PPC 26.11.08

8/8/2019 PPC 26.11.08

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\..................322Production / Operation Planning & Control

1) Production Planning & Control is a system.

2) It is the brain &central nervous system of the Production programme responsible forhaving all the required material at the right time and right place.

It means to ascertain progress of operations according to predetermined time & place

of schedule to ensure that goods are provided at right time to the customer.

3) It is inter phase between the market requirements, manufacturing and materials

management.

4) It is a system providing support to decision making keeping in view the three levels of

operational strategy process.

5) Since it is a system, a good information system & co-ordination is required.

6) The system is not static or preconceived. It is flexible & is capable of adapting to the

erratic changes in demand patterns or changes in the business environment.

7) Objectives of any business

1) To have long term growth2) To satisfy the customer

3) Achieve higher rate of return on their Investment

4) Increase cash in flows

Finally increases the profitability or rate of return on their Investment.

Level- I

Level- II

Level- III

Fit

Sustainability

Risk

Allign Resources with

requirements

Develop Sustainable

Com etitive Advanta e

Include Impact of Uncertainty

Increasing Complexity

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P.P.C serves the following purposes:

1) Minimize the mismatch between demand & supply

2) Maximize the capacity utilization of the facilities

3) Minimize WIP

4) Maximize the productivity of operations

5) Maximize flexibility of product range

Effect of Efficient PPC.

Need of PPC:

Manufacturing is a complex process. Some companies make few products, while most of the

companies make variety of products each uses a variety of processes; machinery materials,

equipments, toils, workers. All these must he organized efficiently, economically, effectively

for better productivity.

The goods must be manufactured at right Quantity & Quality at right time and must be

delivered at right place. The effectiveness of production system is increased by PPC

A good PPC system must answer P.P.C. system must answer the following questions

1. What are we going to make Products

2. What does it take make it Resources.

3. What do we have - Capabilities (facilities)

4. What do we need Additional things required

PPC

Timely

delivery

Lower capital

investment

Quick

feedback on

job stalks

Better

availability of

product

Better job

satisfaction

Effective

suppression

Cost reduction

& Cost Control

Effecting

utilization of

factor of

production

Good return on

investment

Better co-ordication

between Different

marketing, production &

material management

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Any P.P.C system has five major levels:

1) Strategic business plan

2) Production Plan [sales & operation plan]

3) Master production scheduling (MPS)

4) Materials requirement planning (MRP)5) Purchasing & production activity control

Each level varies in purpose, time span, and every level details are as follows:

1) Strategic Business Plan:

It is a statement of major goals & objectives, the company expects to achieve over next

two to ten years.

2) Production Plan:

Gives the quantities of each product group must he produced each period.

3) Master Production:

Schedule is the plan for the individual end items. Production plan limits the master

production schedule.

4) Materials requirement plan:

It is the plan of components required to make end items planned in Master production

schedule. Master Production Schedule drives MRP.

5) Purchasing & Production Activity Control:

Is the implementation of Production Plan and Control to achieve decided productionplan.

PPC SYSTEM

a) Whole PPC system should be integrated and changes at any level must affect

immediately the other levels.

b) Effective computerized PPC is needed since thousands nos. of components are required

in any firm for variety of products.

c) Also demand changes daily

d) New orders come in, some gets cancelled there may emergency VIP customer orders.

e) There may be production breakdowns on the shop floor due to workers absenteeism,

breaks downs in markets, equipments, power failures late or early delivery from

suppliers.

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f) It is difficult to keep the track of all these changes manually. Therefore there is

tendency to keep safety stock to take care of this.

g) Which blocks money, space is required more.

h) These are creation of wastes hence management computerized PPC system will solve

all above problems.

REQUIREMENT OF EFFECTIVE PPC:

1) It should be result oriented (right quantity, quality, lost & delivery)

2) It should be computerized integrated system.

3) Simple to understand and operate & economical.

4) It should take minimum nos. of corrective action if needed or it should take preventive

action.5) It should bring to the notice immediately if variation occurs.

6) It should be flexible in the light of changes in business environment.

FACTORS INFLUENCING PPC SYSTEM IN AN ORGANIZATION:

1) The type of Production (Job, Batch, and continuous)

2) Nos. of products, complexity of manufacturing, nos. of manufacturing processes.

3) The understanding of manufacturing processes is necessary to know as to what

functions of PPC are important in given situation.

4) Management policy here refer to the does & donts

a) Plan for meeting seasonal or occasional spurts in demand

b) Distribution of work implies functions to be assigned to PPC. Different companies

assign different functions to its PPC function. The functions assigned depend upon the

size of the company.

5) Machine capacities

6) Nos. of workman

7) Skill and knowledge of workers

SOME COMPANIES ASSIGNED THE FOLLOWING FUNCTIONS:

1) Order preparation2) Materials Control

3) Tools Control

4) Process Planning

5) Scheduling

6) Dispatching

7) Progressing

8) Expediting

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FEW COMPANIES MAY ASSIGN FOLLOWING FOUR AREAS:

1) Cost Estimation

2) Works Measurement

3) Sub Contract or Forming Out

4)

Capacity Planning

DEGREE OF CENTRALIZATION OR DECENTRALIZATION:

1) Centralization planning of the PPC functions is controlled by staff specialist centrally.

2) Decentralization Planning is carried out by line executives who formerly used to do their

normal work in their respective dept.

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FUNCTIONS OF PRODUCTION PLANNING & CONTROL

DIVIDED IN THREE PHASES:

1) Preplanning

2) Planning

3)

Control

PREPLANNING:

1) Product Design & Development

2) Process Design, Analysis & Evaluation

3) Plant location

4) Design and installation of Plant Layout.

5) Design & Implementation, Material Handling System

6) Equipment policy [selection , procurement, installation, commissioning]

7) Preplanning production

PLANNING

Planning for four resources

1) Materials

2) Methods

3) Machines

4) Manpower Routing decision, loading, scheduling

CONTROL PHASE

1) Dispatching

2) Inspection

3) Expediting

4) Evaluation

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PRODUCTION (POLICY)

Production made to order

Production made to stock

PR

ODUCTION MADE TO OR

DER

y Allows the production to start only after co. receives customer orders & halts the

production until another order is received. This policy is suitable for organizations that

produce products, parts or components of high value like (Transformer, Aero plane,

Special machine). These are meant exclusively for specific purpose.

y Customized design product when the level customization is high and quantity product is

low. Products are designed to satisfy individual customer needs. The emphasis in this

type of product design in ON QUALITY & ON TIME DELIVERY rather that COST. Many

industrial products like boilers, turbines, motors etc.

INTERMITTENT

y Projective Production System. Turn key type (L & T)

y Job Order

y Batch Order

PRODUCTION MADE TO STOCK

In this policy the products are produced well in advance & stored in ware houses from

where they are dispatched as per customers order. This policy is suitable for

organizations, manufacturing products, parts or components which has seasonal

demand like (Refrigerators, air coolers, conditioner etc) of those which as generalapplication like (nuts, bolts) etc.

y Their design is standard product design

y Standardized product design is employed when the organization is involved in

production of limited variety of products which are produced in large batch sizes. In

which the importance is given to cost control & quality rather than flexibility of the

system. [fans, radios, televisions)

CONTINUOUS

y Massy Flow

y Process

The relation between process structure and volume requirements is often shown on product

process matrix.

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TYPES OF PRODUCTION

CHARACTERISTICS FEATURES OF MADE TO ORDER PRODUCTION

1) Production is made to order as per specification given by the customer

2) Production may be standard or non standard many times (non-standard)

3) In all three types of production systems company can get an order once in life time of

organization.

4) Company may get order after unknown or irregular intervals of time.

5) Company may get order known or regular interval of time.

PROJECT TYPE OR TURNKEY PROJECT TYPE PRODUCTION SYSTEM

1) This system does not produce standard products.

2)

Plant, Machinery, People, Material are brought to the project side and the project iscompleted. The project of big size remains in the site itself. After completion the

costs are calculated and allocated to project with considerable accuracy. Once the

project is completed - all resources are removed from the site. Generally large of capital

is required, large no. of activities are involved & multy skills people are required on the

project.

Thus project is single assignment of complex nature is undertaken for completion within

the given period & within the estimated expenditures.

Job

Batch

Mass

Flow

Process

Degree of Repeatability

P r o d u c t P r o c e s s M a t r i x

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JOB ORDER TYPE OF PRODUCTION:

It is called as tailor made production. It consists of manufacturing one or few nos. of single

product, designed and manufactured strictly as per customers specifications within the given

period & within the price fixed prior to the contract.

Ex: general repair shop, fabricators, S.P.M. manufacturer, workshops to manufacture, jig,

fixtures, gauges etc. Building contractors, tailoring shops of manufacturing special suits made

to order, manufacturer of ships, cranes, furnace turbo generators, pressure vessels,

transformer, Electric generator etc.

JOB ORDER TYPE OF PRODUCTION CHARACTERISTICS

1) Small productions run.

2) Discontinuous flow of materials.

3)

Large manufacturing cycle time.4) Plant & equipment is designed or procured to have or to obtain max flexibility. Hence

use of general purpose machine & fixtures are limited. Materials handling equipments

is capable of having variety of the materials with minimum set up time.

5) The layout is fixed position sometimes process layout is made in which similar type of

machines are arranged together. Each group of machines is called as work centre. The

grouping of machines gives lot of flexibility in loading & scheduling. Temporary machine

breakdowns & operators absenteeism can be taken care by shifting the jobs to another

machine or shifting the operation from less important jobs to most important jobs.

6) Skills of workman - Generally very high skilled people are required.

7) Quality of supervision - should be very good. The supervisors are knowledgeable & take

decisions on their own; they decide the best methods, procedures & provide

management reliable estimates of labour, materials for specific order.

8) The span of control is less.

9) There is a more WIP.

10) Large detailed scheduling & progress control is not feasible economically.

FUNCTIONS OF PPC

The PPC job is difficult & not easy. The success of this type of production depends upon theability of the engineer in charge of the contract.

1) Materials are indented & purchased on receipt of the order customers.

2) Tool control is simpler. Standard tools are stocked while special tools either made on

shop floor by the operators or purchased on request from supervisor.

3) Process planning activity is almost ABSENT. The days & specifications are directly given

to the supervisor who is expected to decide work methods, select optimum process. Fix

up machine tools to be used and estimate the time required to complete operation.

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4) Scheduling activity is more or less decentralized A schedule is prepared to show start

& completion date of each major component of product. Job tickets giving completion

date of each component are raised & given to shop. The activity of day to day

scheduling is left to the individual supervisor.

5) Progressing function is relatively simple. Day to day information on the progress of

work on the shop floor is difficult due to sluggish activity. Production meetings are

therefore held to improve control. Thus supervisors attending meetings are thus

expected to account for job progress.

BATCH PRODUCTION:

Here limited quantity of each type of product is authorized for manufacture at a time. It is a

manufacture of a limited nos. of products (but many such quantities of different products &

produced in a lot at a time (Batch) at regular intervals of time & stocked in ware houses as

finished goods (or finished parts) awaiting (or withdrawal) for assly.

Two aspects: 1) Batch quantity 2) Scheduling of the batches.

Equipment is busy up to time tp & hence another batch of product can be schedule at point

M. Here the jobs comprising the batch move from one operation to the next. No subsequentoperation is performed until all jobs have undergone the previous operation. At times,

subsequent operations may be started to overlap the previous operation. The items comprising

the batch on the completion of last operations are usually delivered to the stores.

Quantity

Time

AP AC

TP TCM

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CHARACTERISTICS OF BATCH OF PRODUCTION

1) Short production runs.

2) Skill of labour - partly skilled partly unskilled. The labour force is expected to possess

skill in one specific manufacturing process.

3) Extent of supervision The amount of supervision here is lower than job order type of production.

4) Layout of plant & equipment- It is designed or procured to obtain max flexibility.

5) The machines are partly general purposed & special purpose.

6) The layout is process type.

7) Scheduling orders is complex and considered with tradeoff between inventory

availability, capacity and customer service.

8) Materials handling is movable equipment moves from one place to another like a

trolley.

9) Manufacturing cycle time is comparatively smaller than job order type of production.10) The batches of work tend to queue up at different machines due to different cycle

times, batch sizes, sequence of operations.

11) WIP is high.

12) Flexibility in production schedules.

Disruptions due to machine breakdowns & absenteeism do not affect production since

another machine can be used or another operator can be shifted from machine.

