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Prof. (Dr) Satish Ailawadi

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Introduction to Operations Management

Definition

• Production and operations management concerns itself with the conversion of inputs into outputs, using physical resources, so as to provide the desired utility to the customers while meeting the organizational objectives of effectiveness, efficiency and adaptability.

• The desired utility could be of form, place, possession or state or a combination thereof.

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• It distinguishes itself from other functions such as personnel or marketing by its primary concern for ‘conversion by using physical resources’

• There may be number of situations in either marketing or personnel or other functions which can be classified under production and operations management.

• A Few Examples:(a) The physical distribution of products to the customers.(b) Collection of marketing information.(c) Recruitment and selection process.(d) Paper flow and conversion of accounting information

in an accounts office.(e) Paper flow and conversion of data into information

usable by the judge in a court of law. 1

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Cases Input Physical

resources usedOutput Type of

Input/OutputType of utility provided to the customer

Inorganic chemicals production

Ores Chemical plant and equipment, other chemicals, labour etc.

Inorganic chemical

Physical input and physical output.

Form

Outpatient ward of a general hospital

Sick patients Doctors, nurses, equipment and other facilities

Healthier patients

Physical input and physical output.

State

Petrol pump Petrol in possession of the petrol pump owner

Operators, errand boys, equipment etc.

Petrol in possession of the car owner

Physical input and physical output.

Possession

Taxi Service Customer at the railway station

Driver, taxi itself, petrol

Customer at his residence

Physical input and physical output.

Place

Income tax office

Information Officers and other staff, office facility

Raid Non-physical input and physical output

State and possession.

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• However, a clear demarcation may not be always possible between operations systems that provide ‘physical goods’ and those that provide ‘service’

• Examples:(a) ‘Food in Southern Railways is quite good’ however

food is not the main business of Railways., or(b) ‘Goodwill Refrigerator Company’ not only makes

good refrigerators, but also provides good ‘after sales service’.

• In today's environments, the concept of ‘physical goods production’ and ‘service provision’ are not mutually exclusive.

• In fact, quite often, these are mixed, one being more predominant than the other.

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A Conceptual Model of Operations System

Inputs•Labour•Materials•Equipment•Capital•Management

Conversionprocess

OutputsGoods andServices

Comparison•Actual v/sPlanned

Adjustmentneeded

Monitoroutput

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Objectives of Operations Management System

(a) Customer satisfaction(b) Effectiveness(c) Efficiency- Efficiency implies optimal utilization of

resource inputs- Effectiveness has to be viewed in terms of

short and long term horizons.- Effectiveness would depend upon the

flexibility or adaptability of the system to changed situation. 1

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Long-term horizon Intermediate term horizon Short Time horizon

Product design Methods selection Production scheduling

Technology employed Quality control and inspection implementation

Materials allocation and handling

Site selection Plant and machine loading decision

Scheduling of manpower

Plant and machinery selection

Purchasing policy Breakdown maintenance

Long lead time raw material supplies

Purchase source selection, development and evaluation

Progress monitoring and change in priorities in production scheduling

Process selection Make or buy decisions Temporary manpower

Warehouse arrangements Transport arrangements Attention towards problem areas in labour, materials and machines.

Setting up of work standards

Preventive maintenance scheduling

Effluent and waste disposal Shift working decisions1

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Decision Areas in Operations Management

1. Technology selection and management

2. Capacity management

3. Scheduling/ Timing/ Time allocation

4. System maintenance Technology Selection and Management- Primarily pertains to long-term decision - Important issue to be addressed in an age of

spectacular technological advances so as to ensure organization’s preparedness in selecting an appropriate technology. 1

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- Has significant bearing on the management of manpower, machinery, capacity, and materials .

- Closely linked with the capacity and system maintenance.

Capacity Management- Important for achieving organizational

objectives of efficiency, customer service and overall effectiveness.

- Lower than needed capacity results in non-fulfillment of some of the customer services while higher than necessary capacity results in lowered utilization of resources i.e. lower efficiency of the conversion operations. 1

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• There should be ‘flexibility’ built into the capacity available.

• Flexibility would depend upon ‘technology’ decisions and nature of production/operations systems.

• While some operations systems can be flexible to some extent, some other have to use inventories as the flexible joint between the rigidities of the system.

• The degree of flexibility required depends upon customers demand fluctuations.

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Continuous Flowtype

Massproduction

type

Batchtype

Job-shoptype

Output/ product variety

Production

Volum

e

Production/Operations capacity

Production/Operationsflexibility

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• As the product variety increases, the systems of production/ operations change.

• In a system characterized by large volume-low variety, one can have capacities of machinery and men which are inflexible due to repetitive nature of activities involved.

• In a high variety and low volume demand situation, the need is for a flexible manufacturing system.

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• As the product variety increases, the systems of production/ operations change.

• In a system characterized by large volume-low variety, one can have capacities of machinery and men which are inflexible due to repetitive nature of activities involved.

• In a high variety and low volume demand situation, the need is for a flexible manufacturing system.

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Scheduling• Deals with the time phasing of the capacities to meet

the demand as it keeps fluctuating. • As the span of fluctuations in variety and volume gets

wider, the scheduling problems assume greater importance.

• Thus, in job-shop i.e. tailor-made physical output or service type operations systems, the scheduling decisions would determine the customer delivery and the productive use of the machinery.

• When time is viewed by customers as an important attribute of output, the need for scheduling becomes more important.

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• When a mass production of output is considered along with a ‘quick response’ characteristics; a conventional mass production assembly line needs to be modified to bring in the ‘scheduling element’.

System Maintenance• Refers to the safeguards in the system to ensure that

only desired outputs will be produced and the condition of physical resources will be maintained normal.

• This area of operations management involves technology selection and management.

• Quality checks on physical/ non-physical outputs of the systems performance and the corrective action e.g. repairs of an equipment would enhance the chances of having a desired output.

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Orientation of Operations Management

• Traditionally, the focus of production/ operations management has been the product and process producing the product.

• Hence, the emphasis has been towards technology, capacity, scheduling and system maintenance.

• Thus, the traditional view may be termed as being ‘product-centric’.

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Transition from Product-centric to People-centric

• With the changes in the customers’ requirements, the production and operations management is placing increasing emphasis on relationships with people that interact with the firm such as customers, employees and suppliers or business associates.

• Supplier relationship is important for the company to have its supplies of materials and services flowing in as desired.

• Firms interact with its associates while taking these ‘supply’ decisions.

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People-Centric View of Operations Management

Target People Decision Type Affected Aspect

Employees HR decisions Quality and productivity

Business Associates Supply decisions Supplies and capacity

Customers Timing decisions Production planning and scheduling

All the above Spatial decisions Location of plants, location of business associates, Layouts

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• Quality and productivity of are intimately related to the human input i.e. employees of the company more than anything else.

• Another important human interaction of the firm is with its customers.

• In addition to quality and productivity the customer is interested in the timeliness of the delivery. Thus, another area of decision is that of ‘timing’.

• Spatial decisions involve decisions regarding locations and layouts.

• ‘Location’ relate to supply and timing while ‘Layout’ relate to timing and productivity issues. 1

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Operations StrategyLong term/ short term decisions- A few

modifications• Recent philosophy is that the technology is

subordinate to the customer as customer requirements dictate the technology generation and use.

• Capacity of the operations system is related to the technology employed.

• Capacity is also dependent upon business associates who provide capacity in terms of outsourced products, supplies and services.1

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• It is not the technology which is a long-term decision but the company’s manpower and suppliers.

• Product design is better fitted in the intermediate term as the technology and design keep changing or are required to be changed.

• Plant selection, manpower training and setting up of work standards would be intermediate term decisions.

• Outsourcing rather than ‘make or buy’ is a long-term decision as it involves selecting business associates who would be partners for long time.

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Components of the strategic management

(a) Defining the mission and objectives of the organization.

(b) Scanning the environments (external and internal)

(c) Deciding on an organizational strategy appropriate to the strengths and weaknesses after taking into account emerging opportunities and possible threats to the organization.

(d) Implementing the chosen strategy. 1

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After deciding upon the mission, objectives and the target market segment , the options before the company to choose in order to a have a competitive advantage are:

(a) Meaningful differentiation and

(b) Cost leadership Meaningful differentiation • Implies being different and superior in some aspect of

the business that has a value to the customer.• For instance, a wider product range or functionally

superior product or a superior after-sales service.• The underlying fundamental objective is to serve the

customer better through various means. 1

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• A superior product design should not be for design’s sake as customers do not necessarily make a bee-line for a better designed product.

• Differentiation is a strategy to win customers and to keep retaining them for a long time.

• Therefore, it is imperative to keep retaining the advantage of differentiation by continual improvement in the specifically chosen area of differentiation.

• While the company differentiates itself from competitors on one aspect, it should perform adequately on the other aspects of service also.

• Concentrating exclusively on one aspect at the expense of other aspects is just not done.

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Flexibility – A Differentiation Strategy

Companies need to differentiate in terms of flexibility of

(1) Product design

(2) Product range or product mix

(3) Volumes

(4) Quick deliveries

(5) Quick introduction of new product/ design

(6) Responding quickly to the changed needs of customer or quickly attending to the problems of the customer.

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• Because the competitive conditions are changing rapidly; a company has to be flexible enough to respond quickly to the changed needs of the customer.

• Flexibility involves being responsive, responsible, reliable, accessible, communicative and empathetic to the customer.

• Flexibility involves not only manufacturing and supplies but also the design and development, the project execution, the marketing and servicing functions.

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Flexibility in manufacturing/ operations

- Flexibility in machines, process and manpower to process the

• Altered designs

• The variety

• Small batch size

• Minimal wastage of time

• Desired quality

• Reduced process time, and

• Deliver on time through managing logistics. 1

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Basis for Competition: Product is available when needed by the customer

Old Approach New Approach

Keep/increase buffer stocks of finished goods and other materials

Reduction of operations lead times, delivery times through strategic alliances.

Invest in more machinery, hire more people, get more materials and thus increase the production capacity.

Improvements in quality, producing right first time, self inspection and certification thereby leading to elimination of wastage of time and reduction in operations/process time.

Improved machinery maintenance, improved design of products and processes, so that expenditure due to breakdowns, rejects and rework is avoided.1

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The by-products are

Old Approach New Approach

Increased costs due to higher inventories and higher investments

Improved reliability in terms of deliveries.

Stock outs due to overload of some work centres.

Reduced costs

Urgent orders increased in order to meet the stock outs

Reduced product variability

Increased complexity giving rise to further wastes and costs.

Improved flexibilities in terms of time, product-mix and volumes.

Failure to meet customer’s changing needs.

Enhanced company/ brand image.1

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Cost Leadership

• Another strategic competitive option that a company can choose is ‘cost leadership’ i.e. offering the product/service at the lowest price in the industry.

• The difference between the modern approach and traditional approach to cost reduction shows a wide difference in understanding of a customer.

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Basis for competition: Cost Leadership

Traditional Approach Modern Approach

Control on costs especially related to direct labour

Eliminate only the non-value adding activities

Reduction in budgetary allocations on training, human resources.

Improve design thereby reducing costs of inputs materials and costs of processing and packaging.

Defer investment in machines, including the necessary replacements

Reduce set up time and save on the attendant costs.

Reduction in support activities Reduce the need to have inventories by reducing lead times and uncertainties through better management and control.

Reduce inventories of raw materials, bought out items and other supplies

Use technology to simplify processes, procedures thereby reducing the resultant wastages. 1

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The resultant effects are

Traditional Approach Modern Approach

Depletion of skills of the manpower. Lean and flexible operations

Reduction in the motivation of manpower.

Better product/service quality

Vendors feel alienated and increase in vendor related problems.

Enhanced responsiveness to customers

Higher wear and tear of machinery. Improved market performance

Delivery and quality taking back seat. Improved profits to plough back in improved machines, training of manpower.

Dissatisfied customers delay payments on one pretext or the other.

Better support to vendors and dealers and hence better services to customers.1

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Manufacturing/ Operations strategies should comprise of the customer oriented strategies of:

A. Improved responsiveness in terms of

• Minimizing time to respond.

• Accessibility through better locations, better geographical proximity, improved logistics, and better systems of communication.

• Wider product/service choices through flexible operations/ manufacturing systems, reduced set up times, better trained manpower, improved product design.

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B. Reduced prices through

• Overall improvements in the production-delivery value chain.

• Better designs of products/services.

C. Improved quality through

• Better skills, better knowledge, and better attitudinal orientation of all production-and-service providers.

• Improved technology

• Reduced complexity1

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Key Success FactorsKenichi Ohmae has mentioned the following as

key success factors for effective implementation of operations strategy.

• Product performance• Technology leadership• New product introduction.• Access to key decision-makers.• Delivery serviceFor a given industry, one or more of these

factors will be crucial.1

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A few examples

• In a sunrise industry such as computers industry, the key success factors will be technology leadership and new product introduction.

• For a routine household product such as a tube-light or bulb or a ceiling fan, the key factor is the product performance.

• For an industrial product such as machine-tool, the key factors are product performance, delivery service and in some cases, new product introduction.

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• For a company manufacturing and selling standard agricultural pump sets in India, the key success factor was the locally available village mechanic who was found to be always consulted by the farmer in making his choice of a pump set from amongst a group of several competing brands providing almost the level of performance.

• Similarly, in project marketing where complete/ partial systems or large complex equipment is to be sold, installed and commissioned, the buyer companies generally go by the opinion of their technical consultants.

• The village mechanic and the technical consultant are the key influencers. 1

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Operations Function’s Role-A New Concept

• Traditionally, operations function has been seen as optimally utilizing the resources of men, machines, materials and money while producing the required output.

• The objective has been ensuring efficiency.(a) Production costs should be low.(b) Men and machines should be utilized fully.(c) Materials wastage should be curtailed• Thus, inventories are ordered and controlled

economically, production runs are scheduled, maintenance programmes are arranged, work study carried out, and physical layout and locations are decided upon.

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• Operation function needs to address the following issues

1. Optimization for whom?

- Should optimization be limited to minimizing costs and/or maximizing profits to the company?

- Shouldn't the customer enter into the calculations regarding the optimization?

2. Is ‘profits’ the prime objective or is it the ‘customer service’ that should be the primary objective guiding the company?

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3. Resources do not comprise of machines and materials.

• Technology and people are equally important.

- Technology relate to machines and materials as its subsets.

- People are the ‘mother resource’ from which technology and the competitiveness of the organization originates.

4. Role of the operations management has changed to provide a strategic direction and leadership to people and managing change.

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• Operations function needs strategic support from R&D function in improving process capabilities, introduction of new/ modified technologies, or coming up with better substitutes for inputs.

• For modified new products, it is necessary that marketing function provides insight into the customers’ requirements.

