requirement, c = unit cost in Rs, I= annual inventory carrying cost in
percentage of total cost, Co = cost per order

EOQ = SQRT(2RCo/Ic)
Total minimum cost = (EOQ/2)*I*c + (R/EOQ)*Co +c*R

Total Cost Inventory Carrying Cost=

(Q/2) *I *c

Cost
Ordering
Cost=(R/Q) * Co

EOQ

Quantity Q

148
 Inventory Control
 Ordering cost Co comprises of:
 Purchasing department expenses, receiving expenses, billing
expenses, inspection expenses, follow up, secretarial etc.
 Find the total of such expenses, divide by the number of orders
handled during a year and get the value of Co.
 Carrying cost (I) comprises of:
 Stores management expenses, interest on blocked capital,
insurance, obsolescence, pilferage, material handling, stores
rentals etc.
 Find the total of such expenses, divide by the average
inventory during the year and get the value of I as a percentage
of average inventory investment.

149
 Exercise: Inventory Control
 Problem 1
 Item A annual consumption: 730 units
 Ordering cost Rs 150
 Carrying cost: 30% of average inventory investment
 Unit cost: Rs 120
 Delivery lead time: 5 days
 Find the optimal ordering quantity and reorder point.
 In case a discount of 5% is offered if the order quantity is
150 units or more, what will be your purchase quantity
decision?
 (Take 365 days in a year for calculations.)

150
 Exercise: Inventory Control
 Problem 2
 Item A annual demand: 200 units
 Cost of placing order Rs 240
 Inventory Carrying charge: 20%
 Price upto 49 units: Rs 290
 Price 50 to 99 units: Rs 285
 Price 100 or more units: Rs 280
 Determine the optimal ordering quantity and total cost.

151
 Selective Inventory Control
 Prioritising items; separating the vital few from the trivial
many, using the Pareto principle.Few items (about20%)
responsible for about 80% of the problems.
1. ABC Analysis:based on annual consumption value in
money terms.
2. VED Analysis: for maintenance spares and other similar
items classified according to their importance ranked as
Vital, Essential and Desirable.
3. SDE Analysis: from procurement angle. Ranking items as
Scarce, Difficult and Easy to obtain.
4. FSN or FSD Analysis: based on material movement/rate of
consumption. Priritised as fast, Slow and Non Moving
items or Dead items. Used to clear inventory of deadwood.

152
 Selective Inventory Control
 ABC Analysis

Cumulative
Consumption
Value in C
Percentage B

20 40 100

Cumulative Percentage of Items

153
 ABC ANALYSIS
 Managerial Intervention
A Items B Items C Items
Strict physical control Moderate control Loose control
Very low stock levels Low stocks ( 1 to 3 High stocks: > 3 months
including safety stock (1 months)
day to a week)
Very frequent ordering Maybe once in one to three More than three months
(daily/ weekly) months
Strong MIS-daily/ weekly Monthly reports. Quarterly reports.
control reports. Periodic follow up. Follow up in exceptional
Hourly control, follow up cases.
and expediting
Vendor development Moderate Not critical
critical
Management control by Middle level Lower level
senior executives

154
 Stores System
 Receipt
 MRN or GRN or GIN or MIN (Material receipt)
 Rejection memo note
 Material excess short supply note
 Arrange QC check
 Insurance claims
 Stocking
 Storage system- identification, coding, racks, facilities etc
 Storage method- closed store, open store
 Storage keeping – single bin, double bin
 Storage protection- against theft, damage, pilferage, deterioration

155
 Stores System
 Issue
 In-house
 Outside suppliers
 Store Accounting
 LIFO
 FIFO
 Weighted Average
 Stock verification
 Bin card balance with physical quantity
 Inventory control
 Stock levels, reorder levels
 Selective inventory control
 Minimize cost

156
 Stores System
 Initiate purchasing to avoid stockouts
 Optimal utilization of storage space
 Record keeping – incoming material, outgoing material
 Reporting – high stocks, discrepancies, excess consumption
 Housekeeping, cleanliness and orderliness to reduce search
and retrieval time

157
 Purchasing
 Items of Purchasing:
Purchasing Raw Materials, components, consumable stores and
supplies,office supplies, spares, tools, machines and equipments.
 Objectives of Purchasing:
 To procure materials at minimum cost
 To ensure continuous flow of production
 To develop sources of supply
 To maintain good buyer seller relationship
 Business ethics
 Purchasing principles
 Right quality, Right Quantity, Right Place, Right Source, Right Price,
Right Delivery(Time)

158
 Purchasing
 Purchase Procedure
 Recognition of need of the user: purchase requisition or
indent; bill of materials. This is the starting point of
purchase.
 Selection of supplier

159
 CHAPTER 14

MATERIAL
REQUIREMENTS
PLANNING
160
 Materials Management
 IMPORTANCE OF MATERIALS MANAGEMENT
 Sales Rs 10 million
Materials Rs 6 million
Labour Rs 1 million
Overheads Rs 2 million
Profits Rs 1 million
If one is given the responsibility to increase profits by 30% i.e. by Rs
0.3 million, there are following options :
1) Increase sales volume by 30% by making substantial increase in
marketing efforts.
2) Reduce material cost by 5%
3) Reduce labour cost by 30%
4) Reduce overheads by 15%
Which option will you take?