FUNCTIONS OF PPC IN BATCH PRODUCTION:

1) The functions are more complex than any other type of production system.2) Material control & tool control functions are important scientific stock control system

needs to be used to ensure routine replenishment.

3) Detailed operational layouts & route sheets are prepared for each part of the product.

4) Loading & scheduling needs to be more detailed and more sophisticated. Since every

machine requires to be individually scheduled.

5) Progress function is very important to collect on the progress of work. A separate

progress card needs to be maintained to record the progress of the each component.

6) Expediting is generally necessary, since jobs many a times, due to imbalances in work

contents, tend to lag behind.

MASS OR FLOW PRODUCTION:

It is the manufacture of identical products on large scale. Whenever there is large demand for

a standardized product. The repetitive nature of production is taken into consideration in

setting operation, machine, and equipments. Hence the scope of special purpose machine &

tools & material handling equipment.

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The rate of production = The rate of consumption.

Here the production run is conducted line either on a single machine or on nos. of machines

arranged according to the sequence of operations & several nos. of products are produced at a

time & stocked in ware house.

Examples: Plastic goods, sintered products, hardware manufacture & assly shops of

automobiles, refrigerators, radios, televisions sets, electric fans, motors, domestic appliances.

CHARACTERISTICS:

1) Flow of material is continuous & there is little or no queing at any stage of processing.

2) Plant layout product type by sequence of operation.

3) Special purpose machines & tools.

4) Materials handling It is comparatively less because the materials move through a

shorter distance between the stages. The materials handling activity is mostly

mechanized by conveyors & transfer lines.

5) Skill of labour low skilled.

6) Manufacturing cycle time is very short. The machines capacities are balanced byduplicating machines whenever necessary.

7) Qualities of supervision Relatives easier as only few instructions are necessary & that

too at the start of the job.

8) WIP is less.

9) The type of maintenance is preventive

10) Flexibility in production schedules is nil.

PROCESS PRODUCTION:

It is also one kind of continuous type of production where the product is highly highly

standardized. The flexibility of a such plant is almost zero.

EXAMPLES SUGAR, STEEL, CEMENT, PAPER, REFINERIES, COKE ETC., GLAZED TILES.

1) Layout of plant & equipment the layout of plant, shape, size of its building, location of

services & storage yards, positions of crane & conveyors is such that material flow is

unidirectional and at steady rate. S.P.M. & equipment with built in controls to measure

output & regulate the input. The process parameters are controlled automatically.

Quantity

ap

ac

tp tc

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2) Materials handling is highly mechanized. Conveyor system & automatic transfer

machines move materials from one stage to another stage.

3) Manufacturing cycle time is almost zero. The whole plant is like one large machines

where in materials enter at one end and emerges as a finished product at the other end.

4) Skilled of workmen semiskilled and skilled technician.

5) Quality of supervision the supervisor is highly qualified & must have considerable

knowledge of the processes involved.

6) WIP is very less as material is in flow continuously.

PPC FOR CONTINUOUS TYPE OF PRODUCTION:

1) Materials control function is crucial importance. Materials need to be planned well in

advance scientific inventory control system is must.

2) Tool control function is almost absent because of the nature of the plant.

3) Process planning activity is absolutely not required. Since it is the plant which decides

route.

4) Scheduling activity is very simple and is merely restricted to final targets.

5) Progressing & expediting functions are extremely simplified and are merely limited to

recording of the final production at the end of shift.

PRE REQUISITES OF PPC:

To set up PPC dept in an organization is not an easy task. Lot of preparatory work needs to be

done before the dept is ready to take off. PPC depends on nos. of factors. Yet preplanning in

the following area is must.

1) Design data: Approved designs of the products to be produced. A complete set of

drawing of all part sub assemblies, manufactured & purchased for a product together

with bills of material must be available to PPC.

2) Equipment data: The data for each type of equipment as follows:

y The tasks which can be performed with the help of different accessories and tools.

y Different speeds & feeds at which it can be operated.

y Its limitation in terms of configuration of the work piece (max. tool travel, max,

depth of cut).

y Process capability natural tolerance

3) Performance standards: set up time of machine & processing time.

y These are required for process planner to select optimum manufacturing process

among the available alternative processes.

y The scheduler of determine individual machine capacity for the purpose of machine

loading & to assign required machine hrs & man hrs to different operations of the

job.

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The compilation of performance standards in batch as well as mass & flow production is

simple while in job type of production it is difficult task. The performance standards

[synthetic standards] while in mass Production system can set up performance standard

by doing time study.

4) Raw material data: information on different kind of raw materials in use, list of jobs

which are produced from each kind average lead time required for procurement various

suppliers and their ratings. The PPC should also have raw materials requirements

worked out for each job.

5) Tooling data: A firm uses a wide variety of tools. A comprehensive list needs to be

prepared for each group to facilitate proper tool control & provide ready reference to

the process engineer.

1) standard 2) special tools 3) measuring tools

6) Labour data: The information regarding nos. of people, their skill, knowledge,

experience, payment rates for each workmen which gives capability of labour for

working effectively & efficiently.

7) Tool life: The tool life helps to maintain inventory levels of tools.

8) Economic batch quantity: (For economical production of most of items to be

manufactured inside the factor.)

) System for operating functions:

y Order preparation: to specify system of raising work orders & other subsidiary

orders to authorize manufacture.

y Material controls: to ensure timely availability of materials required for companies

production activities the procedure should suggest Methods of estimating

materials requirement; ascertaining their availability indenting their requirements

and issuance of materials to shop.

y Process planning: 1) To specify route that each part should follow from raw material

stage to finish stage, 2) The procedure should suggest the method of fixing

operations & their sequence, 3) Standard & special tooling, 4) Machine tool for

which each operation, speed, feed to be used etc.

y Preparation of tools for new times & release of tool request to tool room.

y Scheduling: to specify standard & completion dates for each operation. The

procedures should suggest the method of machine loading and the process of

working out calendar dates for completion of different phases of work.

y Dispatching: for putting production plan into action. The procedure should suggest

method of distributing manufacturing orders, materials, tool requisitions, job tickets,

more orders, inspection orders & others for authorizing & directing work.

y Controlling Production to ensure that work progresses as outlined in the plan. The

procedure should suggest method of collecting information company progress

against planned programme & taking corrective action whenever necessary.

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y Communicating with sales the status of various jobs of different customers &

possible failure in delivery commitments.

MEASURING EFFECTIVENESS OF PRODUCTION PLANNING & CONTROL:

This is achieved through a function called as Evaluating in OPC. OPC is said to be effective.

1) It contributes in fulfilling corporate objectives & departmental objectives.

2) This also helps for setting up the standards for future.

y Effectiveness

y Customer satisfaction

y Efficiency of operations (right, quality, right time at right place with min. cost).

3) OPC to be effective when it is progressive i.e. best results are obtained when planning

starts with broad analysis and the proceeds step by step, to fill it more details. These

steps in planning or levels of planning used in production planning are named as-

Production plan is developed from business plan which is derived from all functional plans. A

production plan contains information regarding the

1) Production Processes

2) Manufacturing Facilities

3) Inventory Requirements

4) Suppliers

Such a plan is made usually on the bass of sales estimate.

A production plan specifies-

1) Quantity of items to be produced

2) Quantity & timing of production

3) Final schedule for completion for the product

Production output is expressed in terms of revenue earned, tons of output generated or units

of aggregate product that represents all products in the product line of an organization

operation plans should be aligned with business plans & objectives of other functional areas

live Marketing, Finance, H.R etc.

PRODUCTION PLANNING

3) Factory or Plant Planning 2) Process Planning 1) Operational Planning

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OPERATIONAL PLANNING: is concerned with planning, organizing, directing and controlling the

materials and methods to be used to make the products, and the way in which the production

facilities such as buildings, machines, equipments should be laid out in the space available for

Production Planning the sequence of operations / processes / work tasks that have to be

carried out to complete the required product (i.e. ROUTING).

FACTORY OR PLANT PLANNING: this is the first level planning, at this level the sequence of

work tasks is planned in units of the process, and spatial relationship of work places is planned.

Here we decide what departments are required to complete product (turning, milling, press

working, assembly, packing). Then to have smooth flow of material we allocate place in the

factory to the department, so that materials flow from dept. to dept. sequentially. This may be

termed as planning the dept. This also determined service depts. placing the total power

requirements (utilities like electricity, steam, oil etc) laying down the pipe lines, cables etc.)

PROCESS PLANNING: this is 2nd

level of production planning, at this level each dept. found in

the above level is considered further & the flow of material in each dept. is considered. Here

the requirement of facilities to get desired physical change in the material is considered. Then

proper place is allocated to each facility depending upon flow of pattern of material & layout of

facilities in space available is prepared i.e. we are planning the process in sequential manners.

OPERATIONAL PLANNING: it is 3rd

level of production planning, here we consider each & every

production facility particularly machinery and equipment and the work is divided into elements,

then how each operation is performed and in which sequence is planned. Here the study of

ergonomics is made to increase human efficiency at work place.

FACILITY PLANNING:

1) Decide location of the plant

2) Design & implementation of plant layout

3) Selection, Installation, Commission of machinery, equipment & tools and measuring

tools.

4) Selection of materials handling system.

5) Man power requirements (Quality & Quantity)

6) Capacity Planning

OBJECTIVE OF PLANT PLANNING:

1) To achieve smooth flow of production.

2) To reduce manufacturing cost.

3) To achieve desired quality.

4) To enhance safety.

5) To increase overall productivity.

6) To make employees happy & increase their morale.

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7) To take care of expansion if required.

8) Technology up gradation & absorption

CONSIDERATION & SCOPE OF PLANT PLANNING:

1) The types of products to be produced, their quantity quality.

2) While taking competition in minds.

3) Up gradation & technology up gradation required.

4) What type of customers you are going to be satisfied & what market you are going to be

tapped.

5) Production to stock or production to order.

6) What are ranges of product to be produced, expansion / diversification.

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CHAPTER 3

DEMAND, SALES FORECASTING, DEMAND MANAGEMENT, LONG RANGE, SHORT RANGE,

DEMAND FORECASTING METHODS, TIME SERIES MODELS, WINTERS TREND MODEL.

1) Marketing forecast

2) Interplant forecast

3) Customer orders

4) Warehouse orders

5) Spare parts

DEMAND MANAGEMENT: Recognizing and managing all demands for products and services in

accordance with master plan.

Forecasting seeks to predict what is most likely to happen in the future by predicting the most

probable future values of a variable. It is an important aid in effective and efficient decisionmaking. In many cases there happens to be a time lag between awareness of an impending

event or need and the occurrence of that event. This lead time necessitates the process of

planning and forecasting. If by chance this lead time is very small or zero. There is no need for

planning; organizations need to forecast the demand for their products and services so that all

relevant plans can be developed.

DEMAND: It is the quantity of a product or service that buyers are able & willing to purchase

during a particular time period in specific market environment. The environment (Market) is

influenced by the following factors-

1) The price of a product and the price of its substitute & complementary products.

2) Income of customers & their expectations regarding price changes, tastes, preferences.

The nos. of customers & their travel costs to the point of purchase (POP).

The first step in planning is the forecast demand & the resources required to produce

product output and satisfy market requirements operation managers need to forecast

demand accurately as possible. Since forecasting can never be 100% accurate. But tracking

the results of forecasts & determining their accuracy will improve the accuracy of future

forecasts.

Forecasting can provide vital information for strategic, factual & operational planning. The

estimating needs to be done accurately. Since overestimation or underestimation will have

negative impact on the overall performance of an organization overestimation can lead to

huge inventory of finished goods & locking up of significant amount of working capital

underestimation - can lead to an increase in supply lead time and results in loss of orders.

Moreover because of inability to meet demand, customer may decide to switch to

competitors products.

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Objectives / Need of Sales Forecasting:

1) To achieve higher rate of return for investment.

2) Forecasting is central function of PPC.

3) To decide for products volume of production as a function of time.

4) To decide upon healthy product mix looking into the needs of market thus enabling theorganization to earn maximum profit.

5) To decide the basis for priority of production schedule namely budgeting of-

y Materials,

y Assemblies,

y Standards of purchased parts,

y Human skills,

y Production facilities.

6) Auxiliary and supporting facilities.