• Thus, marketing, operations and R&D functions have to work in tandem.

5. Lean production strategy- A manufacturing response to to the

organizational need for serving the customers just in time. 1

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6. Time-based competition- An organizational strategy

- Leads to manufacturing strategy of building flexibility and adaptability in the production system.

Both the above strategies require to have support of appropriate logistics and marketing arrangement.

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Product Design• Mother of all operations processes in an

organization.• The processes for manufacture, the planning of

production, the processes and the checks for quality depend upon the nature of the product.

• Even the logistics or simple shipment of the product depends upon the nature of the products.

• In an organizational context, the design should provide value to the customer,and return on investment to the company.

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• A product’s design has a tremendous impact on what materials and components would be used, which suppliers will be included, what machines or what type of processes will be used to manufacture it, where it will be stored, how it will be transported.

• Even marketing is impacted by the product design e.g. a toothpaste is also designed to act as a mouth freshener.

• Apparently, it may appear like a drawing or a prototype of a physical product with specified dimensions or characteristics.

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• In fact it is the conceptualization and culmination of the thinking as to what the consumer would be offered.

Product Design as a Strategic activity

Customer Service

Product

Production

Product Design

Organizational StrategyFeedback

Associatedservices

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For instance, a watch manufacturing company starts making watches designed as jewellery.

• Results from the objective of catering to a unique customer need.

• Organizational strategy to position differently amongst the multitude of other watch-makers.

• An example of a company driven by a product design to fulfill its objectives.

• Company would have to take special measures in its production process, procurement, quality and logistics strategies.

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Product Design for Organizational Competitiveness

Cost Competitiveness

• A high proportion of a product’s cost is determined at the design stage, for instance

(1) General Motors: 70 percent of the cost of manufacturing is determined at the design stage.

(2) Rolls Royce: Design determines 80 percent of final production costs of 2000 components.

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• Considering the fixed and the variable costs of the product, the following relationship holds good.

(a) Total cost= (Variable cost x quantity ) + fixed cost

(b) Unit cost= (variable cost + fixed cost)/ quantity• Thus, if the product is not profitable because

the fixed cost is high, it would be possible to make it up in volumes.

• As the fixed cost is divided over the number of units, higher volumes of production should result in lower per unit cost.

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• Components of variable cost of production are dependent upon the design of the product.

(a) The kind of materials used.(b) Number of components that go into the product.(c) The required level of skills of the production

workers.(d) The intensity of sophistication of the machinery and

automation that is required (e) The amount of maintenance required that in turn

would depend upon the kind of machinery used and wear-and-tear of the machinery.

(f) Kind and variety of materials used. A good design must take into cognizance of plant and

automation, labour and tooling.1

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A Good Design Effort• A good design should minimize

- Materials cost

- Manufacturing cost

- Quality cost

- Operating cost for the customer.

- Maintenance cost for the customer.

- Depreciation cost for the customer, and

- Environment costs for the customer and or the society. 1

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Competitiveness through quality• A good product design contributes greatly to the

product’s quality.• The various attributes of the product quality are

derived from a good product design., namely

1. Performance: How well the product functions.

2. Conformance: How well the product conforms to the specifications or standards set for it.

3. Aesthetics: How attractive the product is.

4. Reliability: How well does the product maintain its performance during a certain given period.

5. Durability: How long the product lasts in use.1

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6. Serviceability: How easy is the product to maintain.

7. Safety: How little is the risk to the users and those in the vicinity of the users.

8. User friendliness: How easy is it to operate and designed ergonomically.

9. Customizability: How easily can the product be modified in case the customer requirements were to change.

10. Environment-friendliness: How safe is the product for the environment while it is being used and when it is discarded after its use.

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Competitiveness Based on Time

• One of the ways a product design helps a company to gain advantage over its competitors is reducing its reaction time to the market.

• When competing firms have products giving similar service/functions to the customers, it is important to reduce the time to manufacture the product and thus reach the product to the customers quickly.

• It is important to minimize the overall time for product to enter the market.1

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• The economic penalty for time delays is quite severe for new products in a dynamic market.

• The important lead times to be considered are:

(a) Product development lead time, and

(b) Manufacturing lead time The Vicious Cycle of Product Development Delays• Changes occurring in

(a) Business environment

(b) Target market

(c) Technology

(d) Overall competitive position of the firm.1

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Product Development Process• Concept development

• Marketing/sales provide market brief

• Prototype drawing

• Prototype/cost approval.

• Product design

• Get production inputs

• Interact with suppliers.

• Detailed design of the product

• Build full-scale prototype and test.1

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• Manufacturing approval.

• Pilot production.

• Design certification.

• Launch in the market.

• Design review.Product design activities require much

interaction with production, marketing and finance functions at several stages.

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• The manufacturing activities typically include.(1) Defining the required process.(2) Developing the cost estimates.(3) Interacting with suppliers.(4) Developing tools and equipment.(5) Approving prototype.(6) Trying out tools and installing equipments.(7) Pilot production and verification(8) Ironing out problems about suppliers(9) Full scale production.(10)Reviewing the process.

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• The marketing function will include following activities

(1) Making the marketing brief to the product design personnel.

(2) Verify the target market.

(3) Estimating the sales

(4) Evaluating the prototype.

(5) Planning the distribution of the product.

(6) Training sales personnel.

(7) Conducting sales promotional activities.

(8) Providing market feedback 1

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Concurrent Engineering to speed up Product Development

• Many of the activities of production and marketing are interdependent.

• The product development can be speeded up by(a) Having concurrence of the various functions.(b) Doing several of the activities in parallel.(c) Having information sharing across the functions.• Serialized approach to product design would mean a

considerable lead time to introduce the product in the market.

• For instance, if manufacturing has to wait until a product design is released, it will only make the company miss a market opportunity. 1

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• Concurrence can help in doing the ‘design right the first time.’

• Concurrence would avoid the ‘football match’ between the design, manufacturing, quality and marketing function.

• A concurrent approach to product designing is termed as concurrent engineering.

• Concurrent engineering involves doing several activities pertaining to different functions simultaneously.

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Cross-Functional Teams for Product Development

• Concurrent engineering involves cross-functional teams to solve/resolve any issue that may impede the new product deign/ development project in the company.

• Cross-functional teams integrate the various activities of the product development effort and help in information-sharing on a regular basis.

• While in a traditional product design approach one department audits the other department, in a cross-functional team approach there is a collaboration right from the start.

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Team approach to product design work well only when:• The team members have good interpersonal skills.• The roles and responsibilities of the team members are

clearly understood by the individual members.• The authorities and responsibilities between the

functional departments and the product development project team are clearly defined.

• The team is adequately empowered to do what it needs to do.

• The team leader is effective.• The team members are dedicated to their

responsibilities.• The team does not exist only on paper.1

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Developing New Products- A Summary

The MarketingFunction and theMarket

1. Technical and economic feasibilitystudies.2. Prototype design 3. Performance testingof prototype design4. Market evaluationof prototype.5. Design of production model.6. Market performance, processtesting, and economic evaluationof production model.7. Continual modification ofProduction model.

•The productionfunction•Technologies• Processes

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Concurrent Product and Process Design

Product/ Service Ideas

Economic and TechnicalFeasibility Studies

Product/ServiceDesign

ProductionProcess Design

Produce and MarketNew Products/Service

ContinuousInteraction

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• To succeed in the global competition, companies must design, develop, and introduce products faster.

• One approach to speeding up new-product design and introduction is the concept of simultaneous engineering or concurrent engineering.

• It implies that product/service design proceeds at the same time as process design with continuous interaction.

• The concept of simultaneous engineering has significantly compressed the design, production, and introduction cycle of new products.

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Process Planning and Design• In designing production processes, we need to

identify the specific processes to be used in production.

• Process planning is intense for new products and services.

• Replanning can also occur as capacity needs change, business or market conditions change, or technologically superior machines become available.

• The design of products and the design of production processes are interrelated. 1

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A Few Examples of Production Processes-Metal Working

Assembly Casting and Moulding

Cutting Forming Finishing

Fasten Die Drill Draw Buff

Press-fit Injection

Moulding

Grind Punch Clean

Shrink-fit Powdered Metal

Shape Roll Heat treat

Solder Permanent

Mould

Turn Trim Paint

Weld Milling Polish1

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A Few Examples of Production Processes-Non Metal Working

Chemicals Food Mining Textiles Lumber

Crack Canning Dry Spin Cure

Cure Cooking Crush Weave Joint

Distill Crush Extract Wash Saw

Evaporate Pasteurize Screen Knit Turn

Screen Sterilize Smelt Process Plane1

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Factors Affecting Process Design Decisions

A. Nature of Product/Service Demand- Production process must have adequate

capacity to produce the volume of product/service that customers want.

- Provision must be be made for expanding or contracting capacity to keep pace with th demand pattern of sales.

- Some type of production processes can be more easily expanded or contracted than the others.

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B. Degree of Vertical Integration- Vertical Integration is the amount of production and

distribution chain, from suppliers of components to the delivery of products and services to customers, that is brought under the ownership of a company.

- A firm’s outsourcing plans, which should be part of its operation strategy, should help guide these decisions.

- The degree to which a company decides to be vertically integrated determines how many production processes need to be planned and designed.

- Because of shortage of both capital and production capacity, small businesses and start-up ventures ordinarily choose to have a very low degree of vertical integration.

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- In the beginning, when products or services are being introduced to the market, as much of the production of products as practical will be contracted to suppliers.

- Likewise, distribution of products will be contracted to shipping and distributor firms.

- As the businesses grow and products mature, more and more of production and distribution of products typically will be brought in-house as the companies seek more ways to reduce costs and consolidate their businesses.

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The decision of whether to make components/ perform services or buy them from suppliers (outsourcing) ?

Whether the cost of making components isless than that of buying them from suppliers.

* Availability of investmentcapital to expand productioncapacity•Technological capability •Whether the production processes are proprietary.

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Strategic Outsourcing

• Trend is towards strategic outsourcing.

• Outsourcing of processes are primarily done to enable the company to react more quickly to

- Changes in customer demands

- Competitor actions, and

- New technologies.

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C. Production Flexibility- Flexibility means able to respond fast to customers’

needs.- Flexibility is of two forms(1) Product flexibility, and(2) Volume flexibility.- Both are determined, to a large extent, when production

processes are designed.(1) Product flexibility means the ability of the production

system to quickly change from producing one product/service to producing another.

- Required when business strategies call for many custom-designed products/services, each with small volumes or when new products must be introduced quickly. 1

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- In such cases, processes must be designed to include general purpose equipment and cross-trained employees who can be easily changed from one product/service to another.

(2) Volume flexibility means ability to quickly increase or reduce the volume of products/services produced.

- Required when demand is subject to peaks and valleys and when it is impractical to stock products in anticipation of customer demand.

- Production processes must be designed with production capacities that can be quickly and inexpensively expanded and contracted.

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- As manufacturing operations are ordinarily capital intensive, predominant resource resource used is capital rather than labour.

- Thus, to meet variable product demand, capital equipment in production process must be designed with production capacities that are closer to the peak levels of demand.

D. Degree of Automation

- While designing the production process it is important to know how much automation is required to be integrated in the production system. 1

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- Though automation reduces labour and related costs, in many cases huge investment required by automation projects cannot be justified on labour savings alone.

- An operations strategy that calls for high product quality and product flexibility, automation can be important element.

E. Product/Service Quality- In earlier times, it was thought that only way to produce

products of high quality was to produce products in small quantities by expert craftsmen performing painstaking work.

- Mercedes and Rolls-Royce are the examples of automobiles that were produced with this approach.

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- Currently, many mass produced products such as Japan’s Toyota automobiles are considered to be of high quality.

- At every step of process design, product quality enters into most of major decisions.

- The degree of product quality required is directly related to the intensity of automation integrated into the production process because automated machines can produce products of incredible uniformity.

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Types of Process DesignsA. Product-Focused- A form of production process in which the

production departments are organized according to the type of product/service being produced.

- All production operations required to produce a product/service are ordinarily grouped into one production department.

- Also called line-production or continuous production.

- Products/services tend to follow direct linear paths without backtracking or sidetracking.1

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• In continuous production, product/services tend to proceed through production without stopping.

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Raw Materials

Raw Materials

Components

Components

Components

Subassemblies Assemblies

Assemblies

Subassemblies

PurchasedComponents and Subassemblies

FinishedProducts

Raw materials, components, sub-assemblies and finishedProducts follow linear and continuous path in product-focusedProduction of a product.

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• Product-focused process is applied to two general forms of production.

(1) Discrete unit manufacturing

(2) Continuous process manufacturing - Discrete unit manufacturing refers to the manufacture

of distinct or separate products such as automobiles or dishwashers.

(a) Products are produced in batches, requiring the system to be changed over to other products between batches,or

(b) A system may be dedicated to only one product, in which case the system is almost never changed over to other products.

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(c) In discrete unit manufacturing, the term product focused is used synonymously with the line production or assembly line, as in case of automobile assembly plants.

- In continuous process manufacturing, flow of materials are moved between production operations such as screening, grinding, cooking, mixing, separating, blending, cracking, fermenting, evaporating, reducing, and distilling.

(a) Quite common in the food, brewing, chemical, petroleum refining, petrochemicals, plastics, paper, and cement industries.

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• This is called continuous production because materials tend to move through production in a linear fashion without much stopping and because the materials are nondiscrete or without form such as liquids or powders.

Characteristics of Product-focused Systems(1) Usually require higher initial investment level due to (a) Use of more expensive, fixed-position material-

handling equipment such as overhead conveyors., and(b) Use of equipment that is specialized to a particular

product/ service, such as automatic welding machines specially designed for only one product.

(2) Flexibility of these systems tends to be rather low because they are ordinarily difficult to change over to other products/ services.

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(3) The advantages ar lower labour-skill requirements, reduced worker training, reduced supervision, and ease of planning and controlling production.

(4) Offers high-volume production, and low unit costs.

B. Process –Focused

- A form of production in which production operations are grouped according to type of processes.

- All production operations that have similar technological processes are grouped together to form a production department.

- For instance, all production operations that involve painting are grouped together in one location to form a painting department.

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- Process-focused systems are also referred to as intermittent production because operations are performed on products intermittently, i.e. on start-and-stop basis.

- Also referred to as job shops because products move from department to department in batches (jobs) that are usually determined by customer orders.

- In job shops, products follow highly irregular stop-and-go, zigzag-type routes with sidetracking and backtracking.

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Receiving And RawMaterialsStorage

Foundry Machining Fabrication PaintingPackagingandShipping

1Job X

2 3

4 5

6

7

8Job Y

1

2 3 4

5

6 7

Shear andpunch

FinishMachine

DeburAssembly

Product or Material Flow Production operations

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- In the figure shown, Job X and Job Y represents two distinctly different product designs and hence they require different production operations and must be routed through different production departments and in different sequences.

