 Operations

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

Inputs (4Ms) •Man •Material •Machine •Method
•Measurement •Money (Capital)


Conversion Process (Value Adding) Comparison: Actual vs desired

Monitor Output

Outputs •Goods •Services



Historical development of Operations Management
Specialisation of Labor in manufacturing Division of Labor by skill, assignment of jobs by skill Scientific management Motion study of jobs Scheduling of jobs, machines Economic lot sizes for inventory control Human relations: Hawthorne studies

1832 1900 1900

Adam Smith Charles Babbage Frederick W Taylor
Frank B Gilbreth Henry L. Gantt F.W.Harris Elton Mayo

1901 1915 1927



Historical development of Operations Management Statistical Quality Control Inspection sampling plans Operations Research Digital computer Linear programming Mathematical programming, non linear and stochastic processes Commercial digital computer

1935 1940 1946

W.A.Shewart H.F.Dodge and H.G.Romig P.M.S Blacket and others
John Mauchly and J.P.Eckert Dantzig, OrchardHays and others Charnes, cooper, raiffa and others Univac

1947 1950 1951


Historical development of Operations Management
Organizational behavior Integrating operations into overall strategy, computer applications to manufacturing, MRP Cummings, Porter and others Skinner, Orlicky and Wright



Quality and productivity applications from W.E.Deming and J. Japan, robotics, CAD/CAM, Kaizen, 5S, Juran, Taichi Ohno, Quality Circles, JIT Taguchi, Ishikawa TQM- practices and awards, Malcolm Baldrige, EFQM, Deming etc ISO 9000, QS, ISO 14000, BPR TPM


Historical development of Operations Management Six Sigma 2000 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


 Verbal


– For example, writing directions in words, Operating

 Schematic.
– For example, charts, diagrams, maps

 Iconic

Models – scaled physical replicas of objects/ process.
– For example, Building Model, Bridge model, factory



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

 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

  

  

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


Strategic Perspective
Market & Competition

Business Potential

Profit or Return Source of Funds oduct, Service Quality

Quality,  Cost Efficiency (low product price), Dependability (reliable, timely delivery), Flexibility (response to changes), Productivity, Safety, Morale

Product Design Flexibility Delivery Capability Location of Facilities Processing technology Control Systems

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


Operations Pyramid

Operations Pyramid PROFIT Quality Man Cost Survival of Enterprise Delivery Target

Machine Material Method Visual Management

Elimination of Waste

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



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.

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

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.


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

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.

Quality Concept
 Relationship

between Quality, Productivity C P P Q C C

and Cost Common Concepts P Q Reality Q

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)

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

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.


The manager of a cola bottling plant came to work early on Friday, and checked labor efficiency figures:

 Mon  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.


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 Tue

6 regular 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?

264 232




 

    

Why Forecasting: Planning and Scheduling  Production  Manpower  Material  Machines Product Design Process Design Equipment/ Facilities Capacity Planning Control  Production, Inventory, Labour, Cost

 Forecasting


Type of Information Decision Needs Short Run Specific item demands Aggregate demands Long Run Strategic facilities Present 5 years hence

 

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 (Units) over time Constant Time

 High Noise  Low Noise   
Production demand (units)

       

 Time


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.


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.

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 = ∑  forecasted demandi  actual demandi 



where n is the number of periods.

Forecast Error
 BIAS  Bias

expresses the absolute magnitude but not the direction of error .
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.


Forecast Error

• Bias Bias = sum of the algebraic value of forecast error for all periods Number of periods n = ∑ (forecast errori ) i=1


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



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 March 1 March 8 March 15 March 22 Forecasted demand (Kgs) 210 235 225 270 Actual Demand (Kgs) 200 260 215 300

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.


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.


Regression Analysis

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

 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.



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 1 2 3 4 5 6 7 8 9 10 Advertising (Rs 100,000) 4 10 15 12 8 16 5 7 9 10 Sales (Rs million) 1 4 5 4 3 4 2 1 4 2

Qualitative Methods in Forecasting  Delphi Technique
    

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.