7) To decide inventory policies

y Stock control,

y Stock procurement,

y Vendor selection,

8) To decide upon future course of action-

y To plan or contemplate the design changes to maintain market share.

y To eliminate those products which tend to become outdated less remunerative.

To arrange for procuring licenses for increasing the quantity of production of

remuneration and easily saleable products.

y To develop schemes for raising funds & finance.

y To make decision whether to go for new product or not.

y To prepare plan for expanding production capacity or reduction of production

capacity.

9) To decide the prices & formulate the programmes for sales promotion.

y Advertisement,

y Terms of sales,

y Methods of distribution,

y State of competition.

TYPES OF SALES FORECASTING:

Sales Forecasting: It is an Art & Science of predicting future events. It may involve taking

historical data and projecting them into future with some mathematical model. It may be

subjective or intuitive prediction or may involve a combination of these i.e. mathematical

model adjusted by a mangers good judgment.

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A forecast is usually classified by the future time horizon that it covers.

1) LONG RANGE PLANNING: Generally 3 years or more than 3 years. These forecasts are

used in planning new products, capital expenditures, facility location or expansion and

research & development. Product diversification, financial planning, sales advertising,

budgeting.2) MEDIUM RANGE FORECAST: span from 3 months to 3 years. These are used for sales

planning, production planning & budgeting, cash budgeting and analyzing various

operation plans.

3) SHORT TERM FORECASTS: These are the estimates for individual products they are

generally very detailed and used to plan are generally very detailed and used to plan

and schedule the production operations. It is used for purchasing, job scheduling,

workforce levels, job assignments & production levels.

Synthetic based on what people say - QUALITATIVE

Qualitative

Sales forecasting methods

Analytical Quantitative method

ANALYTICAL METHOD relies upon actual demand data of last few years arranged in a

chronological order called as Time Series. The method consists of determining the nature of

the existing trend and extra polating the trend into future.

Trends (T) could be linear, exponential, logarithmic, non linear (quadric) etc.

Representative

for specific

item demands

Aggregate

Demands

Strategies &

Facilities

Present Forecasting line Horizon Five years hence

Types of

decision short

run planning

Long runplanning

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SYNTHETIC METHODS are qualitative methods. These are subjective, Judgmental and based

on institution, opinion and estimates.

SYNTHETIC METHODS

y Delphi Method

y Historical Analogyy Nominal Group Technique A panel of experts working together to arrive at a

consensus through discussion & ranking the ideas.

ANALYTICAL METHODS

y Time series

y Casual Methods

1. Delphi Method- An interactive learning process that involves a group of experts responding

to a questionnaire. The results obtained are complied to formulate a new questionnaire

which is again circulated to a group.

2. Historical Analogy- Makes analogies to the past in judgmental manner by trying what is

being forecast to a similar item. This is important in planning for new products.

3. Executive Committee Consensus- A committee comprised of executives from various

organizational depts. Develops a forecast by using observations and finding of staff analysts.

4. Market Research- Estimate of future sales which are obtained by conducting market surveys

through mail questionnaire telephone, interviews, or field interviews in target market

region.

The results are extra polated to total markets.

1) Sales Forecasting Methods

Analytical Methods

1) Synthetic Methods 2) Time Series 3) Casual Method

For new product

2) MethodsForecasting for existing products or with similar products available

For

New Product Existing

1) Direct Survey 1) Projection Method

2) Indirect Survey 2) Related information Method

3) Comparing with related products 3) Market Research Method

4) Limited Market Trial 4) Executive Op

5) Sales force opinion Method

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Casual Methods: Attempts to understand the environment underlying the surrounding the

item being forecast.

Regression Analysis: The forecast is influenced by the occurrence of other events. Data is used

to establish the functional relationship between variables, which is used to forecast dependent

variable values. The demand for a product or service is dependent on different factors or

variables like-

y Price

y Qualityy Availability of substitute & or complementary products / services

y Income level of customers

y Nos. of competitors

So organization must identify the variables that affect the demand for a production.

CASUAL METHODS evaluate the relationship between variables & their influence on each other.

Casual methods include linear & multiple regression analysis.

REGRESSION refers to the functional relationship between two or more co-related variables.Linear regression analysis establishes a relationship between dependent variable for which

future demand is needed and a group of other variables known as independent variables which

influence the dependent variable.

Ex- sale of TV is dependent on advertising budgets & nos. of retailers. Here TV sales is

dependent variable while adv. Budgets & nos. of retailers are independent variables.

In linear regression the relationship between the dependent variable & independent variable to

defined by a straight line.

PROJECTION METHODS

TIME SERIES ANALYSIS CO-RELATION ANALYSIS

Long Term Short Term

1) Method of Averages

2) Moving Average

3) Log. Straight Line

4) Arithmetic str. Line

5) Methods of least square

Linear, second degree,

parabolic, logarithmic

1) Regular Variation Cyclic

2) Seasonal variation, seasonal

index, seasonal average

3) Trend adjusted method

y Ratio trend method

y Ratio Moving average

method

These are called as

Casual Methods

Graphical

Scattered

Diagram

Mathematical

Methods

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Y = a + bX

Where Y is the value of dependent variable.

X is the value of independent variables

b is slope of the line

a is intercept on y axis

Regression Analysis is widely useful in LONG-TERM FORECASTING OF MAJOR OCCURRENCES

AND AGGREGATE PLANNING. For example it is useful for forecasting demand for product

families, where demand for individuals products within the family may vary widely during a

time period through the demand for total product family remains smooth.

LEAST SQUARE METHOD: It is used to generate a regression model by assigning data is used to

form a linear model by representing the data points to a single line once linear equation is

formed. Future demand Y can be calculated

Y = a + bx

b = n7xy (7x) (7y)

n(7x2) (7x)

2

a = y bx

Where Y = 7y

N

X = 7x

N

y = an + b7x

7xy = a7x + b 7x2

TIME SERIES MODELS

These assume that past data is a good indicator of future. These models always can find some past

relevant data to predict future. This technique uses a series of past data points to make a forecast. A

time series is simply a set of readings of values of variable quantity measured at intervals of time. It is

based on a sequence of evenly spaced (weekly, monthly, quarterly) data points. Since the forecast is

predicted from past values & OTHER VARIABLES NO MATTER HOW POTENTIALLY VALUABLE MAY BE

IGNORED. Therefore regression method approach is more powerful than time series methods.

Time series is chronological data or a set of quantitative reading of some variable or composite of

variables arranged in chronological order of their occurrence.

The time series has two factors one is some quantity such as sales in Rs, or income of individual as

dependent variable & second one is unit of time as independent variable.

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A TIME SERIES CONSISTS OF FOUR COMPONENTS:

1) Trend Component

2) A Seasonal

3) Cyclic

4) Irregular or Erratic or Random.

1) TREND COMPONENT: It is overall growth or decline of the business over time.

2) A SEASONAL VARIATIONS: These functions are the oscillations around trend with periodicity

less than or equal to year. This may be called as regularly occurring periodic fluctuation

many industries are there whose products are seasonal as follows:

y Paint

y Mangoes pulp manufacturing

y Sugar Manufacturing

y Restaurants Beer

y Umbrella & Rain Coats etc.

y The movement of variations of the

dependent variable (sales) may be

classified as long period change.

y Short term changes.

Time in Months

S a l e s

Random Variation

Time Series (Variation)

Long Period Changes Short Period Changes

Secular Trends

Linear Non Linear

Regular

Irregular or By chanceNon Linear Cyclical

These occurs without

any rhythm

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Season ability can be applied hourly, daily, weekly, monthly, quarterly. This is important for CAPACITY

PLANNING WHICH HANDLES PEAK LOADS. (Electric power companies, wodar clothes, banks, subway

restaurant, theaters).

3) CYCLICAL FUNCTIONS: It is a wave like functions in data about trend. The periodicity is equal to

trade cycle (which is greater than a year). These occur every several years. They are tied into

the business cycle and they are important in SHORT TERM business analysis. These may affect

due to political event or by international turmoil.

4) RANDOM FLUCTUATIONS: These are the unexplained chance variations which remain when

other three components have been identified and removed from the original time series. These

may be due to draughts, floods, famine and wars etc. These are highly unpredictable, once the

components of the time series are known then they are either considered in multiplicative or

additive form to yield a forecast. The model accomplishes the decomposition of the time series.

X = T x C x S x I Multiplicative System

X = T + C + S + I Additive system of time series

T = Trend, C = Cyclical Fluctuations, S = Seasonal & I = Irregular

The above model is mostly used because it deals with % changes rather than absolute changes.

The variation in time series can be attributed to a nos. of causes- 1) Natural 2) Institutional 3) Socio

Economical.

SEASONAL VARIATIONS: They occur with some degree of regularity with in specific period. Influencing

factors are 1) climate and weather condition, 2) customs, habits & traditions.

CYCLIC VARIATIONS: In economics & business activities we see good times & bad times occur one after

another and which are in long term in nature. The main difference between seasonal, cyclic variation is

a degree of regularity and time period. In any business we see four changes of phases-

1) Prospering

2) Recession

3) Depression

4) Recovery

A business show prospering due to influencing factors then it shows decline & finally reaches worst state

that is a depression. After that due to changes in economic environment it recovers from depressed

state.

TREND: The growth or secular trend is the outcome of population growth. The population growth

influences the other fields of economy. Increasing population is potential market for all products.

When we speak of growth the variables under question shows that increases in quantity. Similarly in

decaying trend we observe decreasing quantity of the variable concerned. Factors responsible for

uptrend in time series.

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1) Technological Development

2) Rationalization

3) Improved Productivity

4) Better organization methods, Professional management, Good quality control, Standardization,

Innovative marketing.

Reasons for decreasing trend:

1) Decline in Demand

2) Price induced Substitutes

3) Scarcity of material required

4) Changes in habits of customer and shift in the customer preference.

Steps in making a forecast from a time series:

1) Collect data of past sales called time series.

2) Establish secular trend underlying the time series.

3) Isolate seasonal and random fluctuations by deducting secular trend from actual period wise

(monthly, quarterly) sales.

4) Extra polate forecast from secular trend and seasonal fluctuations.

MEASUREMENTS OF SECULAR TREND,

FOLLOWING FOUR METHODS ARE USED:

1) CURVE FITTING: The problem of finding equations of approximating curves that closely fit the

given data is called as curve fitting. In other worlds curve fitting is the representation of

relationship between the two variables by means of an algebraic expression.2)

SIMPLE MOVING AVERAGE: This technique forecasts demand on the basis of average demand

calculated from actual demand in past. It makes the use of old data and computes a rolling average for

a constant number of periods. It discards old figures as new one comes in I.e fresh average is computed

at the end of each period by adding the demand of the most recent period & omitting the oldest values-

Ft = Dt-1 + Dt-2 + Dt-n

n

Where Ft is forecast for period T,

0X

Fitting of first degree Fitting of second degree

Y = a + bx Y = a + bx + cx2

0X

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n = Nos. of preceding periods taken for averaging

Dt-1, Dt-2 and so on Actual demand in immediately preceding time periods.

This method is useful when product does not experience fluctuation in demands over a period of time &

past demand is not SEASONAL. This method is useful for removing any random fluctuation in demand to

get accurate forecasts.

One of the key decisions to be taken when using this method is the LENGTH OF TIME PERIOD to be

considered. The greater the moving average period, the less vulnerable the forecast to random

variables. A larger moving average period is taken when fluctuations in demand are minimal. A small

time period is taken when fluctuation in demand is high & when there is a need to identify short term

fluctuations.

WEIGHTED MOVING AVERAGE: Sometimes a forecaster wants to use moving average but does not want

all n periods equally weighted owing to some trend or seasonality in the demand. There is no set rule

for calculating weights. Experience & trail-error methods are used to assign weights to a particular data.

Each element is weighted by a factor & the sum for weights should be equal to one. The formula for

calculating the weighted moving average is

n

WMA (t+1) = 7 CtAt

t = 1

Where WMA (t + 1) Weighted Moving Average at the end of time periodt.

At Actual demand in time period t

Ct - % weights given to time period t

0 < Ct < 1 & C1 + C2 +C3 + .Ct = 1

EXPONENTIAL SMOOTHING: A weighted moving average forecasting technique in which data points are

weighted by an exponential function. This method is based on the assumption that most recent data is

better indication of future trends than past data. This method is useful when used on data

characterized by SEASONAL Tendencies. The advantage of this method are availability of standard

software packages; relatively little data storage and computational requirements, accuracy of the

forecasts & results can be easily understood. In exponential smoothing method the demand of the most

recent time period is given maximum weightage. The weights assigned to the preceding periods

decrease exponentially. The data required for making a forecast are the most recent forecasts, the

actual demand for the time period & a smoothing constant w & which lies between (0-1).