- Here both Job X and Job Y are required to be processed through the same department i.e. Assembly department.

- Assuming that the assembly department does not have enough production capacity to work on both these jobs simultaneously.

- This would mean that one of the jobs must wait its turn.- This is the fundamental characteristics of job shops as

the jobs spend large majority of time waiting to be processed in production department.

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- Process-focused production systems include hospitals, automobile repair shops, machine shops and some of the manufacturing plants.

Characteristics of Process-focused Systems• These systems are quite flexible as they are capable of

producing small batches of a wide variety of products.• Usually require less initial investment since they ar

typically general-purpose equipment, mobile material handling equipments, which are less expensive.

• Require greater employee skill, more employee training, more supervision,and more complex production planning and control.

In practice, quite often we find blends and hybrids of product focused and process focused approach.

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C. Group Technology/ Cellular Manufacturing

- The products or components being manufactured are placed in families of groups and separate manufacturing cells are used to manufacture these groups.

- Group technology is used to develop a hybrid between product-focused and process-focused production systems.

- Enables production of a variety of parts in small batches to achieve economies of line-flow production without product standardization.

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How Group Technology Functions?• A multidigit code that describes the physical

characteristics of the parts is developed for the parts made in a factory.

• For instance, a part that is cylindrical, 6 inches long, 1inch in diameter,, and is made of stainless steel.

• The part’s code would indicate these physical characteristics.

• Parts with similar characteristics are grouped into part families and because of such similarities these would be made on the same machines with similar tooling.

• Part families are then assigned to manufacturing cells for production, usually one part family to a cell.

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• One production cell is created depending upon the processes that one part family requires.

• For instance, one part family may require the following processing steps in order:

(a) Cutting on the saw(b) Turning on the lathe(c) Grinding(d) Drilling(e) Milling, and(f) Deburing • One of each of the above machine is moved to an area

to create a cell.• Machines in the cell are are often arranged in a U-

shaped so that the parts in the part family can flow through the cell in an efficient manner.1

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Characteristics of Group Technology• Use of manufacturing cells reduces the distances

moved by parts between machines.• Frequently, parts are processed one-by-one thereby

reducing work-in-progress inventory and the manufacturing cycle time.

• In companies that have a large variety of parts, group technology is helpful in selecting appropriate families of parts that can be processed in manufacturing cells.

• There is a greater similarity among parts within the cells, and the flow of parts within cells tend to be more like product-focused systems.

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Process Design in ServicesDifferent schemes for producing and delivering services.1. Quasi-manufacturing- Production of goods takes place along a production

line with almost no customer involvement in production.

- For instance, back rooms of the fast food outlets like McDonald’s.

- Physical goods are dominant over intangible services and there is no customer contact.

- Either product-focused or process-focused production would be appropriate depending on the nature of goods or services to be produced.

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2. Customer-as-participant- Physical goods may be significant part of the service

and services may be either standardized or customized.- High degree of customer involvement in the process of

generating the service.- Examples are automated teller machines, and retailing.3. Customer-as-product- Provide customized service and a high degree of

customer contact.- Service is provided through personal attention to the

customer.- Can provide a perception of high quality.- Examples are medical clinics and hair salons.

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• The degree of customer contact is particularly relevant to process design.

A. At one extreme, the customer-as-product services of barbershops, beauty parlours, and medical clinics, the service is actually performed on the customer.

• The customer becomes the central focus of the design of production processes.

• Every element of the equipment, employee training, and buildings must be designed with customer in mind.

• Also, courteous attention and comfortable surroundings must be provided to receive, hold, process, and release customers.

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B. At the other extreme are the quasi-manufacturing services, such as back-room operations of banks.

(a) There is no customer contact.

(b) Operations can be highly automated to achieve low cost and speed with little regard for customer relations.

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Deciding Among Processing Alternatives

• In choosing a production process, the following factors need to be considered.

1. Batch size

2. Product variety

3. Capital requirements, and

4. Economic analysis

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Batch Size and Product Variety Large

SmallFew Many

Number of Product Designs

Batchsize

ProductFocused

DedicatedSystem

ProductFocused

BatchSystem

CellularMfring Process

FocusedJob shop

A

B

C

D

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• As we move from Point A to Point D, the production cost per unit and product flexibility increase.

• At point A, there is a single product, and the demand for the product is very large.

• In this extreme case, a product focused organization that is dedicated to only that product would be appropriate.

• Production costs per unit are very low and production organization is very inflexible because equipment specialized to the product and the specific training of the employees make it impractical to change to the production of other products.

• As the number of product design increases and as the batch size of the products decreases, at point B, a product-focused, batch system becomes appropriate.

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• Though the system is relatively inflexible, employees are trained to shift to the production of other products, and equipment is designed to be changed to other products, but with some difficulty.

• At the other extreme, Point D represents the production of many one-of-a-kind products.

• In this case, a job shop producing unique products in batches of single item would be appropriate.

• This form of production is the ultimate in product flexibility. 1

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• As the number of products decreases and as the batch size of products increase from this extreme, at some point, say Point C, cellular manufacturing for some of the parts within the job shop becomes appropriate.

Process Life Cycle• Production systems tend to evolve as products move

through their cycles.• Product life cycles and process life cycles are

interdependent; each affects the other.• Production processes affect costs, quality, and

production capacity.• Volume of products that are sold affects the type of

production processes that can be justified. 1

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Evolution of Process Designs for a Product Life Cycle

A. Introduction- Very low volume, Process-focused, Very Small Batch

Size.B. Early Growth- Slightly standardized products, Low volume, Process-

focused, Small batches.C. Later Growth- Standardized products, High volume, Product-focused,

Production lines to stock, Large batches.D. Maturity- Highly standardized products, Very high volumes,

Product-focused, To stock , Continuous.1

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Capital Requirements for Process Designs

• The amount of capital required for the production system tends to differ for each type of production process.

• The amount of capital required is greatest at Point A and diminishes with movement movement downward to the right toward Point D.

• The amount of capital available and cost of capital to a firm are important factors in choosing a type of process design.

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Cost Functions of Processing Alternatives

Number of UnitsProduced per Year

Annual Cost of Production(Rs)

Jobshop

5,00,000

AutomatedAssemblyLine

22,50,000

CellularManufacturing

11,10,000

1,00,000 25,00,000

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• It can be seen from the graph, the automated assembly line has an annual fixed cost of Rs 22,50,000.

- Fixed costs are the annual cost when the volume of the product produced is zero.

- These costs are related to the very expensive robotics, computer controls, and material handling equipment required for an automated assembly line.

- Variable costs such as labour, material, and other overheads for automated assembly line are very low relative to other forms of process design, because the slope of its cost function is very flat.

- Annual costs do not climb very fast as annual volume of production grows.

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• The cost function of a job shop usually exhibits very low fixed costs and very high variable costs.

• The fixed and variable costs of cellular manufacturing are usually intermediate to those of other two process designs.

Conclusion • If capital availability is not a factor and annual production

costs are predominant consideration, the process design that is preferred depends on the production volume of the product.

• As per the graph, if annual production volume is less than 1,00,000 units, a job shop would be preferred. For production volume between 1,00,000 and 25,00,000 units, cellular manufacturing would be preferred and for production volume of greater than 25,00,000 units, an automated assembly line would be preferred.

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Facility Location• One of the major reasons for new facilities is the

global economic boom accompanied by the capacity expansion worldwide.

• In addition to global economic boom, other reasons for changing or adding locations are:

1. Changes in cost or availability of labour, raw materials, and supporting resources.

2. Changing demand in a geographical region. For example, many international companies find it desirable to change facility location to provide better customer services.

3. Companies may split, merge, or be acquired by new owners, making facilities redundant. 1

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4. New products may be introduced, changing the requirement and availability of resources.

5. Political, economic and legal requirements may make it more attractive to change location.

6. Many companies are moving facilities to regions where environment or labour laws are more favourable.

An objective assessment of the facility needs, supported by marketing, operations and financial data can save substantial costs incurred in unnecessary renovation and construction.

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Objectives for any facility that is created are:• Located in a way that provides better value to

customers.• Once located, the facility should ensure a blend

of an efficient work environment and maintain the most productive processing and flow in transformation or manufacturing process.

Four levels of facility planning• Global- Site location• Macro- Site Planning• Micro- Facility and Building Layout.• Sub-Micro-Workstation Design

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Facility Planning Matrix Level Activity Space Planning Unit Environment

Global Site location & Selection

Sites World or Country

Macro layout Site Planning Site features and Departments

Site and Building Concept

Micro layout Facility, Building and Factory Layout

Buildings, Workstations Features

Plant or Departments

Sub-Micro layout

Workstation & Cell Design

Tools & Fixture Locations

Workstations

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Global Level• Initial planning stage involves selecting the region or

general area in which plant or facility should be located• Geographic coverage of production capacity• Source of inputs like raw materials, manpower and

skill availability.• Freight costs• Location of the market.• Government regulation.- Strategically important because it commits significant

resources of the organization and great care should be given to long-term implications.

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Choice of Locations

Alternative location options

Factors relevant to the Facility being planned

Screen location optionsUsing factor andLocation rating

analysis

Screen location optionsUsing cost-benefit

analysis

Best Location Choice

Initial screeningof locations

Final selectionprocess

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Factors Affecting the Location Decisions

FacilityLocationPlanning

RequiredAmenities

GovernmentPolicies

Ability toExpand

Capacity

Easy AvailabilityOf required landAvailability

Of SkilledLabour

Ease ofFunding

ImpactAnalysis

Proximity toSuppliers

Proximity toMarkets

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• Quite often the source of raw materials is an important factor in deciding locations

• For instance, in aquaculture the incubation of salmon eggs and the first stage of lifecycle of fish are done in fresh water.

• Therefore, it is advantageous to locate hatcheries where there is an abundance of fresh water.

The typical factors are(1) Location of markets- Locating plants and facilities near the market for a

particular product or service may be of primary importance for many products as the location may impact the economies of manufacturing process.

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- The reasons for proximity to markets are• Increased bulk or weight of the product.• Products may be fragile• It is susceptible to spoilage.• Increase in transit time.• Affect the promptness of service.• Affect the selling price of the product- transportation

cost often makes the product expensive. Assembly type industries, in which raw materials are

gathered together from various diverse locations and are assembled into a single unit, often tends to be located near the intended market.

• Quite important in case of custom-made product, where close customer contact is essential.

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(2) Location of materials- Access to suppliers of raw materials, parts, supplies,

tools, equipment, etc are often considered important.- The main issue of concern is promptness and regularity

of supply from suppliers and level of freight costs incurred.

- The location of materials is likely to be important, if• Transportation of materials and parts represent the

major portion of unit costs.• Material is available only in one region.• Material is bulky in raw state.• Material bulk can be reduced during processing.• Material is perishable and processing increases the shelf

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- Keeping in mind that various materials come from a variety of locations; the plant would then be located so as to minimize the total transportation costs.

- Transportation costs are not simply a function of distance; they can vary depending on the specific routes as well as the specific product classifications.

- For instance, a Delhi-Patna consignment would be much more expensive than a Delhi-Mumbai consignment, though distances are similar.

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(3) Transportation facilities- Adequate transportation facilities are essential

for the economic operation of a production system and include road, rail, air, waterways, and pipelines.

- The bulk of all freight shipments are made either by rail or road since it offers low costs, flexibility and speed.

- For companies that produce or buy heavy and bulky low-unit value commodities and are involved in import and export activities, shipping and location of ports may be factor of prime importance in plant location decisions.

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(4) Labour supply- Manpower is becoming costly input in most of

the production systems.- Organizations often take advantage of a location

with an abundant supply of workers.- Labour costs and/or skills possessed by the work

force must also be considered. - If a particular required skill is not available, then

training costs may be prohibitive and resulting level of productivity inadequate.

• For instance, in call centre business, the need of English speaking workers becomes a factor in deciding the location of your business capacity. 1

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• As India has come on the map for software development because of large number of skilled software personnel, Microsoft, Texas Instruments, Cisco Systems and Oracle etc have located facilities in India.

• Countries like China and India are turning out to be attractive locations for industries that require large contingents of unskilled labour.

• Hyundai Motors has announced that India would be its hub for supply of mall cars and automobile components worldwide.

• Companies like Nike and Reebok are setting up supply chains in Asia and South America.

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A word of caution.• While labour costs may be low in certain

geographic location now, this may change if the demand for labour grows significantly.

- In considering the labour supply, the following points should be considered

(a) Skills available-size of the labour force-productivity levels.

(b) Unionization-prevailing labour-management attitudes.

(c) History of local labour relations-turnover rates- absenteeism etc.

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(5) Location of other plants and warehouses- Organizations need to look at their plant locations for

the complete system point of view.- The system should be designed to minimize total

system cost.- The location of competitor’s plant and warehouses

must also be considered so as to obtain advantage both in freight costs and the level of customer service.

(6) Climate- Climatic conditions including seismic regions need to

be considered while making location decisions.• For instance, Petrochemical plants near Houston were

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(7) Government controls and regulations

- Implies business environment factors such as government controls, regulations, incentives and labour conditions.

- There may be a more favourable investment climate in a particular geographical or political region that may attract the industry to invest in that region.

(8) Service Products

- In service industry, the capacity to deliver the service to customer must be determined; only then can the service be produced.1

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- The primary parameters on which the geographical location decisions are based for service products are:

(1) Purchasing power of customer drawing area.

(2) Service and image compatibility with demographics of the customer drawing area.

(3) Competition in the area.

(4) Quality of the competition.

(5) Uniqueness of the firm’s and competitor’s locations.

(6) Physical qualities of facilities and neighbouring business.

(7) Operating policies of the firm

(8) Quality of the management.1

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Location Strategies-Service Vs. Industrial

Service/Retail/Professional Industrial

Cost determinants-Rent, Management caliber, Operations policies such as wage rates etc.

Costs- Transportation costs of raw materials, Shipment cost of finished goods, Energy and utility cost, cost of labour, raw materials, taxes, etc.

Volume/Revenue- Drawing area, purchasing power, competition, advertising, pricing

Intangible and future costs- Infrastructure, roads, power, labour management attitudes, quality of life, training and education facilities

Physical quality- Parking, security, lighting, appearance, image

Quality of state and local government

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Analytic techniques- Traffic counts, Demographic analysis of drawing area, Purchasing power analysis of drawing area.

Analytic technique- Linear programming, Transportation method, Load-distance models, and Break even analysis

Location is a major determinant of revenue.

Location is a major determinant of cost.

Main issue is higher customer contact.

Most major costs can be identified for each site.

Low customer contact allows focus on costs.

Intangible costs can be objectively evaluated.