 

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.

Qualitative Methods in Forecasting

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.




Product Life Cycle

Sales Volume

Start up

Rapid Growth




Product Life Cycle
Start up Product Variety Volume Industry Structure Great Rapid Growth Maturity Decline High Standardiza tion High Volumes Survivors Product Quality, Availability Price & Price Dependabilit y

Low Small Competitors

Form of Product Competition Characteristics


Screening Economic Analysis Development Testing Commercial Use

Decay Curve Of New Product Ideas


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
Corporate Level R&D

Corporate Level R&D Division X Division Y R&D


Division X

Division Y Corporate Level R&D


Division X

Division Y



Product Development Process
NEEDS Identify CONCEPT Product CONCEPT Design



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

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


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


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.

 

     

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.
Improving individual components reliability through better design, better sourcing of material (purchase) Providing of redundancy Preventive Maintenance Increasing Repair Capabilities

Tactics for improving 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?


 

  

< 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.



Two year failure probability 0.01 0.03
Vendor Y Vendor X Vendor Y

Data collected is as under:  Components with Unit cost ($) existing design Coil Prime Circuit With new design and new vendors Coil Prime Circuit 17.00 8.50
Vendor X

16 12

21 15

0.01 0.02

0.005 0.001

 

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.
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

Tactics for improving maintainability:
          

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


Modular Design and Standardisation

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.


to build Easy to maintain Stabilise design Simplified inventory control Simplified production and material planning

Standardisation Benefits:

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

need to re-design : buy standard Simplify PPC, material planning Reduce components production: Buy standard Reduce inventory


Ways to Organise Process Flows

technology 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)


Characteristics of Process Technologies

Project Job Shop Batch Assembly line Continuous

Characteristic A.Equipment and Layout Size Flow

varies No pattern

small No pattern

moderate Semi fixed

large rigid

Very large Inflexible, technologically oriented Very fast Very fast

Speed Rate of Change B. Work Force Labour Intensiveness Skill Training Needs

varies Very slow

slow Slow medium

moderate medium

fast fast

high high Very high

Very high high high

varies mixed moderate

low low low

Very low varies varies

C .Material & Information Control Material Requirement Scheduling varies uncertain Difficult to predict uncertain high predictable More certain moderate predictable More certain moderate Easy to predict inflexible low

Information Requirements Very high D.Challenges Estimating Sequencing

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


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.


Learning Curve

Learning Curve

Yi = k i b
Labour Hours

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

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

Cumulative unit




     

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)

 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

  
Forecast of capacity requirement Capacity Capacity

Capacity build up options: Step wise increase Increase in one go

Time period(year)

Time period(year)



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


Time period(year)



Production cost related to factory’s facility capacity.
P1 =optimal rate of output Cost per unit of output P1- = machine, labour underutilised

P1- P1 P1+

P1+ = higher cost by Overtime, inadequate maintenance, excessive congestion


 1. 2.

Steps to Capacity Planning Assessing existing capacity Forecasting capacity needs

Using forecasting methods, market analysis, product life cycle, technology etc

3. 4. 5. 6.

Identifying alternate ways to modify capacity Evaluating alternatives (financial, economical, technological) Selecting capacity alternative most suited to achieve strategic mission Decide on plan for implementation

 1.

Short term strategies for modifying capacity Inventories
Demand> Capacity Demand< Capacity


2. 3. 4. 5. 6. 7. 8.

Backlog –order booking excess of capacity and keep an order backlog file. For example, Maruti cars; service units Employment levels- hire, layoff Work force utilization Employee training Process design Subcontracting Maintenance

           

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?


  

 

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

 

Decision Tree Analysis Decision Tree
Drop sales Don’t expand Same level sales


p=0.2, sales up 50% p=0.5, sales up 10% p=0.3, sales up 20%


 

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

– Estimate probability for each possible outcome of each chance event – Estimate financial consequences of each possible outcome and decision


Evaluation and Selection
– Calculate expected value of each decision alternative – Select the decision alternative offering the most attractive expected value.