Ft = w D(t-1) + (1-w) F(t-1)

Where F(t-1) Forecast for period (t-1)

D(t-1) Actual demand for perid (t-1)

Ft The demand for next period

w is smoothening constant various form 0-1

OR

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New Forecast Ft = last periods forecast + w[last periods actual demand last periods forecast]

= F(t-1) + w[D(t-1) F(t-1)]

= F(t-1) + wD(t-1) - wF(t-1)

@wD(t-1) + (1-w) [F(t-1)]

SELECTION A SMOOTHENING CONSTANTw

Smoothening constant w shows the effects of past demand on the future demand. The w takes any

value between (0 1). The selection of w is critical. As high w results in more weightage for most recent

demand & low value w resulting in lower weightage for it. A high valuew is more appropriate for new

products for which demand is DYNAMIC OR UNSTABLE. If demand is stable & believed to represent

future a loww can be selected to smooth out the effect.

Demand Weights of Period Weights considered for most recent period

Current w

1 year ago w (1 w)

2 year ago w (1 w)2

3 year ago w (1 w)

3

A practical way to find out the value w

1) Collect a sample historical data on actual demand for the past periods.

2) Using the equation of Ft = wD(t-1) + (1-w) [D(t-1) Ft-1] determine the forecast for the past

above periods using different values of w say in increments of 0.1.

3) Plot the graph period wise actual demand & forecast demand for varying values of w.

4) Examine the curves to select the one which closely matches the actual demand curve. The

smoothing constant corresponding to a such curve is the weightage factor.

TREND ADJUSTED EXPONENTIAL SMOOTHING [DOUBLE SMOOTHING]. Simple exponential

techniques fails to responds to trends. In simple exponential technique & moving average

technique the forecasted data lag behind. Actual data which has a steady trend either upward

or downward. Trend indicates a continuous increase or decrease in the average of service over

a period of time. The presence of trend in time series leads to forecast that are above or below

the actual demand. In trend adjusted exponential smoothing method both average & trend are

smoothened. To do so two smoothing cosntantlyw & are used. To calculate average & trend

for each time period the following equations are used-

REGRESSION ANALYSIS

The linear relationship is between Independent & Dependent Variable

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Y = a + bx

Where 7y = na + b 7x

7xy = a7x + b7x2

Or b = n7xy (7x)(7y)

n(7x2) (7x)

2

a = y bx where y = 7y x = 7x

n n

LOGARITHMIC FUNCTION

Y = a xb

Where x denotes time period

a & b are constants

log y = log a + b log x

y = A + B'

Where A = log b, y= log y, ' = log x, B = constantUse formula 7y = An + B7'

7xy = A7x + B7x2

For getting the values of A & B

Selecting a forecasting system or method:

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MEASUREMENT OF ACCURACY OF FORECASTING

A forecasts are future predictions, they are subject to error, since the demand for a product is

dependent on various factors, all of which cant be represented in a forecasting model. Thus obtaining

accurate results from a forecasting model is highly improbable. Thus accuracy of forecasting method is

of great value to the use of a particular forecasting model in given situation.

A FORECASTING ERROR is the difference between actual demand & forecasted demand in that period.

The average error of the model gives us how well the forecast model is well.

The errors does not only help the management to compare effectiveness of various forecasting models

but also enable them to plan their functional activities in a way that minimizes the effect of forecasting

errors in their functional activities.

The possible sources of forecasting errors are omission of relevant variables during forecasting, ignoring

or misinterpreting seasonal variations.

1) Mean Absolute Deviation (MAD)

2) Mean Square Error (MSE)

3) More Forecast Error (MFE)

4) Mean Absolute % Error (MAPE)

AGGREGATE PLANNING INCLUDING CAPACITY PLANNING

Aggregate: Production Planning is concerned with setting production rates by product group for

intermediate term (6 to 18 months). It is a process of determining output levels of product group over

next 6 to 18 months period on weekly, monthly basis Aggregate Planning involves planning the best

quantity to produce during time periods in the intermediate range horizon (often 3 months to 18months) and planning the lowest cost method of providing adjustable capacity to accommodate the

production requirements. For manufacturing operation Aggregate Planning involves planning work

force size, production rate, & inventory levels.

The Aggregate Plan is a part of business plan. The aggregate plan precedes the Master schedule.

Aggregate plan is a statement of companys production rate, work force level & inventory holdings

based on the customers or estimates & capacity l imitation.

1) Production rate refers to the nos. of units produced per unit of time [Per hr, Per day].

2) Work force level nos. of workers needed for production.

3) Inventory on hand is the balance of unused inventory carried over previous period.

Aggregate planning requires pre-estimated the quantity to be produced & timing the output over an

intermediate range.

The demand is changing over a period of time, the resources cannot be changed as fast as rate of

demand. Thus the fluctuations in demand have to be absorbed by the production system. The

aggregate planning offers strategies to absorb the fluctuations. The strategies available to a planner

are pure or fixed strategies.

MAJOR PURE STRATEGIES ARE AS FOLLOWS-

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1) Varying work force

2) Over time

3) Varying inventory

4) Subcontracting

5) Accepting back orders

Aggregate plan is part of business plan made by operational people. Thus plan is done with

interaction of various functions like Marketing, Finance, HR, Materials, and Engineering etc.

Aggregate planning process is complex due to nos. of variables to be considered in planning process.

Aggregate plan means combining appropriate resources in general or overall term. Given demand

forecast, facility capacity, inventory levels, workforce & related inputs. The planner has to decide the

rate of output over next 3 to 18months.

Aggregate production plan is not product by product breakdown. But it is established in gross terms

such as families of products or tons of steel, nos. of automobiles cars made may be of different

models etc.

Aggregate products plan provides the basis of development of detailed master production schedule.

Aggregate planning balances market demand with production rate of organization-

CAR MACHINES PLAN

Months Jan Feb

Aggregate plan shows total

quantity1500 1200 Cars

Weeks 1 2 3 4 1 2 3 4

Master Prod. Schedule(specific type of a car &

quantity to be produced in

time

Maruti 800 100 * 100 * 100 100

Maruti 1000 500 * 500 * 450 450

Maruti Jeeps 300 * 100

* Add together to get monthly production aggregate 1500 master production schedule is

derived from Aggregate Plan Master product schedule is established in terms of specific

product i.e. Maruti 800 to be produced 100units each in week & week 3 of Jan.

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Managers should adhere to MPS.

REQUIRED INPUT TO PRODUCTION PLANNING SYSTEM

Marketing, Demand Mgmt

Materials supplier

capacity performance

Stores Capacity

Material Availability

Finance / Accounts

cash flow required

financial condition

Domestic

International

End product sern us

Competitors

Behavior

Raw Material

Available

Market Demand

External to Firm

External Capacity

Sub Contractors

Planning for Production Economical

Conditions

Current Physical

Facilities

Current Man

power

Inventory

Levels

Various Process

Required forProduction

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MASTER PRODUCTION SCHEDULE FLOW CHART

While developing aggregate production plan interrelationship among various functional areas is

essential. Generally all department heads are involved

The business planning process co-ordinates the activities of each function or department. Which will

lead to achieve the organizational objectives. In business planning all heads of function are involved so

that functional plans are focused towards achievement of long term goals. Intermediate plans involve

specific objectives for various departments. like Finance, Marketing, HR, and Production etc.

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AN OVERVIEW OF OPERATIONS PLANNING & SCHEDULING-

Business Plan

Operations

Output Planning Capacity Planning

Aggregate Output

Planning

Master Production

Schedule

Rough Capacity

Planning

MRP

Loading

Sequencing

Detailed Scheduling

Expediting

Detailed Capacity

Planning

Short Term Capacity

Control

Shop Floor

Control

Ref Fig 2

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OBJECTIVES OF AGGREGATE PLANNING

Aggregate plan should provide appropriate support to production.

Company, objectives & polices regarding its employees should be in a line with plan.

Aggregate plan should utilize facilities capacity in most efficient manner.

To minimize production cost, by making appropriate changes in production rate, work force

levels, to improve profits, customer service and utilization of resources.

VARIOUS STRATEGIES USED IN AGGREGATE PLANNING

1) CAPACITY PLANNING OPTIONS-

y Changing Inventory Level

y Varying production rates through over time or Idle time

y Subcontracting

y Using part time workers.

2) DEMAND OPTIONS

y Influencing demand when demand is low. A company can try to increase through advertising,

promotion personal selling & price cuts.

y Back ordering during high demand period. Back orders are orders for goods & services that a

firm accepts but unable to fill at that moment. If customer is prepared to wait without loss of

their goods will.

3) COUNTER SEASON PRODUCT & SERVICE MIXING

It is used by activating smoothing techniques among manufacturers to develop a product mix of

counter seasonal like company makes both furnaces & air conditioners and lawn movers & snow

breakers.

MIXING OPTIONS TO DEVELOP AGGREGATE PLAN

There are demand & fine capacity options to develop aggregate plan. Since the demand is known

operation manager can develop various plans by using the capacity options in a given environment and

select the optimal plan which gives least cost of production & gives customer satisfaction. There may be

nos. of strategies are available

1) Chase strategy, 2) Stable Work force strategy 3) Level strategy

Any one of the above is used in practice is called as PURE STRATEGY while two or more combined

together is called as mixed strategy.

y CHASE STRATEGY: It matches production rate to order rate by hiring and laying of employees as

the order rate varies. The success of these strategies depend on having a pool of easily trend

applicants to draw on as order volume increases. There are obvious motivational aspects/

impacts when the order back logs are low, Employee may feel are compelled to slow down out

of fear of being led off, as soon as existing orders are completed.

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y STABLE WORK FORCE STRATEGY : Variable work hours varies the output by varying the no of

hours work through flexible work schedule are over time. By varying the no of work hours,

production quantities can be match to orders this strategy provides work force continuity and

avoids many of the emotional and tangible cost of hiring and firing associated with chase

strategy.

y LEVEL STRATEGY: Maintain a stable work force working at constant output rate. Shortages andsurpluses are absorbed by fluctuating inventory levels, order back logs, lost sales. Employees

benefits from stable work hours and the cost of potentially decrease customer services level and

increase inventory cost. Another concern is the possibility of inventories products becoming

absolute. When just one of these variables is use to absorbs demands fluctuations It is term as

pure strategy.

y MIXED STRATEGY: Two or more pure strategies used in combination is called as mixed strategy.

These strategy is used widely by many organization if it convenient and reduces the cost of

production and increase service levels of the customer.

THERE ARE MANY TECHNIQUES OF AGGREGATE PLANNING-

1) Graphical & Charting technique

2) Linear Programming

3) Heuristic Models-

4) By simulating MPS

The formal statement of Aggregate planning can be given the demand forecast for each period (time) in

the planning Horizon that extends over total period T (May be year or 18 month). Determine the

Production level (PT), Inventory level (IT), Work force level (WT) for periods 1, 2, 3, ---- T that minimizesthe relevant costs over planning horizon.

One of the approach to develop aggregate plan is by simulating various MPS and calculating

corresponding capacities requirement to see if adequate labour and equipment exist at each work

centre. If capacity is inadequate, additional requirement for Over Time, subcontracting, extra workers,

& so forth are specified for each product line and combined into rought cut plan. This plan is then

modified by trial and error or mathematical method to derive optimum or very near to optimum final

plan.

In smaller companies: The owner may make simple calculations and workforce needs that reflect the

general stating strategy. The process by which the plan is derived also varies.

ONE COMMON APPROACH USED IS TO DERIVE IT FROM CORPORATE ANNUAL BUSINESS PLAN.

1) A typical corporate plan contains a section in manufacturing that specified how many units need

to be produced over next (3 to 18 months) to meet sales requirement. Production / operation which

develops plan that are best comprise among cost, customer service, inventory investment, stable work

force levels & facility utilization.

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PURCHASING: The aggregate plan provides information on supplier capabilities, and co-ordinate the

inbound flow of materials & services in the supply chain management. As well out bound requirements

of warehouses, transportation, etc.

HR: Becomes of aware of how is labour market, how to plan for man power planning, & training

capacity requirement.