In service industries, location is generally a determinant of revenues, while in industrial organizations location is determinant of costs. 1

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Facility Layout• Facility Layout plan institutionalizes the following

four fundamental elements.

(1) Space Planning Units (SPUs)

(2) Affinities

(3) Space

(4) Constraints. The choices available are:

1. Process layout

2. Product layout

3. Fixed layout

4. Group layout 1

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The following principles must be complied with while considering these basic layouts.

• Emphasis should be on gross material flow, personal pace and communication.

• Should facilitate arrangement of physical facilities, allowing most efficient use of men, machines and materials necessary to meet requirements of capacity and quality.

• Properly designed facility is an important source of competitive advantage.

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An effective layout should try to• Operate at low cost.• Effective use of space• Provide for easy supervision.• Provide fast delivery. • Minimum cost of material handling• Accommodate frequent new products• Produce many varied products- both high or low

volume.• Produce at the highest quality• Worker’s convenience and safety.• Provide unique services or features.

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Process Layout• Also known as functional layout.• Similar machines or similar operations are located at

one place.• For instance, all milling operations are carried out one

place, while lathes are kept at a separate locations.• Grinding, milling or finishing operations are carried out

in separate locations.• Functional grouping of facilities is useful for job

production and non-repetitive manufacturing environments.

• One of the most important principles is that centres between which frequent trips or interaction is required should be placed closed to one another.

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Organizational implications of process layout.• In a manufacturing plant, it minimizes materials

handling costs.• In a warehouse, stock picking costs are reduced

by storing items typically needed for the same order next to one another.

• In a retail store, it minimizes customer search and travel time thereby improving customer convenience.

• In an office where people or departments must interact frequently are located near one another thereby improving communication and coordination between the departments.1

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Advantages and Disadvantages of Process Layout

• Best suited for non-standardized products; where there is a low volume, high variety manufacturing environments; where the market requires frequent change in product design;and in job shop manufacturing.

Advantages are:

1. Initial investment in process layout is low.

2. Higher degree of machine utilization may be achieved as machines are not dedicated to any single product.

3. Greater flexibility and scope for expansion.

4. As high product variety can be handled, different product designs and varying production volumes can be easily adopted.

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• Maintenance of machines is relatively easy hence cost is low.

• Breakdown of one machine does not result in total stoppage of production.

• Easy, effective and specialized supervision of each function area is easy to achieve.

Disadvantages are• High degree of material handling as parts may have o

backtrack in the same department.• Large work in process inventory is common and it may

lead to more storage area.• Workers are more skilled as there are variety of products

and difference in design thereby leading to higher labour cost.

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• Total cycle time is high due to waiting in different departments and longer material flow.

• Inspection is more frequent which results in higher cost.

• Difficult to fix responsibility for a defect or quality problem as the work moves in different departments in which the machine preference is not fixed.

• Thus, which machine or which operator was responsible for a quality lapse may be difficult.

• The production planning and control is relatively difficult. 1

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Product or Line Layout• Various facilities such as machine, equipment,

work force, etc are located based on the sequence of operation on parts.

• Used for continuous operations, where the part variety is less, production volume is high and part demand is relatively stable.

• Quite suitable for assembly line such as automobile factory.

• Using better work methods, specialized equipment and tools, extensive employee training and speed of producing the product can be increased and the cost decreased. 1

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Limitations of Product Layout• Layouts are relatively fixed and changes in

product design are difficult to accommodate.

• Product variety is very much limited.

• Breakdown of a particular machine in a production line halts the production output of the entire line.

• Capital investment in machines is often higher as compared to process layout.

• There is limited flexibility to increase the production capacities. 1

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Fixed Layout

• The material remains at a fixed position and tools, machinery and men are brought to the location of the material.

• Fixed layout is essential when the products are difficult to move.

• Need for this type of layout arises in case of extremely large and heavy products.

• For instance, production of aircrafts, ships, dams, bridges, and housing industry.

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RESOURCES

ShipBuilding

Yard

FinalProduct

Ship

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Advantages & Limitations of Fixed Layout

• Flexible with regard to change in design, operation sequence, labour availability.

• Very cost effective when similar type products are being processed, each at different stage of progress.

• Capital investment may be for one-off product, which can make it expensive.

• Due to long duration to complete a product, average utilization of capital equipment is limited.

• Space requirements for storage of materials and equipment are generally large.

• Requires careful planning and focused attention on critical activities to maximize margins.1

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Cellular or Group Layout• Layout is based on group technology principles and

combines the strong points of both product and process layout.

• Suitable when a large variety of products are needed in small volumes or batches.

• For each part family, a dedicated cluster of machines are identified and and all processing requirements of a particular family are completed in a corresponding machine cell, eliminating inter-cell transfers of the part.

• Cell manufacturing is also the building block of Flexible Manufacturing Systems (FMS).

- For instance, Telco, Jamshedpur, has different machine shops and dye shops whose output is finally fed into the assembly line. 1

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Advantages and Disadvantages of Cellular Layout.

• Increase in overall performance by lowering costs and improving on-time delivery.

• Lower work-in-process inventories.• A reduction in material handling costs.• Shorter flow times in production.• Simplified scheduling of materials and labour.• Quicker set ups and fewer tooling changes.• Improved functional and visual control.• Unless the forecasting is accurate, it has a potential to increase

the machine downtime as machines are dedicated to cells and may not be used all the time.

• Cell may become out-of-date as products and processes change and the disruption and cost of changing cells can be significant.1

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Capacity Planning• Capacity planning decisions usually involve the

following

• Estimating the capacities of the present facilities

• Forecasting the long-range future capacity needs for all products and services.

• Identifying and analyzing sources of capacity to meet future capacity needs.

• Selecting from among the alternative sources of capacity.

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How do we define production capacity?

• Production capacity is the maximum production rate of an organization.

• Factors underlying the concept of capacity are:(1) Day-to-day variations such as employee absences,

equipment breakdowns, vacations, and material-delivery delays combine to make the output rate of facilities uncertain.

(2) The production rates of different products and services are not the same. Product-mix such as 50,000 units of A or 20,000 units of B to be produced per month must be taken into consideration when capacity is estimated.

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(3) The level of maximum possible capacity i.e. whether based on a five-day week work schedule.

(4) Should the capacity level be based on the use of existing facilities or overtime, usage rate, temporary workers, or outsourcing etc.

Capacity in context of a service organization• Greatest level of output that can be provided with a

given level of resources under sustainable operating conditions.

• Resources include employees, facilities, equipment, materials, and funds.

• Sustainable operating conditions refer to such things as hours of operation and promotional activities .

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For instance, if a clothing retail store puts on a big sales promotion with all items 30 per cent off the regular price, output will increase i.e. sales will increase but the store may not be able to profitably sustain this operating conditions for very long.

Measurement of Capacity• Firms that produce only a single product or a

few homogeneous products, the units use to measure i.e. output rate capacity are straight forward.

• For instance, automobiles per month, tons of coal per day, barrels of beer per quarter.

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• When a mix of products such as refrigerators, air-conditioners, and washing machines are produced from a single facility, the diversity of products presents a problem in measuring capacity.

• In such cases, an aggregate unit of capacity must be established.

• This aggregate measure of capacity must allow the output rates of the various products to be converted to a common unit of output measure.

For instance, tons per hour or rupee sales value per month are often used as aggregate measure of capacity among diverse products.

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• In case of capacity planning for services, input rate capacity measures may be used.

For instance, airlines use available –seat-miles per month, hospitals use available beds per month, tax services use available accountants –days per month, and engineering service firms use labour hours per month.

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Capacity Utilization• Relates output measures to inputs available.For instance, a tax service that had 10,000 labour hours

available during October used only 8,200 labour hours to meet the demand of the customers.

- To arrive at percentage of capacity utilization, divide the actual labour hours used by the maximum labour hours available during a normal schedule viz 82% in above example.

- Other commonly used capacity utilization calculations are actual automobiles produced per quarter divided by the quarterly automobile production capacity.

- Occupied airlines seats per month divided by monthly airline seat capacity. 1

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Forecasting Capacity Demand Forecasting production capacity for a product or

service usually involves four steps.

(1) First, the total demand for a particular product or service from all producers is estimated.

(2) Second, the market share i.e. percentage of total demand for a single company is estimated.

(3) Third, the market share is multiplied times the total demand to obtain the estimated demand for a single company.

(4) Finally, product or service demand is translated into capacity needs.

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Once a company has obtained its best demand for its products and services, it must determine how much production capacity should be provided for each product and service.

Why production capacity may not necessarily equal the expected demand?

• Enough capital and other resources may not be economically available to satisfy all the demand.

• Because of uncertainty of forecasts, a capacity cushion may be provided.

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Capacity Cushion is an additional amount of production capacity added on to expected demand to allow:

• Extra capacity in case more demand than expected occurs.

• The ability to satisfy demand during peak demand seasons.

• Lower production costs• Product and volume flexibility as responding to

customers’ needs for different products and higher volumes is possible because of xtra capacity.

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Another important consideration in determining how much capacity a single company should provide is how much capacity its competitors are likely to add.

• If competitors have added or are expected to add capacity that will create overcapacity situation in the in an industry, a company should rethink how much capacity it should add.

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Approaches to expanding long-range capacity

1. Invest heavily in one large facility that requires a big initial investment and best operating level that will fulfill the capacity needs of the firm. i.e. build the ultimate facility now and grow into it.

2. Plan to invest in an initial facility design now and expand or modify that facility as needed to raise the best operating levels to meet the long-range demand i.e. expand long-range capacity intermittently as needed to match future capacity demands. 1

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Increases in Incremental Facility Capacity

Compare the following strategies

• Designs A, B, and C exhibit best operating levels at 240,000 450,000 and 640,000 annual volume respectively.

• Assume, long-range capacity needs are estimated to be 640,000 annually 10 years from now.

• How do we provide for this long-range capacity, incrementally or all at once?

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Year Forecasted Annual Volume

Least Unit Cost Design

1 200,000 A

2 250,000 A

3 320,000 B

4 360,000 B

5 400,000 B

6 450,000 C

7 520,000 C

8 560,000 C

9 600,000 C

10 640,000 C1

157

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• The strategy of initially selecting Design A and subsequently modifying that design to Design B and then to Design C would seem to make sense because the average unit cost tends to be the lowest.

• This incremental approach may be less risky because if our forecast capacity needs do not materialize, then the expansion programme could be stopped in time to avoid unnecessary investment in unneeded expansion.

• One of the major causes of industry overcapacity is the argument for larger facilities to achieve greater economies of scale.

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• A major concern about building big facility now is because funds will be tied up in excess capacity on which no return will be realized for several years.

• Consequently, leading to additional interest expense or in income foregone owing to not having the funds committed to other type of investments that would generate revenue.

Choosing between expanding capacity all at once or intermittently?

1. In case of mature products with stable and predictable demand pattern, firms are more receptive to building the ultimate facility now.

2. With new products, however firms lean more toward an incremental expansion strategy because of the riskiness of forecasts and the unpredictable nature of their long range demands.

3. The eventual choice will differ from firm to firm because of the nature of their products, the availability of investment funds, their attitude toward risk etc.1

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Elements of Waiting Lines• There are some situations when someone or

something must wait in line for service. • The output rate of such systems depends on interplay

between random arrivals and variable service times.• These values are predicted by waiting-line or queuing

models. Queuing Theory• A set of mathematical solutions that optimize

situations where there is a process which consumes time and units arrive in the system to be processed through it.

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Queuing models have a number of different elements that include

• Customer population• Service system• Arrival and service patterns, and• Priorities used for controlling the line.A. Customer population- The customer population is generated

according to statistical distribution which gives the information about the inter-arrival times i.e. the time between arrivals of customer.

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• The ‘calling population’ has a size , which is the number of potential customers to the system that can either be finite or infinite.

• The customer population is finite when new customer are affected by the number of customers already in the waiting line system.

• This will indicate a definite limit as to how large the waiting line can ever be.

• For instance, if there are ten components to be processed by a machine, as the number of components waiting to be processed increases, the number of possible new components decreases.

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• When the number of customers waiting in line does not significantly affect the rate at which the population generates the new customers, the customer population is considered infinite.

• In this case, number of customers in queue does not significantly affect the population’s ability to generate new customers.

• Waiting in lines does not add enjoyment and nor does it generate revenue.

• Waiting lines are non-value added occurrences.• Repeated and excessive delays may ultimately

influence the customers’ behaviour and they may either ‘bulk’ or ‘renege’ from the services.1

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(1) Bulking occurs when the customer decides not to enter the waiting line.

(a) For instance, you go to the telephone bill payment counter and see that there are already 12 persons waiting to pay their bills, so you choose to come back later.

(2) Reneging occurs when the customer enters the line but decides to exit before being served.

(a) For instance, you have been holding the telephone line long enough waiting for customer service, but after waiting 5 minutes and seeing little progress, you decide to leave and thereby disconnect the line.

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B. The Service System• The service system is the way that customers receive

service once they are selected from the front of a queue.• The amount of time which a customer takes to be

serviced by the ‘server’ is called ‘service time’.• The service mechanism is called a ‘server’.• The service system is characterized by the number of

waiting lines, the number of servers and the arrangement of the servers.

• Waiting-line systems can have single or multiple lines.• Quite often, banks have single line for customers.

(a) Customers wait in line until a teller is free and then proceed to that teller’s position.

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(b) Other examples of single-line systems include many cinema ticket counters, airline counters, call centres etc.

Advantages of using a single line when multiple servers are available:

• The customer’s perception of fairness as the customer is served in a true first-come, first served basis.

• The single line approach eliminates jockeying behaviour.

• A single-line, multiple-server system has better performance in terms of waiting times than the same system with line for each server.

Jockeying occurs when the customer enters one line and then switches to a different line in an effort to reduce the waiting time.

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Single and Multiple Line Service Systems

Single server, single phase

Single server, multiphase

Multiserver, multilineSingle-phase

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Multiserver,MultilineSingle phase

Multiserver,multiphase

Person Processing point

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There are four basic waiting line structures describing the general conditions t a service facility.

(1) The simplest structure is the single server case, e.g. The cashier at a bank counter, or ny production line with a unidirectional material flow.

(2) If the number of processing stations is increased but still draws on a single waiting line, we have multiple server’s case.

(a) A bank with several open windows for cashiers but drawing on a single waiting line is a common example of multiple server waiting line structure.

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Services can require a single activity or a series of activities.

• These activities are identified by the term phase.• In a single-phase system, the service is completed in a

single activity, such as with a bank transaction or an airline check-in.

• In a multiphase system, the service is completed in a series of steps.

For instance, if you go to Haldiram’s, a fast food outlet, you first choose your order, and then you pay for the items chosen , and finally get your order at the pick-up window.