0.6 A


Rs 140000 Rs 180000 Rs 210000 Rs 200000

Z1 Z2

D1 C2 D2





Rs 200000 Rs 150000 C3 Rs 100000 0.4 Rs 80000 0.3 0.3 Rs 70000 Rs 60000





Analyze the above decision tree. The costs are shown at the end of branches.


 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



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


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.


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


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.


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)


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


Plant Location: Exercise

Factoral Analysis: Exercise- Which is the best site?


Weight %

Possible Sites(Points Allocated) Noida Gurgaon
8 8 9 8 6 6 5 6

6 5 5 5 7 10 6 6

7 6 6 8 8 8 6 6

7 8 8 8 9 6 6 6

Market Sourcing Materials Manpower Availability Infrastructure Labour problems Cost of land Cost of utilities Freight cost

15 10 10 10 15 12 10 18

8 8 9 8 4 7 5 6


Plant Location: Measures/Models for Evaluation/Analysis

Break Even Analysis-Exercise-Find the best site Site A Site B Rs 50 Site C Rs 50

Selling Price per unit Fixed cost Variable cost per unit

Rs 50 Rs 100,000 Rs 30

Rs 120,000 Rs 150,000 Rs 20 Rs 25


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 F1 F2 F3 F4 755 900 450 500 Cost Ci 1 1 1 1 Xi, Yi 20, 30 10, 40 30, 50 40, 60

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 A B C Loads Li 22 43 36 Cost Ci 10 10 10 Xi, Yi (km) 20, 10 10, 40 40, 20

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 L1 L2 L3 L4 Milk produced (in Xi, Yi (km) 100,000 Kgs) 200 300 800 200 20, 0 0, 400 140, 20 360, 80

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?.



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

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

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

Types of Plant Layout
 Process

Oriented or Functional Layout
Milling Planers Grinders Finished Goods Store Drills Heat treatment Shop Assembly Shipping to customer

Automatics Lathes Inspection Recei- Raw ving Material Store Suppliers


Types of Plant Layout

Product or Line Layout Line ‘A’  B Fabrication Line ‘B’  

 Final Assembly Line




  C Part Line ‘C’ 


Cellular Plant Layout

Process Layout A A C C







Cellular Plant Layout

Cellular Layout A C D E






Cellular Plant Layout
– 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

– Reduces flexibility – Reduces machine productivity as machines dedicated to cells may not

be used all the time


Comparison of Different Types of Plant Layout
Product Product Work Flow Human Skills Process Fixed Made to order, low volume No flow. Equipment, men, brought to site High skills, flexibility Complex General equipment, heavy duty High inventories Medium General purpose, mobile Standard,large volume,stable rateDiversified product, varying of output volume Sequential/linear, for each unit the same sequence Routine/repetitive Variable flow. Different sequence Adaptable high skills Complex Duplicate handling

Production Planning and Control Easy Material Handling Inventory Space Utilization Capital Requirement Product Cost Behavioral Automated

Medium raw material and WIP High raw material and WIP Efficient Large specialised equipment Medium General purpose

High fixed cost but low unit cost Low fixed cost but high unit cost Low fixed cost but high unit cost Job dissatisfaction, routine, Managers skilled in inter group Managers skilled in project absenteeism, employee turnover coordination management


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


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


Travel Chart
 

For material movement analysis, for relationship among activities. This helps in plant layout. Example:
Casting Drilling 5 Machining 8 2 3 2 Welding 2 Inspection 8 8 5 6 Total 23 10 10 6

Casting Drilling Machining Welding Inspection Total




27 49



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

Material Handling System
Types of Material handling equipments:

      

Lifting (crane, jib crane) Holding (gantry crane) Dropping Loading, unloading Positioning Moving Stacking etc Cranes Belt conveyors Roller conveyors Bucket conveyors Chutes Trucks,tractors,trailors Fork lifts, pallet trucks Trolleys Ropeways rails

         