FINANCE: Financial condition of the firm, funds requirements & cash flows.

MARKETING: Provides demand forecast & information on competition & customer preference.

Now Aggregate Capacity Planning / Aggregate Output Planning Ref Fig 2.

AGGREGATE CAPACITY PLANNING:

It is a process of devising a plan for providing a production capacity system to support the intermediate

range sales forecast.

NEED FOR AGGREGATE CAPACITY PLANNING

y It minimizes overload and under loading of facilities and keep production costs low.

y Orderly and systematic transition of production capacity to meek peak and valleys of expected

customer demand facilitated.

y To manage change in operations / production management by planning for production

resources that adopt to changes in customer demands.

y In times of scare production resources, getting the max. output by enhancing the existing

resources [effective utilization/ less wastage].

y Adequate production capacity is provided to meet expected aggregate demand.

STEPS USED IN AGGREGATE CAPACITY PLANNING

1) Prepare the sales forecast for each product that indicates the quantities to be sold in each time

period over a planning horizon (3 to 18 months).

2) Sum up the individual or service forecast into one aggregate demand for the factory.

3) Transform aggregate demand for each time period into labour, materials, machines and other

elements of production capacity required to satisfy aggregate demand.

4) Develop alternative resource scheme for supplying the necessary production capacity to support

the cumulative aggregate demand.

5) Select the capacity plan from the alternatives considered that satisfy aggregate demand & best

meets the objectives of the organization.

In developing an intermediate aggregate capacity plan, the variables that may be manipulated to vary

the production capacity from month to month are-

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1) Size of the work force

2) The use of Over Time or Idle time

3) The use of inventories or back orders

4) The use of subcontractors

5) Leaving demand unfilled to buffer the difference between production capacity and variation in

demand from month to month.

COST ASSOCIATED WITH AGGREGATE PLANNING:

The choices concerning aggregate production, work force, inventory levels influence several relevant

costs. These costs need to be identified and measured so that alternative aggregate plans can be

evaluated on total cost criterion.

Some of the relevant cost items are-

1) Payroll costs.

2) Cost of overtime, second, third shift working and cost of subcontracting.

3) Cost of hiring and laying off workers.

4) Cost of excess inventory and backlog.

5) Cost of production rate changes.

When an aggregate plan is implemented, it has impact on almost all functions & departments. of the

organization like purchase, subcontracting hireling, for (people to hire or fire.)

SHOP FLOOR CONTROL:

A shop floor includes the following activities-

1) Allocating relative weightage for each job, which will help in prioritizing the orders for

sequencing.

2) Issuing dispatch list to each work centre having details of priorities and completion of time etc.

for the jobs.

3) Keeping record of WIP inventory. This includes knowing the location of each job in the system

and also knowing the nos. of good parts produced that survive each production set up, no of

unit scrapped, short fall of no of units scrape generated and no of units to be reworked.

4) Providing input output control at each work centers. This means developing information

about the flow of job between machines.

5) Measuring the efficiency, machine utilization, and work productivity at each work centre.

BUSINESS MODEL WITH OPERATIONAL APPROACH

Integrating MRP II with JIT. (Hybrid system)

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Business Objectives Operational Objectives Multy Agent System

Minimum Inventory

Effective Capacity

Utilization

Raw Material Cost

Control

Optimum Material

Shorter Through Put

Detective & Scrap

Control

1) Profits

2) Better Cost Service

3) Increased Market Share

4) Faster

5) Increase R.O.I

JIT (ANBUN BULL

SYSTEM

MRP II

Capacity

Planning

Single Source

Supply

Material Requirement

MRP

Single Flow Line /

Waste Reduction

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CHAPTER 6

AGGREGATE CAPACITY PLANNING, CAPACITY REQUIREMENT PLANNING, LONG TERM, SHORT TERM

CAPACITY PLANNING. AGGREGATE CAPACITY PLANNING STRATEGIES

CAPACITY:

1) The throughput or nos. of units a facility can hold, receive, store or produce in a period of time.

2) It is value creating ability of the organization ability that takes form in a wide variety of

resources. Like manpower, machine equipments technology, materials, finance etc.

3) It is a measure of productive capability of a facility for a unit of time.

4) Capacity is rate of doing work but not quantity of work done.

5) To produce product & service two important factors of production resources like

1) Materials,2) Productive Resources-

y Technology,

y Machine, equipments,

y Tools

y Men

If there is no material the productive resources will remain Idle or similarly when there are no

productive resources, material is of little use. Hence all manufacturing organizations deal with Capacity

Planning.

Capacity is the capability of a worker, machine, work centre, plant or organization to produce output perunit of time period.

Capacity is of two types

1) CAPACITY AVAILABLE OF THE SYSTEM 2) CAPACITY REQUIRED

CAPACITY AVAILABLE: it is the capacity of a system or resources to produce a quantity of output in a

given time period.

It is affected by the followings:

1) Product specification & product mix [The work content changes if there is change in product mix& specification.

2) Plant and equipment-The number & composition determine the work content and the output.

3) Work effort- The pace of doing the work, varies then capacity varies.

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Measuring Capacity Depends upon the variation of product

Two methods are generally used.

No variation in the product then standard

units of output is measured as a capacity.

There is considerable variation present in the productThen work contact is measured in terms of standard

time which is taken for its completion by using a given

method. This is found by time study technique.

CHARACTERISTICS OF CAPACITY

1. Capacity requires capital investment & it determines larger portion of fixed cost. With get added

in overall cost of any production system. Capacity also determines if demand will be satisfied or

if facilities will remain idle.

2. Capacity determines whether the demand will be satisfied or not

3. Whether the facilities should be used fully or remains idle

4. If capacity is more than demand then some capacity remains Idle & hence increases cost of

existing product.

5. If demand capacity then management cant satisfy the customer, market is lost & opportunity of business is lost.

TO DETERMINING FACILITY SIZE WITH AN OBJECTIVE OF ACHIEVING HIGH LEVEL UTILIZATION & HIGH

RETURN ON INVESTMENT IS ESSENTIAL.

Output Side

Products & services

Conversion or Transformation

Resources

Input Inside

Production System

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CAPACITY CAN BE MEASURED EITHER AT INPUT SIDE OR OUTPUT SIDE OF A PRODUCTION SYSTEM.

For manufacturing firm the productive resources are usually consists of material, labour, equipments,

technology while for service oriented firm, the customers themselves can be considered as key

resources together with labour & equipment.

For example: A service station can state its capacity is 10 motors (Automobile Cars) per day.A Bus capacity is 60 seats per trip.

DEFINITION OF PRODUCTION CAPACITY

It is the max production rate of a facility or a firm.

It is usually expressed as volume of output per period of time. The capacity indicates the ability of the

firm to meet market demand per unit time.

CAPACITY REQUIREMENT PLANNING (CRP)

Capacity Planning: It is the process of determining the resources required to meet priority plan andmethods needed to make that capacity available. Adjustments are made in the priority plans if capacity

requirements are not met.

Capacity Planning Involves.

1) Assessing existing capacity

2) Forecasting future capacity needs

3) Identifying alternative ways to modify capacity.

4) Evaluating financial, economical, & technological capacity alternatives.

5) Selecting a capacity alternative most suited to active strategic mission of the firm.

Capacity planning involves capacity decisions that merge consumer demand with Human, Materials, and

Financial resources of the organization.

Capacity decisions are matching demand with resources available

Importance to operation manger for capacity planning

1. They want sufficient capacity to meet customers demand in time

2. Capacity affects cost, efficiency of operations, the ease of or difficulty of scheduling output and

cost s of maintenance of the facility

3. Capacity requires capital investment

Market Considerations Resource Available

Capacity Decisions

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FACTORS AFFECTING DETERMINATION OF CAPACITY

1. Markets demand for a product or service

2. The amount of capital that can be invested

3. Degree of automation desired

4. Level of vertical integration

5. Type of technology selected6. Dynamic nature of all factors affecting determination of plant capacity i.e. change in

product design, process technology, markets conditions, product life cycle

7. Difficulty in forecasting future demand and future technology.

8. Obsolescence of product and technology, over a period of time

9. Present & future demand, both over long range medium range & short range time

horizon.

10. Flexibility for capacity addition

CAPACITY PLANNING CAN BE VIEWED IN THREE TIME HORIZONS

1) Long range capacity planning 2) intermediate 3) Short term

Maximum type concentrates how best to utilize the available resources to produce

Maximum required

Capacity

Minimum type to indicates that to produce minimum amount below which it is not

advisable to produce i.e. company has to achieve breakeven volume of production.

1. Long range capacity planning is called as RESOURCE REQUIREMENT PLANNING. The time horizon

is greater than one year. These decision deals with accommodation of major changes that affect

the overall level out put in long term. Here assessing market demand for a long time is difficult,correctness will make this plan effective where production facility to be locate layouts and

others.

1) Expanding existing facilities

2) Add new facilities which had long lead time

3) Absorption of new technology for their products

4) Whenever company is going for new product

2. Capacity planning for intermediate range of time horizon between (3months to 18months

Medium range )

1) We can add man power, Build or use of inventory

2) Add equipment, Add shifts, and subcontracts, schedule overtime, make and buy decisions.

Here Rougut cuts capacity planning is also done

3. Short range capacity planning Use existing capacity in the best possible manners. (Time

horizon 0 to 3months)

1) Scheduling the jobs, People and allocate machinery. Assigning the jobs to facility with

proper sequencing & having proper process planning.

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2) Hire temporary people or fire them.

3) Schedule O.T.

4) Use alternative routings if the original machines in original routing are busy. But machines

on alternative routing are not busy.

Capacity planning occurs at each level of planning process. Varying only in the level details & the time

span involved.

Refer a fig. Resource planning / operation planning capacity planning level.

1. Priority Capacity

Medium Range

Short Range

Long Range

Resource planning

Resource Required of

planning

Plan

Production plans.

Production lines or

families

Master production

schedule MPS

Rough cut capacity

planning

Master requirement

material

Capacity

requirement

plannin

Production Activity

Control Capacity Control

Implementation

&

Control

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1 RESOURCE REQUIREMENT PLANNING

1 It is a long range capacity planning process

2 It is directly linked with production planning

3 Resource planning is top level management activity that determines, the long range capacity

at overall levels,

it addresses changes in

Manpower

Plant and capital equipment

Product design or facilities

And it takes longtime to acquire these facilities.

STEPS IN RESOURCE REQUIREMENT PLANNING

1) Identification of critical resources2) a) collection of production plan data (200mt crane required for 250wt trans)

b) Identification of product structure

c ) Determination of bills & resources

d) Calculation & total resources requirement

3) Evaluation of per period resource requirement with the available resources & Identification

of short falls

After identification of short falls, the necessary resources are provided.

2 ROUGH CUT CAPACITY PLANNING (RCCP)

1) It is next level of capacity planning (medium range ) it is a process of converting a Master

production Schedule (MPS) into requirement of for KEY RESORUCES. Including labours,

Machineries, Warehouses, Space, Suppliers capacity, transport rations & equipment (i.e.

procuring a railway wagon of 200 mt tonnes capacity to transport transformers up to 180 mt

tones capacity by railway. There was only one wagon available in India which was creating

problem to transformer manufacturers CGL decided to procure a new wagon of a such a type

which takes two years for railway to built and supply.

2) This determines the impact of high level plan on resources which are needed to carryout

production plans.

3) It quickly identifies the obstacles to the plan without going through the details. It performs

two functions

1 It testifies the validation of a production plan & the Master Production Schedule. Before

doing details manufacturing capacity planning.

2 It initiates actions for making Mid-range to Long-range capacity arrangements.

In case of product mix, Rough cut capacity planning runs directly from MPS.

1) It is simple, a quicker tool which does not require greater accuracy in routing of each item,

bill of materials, inventory data.

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2) This is better simulation tool use to take less time for computation

LIMITATIONS OF ROUGH CUT CAPACITY PLANNING (RCCP)

1) It cannot be used for short term planning purposes.

2) It has got lack of details because only key or critical resources are considered that is why itis called as rough cut.

Whereas actual product Building requires the resources at all work centers to be considered.

Therefore executive of production plan is susceptible to consequence not highlighted during

(RCCP) process.