• This type of multiphase system is also true for most manufacturing processes.

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C. Arrival and Service Patterns • The amount of time for which a customer waits in a

queue is called the queuing time.• The arrival rate specifies the average number of

customers arriving per time period. (a) For example, a system may have ten customers arriving

on average each hour.• The service rate specifies the average number of

customers that can be served per time period.• The service rate is the capacity of the service system.• If the number of customers you can serve per time

period is less than than the average numbers of customers arriving, the waiting line grows infinitely and you cannot catch up with the demand.

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• It is the variability in arrival and service patterns that causes waiting lines.

• Lines are formed when several customers request service at approximately the same time.

• This surge of customers temporarily overloads the service system and a line develops.

• Customers either arrive at a service facility according to some known schedule e.g.one patient every fifteen minutes or one student for counseling every half-hour or else thy arrive randomly.

• Arrivals are considered random when they are independent of one another and their occurrence cannot be predicted exactly.

• Frequently in queuing problems, the number of arrivals per unit of time can be estimated by a probability distribution known as Poisson distribution.

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D. Waiting Line Priority Rules• Service oriented organizations face unique scheduling

problems.• Quite often, demands for services and time to perform

the service may be highly variable.• The basis on which the customers are selected is called

the queue discipline.• The queue discipline is the method by which customers

are selected from the queue for processing by the service mechanism.

• Usually, we can improve on the system response of simply ‘keeping hours’.

• Sometimes overall performance can be improved by a priority system.

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Some of the priority rules1. First come, first served (FCFS)

• Customers are processed in the order in which they arrive in the queue, such that the head of the queue is always processed next.

• Units are served in the order in which they arrive.

2. Last come, First Served (LCFS)

• Under this system, the units are served in the reverse of their arrival order.

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3. Queues with Bulking or Reneging• These are the queues in which some arrivals will not

wait if the queue is long, and they will leave.

4. Truncated Queues• These are queuing situations in which there is limited

waiting area. When the maximum queue length is reached, all further arrivals leave.

5. Priority Queue• The arrivals are placed in various priority groups. The

item to be selected for service is taken from the highest priority group in which there is a queue.

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The priority rule used affects the performance of the waiting line system.

• First come first served is generally considered fair, yet it is against customers requiring short service times or emergency assistance.

• For instance, in a busy emergency room, someone critically sick or injured may have to wait for a significant period of time and may result in death.

In production scheduling system, the alternate priority systems used are:

(a) Earliest Due Date (EDD), and(b) Shortest Processing Time (SPT) 1

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Aggregate Planning• While strategic planning deals with long range

operations of facilities and resources, aggregate planning deals with developing ways to utilize those facilities and resources.

• As one moves from strategic planning to aggregate planning and operations planning, three distinct trends occur.

1. The time horizon for the planning process becomes shorter. Strategic planning’s time horizon requires planners to think in terms of years. Aggregate planning involves time horizon limited to one to one and half years or less.

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• Aggregate planning is done on an aggregate basis i.e. in financial terms, such as tons of steel.

• These plans are then used by operations level personnel and hence need more detailed information.

For instance, an assembly plant manager needs to know the projected volume of each of the end products so that the right amount will be on hand.

* The planning activities become more repetitive as one moves from aggregate planning towards operations planning.

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• Aggregate planning reflects the operational decisions that must be made in the short to intermediate time horizon to ensure that operations function has the resources needed to the job.

• The basis is the business plan which is a statement of organization’s overall level of business activity for coming 6-18 months.

• The business plan is an agreement between all functional areas viz. finance, production, marketing, engineering, R& D to support the level of activity that they get committed to.

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The aggregate plan addresses the demand and supply side of the firm’s activities for its different product groups. It reflects decisions on:

• Output rates.• Employment levels and changes• Inventory levels and changes• Backorders• Subcontracting/ outsourcing.The goal of aggregate planning is to achieve a

production plan that will effectively utilize the organization’s resources to satisfy the expected demand.

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• In a manufacturing firm, the aggregate plan links the strategic goals with plans for individual products i.e. master production schedule.

• In a service firm, the aggregate plan links the strategic goals with the detailed work-force schedules.

• Aggregate plan answers the following(a) Should prices or other factors be changed to

influence demand ?(b) Should inventories be used to absorb changes

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(c) Should changes in demand be accommodated by varying the size of the work force?

(d) Should part-time workers be used or should overtime and idle time absorb the changing demand?

(e) Should sub-contractors be used during increased demand so that a stable workforce can be maintained?

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Operations Planning Hierarchy

AggregatePlan for

Production

Strategic Plan

Master ProductionSchedule, andMRP systems

Detailed WorkSchedule

Work

Raw MaterialsAvailable

Inventory onhand

External Capacitysubcontractors

Demand Forecasts

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• The strategic plan is translated into aggregate plan.• The aggregate plan provides inputs for production control

group to draw up a Master Production Schedule (MPS) The Purpose of MPS • Is to meet the demand for individual products in the product

group. At this level of planning, product groups are disaggregated into individual products.

• It shows when incoming sales orders can be scheduled into production.

• It also shows when each shipment can be scheduled for delivery.

• It also takes into account current backlog so that production and delivery schedules are realistic.

• It generates amounts and dates of specific items to be produced.

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The purpose of MRP

• It uses the MPS to determine the end product requirements and breaks these down into component parts and subassemblies to create a material plan.

• It shows the time-phased requirements for releasing materials and receiving materials that enable the MPS to be implemented.

• It specifies when production and purchase orders must be placed for each part and subassembly to complete the products on schedule.

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Objectives of Aggregate Planning

• Minimize costs/ maximize profits.

• Maximize customer service.

• Minimize inventory investment.

• Minimize changes in production rates.

• Minimize changes in workforce levels.

• Maximize utilization of plant and equipment.

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Nature of Aggregate Plan• The primary requirements for effective

aggregate planning are to determine the course the organization takes in medium term, with the following in mind.

1. Capability specifications and Performance metrics.

2. Demand forecasts and/or actual orders

3. Resource availability.

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The Aggregate Planning Process

Aggregate Plan

Operations•Current machine capacities•Plans for future capacities•Workforce capacities•Current staffing level

Materials•Supplier capabilities•Storage capacity•Materials availability

Engineering•New products•Product design changes•Machine standards

Distribution and marketing•Customer needs•Demand forecasts•Competition behaviour

Accounting and Finance•Cost data•Financial conditionof the firm

Human Resources•Labour-market conditions•Training capacity

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Capability Specifications and Performance Metrics

Aggregate planning has to transform its understanding of the market into a set of capability specifications.

Number of steps required to be followed are:

• The organization must develop some logical overall unit for measuring output, e.g. tons of steel in the steel industry, cases of beer in the beer industry, machine hours in mechanical industries, beds occupied in hospitals, or seating capacity in an airline. 1

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• Short term metrics would indicate how a company is achieving its results and it is likely to perform over next one to three years.

• Develop demand forecasts for each planning period that would facilitate decision regarding the allocation of resources.

• Finally, a performance measurement system needs to be in place to assess the organization’s effectiveness. For instance,

(a)An auto manufacturer would like to know whether it met its profit targets by encouraging dealers to increase their inventories or by increasing sales to customers through on-line ordering system.

(b) A retailer might want to examine its revenue growth per store and in new stores or its revenue per square foot compared with that of competitors. 1

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Basics of Materials Requirement Planning (MRP)

• Consists of logically related procedures, decision rules and records, designed to translate a Master Production Schedule into net requirements and planned coverage of such requirements, for each component of inventory item needed to implement this schedule.

• In the process of planning, MRP system allocates existing inventories on hand to the items to be manufactured.

• Based on the gross requirements, it reevaluates the validity of the timing of any outstanding orders.

• The system establishes a schedule of planned orders for each item, including orders, if any, to be released immediately plus orders scheduled for release at specific future date.

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Assumptions and PrerequisitesThe MRP system makes certain assumptions regarding

inventories. These are:• Lead times for all inventory items are known and can

be supplied to the system, at least an estimates.• Every inventory item under reference goes into and out

of stock i.e. there will be reportable receipts, following which the item will be in an ‘on-hand’ state and eventually be disbursed to support an order for an item into which it is merged.

• All components of an assembly must be available at the time an order for that assembly is to be released to the factory.

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• Components and materials are discreetly disbursed and used.

(a) In case of materials come in continuous form e.g. rolls of sheet metal, the planning procedures are adapted and executed to handle such inventory items properly.

• The process is independent i.e. a manufacturing order for any given inventory item can be started and completed on its own and is not dependent on the existence or progress of some other order for completing the process. 1

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And the pre-requisites are:

• A Master Production Schedule exists.

• All inventory items are uniquely identified.

• A bill of material exists at the time of planning.

• Inventory records contain data on the status of every item.

• There is integrity of the file data.

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Master Production Schedule• The MPS is statement translating the aggregate

plan into how many and how items are produced, and when.

• The MPS gives details about the quantities and timing of the planned production of a product.

• It is derived from the master schedule by taking into account the inventory status of the product in a given time period.

• The master schedule provides details about the quantities and delivery timings of a product, but not the production plan.

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For instance,

• If according to the master schedule, 1200 cars of a particular model are to be delivered to the customer in week 1 and 1000 cars of the model are already in the inventory, then only 200 units have to be produced in this week.

• On the other hand, if there are 1500 units of this model of the car in the inventory, there may be no requirement of any production in this week.

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Available-to-promise Inventory• Difference between the inventory available

from the previous period and the customers orders booked.

• Necessary for sales personnel to know available-to-promise inventory which gives the sales personnel information on how many units of the product at maximum they can commit to the customers in a given time.

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Bill Of Materials• The bill of material is not simply a materials list

but is a materials list that provides information useful to reconstruct the manufacturing process.

• It serves as an interface to order entry.

• The manufacturing bill of material is developed by re-sequencing the engineering bill of materials in the context of the assembly process.

• Subsequently, the process information is derived that will allow the new part to be ready for production.

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MRP Record of Rubber Hose Item X123

Description: Rubber Hose

Lot Size: 100 Units,

Lead Time: 2 Weeks

Week 1 2 3 4 5 6 7 8

Gross Requirement 150 100 120 150

Scheduled receipts 200

Projected on hand inventory

150 50 200 80 200

Planned receipts

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• A MRP record of an inventory divides the future into time periods called time buckets, although other time periods could also used.

• The time-phased information contained in the inventory record consists of:

(a) Gross requirement

(b) Scheduled receipts.

(c) Projected on-hand inventory.

(d) Planned receipts, and

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A manufacturing inventory is defined as consisting of following:

• Raw materials in stock.

• Semi finished components parts in stock.

• Finished components parts in stock.

• Sub-assemblies in stock.

• Components parts in process.

• Sub-assemblies in process.

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Outputs-The Material Requirement Plan

• The common objective of all MRP systems is to determine gross and net requirements i.e. discreet period demands for each item of inventory.

• It enables to generate information needed for correct action in ordering inventory i.e. relating to procurement and production.

• The action is either a new action viz. release of an order or a revision of previous action.

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• The essential data required for any action to be taken are:1. Item identity i.e. the part number2. Order quantity3. Date of Order Release.4. Date of Order Completion (due date)• Once the order has been placed, the types of order action that

are required when revising an action taken previously, are limited to the following:

• Increase in order Quantity.• Decrease in Order Quantity.• Order Cancellation.• Advancement of Order Due Date.• Deferment of Order Due Date.• Order Suspension (indefinite deference)

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• MRP systems meet their objective by computing net requirement for each inventory item.

• The term component in MRP covers all inventory items other than products or end items.

• Requirements for end items are stated in MPS and are derived from forecasts, customer orders, field warehouse requirements, interplant orders, et.

• Requirements for all component items including raw materials and their timings are derived from the MPS.

• After determining the gross requirements these are converted into net requirements and are time-phased to ensure their proper coverage.

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Enterprise Resource Planning• Companies world-wide use ERP to integrate

business processes and thereby reduce costs and increase productivity.

• Traditionally, companies developed isolated computer applications to suit and satisfy each of their functional segments such sales, purchase, production, inventory, personnel and accounts.

• Materials Requirement Planning (MRP I ) and Manufacturing Resource Planning (MRP II) were developed basically to address the requirements of the manufacturing set up.

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• The information available in various functional segments is felt to be so much scattered that it becomes almost impossible to consolidate information and provide the same to the top management to enable them to take vital business decisions.

• Hence, the companies whether in manufacturing or the service sector have been searching for the ‘total solutions’ on an integrated system which could provide for the information needs of the entire enterprise.

• ERP software was developed to provide such a ‘total solution’ to the business enterprise.

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• In order to be successful in today’s global competitive markets, business enterprises continuously strive for developing a high level of interaction and coordination along the supply chain and improve in the area of quality, time to reach the market, customer satisfaction, performance and profitability.

• The ERP software fulfills this need.

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What is ERP ?• ERP integrates the entire enterprise starting from

the supplier to the customer, covering logistics, financial and human resources.

• This enables the enterprise to increase productivity by reducing costs.

• Once the ERP is implemented, a single solution addresses the information needs of the whole organization.

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Functions of ERPSuppose, an order is placed by the dealer, then

ERP checks for the stock, reserves the inventory for dispatch, opens the dealer account to verify the credit limit of the dealer and processes the order.

If the credit limit exceeds, then it places hold on the order.

All these functions are carried out instantaneously, as ERP integrates production, logistics, distribution, marketing, Human Resource Development and Finance.

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Features of ERP• The general ERP model has a central data base shared

by all functions of the enterprise. • The salient features are:

1. Electronic data interchange to electronically accept customer information like purchase orders, schedule amendments, cash payment, and send electronically the order acknowledgement and invoices to the customers.

2. Ability to display drawings or specifications, ability to store original sale orders, purchase orders, quotations and contracts.

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• Integration of new product introductions or changes to existing products also known as ‘engineering change management’.

• Optimize the overall flow in end-to-end supply chain management.

• Facilitates effective management of equipment resources, by having on line records of equipment location and their status.

• Facilitates effective management of human resources by having employee database, job description and evaluation, applicant tracking, requisition management, performance review, career and succession planning, creating alternate organization structures, taking care of training needs.

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Scope of ERP(a) Financials- Financial accounting, treasury management, asset management

and enterprise control.(b) Logistics- Production planning, materials management, plant

maintenance, quality management, project management, sales and distribution management.

(c) Human Resources- Personnel management, training and development, and skills

inventory.(d) Work flow - Integrates the entire organization with flexible assignment of tasks

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Tangible Benefits of ERP• Reduction of lead time by 60 percent.

• 99 percent on-time shipments

• Doubled business.

• Increase of inventory turnover to over 30 percent.

• Reduction of cycle time to 80 percent.

• Reduction of work-in-process inventory to 70 percent.