161
 Materials Management
 IMPORTANCE OF MATERIALS
MANAGEMENT
 Also
 ROI =(Profit/Sales) X Sales/(Fixed Assets+Current
Assets)
 Current Assets are predominantly materials.Lower the
current assets, higher is the ROI.
 Fixed Assets constitute capital already sunk and the only
scope for improving the return on investment lies in the
efficient management of materials which constitute the
bulk of the current assets.

162
 Materials Management
INTEGRATED MATERIALS FUNCTION
Materials management function is to plan, control,
organise, coordinate, source, purchase, transport, store
and control the materials in an optimum manner so as to
provide a pre decided service to the customer in terms of
quality and schedule at the minimum cost.
Materials Management brings together under one
manager all the planning, organising, and control
activities associated with the flow of materials into and
through an organisation. Physical distribution is even
broader , encompassing managing materials flow into the
organisation as well as managing materials storage and
transportation flow out as finished products.

163
 Materials Management
Functions of Materials Management
• Material Planning
• Purchasing • Vendor Development
• Stores Management
• Material Control • Inventory Control
• Waste Reduction
• Standardisation
• Variety Reduction
• Value engineering
• Transportation
• Material handling
• Disposal of Scrap Surplus and Obsolete Material

164
 Materials Management
Some of the above functions have conflicting interest. For
example, Purchase would like to buy in large quantities to
avail quantity discount and save on ordering cost as well as
time. The Finance function is worried over blocked capital
because of inventories. While production wants large
inventory support so that production goes unhampered and
does not stop on account of material shortages.
As the above functions can be conflicting and inter related,
there is a need to have an integrated set up so the top materials
executive can exercise control and coordinate with an over
view that ensures optimal utilisation of the company’s
resources.

165
 Materials Management
The advantages of integration are :
• Better accountability - through centralisation of
authority and responsibility.
• Cost Reduction
• Elimination of waste
• Better inventory planning
• Faster inventory turnover
• Meeting delivery deadlines through material
availability
• Higher productivity and higher profits
• Better communication and better coordination
• Adaptability to computerisation
166
 Materials Organization
Managing Director

Director or GM Materials

Vendor Stores-
Purchasing Material Standardization,
Development Receipt,
Planning Codification, Variety
Stock,
Issue Reduction
Imports
Inventory
Transport/
Control
Shipment,
Despatch
Excise

167
 Materials Organization
 Can organize by specialisation of buying
function.
 Purchase
Pumps
Electricals

Forgings
Castings

168
 Materials Organization
 Can decentralise by location or unit wise.

Unit 1 (Mumbai)

GM Unit 2 (Noida)
Materials
Unit 3(Chennai)
Unit 4
(Hyderabad)

169
 Materials Planning
 Material Plan

Sales Production Material

Forecast Program Plan

Feedback and
Review
170
 Materials Planning
 Material Plan Material
Requirement
Inventory of material
on hand
Qty of Material
to be purchased
Forecast of
Inventory price/ rates
norms/ targets Purchase
Budget
Actual
purchases
Variance control
& Reporting

171
 Bill of Materials
 BOM Level 0
Chair (1)
Finished Product

Frame (1) Back Seat Wood Cross Level 1

cushion (1) cushion (1) end (2) piece (4)
Subassembly

Level 2
Tube (3) Webbing (3) Foam (0.55) Foam (0.45) Wood (2.2)
Raw Material

Fabric (1.4) Fabric (0.7) Fabric (0.6) Wood (0.5)

Fastener(4)

172
 Bill of Materials
 For example, the above BOM means for 1 unit of
chair one needs 2.7 units of fabric, or for 100 units of
chair , 27 units of fabric are required .
 The techniques for estimating material requirements
are :
 1. Sales Forecasting
 2. Past consumption analysis
 3. Bill of materials explosion

173
 MRP: Material Requirement Planning
 Components of MRP
 Master Production schedule (MPS)
 Bill of Materials (BOM)
End Product
A

Components B C

Components D E

 Inventory Status File

 MRP Processing Logic

174
 MRP Processing Logic
 Gross Requirements less Inventory
 = Planned Order Receipts
 Based on lead time for supply, the schedule for Planned
Order Release is worked out.
 <Example> Lead Time 1 week.
Week 1 Week 2 Week 3 Week 4
Gross Requirement 400 500
Scheduled Receipts 100 150
Available for next period
(Inventory) 50
Net requirement 250 350
Planned order receipts 250 350
Planned order release 250 350

175