Templates for Layout
Use of templates, String Diagram


Templates for Layout

Three Dimensional blocks



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 1 A B 2 C 3 D E 4 F 5 G 6 H


Modelling Product Layout

Desired Minimum Daily Output Capacity-320 windows (8 hours working per day)
Tasks Assigned Predecessor None A A A A B,C C Task Time (secs) 70 80 40 20 40 30 50

Work Preceding Station Work Station 1 2 3 4 5 6 1 2 3 4 5

A: Assemble frame B:Instal Rubber Moulding C:Insert frame screws D;Instal frame latch E:Instal frame handle F:Instal Glass Pane G:Cover frame screws

H: Pack window frame unit D,E,F,G 50


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.

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.

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

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.

Modelling Product Layout

Balancing the Line: Window frame assembly example


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.


Modelling Product Layout
 Balancing

the Line: Window frame assembly

 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.



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

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.


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


Job Design
 

Operation Chart (Two Hand Operation Chart):Assemble nut and bolt.Can you improve the situation? <Existing Situation>
Right Hand
⇒ O ⇒ ∇ ∇ ∇ ∇ O D D

Left Hand Reach for nut Grasp nut Move towards bolt Hold nut Hold nut Hold nut Hold nut Assemble nut and bolt Idle Idle

Idle Idle Idle Reach for bolt Grasp bolt Move towards nut Hold bolt Hold assembly Inspect Release assembly

D D D ⇒ O ⇒ ∇ ∇


Man Machine Activity Chart
<Example: Machining a casting>Not drawn to scale. Can you improve the situation? Time is in mins.



Working Idle

1 3 4 14 15 16 17.8 18 30

Unload job Clean job Clean machine Inspect job Put aside job Pick new job Load job Start machine Idle

Idle Idle Idle Idle Idle Idle Idle Idle Machine running

% working M/C 40 Man 60 Total cycle time 30 mins

Flow Chart Weld




⇒ O







R.M Store


F.G Stores


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


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.


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?


Where is it done? Why?
– Where else?Where should? – When else?When it should?

Combine wherever possible Rearrange/change sequence Simplify the operation

Sequence When is it done? Why? Person Means Who is doing? Why?
– Who else? Who should?

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 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

Time Study
– – – – – – –

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%


Job Design
From Time Study to Standard Time  Allowances:  Variable additions to basic fatigue allowance
 – – – – – – – – – – –



Standing Abnormal position(bending/lying) Weight/force Light conditions Air conditions Visual strain Aural strain Mental strain Monotony mental Monotony physical Special allowances
   

2% 4% varies 0~7% (eg. 10Kg) 3% 4%
varies 0~18%

varies 0~5% varies 0~15% varies 0~5% varies 0~5% varies 1~8% varies 0~4% varies 0~5%

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 Machine Running Machine stopped     Total 5 3 % 62 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)

Job Design

Procedure of Work Study
Basic Step Method Study            Work Measurement   Select jobs for study Record Various charts, Diagrams, Movement analysis Examine (critical examination, 5W1H) Develop Measure(stop watch, PMTS,Work sampling, etc.) Define Instal Maintain

1 2 3 4 5 6 7 8 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



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.

Production Planning and Control

Coverage of PPC
Business Plan

Output Planning Aggregate Output Planning Master Production Scheduling Material Requirement Planning
Loading Sequencing Detailed scheduling Expediting

Capacity Planning Aggregate Capacity Planning Rough cut capacity planning Detailed capacity planning Short term capacity control

Shop floor control


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

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

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/ Despatch I.E Marketing Quality Purchase PPC Stores Utilities Material Planning


Production Maintenance

Production Planning and Control

Aggregate Production Scheduling

Alternative 2

Cumulative Demand

Alternative 1

Cumulative Demand

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.