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Intangible benefits of ERP• Better customer satisfaction

• Improved vendor performance

• Reduced quality costs.

• Improved resource utilization

• Improved information accuracy

• Improved decision-making capability.

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Basics of Scheduling Scheduling problems and opportunities are

faced almost everyday.For example, at the railway stations, someone is

responsible for assigning platforms to different trains that come in and go out.

In a manufacturing facility, someone is in charge of assigning jobs to machines.

The main component of scheduling requires the following variables to be identified.

• When are people, machines, vehicles, etc available to do work ? 1

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• What product needs to be made or service needs to be performed?

• What is the process to make the product or perform the the service?

• What resources are required to complete or perform the process i.e. machines, people, tooling, materials, etc.

• How many parts do we need to make for each customer, or what services does the customer need?

• When do they need the products delivered or the services performed?

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There are two basic types of scheduling exercises.1. Operations scheduling assigns jobs to machines or

workers to jobs. (a) In manufacturing, operations scheduling is crucial

because many performance measures, such as on-time delivery, inventory levels, the manufacturing cycle time, cost, and quality, relate directly to the scheduling of each production lot.

(b) Workforce scheduling determines when employees work.

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The fundamental questions in scheduling are:1. What is the capacity?2. How do you balance load and capacity? Capacity has two types of constraints- a hard

ceiling and soft ceiling. Hard Ceiling1. Hard ceilings are where the capacity is

extremely difficult to flex.2. For instance, a major piece of capital equipment

which runs at a fixed rate such as heat treatment process, where process times are fixed, or production line where the output rate is fixed.

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• In this case, all that can be done is maximize utilization, avoid breakdown and quality problems, and ensure that it is always working to customer needs.

• Hard ceiling may be due to a job requiring a scarce skill that is difficult to train,that is often encountered in software programming, tool making, or maintenance.

(1) There can be limit to how much overtime can be worked to meet demand, or

(2) Training programme to reach a basic level may be protracted.

• In both the cases, it is difficult to increase outputs above a given level and also sub-contracting may not be a viable option because of quality reasons, or lack of availability of suitable sources.

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Soft Ceilings• Soft ceilings can be flexed by scheduling

manpower, buying additional inexpensive plant machinery, recruiting unskilled or semi-skilled staff, or sub-contracting, or overtime.

• The essential difference between two types of capacity constraints are cost and lead-time, which need to be built into the calculations.

Rules that are used to assign work to the resource are:

• Select the task that is due the soonest.• Select the task that requires the least amount of

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• Select the task that requires the least amount of set up time or clean up time or travel time.

In real live business situations, the rules could be more complex.

• Select the task that is due the soonest unless there are any tasks to be completed for customer A in which case all tasks for Customer A should be completed first.

• Select the task that uses the same tooling, has the same colour, and the same due date as the last task completed by a particular resource.

• Select the task that allows the resource used to be completed or prepared for another task by a certain time.

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• Select the resource that best meets all skill requirements to complete the specific task.

• For instance, allocate repairmen to service calls where each service call will require a certain skill set and the repairmen will have that skill set.

Loading• In continuous processes, different sub-assemblies

have to loaded to bring out the final product.• In intermittent processes, each customer job order

has its unique product specifications.• Thus, for each planning period, job orders ar

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• Ultimately, this determines the workload or jobs to be performed in a planned period.

• This assignment is known as machine loading.Finite and Infinite loading• When the loading is determined by the maximum

capacities of the machines, it is called finite loading.

• In infinite loading, the maximum capacity is not the basis for assigning tasks to it.

(a) This option is applied when excess load can be handled by overtime, sub-contracting, or by shifting to other work centres or time slots.

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Gantt Charts-A Scheduling ToolGantt charts take the form of

1. The job or activity progress chart, and

2. The machine chart

• Displays a progress chart graphically showing the current status of each job relative to its scheduled completion date.

• The chart allows us to obtain a bird’s eye view of the process in totality.

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• From beginning to end the chart forces us to

(a) Make a realistic assessment of the end-time of the process.

(b) Sequence the tasks for phases or activities –one after the other, as well as in parallel.

(c) Think in terms of task dependencies- which task depends on what.

(d) Concentrate on the necessary resources, both when and where, throughout the run of the process.

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Activity Week Number

1 2 3 4 5 6 7 8 9

Scheduling

Engg Release

Procurement

Receipt of materials

Tooling

Fabrication

Assembly

Inspection

Shipping

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Basics of Project Management• A project is an organized endeavor to accomplish a

specified non-routine or low volume task.• Although projects are non-repetitive, they take

significant amount of time to complete and are large scale or complex enough to be recognized and managed as separate undertakings.

• Operations managers organize project teams that work to tight time schedules, adhere to strict budgets, report to top management personnel of the organization and be temporarily removed from their regular jobs.

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• The type of techniques required to manage the projects depends on the complexity of the projects.

• For small projects, Gantt charts are adequate whereas for large and complex projects, the critical path method (CPM) or the programme evaluation and review technique (PERT) would be more effective.

Project Life Cycle• Typically a project will pass through the following

phases.

1. The Concept Phase.

- Organization is requested to propose a plan to perform a project for some customer.

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2. Initial Planning or Feasibility Phase- The project manager plans the project to a level

sufficient for initial scheduling nd budgeting.3. Detailed Planning Phase- f the project is approved, then detailed

scheduling and budgeting is done in this phase.4. Organization Phase- A detailed work breakdown structure (WBS) is

examined.- Similar to the bill of material and divides the

total work into major packages to be accomplished.

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- Personnel and other resources necessary to accomplish the project are then made available for all or a portion of the project’s duration through temporary assignments from other parts of the organization or by leasing resources or sub-contracting portion of the project.

5. Execution Phase- Various activities planned are completed as per the

schedule, utilizing the allotted resources.6. Termination Phase- Project is terminated or disbanded after completion.- The personnel who were working in the project are

assigned back to their regular jobs or to other jobs in the organization or to other projects in this phase.

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Project Organization• A variety of organizational structures are used

by enterprises to perform project work.• The various considerations are:(a) Proportion of company’s work that is

performed by projects.(b) The scope and duration of the project.(c) The capabilities of the available personnel.(d) The preferences of the decision makers.The most frequently used structure is Matrix

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Top Management

ManagerQuality

ManagerEngineering

ManagerProduction

ManagerMarketing

Project AManager

Project BManager

A A A A

B B B B

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Project Scheduling • In a project environment scheduling function is

more important than it would be in an ongoing operation because projects lack the continuity of day to day operations and are more complex to coordinate.

• The basic approach is to form a network of activity and event relationships portraying the sequential relations between the tasks in the project.

• Tasks that must precede or follow other tasks are clearly identified, in time as well as function.

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The Benefits of network• It is a framework for planning, scheduling,

monitoring and controlling the project.

• It illustrates the interdependence of all tasks, activities and sub-activities.

• It relieves interpersonal conflict by clearly showing task dependency.

• Based upon the information/ data used, an estimate of the probability of project completion by various dates can be made.

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Network Techniques: PERT & CPM

• The Programme Evaluation & Review Technique (PERT) was developed by the US Navy in co-operation with Booz-Allen Hamilton and Lockheed Corporation in 1958.

• The Critical Path Method (CPM) was developed by DuPont during the same period.

• PERT has been primarily used for R&D projects; though its use is more common on the “development” side of R&D than it is on “research” side.

• CPM has been designed for construction projects and thus has been embraced by construction industry.

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• The two methods are quite similar an are often combined for educational purpose.

• Research has indicated that greater use of PERT/CPM techniques are used on R&D type projects, projects with greater level of complexity, and on projects with resource limitations.

Terminology Used in the Networks1. Activity- A specific task or set of tasks that are required

by the project.- Use up the resources, and take time to

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2. Event- The result of completing one or more activities. An

identifiable end occurring at a particular time. - Events do not use use any resources.3. Network- The combination of all activities and events defining

the project and the activity precedence relationships.- The features are as under:(a) Usually drawn starting on the left and proceeding to

the right.(b) Before an event can be realized, all activities that

immediately precede it must be completed. (c) These are called predecessors.

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4. Path

- The series of connected activities between any two events.

5. Critical

- Activities, events or paths, which if delayed, will delay the completion of the project.

The sequence of critical activities that connect the project’s start event to its finish event is called project’s critical path.

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How to transform a project into a network?

• One must identify what activities comprise the project and, for each activity, what its predecessors and/or successors are.

• The condition of an activity may fall under any one of the following:

1. It may have a successor(s) but no predecessor(s)

2. It may have a predecessor(s) but no successor(s)

3. It may have both predecessor(s) and successor(s)

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Type 1“Start”

Type 3“Continue”

Type 2“Finish”

Arrow represents activity

Node stands for an event

This kind of network is called A-O-A i.e. activity-on-arrow

The first of these is an activity that starts a network, the second ends a network and the third is in the middle.

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• More than one arrow can start a network, end a network, or be in the middle.

• Any number of arrows can end at a node or depart from a node, as shown below.

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• The interconnections depend on the technological relationships described in the action plan.

For example, while painting a room; filling small holes and cracks in the wall, and masking windows and woodwork are predecessors to painting of walls.

Similarly, removing curtains and blinds, as well as picture hooks from the wall are predecessors to filling and masking.

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Activity on Node (AON) format for drawing network

• Activities are represented by nodes, usually rectangles, with arrows to show the precedence relationships.

• When there are multiple activities with no predecessors, it is usual to show them all starting from a ingle node called “start”.

• Similarly, when multiple activities have no successors, it is usual to show them connected to a node called “end”

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Start

1 a

1 b

1 c

3 a

3 b

3 c

2 a

2 b

2 c

End

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The Choice between AOA and AON

• Users of PERT favour AOA and users of CPM favour AON.

• Both are used in commercially available computer package, though AON is more popular in PC-based software.

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Constructing a Network

1. Assume the node numbered 1 denotes the event called “START”.

2. The nodes numbered 2 and 3 are their destination.

1Start

2

3

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3. Activity ‘c’ follows ‘a’, activity ‘d’ follows ‘b’ and activity ‘e’ also follows ‘b’. The network will be.

1

2

3

a

b

4

5

6

c

d

e

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4. Assume, activity ‘f’ must follow both ‘c’ and ‘d’.

5. Any given activity must have its source in one and only one node and therefore ‘c’ and ‘d’ both of which precede ‘f’ must end in the same node where ‘f’ starts.

1

2

3

4 6

5

a

b

c

d

f

e

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Final Network

1

2

3

4

a

b

c

d

6f

e5

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Dummy Activities for AOA Networks

• Dummy activity is used if two activities occur between the same events.

• For example activities ‘a’ and ‘b’ both start from node 1 and end at node 2.

1 2a

b1

2

3

a

b

Dummy

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An illustration – How to use dummy activities

• Assume activities a, b, and c must precede activity d, but only a and b must precede activity e.

1

a

b

c

d

e

Wrong

1

a

b

e

2cd

Right

Dummy activity does not use any resources and has no duration.It is indicated by dashed line.

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Activity Optimistic time (days)

Most likely time(days)

Pessimistic time (days)

Immediate predecessor activities

a 10 22 22 None

b 20 20 20 None

c 4 10 16 None

d 2 14 32 a

e 8 8 20 b,c

f 8 14 20 b,c

g 4 4 4 b,c

h 2 12 16 c

i 6 16 38 g,h

j 2 8 14 d,e1

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1. Activities a,b, and c have no predecessors, they can emerge from the same node.

2. Activity ‘d’ requires that ‘a’ be completed, and ‘e’, ‘f’, and ‘g’ all require that ‘b’ and ‘c’ be completed.

3. Here dummy may be necessary unless ‘b’ and ‘c’ start from the separate nodes.

4. Activity ‘h’ requires only ‘c’ be completed.

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Partial Network

1

2

3

4

a

b

c

d

e

f

g

h

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5. Activity ‘i’ requires that both ‘g’ and ‘h’ be completed, so ‘g’ and ‘h’ are directed to a single node 5.

6. Activity j requires the completion of both ‘d’ and ‘e’, which are directed to node 6.

7. Since activities ‘f’, ‘i’ and ‘j’ do not precede any activity these are directed to project completion node 7.

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Final Network

1

2

3

4

a

b

c

6

5

d

e

g

h

7

j

i

f

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Optimistic, Pessimistic & Most Likely Time

• Expected completion times are found by using the three time estimates viz., optimistic, pessimistic and most likely time.

• These estimates ae an expression of the risk associated with the time required for each activity and this begins the process of risk management.

• These estimates are represented by by a statistical distribution called ‘asymmetrical distribution.’ 1

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• The ‘most likely’ time, ‘m’, is the mode of the distribution.

• Optimistic time ‘a’ – actual time required by the activity will be ‘a’ or greater about 99 percent of time.

• Pessimistic time ‘b’- about 99 percent of time the activity will have duration of ‘b’ or less.

• The expected time, TE= (a+4m+b)/ 6

• The range about m is symmetric when m-a=b-m.

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Critical Path and Time Activity Expected Time, TE (days) Immediate

predecessor activities

a 20 None

b 20 None

c 10 None

d 15 a

e 10 b,c

f 14 b,c

g 4 b,c

h 11 c

i 18 g,h

j 8 d,e1

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• There are eight activity paths leading to event 7.

1

2

3

4

a

b

c

6

5

d

e

g

h

7

j

i

f

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(1) a-d-j= 20+15+8= 43 days.(2) b-f= 20+14=34 days.(3) b-e-j=20+10+8=38days(4) b-g-i= 20+4+18=42 days.(5) c-h-i=10+11+18= 39 days(6) c-dummy-e-j=10+0+10+8=28days.(7) c-dummy-f=10+0+14=24 days(8) c-dummy-g-i= 10+0+4+18=32days. The longest of this path is a-d-j using 43 days, which

means that 43 days is the shortest time in which the entire network can be completed.

This is called the critical time of the network, and a-d-j is the critical path.

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CPM Model and Crashing• The main thrust of CPM analysis is on time-cost

relationship and it seeks to determine the project schedule, which minimizes the total cost.

• The costs associated with the project can be divided into two components viz, direct and indirect costs as indicated under:

(a) Direct costs are incurred on direct material and direct labour.

(b) Indirect costs consists of overhead like indirect supplies, rent, insurance, managerial services etc.

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• Activities of the project can be expedited by crashing which involves employing more resources.

• Crashing reduces time but enhances direct costs, because of factors like overtime payments, extra payments, and wastages.

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DirectCostOfActivity

Activity Duration

Crash time Normal time

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IndirectCost ofProject

Project Duration

Indirect costs associated with the project increase linearly with project duration.

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Work Study • Improving labour productivity and reducing costs by

improving work methods and simplifying the work needs special attention by operations managers.