Flow chart for Rough Cut Capacity Planning

No

No

No

yes

Are load profiles

desirable

Forecast

demand

Desired productionrate of items

Firm orders Desired inventory

levels of end items

Revise planProduction Plan

Rough cut capacity

requirement plan

Load profiles

Incapacity adequate

Mgt decisions for

capacity changes

Master schedule

Optimality

Feasibility

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CAPACITY REQUIREMENT PLANNING (C.R.P)

1. It connects with the material requirement planning (MRP). This type of planning focuses

on components parts, subassemblies & therefore grater details is involved.

2. It is called as short term capacity planning.

3. It is concerned with individual orders at individual work centre and calculates work

center loads & labour requirements for each time period at each work center.

4. Thus it is most details complete & accurate of the capacity planning technique

INPUT OUTPUT TO CRP CAPACITY REQUIREMENT PLANNING

Capacity

Required

Planning

Planned & release

order from MRP

system

Loading capacity

from work centre

Routing data from

routing files

Alternative planned

orders

Time standards

Lead time

calculations

Work centre

capacity

Load reports on planned &

released orders or key work

centers.

Verification reports from MRP

system

Capacity Modification Data

Rescheduling data from MPS

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DETERMINATION OF AVAILABLE CAPACITY

1) Measured capacity can be obtained from historical data while calculated capacity can be

determined form available time, utilization & efficiency

2)

Rated capacity =

1) Utilization measures that should indicate to what degree potential capacity is used

Utilization =Nos of direct production hrs /day

Total nos of scheduled hrs /day

Efficiency =Standard hrs processed / day

Actual used direct hrs /day

2) LOAD,

1) Load is the required capacity of the system or the resources need to produce a

desired out put in a given time period.

2) Load is input rate at which work is imposed upon the system.

3) Load is the amount of planned work scheduled for and actual work released to a

manufacturing facility i.e. work center, operation for specific span of time usually

expressed in terms of standard hrs of work or units of production when the item

consume similar resources at the same rate.

Measures

capacity

Calculates rated

capacity

Available

time

Utilization

Efficiency standard

hrs at a particular

work centreX

X

= setup

time

nos of hrs runtime per piece × nos of pieces+

Actual hrs re uired

= standard hrs required × efficiency × utilization.

+

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Released Load

Unreleased load

Load

1) Planned Load: - it is generated by the MRP1 syst. This type of load is known in

advance and the capacity for meeting this type of load can be arranged long

before it is required.

2) Released load ---- (scheduled receipts)

This load consists of those orders that have been released to the shop by MRP

planner. This order appears as MRP and displays as scheduled receipts and on

shop dispatch list as shop orders.

3) Unreleased load (planed order release) these orders are in MRP system only for

planning purposes. They do not show up in the shop at all until actual released

by the planner.

4) Unplanned Load: - Is not generated by MRP. This can include

a) Emergencies

b) Engineering, requests

c) Unplanned response to important customer

d) Personal work &

e) Variation from other situations.

This unplanned load is a cause of concern and should be minimized.

1. CONSIDER INPUT OUTPUT (to Capacity planning)

The following files are available to input open order file (schedule receipt) an

open order appears as schedule receipt on the material requirement plan. It is

triggered for the release of quantity of part to be manufactured and completedon specific date & contains information about the quantities, due dates, &

operations. The open order file is a record of all the acting shop orders and

contains the following data by the part number & work order

a. Order due date

b. Order Quantity

c. Operations competed

d. Operations remaining

Planned Load

Unplanned

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2. PLANNED ORDER RELEASES

a. Planned orders release date

b. Planned order receipt date

c. Planned order Quantity

3. ROUTING FILE

This is used as a shop traveller that accompany works from start to finish.

The necessary details how to manufacture an item are found in routine

file. Routine file contains the following information.

I. Operation to be performed

II. Sequence of operations

III. Work centre in which the operations should be performed

IV. Possible alter native work centers

V. Tooling needed for each operationVI. Standard times (associated with each operations) setup times & runtime

per piece.

VII. Operators skill

VIII. Inspection, operations & testing requirements

4. ALTERNATIVE ROUTING

The standard routing for an item is its primary routing. An item may have one

or more alternative routings. Which describe additional methods of

manufacturing. The same item. Alternative routings are used when primary

routing is not available (which occurs due to capacity constraints or

equipment unavailability)

5. WORK CENTER FILE

This file assimilated all the date related to work centre such as Information

concerning cost, capacity, lead time, crew size, and function capacity, move,

waiting, queue time associated with work centre. Work centre file is one of

the prime inputs to Capacity Requirement Planning (CRP). It provides work

center capacity data to PRODUCTION SCHEDULING, SHOP LOADING, &Capacity planning.

1) Queue time: - It is a planned time a job waits, at work centre before

being handled. It is significant in the calculation of (Lead time & capacity

utilization.

2) Waiting time: - it is a time a job is, at work centre after completion &

before being moved.

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3) Move time it is the time taken to move from one work center to

another

4) Internal & external setup time: - external setup which does not allow to

stop the machine from performing the work while the internal at which

machine is require to stop to do the work. Therefore there is interference

to production hence external setup can be preferred to internal setup.5) Lead time: - it is the sum of queue, setup, run, used in operation. Lead

time is required to place the work load in proper time period. It is noted

here that actual work load in the time period is only setup run times.

However queuing, waiting, inspecting are elements of total times that do

not USE CAPACITY BUT ARE PART OF IT. Which use space & time as a

resources which are infact wasted.

6. LOAD ACTIVITY: - Any activity that requires resources or a capacity of a work

center is called as load activity. Time elements concerned with load activities

are termed as operation times where as those concerned with no load

activities are called inter operation times.

7. LOAD ACTIVITY : - contains information about the numbers of working days

available

8. WORK CENTER: - it is a specific production area consisting of one or more

people & or machines with identical capacities, that can be considered as

one unit for the purpose of capacity requirements planning & detailed

scheduling.

A work center is composed of a numbers of machines or workers capable of

doing the same work.

A work centre cab be any one of the followings

I. Functional

II. A flow type work center.

III. Widely different process

IV. A group technology work center

V. A group project work center

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CRP OUTPUT - CAPACITY REQUIREMENT PLANNING

Work center load profile and report

A load report is a comparative analysis of expected versus actual capacity usage. In the

department or at work center.

The work center load reports shows future capacity requirement based on Release &

planned orders for each time period on production plan. Load reports are very detailed

& prescribe units of output required & labour by skill level or by employee required.

Fig shown load profile of a work center.

104 103

Work center load report table form which the above graph is plotted.

Period

12 3 4 5

110

100

80

60

40

20

102

Under load

S

T

A

N

D

A

R

D

L

O

A

D

110

Over load

Rated capacity

(100)

97

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WORK CENTER LOAD REPORT

Period

1

Period

2

Period

3

Period

4

Period

5

1 Release Load 25 26 21 19 20

2 Planned load 79 77 89 78 82

3 Total Load 104 103 110 97 102

4 Rated Capacity 100 100 100 100 100

5 Overload + 4 + 3 +10 -3 +2

Forward scheduling

Scheduling Strategies

Backward Scheduling

These two terms are frequently associated with capacity requirement planning.

Infinite loading

Loading

Finite

1) Capacity requirement planning uses infinite loading in conjunction with BACKWARD SHEDULING

to generate capacity requirements plan or work centre load reports, OPERATION SEQUENCING

which is a part of production activity control. Use of finite loading & various forms of scheduling

can help to determine the priorities for each and every individual orders the highest priority

number get first priority on the available capacity in each work center.

TYPES OF CAPACITY

1) FIXED CAPACITY :- Fixed Assets (Building, equipment, tools etc. ) which remain forparticular time to derive the revenues. They cant be easily changed with intermediate

time Horizons.

2) Adjustable Capacity :- it is flexible capacity which can be added or deleted at any point

of time horizon.

a. Number of hrs per week people work

b. The number of shifts and overtime working

c. The extent of subcontracting

d. The number of people working

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3) INSTALLED OR DESIGN CAPACITY: - it is a planned rate of output under normal or full

scale operating conditions. It sets the maximum limit to capacity and serve to judge

actual utilization of capacity.

4) EFFECTIVE OR OPERATION OR PRACTICAL CAPACITY.

NO PLANT CAN WORK UP TO INSTALLED CAPACITY BECAUSE OF LOSS OF CAPACITY DUE

TO FOLLOWING REASONS:-

a) Scheduling delays

b) Machines break downs

c) Preventive maintenance program

5) ACTUAL OR UTILIZATION CAPACITY: - This is the actual output achieved during particular

time period. The actual output may he lesser than the rated output because of short

range factors such as employee absenteeism, labour inefficiencies and productivity

levels.

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CHAPTER

RESOURCE REQUIREMENT PLANNING SYSTEMS.

MR

P1

, MR

P II, ER

P

1) MASTER PRODUCTION SCHEDULE

2) OBJECTIVE AND FUNCTIONS OF MPS

3) PROCEDURE FOR DEVELOPING MPS

4) MPS IN PRODUCE TO STOCK

5) MPS IN PRODUCE TO ORDER

RESOURCE REQUIREMENT PLANNING

1) It is long range capacity planning linked directly to production planning.

2) It is top level management activity that determines the long range capacity is overall levels

3) It addresses changes in manpower, plant & capital equipment product designs or facilities that

take a by time to acquire & eliminate.

4) For producing products & service as per sales forecast resources are required. The necessary

resources cant be built in short time. Hence Resource Planning Is required to take care of

todays business eventualities & requirements. Thus allocation of resources is necessary to

ensure timely deliveries & to meet competition.

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Today manufacturing has become a complex process. Since many companies are producing

variety of products, each product uses a variety of methods, processes, machineries,

equipments. All these must be organized effectively, efficiently & economically. Goods must be

manufacturing at right quality, & quantity at right time must be deliver at right place with

minimum cost

Hence Resource Requirement Planning is essential.

STEPS FOR RESOURCE REQUIREMENT PLANNING

a) Identification of critical resources

b) Collection of production plan data

c) Identification of product structure

d) Determination of bills of resources

e) Calculation of resources requirement

5) Evaluation of Per period basis of Resource Requirement with available resources & identification

of short falls.

6) After identification of short falls, the necessary resources are provided

HISTORY OF MRP, MRP II , ERP

Computerization of operations began when first computer was installed in General Electric in

1954. The whole purpose was to reduce manual labour & costs involved in tasks such as

preparing salary statements, accounting statement like profit & loss Account.

In 1960 operations Managers started using computer to analysis their operations with the help

of analytical software which is capable of handing linear programming. The objective of using

this was to reduce costs associate with operations & improve the efficiency of the production

systems.

In 1970 organizations started using manufacturing information systems to manage operations.

Manufacturing information systems were used for planning & information regarding production

such as (Demand forecasts, inventories, purchasing) to operation Managers.

These information systems latter led to the development of Materials Requirement Planning

MRP or MRP I ) than MRP II manufacturing resource planning & (ERP) Enterprise Resource

Planning.

1. MRP:- Material Requirement Planning. It is a comprehensive system of planning &

scheduling the time phased material requirement for production/operations.

2. This uses the Master Production schedule for scheduling production, capacity,

shipments, tool changes, design work & cash flows.

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3. It finds net requirement of a components after taking into consideration inventory on

hand, scheduling receipt & schedule order releases.

4. This systems generates schedule to material and component supply after considering

and product requirements, product structure data (Product production hierarchy) and

historical lead time information)

5. MRP combines inventory control with production planning.

6. Thus necessary inventory adjustment can be made quick by MRP to satisfy thecustomer.

7. This is used for dependent demand articles.

The objective of MRP

1) Improved customer service

2) Reduce investment in inventory

3) Improved operations

4) Faster response to marketing changes.

MRP II. Manufacturing Resources Planning

It is an integrated information system that synchronized the activates of production and other

functional areas of business like engineering, finance, marketing & purchasing through proper & quickly

& timely information flow.

This system can be used to analyze complete product cycle from corporate production plans to finished

goods distribution. The function of can be broadly divided into three parts.

1) Product planning

2) Operations control

3) Operations control

Since operations decisions are interrelated there was a requirement of comprehensive systems.

Which included feed backs form other functional areas like purchasing, marketing, finance,

engineering. MRP II is a such systems, which co-ordinates the allocations of various

manufacturing resources through integrated approach of a production of plan. MRP II can

forecast customer requirements, allocate necessary resources & insure timely delivery of

products. MRP II assists organization on handling out of order situations without distribution the

normal flow of product to customers.