Production Planning and Control

Operation and Route Sheet/Card
Ref. OPERATION AND ROUTE SHEET Drawing No. Quantity Delivery by Operation Tools AccessoriSet up Operati Total es time on time Time Date Component/Job. No. Name of Job Material Routing


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

– 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

Fabricate Assemble Assemble Stages Lead Time
Cumulative production

Final Assembly Test Ship V VI 3 2 VII 1 0

I 10

II 9

III IV 8 7




Process Plan
Cumulative production

Line of Balance

Review period 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 A B C Week 1 Week 2 Week 3 Week 4


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 FCFS sequence A B C D E Processing time (days) 4 17 14 9 11 Flow time (days) Due date(in days from now) 4 21 35 44 55 6 20 18 12 12
Exercise: draw Gantt chart for schedule.


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

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 A A B C D E 0 0 0 0 0 B 29 0 35 15 18 Successor Job C 20 14 0 10 16 D 18 19 37 0 40 E 24 15 26 10 0

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 1 2 3 4 5 Machine A (hours) 5 1 9 3 10 Machine B (hours) 2 6 7 8 4





Inventory Control
 Why
       


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

Inventory Control

Inventory Model




Re-order Point

Average Usage Max Demand Usage
Reorder level

Safety Stock
Lead Time Reorder point depends on: •Usage during lead time •Safety stock

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 Cost
Ordering Cost=(R/Q) * Co EOQ

Inventory Carrying Cost= (Q/2) *I *c

Quantity Q


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.

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.)


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.


Selective Inventory Control

1. 2.

3. 4.

Prioritising items; separating the vital few from the trivial many, using the Pareto principle.Few items (about20%) responsible for about 80% of the problems. ABC Analysis:based on annual consumption value in money terms. VED Analysis: for maintenance spares and other similar items classified according to their importance ranked as Vital, Essential and Desirable. SDE Analysis: from procurement angle. Ranking items as Scarce, Difficult and Easy to obtain. 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.


Selective Inventory Control

ABC Analysis

Cumulative Consumption Value in Percentage

20 40



Cumulative Percentage of Items



Managerial Intervention
A Items
Strict physical control Very low stock levels including safety stock (1 day to a week) Very frequent ordering (daily/ weekly)

B Items
Moderate control Low stocks ( 1 to 3 months)

C Items
Loose control High stocks: > 3 months

Maybe once in one to three More than three months months Quarterly reports. Follow up in exceptional cases. Not critical

Strong MIS-daily/ weekly Monthly reports. control reports. Periodic follow up. Hourly control, follow up and expediting Vendor development critical Moderate

Management control by Middle level senior executives

Lower level


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


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


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


        

Items of Purchasing: Raw Materials, components, consumable stores and Purchasing 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)


 

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




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?


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.


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.


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


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.

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

Materials Organization
Managing Director
Director or GM Materials Vendor Development StoresReceipt, Stock, Issue Transport/ Shipment, Despatch Excise


Material Planning Inventory Control


Standardization, Codification, Variety Reduction


Materials Organization
 Can

organize by specialisation of buying function.  Purchase
Pumps Electricals Forgings Castings


Materials Organization
 Can

decentralise by location or unit wise.

Unit 1 (Mumbai) GM Materials Unit 2 (Noida) Unit 3(Chennai) Unit 4 (Hyderabad)


Materials Planning

Material Plan

Sales Forecast

Production Program

Material Plan

Feedback and Review

Materials Planning

Material Plan

Material Requirement Inventory of material on hand Qty of Material to be purchased

Inventory norms/ targets

Forecast of price/ rates

Purchase Budget Actual purchases Variance control & Reporting

Bill of Materials


Chair (1)

Level 0 Finished Product

Frame (1)

Back cushion (1)

Seat cushion (1)

Wood end (2)

Cross piece (4)

Level 1 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)


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


MRP: Material Requirement Planning
 Components
 

of MRP

Master Production schedule (MPS) Bill of Materials (BOM)
End Product Components Components

 

Inventory Status File MRP Processing Logic


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 Gross Requirement Scheduled Receipts Available for next period (Inventory) 50 Net requirement Planned order receipts Planned order release 250 250 250 350

Week 2 400

Week 3 150

Week 4 500


350 350