• To facilitate this, the work study technique also called industrial engineering has been developed over a period of time.

How do we define work study? • A body of knowledge concerned with the analysis of

the work methods and equipment used in performing a job, the design of an optimum work method and the standardization of proposed work methods.

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• Work study is a management tool to achieve a higher productivity in any organization, whether manufacturing tangible products or offering services to its customers.

• Work study makes use of techniques of method study and work measurement to ensure the best possible use of material resources in carrying out a specific activity.

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Objectives of Work Study1. To analyze the present method of doing a job,

systematically in order to develop a new and better method.

2. To measure the work content of a job by measuring the time required to do the job for a qualified worker and hence to establish standard time.

3. To improve the operational efficiency and productivity by ensuring the best possible use of human, machine and material resources and to achieve best quality product/service at minimum possible cost.

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Relationship of Motion and Time Study to Job Design

Job Deign

Method Study Work Measurement

Motion Study Time StudyUsed tofind outthe fastestmotion sequence

Developed by Taylor

Used toEvaluatealternateDesign methodsDeveloped by

Gilbreths

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• Method study is concerned with reduction of work content while work measurement is concerned with the investigation and reduction of the ineffective time.

• Leads to establishment of time standards for the task or the job or operation on the basis of work content established by the method study.

• Usually method study must precede work measurement.

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Basic Work Study Procedure1. Select the job or the process or the operation

to be studied.

2. Record all relevant facts about the job or process or operation using suitable techniques such as operation process charts, flow process charts, etc.

3. Examine critically all the recorded facts, questioning the purpose, place, sequence, person and means of doing the job/process/ operation.

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4. Develop the new method for the job/process/ operation.

5. Measure the work content and establish the standard time using an appropriate work measurement technique, viz., time study using stop watch, analytic estimating method.

6. Define the new method for job/process/operation.

7. Install the new method as standard practice.

8. Maintain the new method for the job/process/operation.

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Method Study• Scientific technique of observing, recording and

critically examining the present method of performing task or job or operation with the aim of improving the present method and developing a new and cheaper method.

• It encompasses the study of work processes, working conditions and equipments and tools used to carry out the job.

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Factors facilitating Method Study1. High operating cost.2. High wastage and scrap.3. Excessive movement of materials and

workmen.4. Excessive production bottlenecks5. Excessive rejections and rework.6. Complaints about quality.7. Complaints about poor working conditions.8. Increasing number of accidents.9. Excessive use of overtime.1

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Procedure for Method Study1. Select the work or job to be studied.

- The job selected should have maximum economic advantage and should offer vast scope for work improvement.

- Reduction of material handling activities and fatigue of workmen can lead to improvement in working conditions.

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A. Process charts such as(a) Operation process chart(b) Flow process chart(c) Man-machine chart(d) Multiple activity chart.B. Diagrammes such as(a) Flow diagramme.3. Examine the recorded facts critically, challenging

everything being done and seeking alternatives, questioning the purpose (What is achieved ?), the means (How is it achieved?), sequence (When is it achieved?), place (Where is it achieved?), and the person (Who achieves it?)

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The Questioning Attitude of Method Study

• What is done? What is the purpose of the operations?, Why should it be done?, What would happen if it were not done?, Is every part of operation necessary?

• Who does the work ?, Why does this person do it?, Who could do it better?, Can changes be made to permit a person with less skill and training to do the work?.

• Where is the work done?, Why is it done there?, Could it be done somewhere else more economically?

• When is the work done?, Why should it be done then?, Could it be done somewhere else more economically?

• How is the work done?, Why is it done this way?1

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4. Develop the improved method by generating several alternatives and selecting the best method. The factors to be considered are:

(a) Cost of implementation.

(b) Expected savings in time and cost.

(c) Feasibility.

(d) Producibility

(e) Acceptance to design, production planning and control, quality control, production and sales department.

(f) Reaction of the employees to the new method.

(g) Short term or long term implication of the alternative. Establish the new method by providing suitable equipment

design, mechanical devices, jigs, fixtures, working conditions, material handling equipments, and workplace layout.

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5. Implement and install the new method as a standard practice to achieve the desired results.

6. Maintain the new method by ensuring that the installed method is functioning well.

(a) This is done by periodic checks and verification at regular intervals.

(b) Proper controls procedures are used to ensure that the new method is practiced to achieve the benefits of method study leading to higher productivity.

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Some Symbols Used in the Charting Process

Standard Symbol Name of the Activity Definition of Activity

Operation Modification of an object, change in physical or chemical characteristics, assembled or disassembled, arranged for another operation.

Transportation or movement

Change in the location from one place to another.

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Inspection Examination of an object to check on quality or quantity characteristics.

D

Delay/ Temporary storage

Retention of an object in a location awaiting next activity.

Storage Retention of an object in storage which is protected against unauthorized removal.

Combined activity

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Motion Study• Motion study is the science of eliminating

wastefulness , resulting from using unnecessary, ill-directed and inefficient motion.

For instance, sewing of garments and assembling small parts.

- Studies the inter-relationship among the members of a work group.

- Study the relationship between an operator and the machine which he operates.

- To obtain the time for an operator.- To establish a permanent record of the method of doing

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Work Measurement• Work measurement is defined as the the application of

techniques designed to establish the work content of a specified task by determining the time required for carrying out the task at a defined standard of performance by a qualified worker.

• A qualified worker is one who is accepted as having the necessary physical attributes, possessing the required intelligence and education and having acquired the necessary skill and knowledge to carry out the work in hand to satisfactory standards of safety, quantity and quality.

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Steps in Work Measurement• Break the job into elements.

• Record the observed time for each element by means of either of time study, or analytic estimating method.

• Establish time values by extending observed time into normal time for each element by applying a rating factor.

• Assess relaxation allowance for personal needs and physical and mental fatigue involved in carrying out each element.

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• Add the relaxation allowance time to the normal time for each element to arrive at the work content.

• Determine the frequency of occurrences of each element in the job, multiply the work content of each element by its frequency and add up the times to arrive at the work content for the job.

• Add contingency allowance, if any, to arrive at the standard time to do the job.

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Observed time

Normal time

Work content

Standard time

ApplyRatingfactor

AddRelaxationallowances

Add contingencyAnd otherAllowancesIf required

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Time Study• Concerned with determination of the amount of

time required to perform a unit of work.

• As defined by ILO, “Time study is a work measurement technique for recording the times and rates of working for the elements of a specified job carried out under specified conditions and for analyzing the data so as to obtain the time necessary for carrying out the job at a defined level of performance.”

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Objectives of Time Study• To determine by direct observation, the quantity

of human work in a specified task and hence to establish the standard time, within which an average worker working at a normal pace should complete the task using a specified method.

• To set labour standard for satisfactory performance.

• To compare alternative methods in method study in order to select the best method.

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• To determine equipment and labour requirements.

• To determine basic times/ normal times.

• To provide a basis for setting piece rate or incentive wages.

• To determine the cycle time for completion of a job.

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Steps involved in Time Study1. Select the job to be studied- The reasons for selecting a job for time study

are:(a) New job for production.(b) Change in the manufacturing method.(c) Design change(d) Change in the raw material or components used

for a job.(e) When labour cost is high.(f) When new tools, jigs and fixtures are used.

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2. Select the worker to be studied- The ideal worker would be ‘qualified worker’.3. Conducting stop watch time study- Record the method of doing the job and break down

the job into elements.- The various type of elements involved in a job are:(a) Repetitive element e.g. picking up a component

from the container before the assembly operation.(b) Occasional element e.g. setting a tool on a machine.(c) Constant element; for which basic time or normal

time remains same e.g. measuring a dimension.(d) Manual element; which is performed manually.(e) Foreign element e.g. unexpected breakage of tool.

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ISO 9000• ISO is acronym for International Organization

for Standardization located in Geneva, Switzerland.

• The term ‘isos’ is a Greek word meaning equal, homogenous or uniform.

• The idea behind ISO 9000 is to bring in uniformity in quality standards prevailing in different countries.

• The genesis of ISO 9000 began with the launch of Technical committee in the year 1979 and culminated in ISO 9000 series.

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• The ISO 9000 standards consist of six parts viz ISO 8402, ISO 9000, ISO 9001, ISO 9002, ISO 9003 and ISO 9004.

• These stand for system standardization and certification rather than product standardization and certification.

• These do not replace but complement the product standards.

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Content of ISO 9000• ISO 8402 deals with quality vocabulary.

• ISO 9000 is actually a series of guidelines for selection and use of appropriate system standards of ISO 9001, ISO 9002, or ISO 9003.

• ISO 9004 builds up an entire quality system and provides guidelines for interpreting the elements required in ISO 9001, ISO 9002, or ISO 9003.

ISO 9004 encompasses the following:

• Scope and field of application1

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• Management responsibility

• Quality system principles

• Quality related cost considerations.

• Quality in marketing.

• Quality in specification and design.

• Quality in procurement.

• Quality in production /process control.

• Product verification –inspection & testing.

• Control of measuring and tst equipments.

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• Corrective action.• Handling post production actions- storage, packing,

delivery and after-sales services.• Quality documentation records.• Training of personnel.• Product safety and liability. After a company adopts ISO 9000, an independent

official certifying body will assess the company. The assessor will check whether the company, desirous

of the certification, has covered the basic quality elements pertaining to its industry, business and customers.

The firm then gets certified to either ISO 9001, ISO 9002, or ISO 9003.

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• ISO 9001 is a comprehensive certification desired by manufacturing / service organizations which design their own products.

• For ISO 9002 certification, two elements viz. design and servicing are dropped so as to focus more on manufacturing.

• ISO 9002 applies to firms which provide goods/services as per the design or specifications given by the customer.

• ISO 9003 standard drops most of manufacturing, leaving only final testing and inspection.

• ISO 9003 certification is generally desired by organizations like the testing laboratories which inspect and test the supplied products.

• ISO 9003 standard is the least comprehensive of the three.

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• As the ISO 9000 series is a system standard and not a product quality standard, it does not automatically mean that the firm’s product/services are superior in quality to other firms which have not opted for such certification.

For instance, for a long time, Japanese firms producing excellent quality products have not bothered to obtain the ISO certification.

This does not make their products inferior.

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Benefits from ISO 9000• Has become the de facto minimum requirement

for those wishing to compete globally.• Activities in preparing for ISO 9000

certification and maintaining the certification result in streamlining of quality management system which may lead to improvements in product quality. However, extent of improvement may vary from one firm to another.

• May lead to significant cost reduction through reduction in rework, repair, scrap etc.

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• Lays substantial stress on customer orientation resulting into improving customer relations.

• Leads to improvement in employee relations, employee empowerment, and organizational development.

Maintaining certification

• Internal audits at frequent intervals within a given year..

• Surveillance audits every year.

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ISO Standards as Non-Tariff Barriers

• Apprehensions amongst developing nations tat ISO 9000 could be used as NTB by developed nations.

• In the year 1992 European Union started asking for full compliance to ISO 9000 for imports from other countries.

• In India we need to view implementation of ISO 9000 standards as an impetus to continuous improvement in our organizations.

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ISO 14000-Global Environmental Management Standards

• Though having no formal relationship with ISO 9000 series, the structures are alike.

• The intention behind ISO 14000 is to bring about global environmental considerations in all industrial and business activities, transcending narrow national or regional considerations.

• As the environmental issues are transnational and the effects are global, the corporate should encounter a single, uniform environmental management system anywhere in the world.

• ISO 14000 certification though currently voluntary like ISO 9000, it is likely to become an essential prerequisite for carrying out the trade around the world.1

Value Analysis and Value Engineering

• Value Analysis is a technique that allows to increase the value of a product or a service systematically, eliminating all the functions that do not add any value or benefit to the product.

• A product or process exists to fulfill a need.• This need or set of needs is termed as a function, that

the product or process satisfies.• For instance, knife exists to fulfill the need of cutting

and hence to cut is the function of knife.

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What is meant by term Value?

• Value is a function of ‘Desired Performance’ and ‘Cost’.

• Expressed as Desired Performance (P) ÷ Overall Costs (C)

• Desired performance is expressed by the term worth which is defined as the lowest cost to achieve the Use (work) function and Aesthetic (sell) function.

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How do define VA & VE• Very often the two terms Value Analysis and Value

Engineering are used synonymously.• However, difference between them will be clear from

the way they originated. How VA originated?• During the Second World War, U.S. government

reserved certain materials from armament industry.• Therefore, General Electric Company found itself in

fix as many of their regularly used materials suddenly became unavailable due to reservation.

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• A purchase executive of the company, Lawrence D. Miles made many substitutions in place of original materials.

• Surprisingly, the results showed that substituted materials did not affect the quality but brought costs down.

• Later Larry developed a step by step approach for this exercise and named the technique as Value Analysis.

Thus it is a step by step approach to identify the functions of a product, process, system or service; to establish a monetary value for that function and then provide the desired function at an overall minimum cost without affecting any of the existing parameters like Quality, Maintainability, Productivity, Safety and other Performance Characteristics.

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• In the year 1954, U.S. Navy Bureau of Ships adopted same technique in their effort at ‘cost avoidance’ during the design stage and saved million of dollars .

• They named this technique as Value Engineering. Value Engineering is where the value of all

components used in construction of a product from design to final delivery stage are completely analyzed and pursued.

• Thus, Value Engineering indicates application at design stage whereas Value Analysis is the application on the product that is into manufacturing.

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Difference between Value Analysis and Value Engineering

Value Analysis Value Engineering

Indicates application on the product that is into manufacturing.

Indicates application on the product at its design stage

Workers, subcontractors and engineers come together to make a team with experience and knowledge

Done by a specific product design team (Engineers)

May change the present stage of the product or operation

Changes are executed at the initial stages only.

Worked out mostly with the help of knowledge and experience

Requires specific technical knowledge

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What is the meaning of overall costs?

For a manufacturer/ producer

• Overall cost is summation of all elements of the costs required to produce or service such as labour, material, overhead etc.

For a consumer

• Overall cost is the monetary sum (price) for which the product or service is purchased in the market.

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The Value of the a function V= P/C can be increased by four methods.

(1)Decrease the cost while ensuring the same level of performance.

• Reduce the thickness of wooden drums in case of packing of telephone cables.

• Earlier CDs and DVDs were sold at above Rs 100/- Moser Baer introduced the same at almost half the price.

(2) Enhance the performance at the same cost• Providing a supplement of Mumbai Mirror along with

the copy of The Times of India at no extra cost.

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(3) Decrease the cost and increase the performance • Intel’s Pentium chip is cheaper and has much more

processing power than all its earlier chips.

(4) Increase both performance and cost ensuring that performance increases more than the increase in cost.

• American cola giant increased quantity of soft drink from 250 ml to 300 ml (20% more) but increased price just by 10%

In all the above cases ‘cost’ is viewed at from customer’s point of view.