MRP II A system that allows with MRP in place, inventory data can be augmented by other

resources variable in this case MRP become MRP II inventory data can be augmented by labour

hrs, by material cost (rather than material quantity) by capital cost, or by virtually any other

Resource MRP used in this way is usually reported as MRP II .

For instance MRP have scheduled units (Quantities). However these units require resource on

addition to its components. These additional resources include.

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Labour HRS, markets hrs, and Accounts Payable (cash) each of these resources can be used in

MRP format just as we used quantities.

The sample production schedule requires to exhibit all above resources in each period a part

from quantities of material only. These requirements are compared with receptive capacity i.e

(labour hrs, market hrs, cash etc) so operation manager can make schedule that will work.

To aid the functions of MRP II, most of MRP computer programmes are tied into other computer

files and provide data to MRP system or receive data from MRP system. Purchasing, production

scheduling capacity planning & warehouse management, few example of this data integration.

By utilizing logic of MRP, resources such as labour, market hrs, & cost can be accurately

determined and scheduled. Weekly demand for labour, market hrs & payables can be drawn.

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MRP II converted for MRP schedule time

4 5 6 7

A (Units) lead time 1 week labour

10 hrs each market 2hrs each

payable Rs.(300)

1 X 100 = 100

100 X 10 =

1000

100 X 2 = 200100 X 0 = 0

B (Units) (led time 2 week e each

labour = 10 hrs (each )

Market = 2hrs (each)

Payable raw material at Rs. 5/-

2 x 100

200 X 10 =

2000

200 X 2 = 400

200 X 5 = 1000

C (Unit) Lead time & week (3 each

require)

Labour = 2 hrs / each

Market = 1hr / each

Payable Raw material Rs. 10/each

3 X 100 = 300

300 x 2 = 600

300 X 1 = 300

300 X 10 =

3000Assembly Require

A 100

100X2 B = 200

100X 3 = 300

100 A component

1Week

3 week

component

110X 3 each

2 weeks

component

(100 X 2each)

3 week

1 week

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MASTER PRODUCTION SCHEDULE

BASIC FRAME WORK OF MANUFACTURING PLANNING & CONTROL

Demand planning

Business Planning

Aggregate planning

Disintegration

Preliminary Master Production Tentative

Schedule

Trial Fit on

MRP CRP

Are Material

Adequate

Are Capacities

Adequate

Yes Yes

FIRM MRP.

To MRP & CRP Systems

Loading

SEQUENCING

Scheduling

Details Scheduling

Expediting

Short

term

capacity

control,

Shop

floor

control

R

e

v

i

s

e

M

PS

R

e

v

i

c

e

M

PSNo NO

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1. A BUSINESS PLAN is the statement of an organizations overall business activities for ensuing 0 to 18

months. This plan expresses the companies objectives in terms of projected sales, incomes, costs &

profits. This plan is based on general economic conditions, anticipated condition of industry &

prevailing completive factors.

For the success of business plan it is necessary that forecasting (demand planning) should be as

closely as future expected demands. i.e the inevitable forecast error associated with the plan

should be minimal. Forecast is an integral part of decision making. All other planning decision are

made on the basis of what is forecasted. In the highly dynamic & competitive environment of

business today it is necessary for survival of the company that demand planning should be done

effectively & efficiently. The business plan is the translated into sales & operational plans which

establish the production rate required to meet the business plan. The sales & operation plan is

often stated as AGGREGATE PLAN. Aggregate plan represents the production side of business plan.

It addresses the demand side of plan by showing level as expressed in numbers of units. At this level

plan ignores & individual product family details about size, colour, weight, style, etc. Aggregate plan

provides the overall level of out but, backlogs, & inventory dictated in the business plan. Hence it is

necessary to break down the aggregate plan into finer detail I called as DIS AGGREGATION.

Disaggregation Loads to MASTER PRODUCTION SCHEDULING. The Master Production Schedule

shows the quantity and timing of each product or end item over the schedule horizon. Master

production scheduling translates the aggregate plan into operational production schedule for

individual product.

PRODUCTION PLAN IS A PART OF BUSINESS PLAN IT SPECIFIES

1) The quantity of items to be produced

2) The quantity & timing of production

3) Final schedule for the competition of product

MASTER PRODUCTION SCHEDULE - Specifies what is to be made and when it is to be made. This must be

in line with production plan, includes verification of inputs to production plan including financial plan,

customer demand, engineering Capabilities, labour productivity, inventory fluctuation, supplier

performance and other considerations.

A planning process moves form production plan to executions of each lower level plan, must be feasible.

When one is not feasible then feedback is given to the next higher level and necessary adjustments are

done.

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The strength of MRP is its ability to determine precisely the feasibility of a schedule with in aggregate

capacity constraints. This planning process can yield the excellent result. The production sets upper &

lower bounds on the master production schedule.

MASTER PRODUCTION SCHDULE is established in terms of specific products.

MPS states how many end items will be produced in specified time periods, each end time are either

finished products or the highest level of subassemblies that directly go into finished products. Time

periods over which planning is made can be expressed in week although they can be in days, hrs or even

months.

MPS DOES TWO THINGS

1. It dis-aggregates the product groups into individual product & indicates where individual

production will be produced.

2. It links sales (marketing) with production by a) showing when incoming sales orders can be

scheduled around.3. When production is over and

4. When shipments can be scheduled.

Disaggregation is the reverse of aggregating planning by which planning data is further broken-down to

detailed level.

MASTER PRODUCTION SCHEDULE

1) The master production schedule is the vehicle for implementing the production plan.

2) It states that what will be produced, when it will be produced & in what Quantity it will be

produced

3) It deals with specific end items, usually finished goods or major sub assembles.

4) The master schedule assigns specific dates to items with in those periods.

5) It is a vital link in any manufacturing system.

6) It is an important tool that is used to satisfy the needs of the market by effective utilization of

manufacturing resources

7) Thus it is important tool for both manufacturing & marketing.

8) It is the outcome of disaggregation

9) It provides basic frame work for manufacturing decision making.

MPS is a REALISTIC, DETAILED, MANUFACTURING PLAN in which all possible demands are put upon the

manufacturing facilities.

Realistic means not wish list but able to do detailed means it must maintained high level of accuracy in

terms of part numbers, Quantities and time period

Manufacturing plan. It uses the sales forecast and other demands & transfers them into detailed

production plan.

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ALL POSSIBLE DEMANDS CONSIDERED ARE AS FOLLOWS

1) Sales forecast

2) Customer forecast

3) Inter plan requirements

4) Service part demands

5) Plant capacity6) Product lead times

7) Inventory planning:- requirement of initial inventory, safety stock, final inventory or end

inventory.

MISUNDERSTANDING ABOUT MPS

1. MPS cant be expressed in monetary terms

2. It is a planning process

3. It is not sales forecast but the statement of production

4. It is not control technique but facilitates in decision making

MPS can be shown in the simplest form as follows.

The demand (market place) is determined from the sales forecast & other different ways. While

supply comes from manufacturing resources. (men, machines, materials, equipments and money)

Therefore MPS is an anticipated build schedule for manufacturing end items or products option by

Quantity per planning period. It represents what company plans to produce.

Objective of MPS

1) To support business plan

2) To follow & meet the company policies

3) To minimize inventories

4) To optimize resource usage5) It must be achievable

6) To promise the customer delivery dates & achieve a good service level

7) To promise uncommitted portion of a companys order in hand and delivery and accordingly

plan production

8) To satisfy market demands by utilizing resources effectively

MPS

Supply = Demand

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FUNCTION OF MPS

1. Translate Aggregate plans into detailed manufacturing plans period wise which breaks up

different production or product lines. The sizes of lots are determined in such way that the

products are economical to produce and utilize firms facilities & resource at optimum level.

Master schedule is more detailed in specific numbers of individual products to be manufactured

in specific time periods at specific work stations.2. Evaluate Alternative Schedule : Planners use computerized production inventory control

system with simulation capabilities to evaluate alternative Master Schedules. Once all

alternative are evaluated the detail materials & capacity requirements are identified and exact

lead items and delivery schedules are also determined by the planners. The simulations even

suggest how increased demand for one product can affect the production schedule of other

products

3. Identity material requirement : The prime input for a material requirements planning system is

master schedule once the master schedule is drawn up it alerts the material requirement

planning system to produce or purchase the necessary components that are needed to meet

requirements of find assembly schedules.

4.

Generate Capacity Requirements : For capacity requirements, planning needs inputs form thematerial requirement plan, which in turn is directed by master schedule so master schedule is

prerequisite capacity planning. The Master schedule reflects most economical use age of labour

and equipments capacity. It the capacity available is not satisfy the requirements of the master

schedule either the production capacity or MPS is revised.

5. Effectively utilize capacity. The master production schedule assigns loads for labour and

equipments based on the requirements. The load reports takes into account of the individual

product requirements and available resources in assigning load to individual workers,

equipments workstation. The objective is to fully utilize available capacity.

PROCEDURE FOR DEVELOPING MPS.

WHAT IS MASTER PRODUCTION SCHEDULING: it is a process by which Master Production

Schedule a plan is made. To make this plan we need input process gives out put

1. INPUT TO MPS -- Aggregate plan, Manufacturing policy which or given by top management

2. OUTPUT A set of planning nos. expressed in firm planned orders, which drive MRP, output is

the anticipated Build schedules Quantity, time period etc. this schedule gives available to

promise, means the planned production as well as what cant be produced.

INPUT TO

OUT PUT

MPS

MPS PROCESS

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3. MASTER SCHEDULING PROCESS it is a technique which takes production plan (Aggregate)

notes for each product line & converts them into daily weekly product mix with identification of

specific models features and options to be produced while tacking into accounts raw material

shortage & purchases, lead time, manufacturing capacity.

This master production scheduling process involves the planning of activities to determine whether or

not an operation can achieve production objective mentioned in MPS.

MRP & CRP ARE TWO PLANNING ACTIVITIES THAT ARE THE PART OF MASTER PRODUCTION

SCHEDULING PROCESS

1) CRP determines whether the existing capacity of production is sufficient to achieve the objective

of the MPS (use tentative MPS chart) & MRP ensures that the materials are available at right

time to produce and hence delays are avoided.

PROCEDURE FOR DEVELOPING MPS.

1) Determine the gross requirements of materials. Components and subcomponents (Total

Demand in units of the end product) for each product line using MRP.2) Obtain the net requirements for each unit of markets components, sub components, after

taking into consideration inventory in had safety stock needed and inventory order (i.e

requirement intent to fulfill demand in each period wise.

3) Revising the preliminary Master schedule to accommodate the inadequacy of materials in

inventory if any

4) Covering adjusted net requirements into planned order releases (The order Quantity for a

specific time period) to determine unit or lot sized production during the planning horizon.

5) Developing load reports from planned order releases. The load report contains information

on the amount of work assigned to individual workers, machine stations.

6) In the event of a mismatch between available capacity & required capacity. The MPS is

modified or additional capacity is added.

Master production scheduling is generally based on the result of demand forecasts. Since

the result of forecasts are not accurate & actual production output is not always the same as

the actual market demand. To accommodate these in balanced operations manger modify

the master production schedule by

Modify the size or composition of the product or service temporarily

1) Allowing inventory level to increased when demand for the product is low and

decrease when demand is higher

2)

Determining the routine, maintenance & diverting, labour capacity to manufacturing3) Subcontracting the additional capacity requirements

4) Altering the prices of production to influence demand level

The development of master production schedule is based on the classification of products

into the categories of

1) PRODUCE TO STOCK 2) PRODUCE OR MAKE TO ORDER

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MPS IN PRODUCE TO STOCK

Make to stock product are produced to stock or shifted off the shelf. The delivery time is

very short. Products must be planned & produced before the customer order arrives. The

production plan develops the rates of production by product line while master schedule

determines other mix of various items. Sales marketing provides FORECOST for product line

and also participate in determining product mix forecast at the stock keeping units. The

major input for produce to stock items in Master Production Schedule is DEMAND

FORECAST. Requirements are based on the need to replish plant or distributor inventories

of end products or service parts. MPS for produce to stock environment is generated after

taking into account the end item level. The products are produced in batches and finished

goods inventory for all products are maintained constantly. Thus produce to stock

environment

1) Items are end products

2) MPS in based on Forecast

3) It has bill of materials

When sales / marketing provides the sales Forecast at product line level P. and also provides product

mix forecast for products P1 - P4 . The Master Production Schedule is developed taking sales forecast

for model P1 - P4 along with beginning inventory & predetermined inventory objectives.