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Value Analysis TestsEach product or component is subjected to the following tests:

• Does its use contribute value?

• Is its cost proportional to its usefulness?

• Does it need all its features?

• Is there anything better for the intended use?

• Can a usable part be made by lower cost method?

• Can a standard product be found which will be usable?

• Is it made on proper tooling, considering quantities used?

• Do materials, reasonable labour, overhead, and profit total its cost?

• Will another dependable supplier provide it for less?

• Is anyone buying it for less? 1 313

Functions-Use and AestheticsA. Use function

- Prashant wants to go for a trek to a place 15 kms from Karjat. He wants to purchase shoes that will protect his feet from stones and thorns etc. Therefore he opts for ‘Hunter shoes’.

- To protect feet is called as the Use Function of the shoes.

B. Aesthetic function

- Parag is preparing for prize distribution ceremony of his college. Dressed in blazer he will be putting on black leather shoes with good appearance.

- To give good appearance is called as the Aesthetic Function of shoes.

Use and Aesthetic functions are always present in all the products. Depending on the user and the need, one function assumes predominance over other.1 314

Primary Function & Secondary Function

• AR Dairies is a Mumbai based milk and dairy products company. They used to supply milk (cow and buffalo) in 500 ml glass bottles. Lately they have introduced Masala Milk in 200 ml bottles, which became an instant success. While Masala Milk is supplied throughout the day, other type of milk is supplied only in the morning. While going through the audit reports, Shalini found that there is a transit loss of 2% due to breakage of bottles. To overcome that Shalini introduced polythene bags in place of 500 ml bottles. However Masala Milk continued to be sold in glass bottles.

• Why did Shalini not introduce polythene bags for Masala Milk?

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• The Primary Function of bottle is ‘to hold the liquid’ and Secondary Function is ‘to facilitate drinking’.

• In this case, shape of the bottle facilitates drinking; however when primary function is achieved by some other means i.e. polyethylene bag then secondary function ceases to exist.

• As a consumer drinks Masala Milk on the spot, secondary function of facilitation of drinking is very important whereas cow milk or buffalo milk is never drunk without heating it.

• Therefore Shalini could sacrifice secondary function in case of cow & buffalo milk but not in case of Masala Milk.

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Higher Order & Lower Order Function

• The basic function of a Torch is ‘To Give Light’

• Let us analyze order of functions.

• Give Light (why) Facilitates Viewing (How) Light the Bulb (How) Supply Current (How) Insert Battery

• When we ask question ‘Why’ to the basic function; then the answer we get is called as ‘Higher Order function’.

• And when we put question ‘How’ to the Higher Order Function we get ‘Lower Order Function’.

• Thus ‘Facilitate Viewing’ is higher order function and ‘Light the Bulb’ is a lower order function.

• As we continue asking questions ‘How’ we will get functions still lower in order.

• Therefore ‘Insert Battery’ is lower than ‘Supply Current’ which in turn is lower than ‘Light the Bulb’.

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• Incidentally if we take any part or function and put the question ‘Why’ , then we will get functions higher in order.

• Insert Battery (Why)Supply Current (Why)Light the Bulb (Why)Facilitate Viewing.

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Summary of FunctionsType of Function Meaning

Use Function Perform some action, expresses in active tone.

Aesthetic Function Pleases customer, expressed in passive or non-measurable tone.

Primary Function Basic purpose for which a product exists

Secondary Function Arises out of specific design chosen to fulfill the Primary Function.

Higher Order Needs Reasons of satisfying the Basic Function

Lower Order Needs Means of achieving the Basic Function.1 319

A product can have more than one primary function• For example, LPG cylinder apart from holding the LPG

must also withstand high pressure and must prevent leakage of gas. Therefore any cylinder design must address all these factors.

Many times some of the secondary functions are unnecessary or even undesirable.

• For example, Lamp used for producing image in OHP also produces heat that calls for fan. The fan is quite unnecessary but with present level of technology we have not been able to produce light without heat.

• Therefore, a customer has to pay for fan even though it does not add any direct value to him.

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Function Analysis System Technique• Helps in a thorough understanding of the scope and intricacies of

the problem under study.

• Provides a determinate logic for testing the functions.

• Assists in identifying the basic, required secondary and unwanted functions, and establishes their inter-linking in a logical sequence.

• Highlights the missing links or functions which might have been overlooked.

• Demonstrates that the problem has been thoroughly analyzed by the team and helps in persuading the decision makers to accept the VE team recommendations

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FAST Diagramme for PenPart Function Remark

Head Position RefillLocate Refill

Cylinder Provide GripProtect RefillImprove AestheticShow ink-level

Serration on cylinder

Carry Name & LogoTransparency

Tail Support Refill

Rings (Front & Back) Help Location

Cap Protect TipFacilitate Carrying Projection on the Cap

Refill Contain InkControl Flow

Ink in Refill Make Marks 1 322

The alternatives can be

(1)Eliminate head and make it part of Cylinder

(2)Eliminate Tail and make it part of Cylinder

(3)Eliminate Rings Financials & Operational Report

(1)Design change suggested

(2)Reason for change

(3)Additional expenditure required for new die, advertising expenses etc.

(4)Savings (cost of rings, elimination of one process etc.)

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Principles of Value Analysis• Do not use a part that does not contribute to the value of the

product.• Do not use a part whose cost is not proportional to its function/

usefulness.• Do not provide any features to the component or finished

product that are not absolutely required.• Accept change if part of required quality is made by a process

costing less than the alternative process.• Use standardized parts wherever possible.• Use proper manufacturing methods taking into account the

quantities.• Use the material best suited for the purpose.• Purchase the part instead of in-house manufacturing if suitable

supplier can provide the part of good quality at a reasonable price.

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When to Apply Value Analysis? • Products are losing their market share and

there is a decline in sales.

• Products are priced higher than competition in a price sensitive market or product cost is > sales price of competition.

• New designs to be undertaken.

• Rising manufacturing costs.

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Reasons for Unnecessary Costs

• Lack of relevant information leads to wrong decisions which increase costs.

• Wrong beliefs in accepting opinions.

• Lack of ideas.

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Strategic Steps In Value Analysis• Determine function and cost of each element

in finished product.• Consider alternatives that fulfill functions.• Select best alternative which includes

standardized materials and standardized dimensions.

• Strategic choice of make products or subcontract.

• Modify design to reduce costs.

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Value Analysis Procedure• Identify items to be analyzed.• Differentiate whether item or process.• Identify internal and external customers.• Identify basic functions.• Identify secondary functions which support basic.• To prioritize determine value or importance to

customer of each function.• Break item/process into constituent components by

using flow chart.• Associate components with functions.• Look for components which can be modified or

eliminated. 1 328

Options in Value Analyses/Value Engineering

• Modify

• Integrate

• Substitute

• Simplify

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When to Use Value Analysis/Value Engineering

• Aim is to evaluate real value of Product/process

• Focus is on saving costs

• Aim is on increasing value of process/product.

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Benefits of Value Engineering

• Cost reduction /elimination techniques.

• Balances costs and performance

• Prevents overdesign of product (Customer Function Deployment)

• Increases profits and reduces costs.

• Increases customer satisfaction

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Examples of Value Analysis• Modify-Motor car engines have been modified to

run on LPG/CNG• Integrate-Air conditioner and heater integrated into

one unit.• Substitute-In-house wiring has been changed from

copper to aluminum or coke bottles changed from Glass to Plastic.

• Simplify-Application software simplified by being made modular. Earlier all modules were bundled or an equipment made modular which simplifies transportation and maintenance

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FUNDAMENTAL CONCEPTS OF TQM

• Total quality management is both a philosophy and a set of guiding principles that represent the foundation of a continuously improving organization.

• Encompasses mobilizing the entire organization to satisfy the demands of the customers.

• TQM is focused on routine involvement and participation of everyone in the organization in the systematic improvement of quality.

• It involves each individual and group within all parts of the organization.

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• TQM provides a way of life to constantly improve performance at every level and at in every activity, by creating a positive environment for continuous improvement based on

- Team work- Trust and Respect- Examining the processes in a systematic

manner- Application of quantitative methods and

analytic techniques

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Deming’s Chain Reaction

Improve Quality

Decrease costs due to less rework, fewer mistakes, fewer delays and snags, and better use of time and materials

Improve productivity

Capture the market with better quality and lower prices

Stay in businessProvide steady jobs

and more jobs.

A shift from traditional approaches to quality

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TOTAL QUALITY MANAGEMENT -Involvement of all employees, customers and suppliers - Empowered employees - Teamwork - Quality strategy based upon a common mission and vision -Process oriented

QUALITY ASSURANCE-Quality systems (ISO 9000) -Quality planning - Quality

policy - Quality costing - Problem solving

QUALITY CONTROL-Quality standards -Statistical quality techniques -Process performance -Treating quality problems

INSPECTION-Error detection- Rectification

• TQM can be perceived as being concerned with the following

- Meeting the needs and expectations of customers.

- Covering all parts of the organization- Examining all costs which are related to quality- Doing things right the first time i.e. quality

designing rather than inspecting.- Developing the systems and procedures which

support quality and improvements- Developing a continuous process of

improvement

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Kaizen Philosophy

• TQM concerns incremental and ongoing improvement of yourself, your work, and your organization.

• The Kaizen philosophy is imbedded in the TQM concept and encompasses the continuous and gradual improvement of all employees in the organization.

• Leads to improvement in employees’ personal output on a daily basis

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Important Kaizen Rules

• Work with and according to guidelines• Problems are opportunities for improvements• Retrieve information where it happens• Consider the facts• Work according to the plan• Avoid waste• Order and neatness• Keep appointments

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Deming Wheel- focal point in Kaizen Approach

• In the Kaizen approach “Deming Wheel” is central, consisting of a cycle of activities necessary for effective quality improvement.

• The cycle consists of Plan, Do, Check, and Act.1. Plan- Define the problem, analyze the causes and draft an

action plan for solving the problem.- Determine the quality objectives, and critical success

factors.- Define performance indicators, collect and analyze the

process data, generate the possible solutions.- Select the most feasible solution and work it out.

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2. Do

- Implement the plan on a limited scale or conduct an experiment to test the proposed improvement.

- Train all involved employees in the use of quality improvement methods and techniques.

- Describe the process which is considered for improvement and form project teams to lead the process.

3. Check- Evaluate the trial project with performance indicators.- Verify whether the improvement has been successful.- What have we learnt?

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4. Act- Implement proven improvements.- The improvements are documented in standard

procedures so all employees involved are well informed on how to handle in future.

- Usually the cycle gets repeated under different circumstance and conditions to test how consistent the results are.

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ACT PLAN

CHECK DO

Quality PrinciplesA. Customer focus and customer involvement

- Employees regularly visit their customers.

- Customers are known and understood

- Customers’ needs are integrated in the activities.

- More is being done than the customer expects

- Satisfied customers are priority number one.

- Changing customer needs are systematically collected and lead to improvement

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B. Involvement of all employees• Voluntary total involvement of everyone.• Teamwork that leverage the knowledge and

provides synergy based on open communication, respect and trust.

• Skills are developed on the basis of “Learning by doing”.

• Decisions on the basis of consensus.• The present situation is open for discussion.• Investing in knowledge.• Empowered employees• Entrepreneurial approach and leadership skills at

all business levels.1 344

. C. Consistency of purpose

- An inspiring mission and vision is developed and communicated to all organizational levels.

- SMART- goals are formulated and preserved.(Specific, Measurable, Achievable, Realistic, and Time specific).

- Managers are consistent in their behaviour regarding these goals.

- Guidance is given to quality improvement process.

- There is commitment at top management.1 345

D. Act according to facts

- Work according to facts and not based on rumours or feelings.

- The causes and consequences of problems are analyzed according to “measuring is knowing”.

- Goal oriented data is gathered and interpreted accordingly.

- Measurements are based on figures; verify everything with data.

- Quality costs are analyzed.

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E. Process oriented- Internal customers are also satisfied.- The process is more important than the results; address

the means of work accomplishment and not the outcomes.

- The effectiveness of process is measured.- The output is standardized.- The processes are documented in schemes and standard

working procedures.- Suppliers are regarded as partners and long term

relationships are established.- The TQM culture is expanded to suppliers.- Reduction of process variations occurs continuously.1 347

F. Focus on continuous improvement.

- Employees improve themselves and their work and help others improve themselves and their organization.

- Problems are regarded as a means for improvement and a chance to improve processes.

- Emphasis on problem prevention instead of correction.

- Improvements are based on cross-functional, structured, and holistic approach, and are continuously documented.

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- Multidisciplinary improvement teams are established.

- There is a working climate in which continuous improvement is a way of life.

- Improvement of whole and not just the parts.

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Deming’s and Crosby's 14 points for quality improvement

S.No. Demimg Crosby

1. Create constancy of purpose towards improvement of product and service .

Establish management commitment

2. Adopt the new philosophy Form interdepartmental quality improvement teams.

3, Cease dependence on inspection Establish quality measurement.

4. End awarding business on the basis of price tag

Evaluate the cost of quality.

5. Improve constantly the system of production and service.

Establish quality awareness.

6. Institute training on the job. Instigate corrective action.

7. Institute leadership. Ad hoc committee for the zero defects programme.1 350

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S.No. Deming Crosby

8. Drive out fear, so that everyone may work effectively for the company.

Supervise employee training.

9. Break down barriers between departments.

Hold a zero defects day to let all employees realize that there has been a change.

10. Eliminate slogans and exhortations.

Encourage individuals to establish improvement goals for themselves and their groups.

11. Eliminate quotas or work standards.

Error cause removal.

12. Give people pride in their job. Recognize and appreciate those who participate.

13. Institute education and a self-improvement programme.

Establish quality councils to communicate on a regular basis.

14. Put everyone to work to accomplish it.

Do it over again to emphasize that the quality improvement programme never ends.

• Total quality management is a common method to improve the whole organization stepwise, structured and systematically according to hard work, discipline, intensive training, and consistent implementation of techniques and resources.

• The quality principles form the foundation of TQM and are expressed in the four pillars of the TQM-house, namely

1.Problem solving Discipline2.Interpersonal skills3.Teamwork4.Quality improvement process.

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Total Quality Management

Problemsolvingdiscipline

InterpersonalSkills.

Teamwork Qualityimprovement process

Employee involvement, Structured, Stepwise, Discipline, Consistency.

• The success of TQM improves proportionately in conjunction with the percentage of employees within the organization who master this quality attitude, mentality, and skills,

• TQM covers all parts of the organization.

• For an organization to be truly effective, every single part of it, each department, each activity, each person and each level must work properly together, because every person and every activity affects and in turn is affected by others.

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THANK YOU

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