MPS FOR PRODUCE OR MAKE TO ORDER for this type of items, detailed scheduling of time and

materials required is essential because the items & quantities specified are unique for a particular

customer order. In this type of product on there is no finished goods inventory customer orders are

backlogged and production begins only after the orders have been placed. In this case the planning billof materials is normally developed by product family based upon a forecast from sales / marketing with

planning percentages developed for individual products.

Product family Plan P1

P 101 P 103P 102 P 104

Make to order products

Product Line P

P1 P 2 P3 P4

Components / Raw Materials

Master

Schedule

MRP

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Fig. shows Master Schedule planning bill for family products P1 with % for product (P 101 P 104) Long

lead time items for products (P 101 P 104) are summarized resulting insertion of a single level planning

bill in master schedule. The single level master schedule planning bill is them consumed when actual

customer demand is promised through order entry. For example copper for all jobs, lamination, and

insulation.

PRINCIPLE OF MASTER PRODUCTION SCHEDULING

1) The sum of master schedules must be equal to the production plan i.e. Realistic MPS is equal

to availability of materials & capacity.

2) Sales forecast must be uncoupled from MRP. This is accomplished by placing MPS between

sales forecast & MRP.

3) Master scheduled should be crated at product level that provides greatest flexibility & best

control

4) Rough cut capacity analysis must be done either at production plan or Master schedule

level before going to MRP. This is done by running schedule against product load profile orrepresenting routing and creating a resource requirement plan.

5) Time fances are real and should be agreed by all functions. This should be done in order to

meet the requirement of manufacturing and marketing so that a greater flexibility & control

can be accessed.

6) Master schedule must have a control of a Master schedule with in the planning time hence

and noting is done automatically by computer to changed it

7) Past due Master schedule items must he eliminated it is absolutely necessary to reschedule

all past due items appear on the MPS line.

8) Consume the MPS with customer order as they are received, consumption is accomplished

by determining the units the company has available to promise.

9)

Over planning for safety stock in Assemble to order should be done in the first unsoldperiod. This is to address forecast error associated with production plan

10) MPS should be established as companys game plan and agreed upon by manufacturing &

Marketing

11) Responsibility must be assigned and master scheduled held responsibility for creation,

execution, maintenance & monitoring.

12) All management must understand, support & commit to above principles. Management

must insist that MPS should be workable it should be changed after consideration has been

given to the impact of the change and alternative available

FORMAT OF MPS

Part No ------------- PeriodsLead time ------------

Lot size -------------- 1 2 3 4 5 6

1) Forecast (all) = net

required

2) Inventory on hand

3) Projected available

4) MPS

5) Ending Inventory

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Forecast is the sum of all forecast of items

1) Sales forecast

2) Actual customer orders

3) Inter plant required

4) Service part demand

5) It shows the requirement of these items in that period

Projected available is the total available balance after satisfying the need of the current period.

Projected available = on hand inventory + MPS forecast (or actual) is called as ending inventory

CHAPTER

ENTERPRISE RESOURCES PLANNING FUNCTIONING & FEATURES OF E.P.P, SCOPE BENEFITS ERP,

application selection of ERP package

E.R.P. it is an information system for identifying and planning the enterprise wide resourcesneeded to take make, ship and account for customer orders. The objective of ERP system is to co-

ordination firms whole business form supplier & valuation to customer invoicing. ERP systems are

evolving as an umbrella systems that tie together a variety of specialized systems. This is

accomplished by using centralized data base to assist the flow of information among business

functions to take decisions.

With growing complexity of organizations and increasing information flow between different

business process, the need to co-ordinate and control of flow of information to various decision

centers has gained importance, ERP is complete organization wide system that allows co-ordination

between various functional and geographical entities.

THUS E.R.P. IS DEFINED AS A PROCESS THAT IS USED FOR INTEGRATED MANAGEMENT OF BUSINESS

THOUGH THE EFFICIENT USE OF AVAILABLE RESOURCES & WITH THE AIM TO INTEGRATION

INFORMATION ACROSS THE COMPANY. THUS ERP IS SOFTWARE THAT ALLOWS THE COMPANY TO

1) Automate and integrated many of their business process

2) Share a accommodation base and business practices throughout the enterprise

3) Produce information in real-time

EVALUATION OF ERP-:

Prior to ERP there were various computer systems which were restricted to specific function integrating& co-coordinating thus different and compatibility of the systems was also a major issue. This problem is

over came by ERP. The roots of ERP development can be traced basis to the concepts of MRP, MRP II

systems used in manufacturing to automate the various aspects of inventory management, production

processes, for instance automating the order process scheduling operation etc. MRP II was an extension

to MRP. It was conceived with objective of automating all manufacturing function & providing an

interface with other functional domains. As a result it is able to achieve high degree of integration with

other automatically process in organizations ERP extends the functionality of MRP & MRP II systems to

provide completed business solution because of this wider scope ERP is concerned not just with internal

issues but take into accounts external factor like competition, Demand

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The key aspect of ERP is ability to integrate different business entities without being constrained by

geographical & functional differences

Thus the scope of ERP is wide across all business process. In addition to traditional components of MRP,

MRP II, ERP systems provide the following things

1) Finance & Human Resource Management (information)2) Supply chain management (SCM), software to support sophisticated vendor communication e-

commerce and those activities necessary for efficient warehousing and logistics. The idea is to

tie operations (MRP) to procurement to material management

3) Customer Relationship Management (CRM) software for incoming side of the business. CRM is

designed to aid analysis is of sales, forget the most profitable customer and manage the sales

force.

FEATURES OF ERP

1) ERP is software having centralized data base (single) in which the information from different

functional domain is stored.

2) The information needs of different entities can be met from single location

3) The data is entered one time only into a common complete and consistent data base which is

shared by all applications.

4) The data field must be defined identically across the entire enterprise

5) In additional to data integration ERP software promise reduced transaction cost, and speed &

accuracy of information

6) Each ERP product is unique & every ERP has standard modules designed for specific industries if

as standard module does not fit in the business of any organization they can change the way

they do the business to accommodate the software.

7) Alternatively ERP software can be customized to meet there specific requirements

8) Existing ERP software can be upgraded by interfacing the various software on to existing one

9) The inter phases allow expansion of ERP system so that they can integrate with other system.Such as ware house management, logistic, exchanges electronic catalogs, quality management &

product life cycle management.

10) ERP package have a series of service modules such as health care, govt, retail store financial

service air lines etc.

ADVANTAGE OF ERP

1) It provide integration of supply chain production and administrative processes

2) Creates commonality of data base

3) Can incorporate improved reengineered best processes

4) Increases communication & collaboration among business units and sites

5) Has a software data base that is off the self coding

6) May provide strategic advantage over competitor. Company may achieve competitive

advantage in market by reducing price having delivery, reliability and responsiveness (high

speed) and providing higher product ranges, according to customers choice i.e product is

different size, shapes, colour, tests etc.

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1) Price reduction: - price is one of the key winners in most of markets. ERP package can help to

identify cost centers and assists in devising plans to reduce production cost; setting up tough

cost targets and putting in place a rigorous monitoring system can help company to become

cost efficient. There for e-ERP implementation should focus on areas in which significant costs

are involved, so that appropriate resource allocation can be made and management attention

can be focused on them.

2) Delivery Reliability & Speed- This is one of the criteria on which customer judge on organization

competitiveness. ERP can stream line procurement, distribution activities & reduce the lead

time involved in purchasing raw material & distribution of finished products. ERP helps to co-

ordinate these activities among all entities of supply chain through the smooth flow of

information between them, with the help of ERP the lead time required to do the work is

reduced.

3) Quality : - EPR by bridging the gap between the existing process and best process can help an

organization to achieve its quality objectives.

4) Product Range In todays competitive world the organization need to provide products in

different shapes, size that satisfy the requirements of the different segments of the market.

They need a variety of products in their product line. But as product range increases the cost &

time of production increases due to modification of production processes to accommodate the

changes required for each product range. ERP through integrated functionality and common

data base enhances the capabilities that assists organizations in this direction.

SELECTION OF ERP PACKAGES

Once conception process of designing business process is over. The available packages are evaluated to

identify the package that will provide a comprehensive solution to given organizational requirements.

The following points should be considered.

1) Global presence it should be globally acceptable and should perform to international

standards

2) Local presence: - Though it is internationally acceptable it should also be able to handle country

specific business practices. Therefore the package performance in the local market should be

examined

3) Investment in R & D: - it should consider the amount of R & D efforts vendor has put into the

package the more the R & D efforts the better will be the long term operational viability of the

package.

4) Target Market: - while selecting package the type of industry process or discrete. It is designed

for the purpose for which it is considered. If the package is designed for a particular type of industry it is likely that it will have several industries specific features. It reduces customization

efforts required.

5) Price: - The price of adopting a particular package is the key to selecting the package.

6) Modularity many organizations especially small & medium sized organizations may not want to

purchase a complete package in on instance. They may prefer to implement the package in

modules in such cases the modularity of the package i.e. availability of the package in separate

modules should be examined.

7) Ease and cost of implementation: - As the implementation of ERP warrants a change in the

organizational structure the implementation should be quick & a smooth transition from the old

legacy system should be possible. A smooth transition ensures that the normal functioning of

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the business is not attached during the transition period. The cost involved in ERP installation is

not just one time investment. The maintenance of an ERP system also requires considerable

investment. The cost includes consulting process redesign, data converting training, integration

& testing

8) Installation of requisite hardware & networks once the package is selected the hardware

considerations are addressed. The hardware requirements include the servers, PCs works

Stations, networks equipment, etc.9) Functionality of an ERP Package should complement the prevailing best practice in the

companys field of operations. Thus allows the company to take full advantage of functionalities

provided by the package in achieving its objective and goals. Thus it is important to analyze the

compatibility of the package with desired business process to ensure smooth and efficient

implementation

10) Technology Should be adaptable to any future changes in the business process without

excessively large investment in up gradation.

11) Ease of Use: - would ensure efficient stores, Retrieval of information.

Various stages in Implementation of ERP Package

1) Identity the needs of for the ERP package

2) Evaluating the As-Is situation of the business

3) Decision about the Designed WOULD BE situation for the business

4) Reengineering of Business process to Achieve DESIRED RESULTS

FUNCTIONING OF ERP PACKAGE

The Italian sportswear company Benetton is engaged in manufacturing and selling of the sportswear

is situated in Italy but selling all our globe. The company makes & ships 50 million pieces each year

that is 30,000 boxes everyday Boxes must be filled with exactly items ordered going to correct

store of 5000 outlets in 60 countries

This highly automated distribution center uses only 19 people without ERP, 400 people would be

needed. Here how ERP SOFTWARE WORKS

1) ORDERING: - a sales man in the Detroit (U.S.A) finds that he is running out of a bestselling blue

sweater. Using a laptop his local Benetton sales agent tops into ERP sales module.

2) Availability: - ERP inventory software simultaneously forewords the order to the main frame in

Italy and finds that half the order can be filled immediately from Italian warehouse. The rest will

be manufactured and shipped in 4 weeks

3) PRODUCTION: - Blue sweater was originally created by computer aided design (CAD). ERP

manufacturing software passes the specifications to knitting machine. The knitting machine

makes the sweaters4) WAREHOUSING: - the blue sweaters are boxed with a Radio frequency ID (RFID) TAG

ADDRESSED Detroit store and placed in one of 30,000 slots in the Italian warehouse. A root

fillies by reading (RFID) tags, pick out only and all boxes ready for Detroit store and loads them

for shipment

5) ORDER TRACKING :- Detroit sales person logs on to ERP system through internet and sees that

sweater (and other items) are completed and being shipped

6) PLANNING: Based on the data from ERPs forecasting and finance modules. Benetton chef

buyer decides that blue sweaters are in high demand & quite profitable, he decides to add three

new houses.

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Thus the integrated approach of ERP allow production dept located in one geographical area to

send the products situation at other geographical area in short time. Similarly products on

demands can send financial information to the head office and marketing information of one

location can be accessed by production dept at another location. So that markets patterns can

be identified and appropriate responses can be designed.

THUS ERP IMPLEMENTATION ENSURES MANAGEMENT HAS RELEVANT AND TIMELY

INFORMATION AT THIS DISPOSAL FOR EFFECTIVE DECISION MAKING.

Documents

PPC 26.11.08