Production and Operations Management

Module 1: Introduction to Production and Operations Management

Products
– Television, Soap, Car , Garments
Services
– Medical treatment, consultancy, Education, Transport

• Products are manufactured

• Services are provided

Some of the characteristic differences between product and Service (there are exceptions!)

Product Service

1. Customer is not associated during 1. Customer associated during service

production
2. Is tangible
3. Can be made in anticipation and
stocked
4. Requirements can be stated in clear
terms
5. Meeting requirements can be easily
checked
6. Input material content is relatively high
7. Transformation process normally done
by machines or low cost human
resource
8. Products have life cycle till discarded
( use, Maintenance, servicing,
obsolescence)
9. Products may have residual value
10. Products are pushed to market and
selected by customer based on
requirements / life style
2. Is intangible
3. Cannot be stocked: can be provided on
demand.
4. Requirements cannot be stated in clear
terms
5. Satisfaction can be felt after service is
delivered
6. Input material content is relatively low
7. Transformation process is normally
done by skilled human resource
8. Life cycle concept do not exist
9. Services do not have any
10. Services are normally need driven and
pulled by customer

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 • Organizations can be manufacturing or Service organizations
• No organisation is pure product oriented or pure service oriented
(Car manufacturers have components like servicing, handling warranty complaints.
Hospitals have components like drugs, diagnosis reports etc)
• Classification is based on whether product orientation is dominant or service

Transform

Typical Transformation activities for products

• Purchasing of Raw materials and Storage

• Production ( conversion )- Cutting, Machining, Fabrication, painting, packing
• Inspection and testing
• Ware housing and delivery

Transformation activities for Services vary greatly depending on type of service.

Transfo
For Hospital, these activities are
• Out patient services

Inputs
• In-patient services (eg. ward, ICU, OT)
• Diagnostic service ( eg. X-ray, laboratory, scans)
• Purchase of medicines and Dispensing
• Blood bank activities
process
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Definition of Production and Operations Management

Production and operation management is defined as the design, operation and improvement
of the transformation process which converts the various inputs into the desired outputs of
products and services

The term “operations management” is widely used now which includes manufacturing and
service organizations.

Critical system elements of production Management

• Product , process and service design
• Facility, capacity, location and layout
• Capacity management
• Materials management
• Production scheduling
• Quality management
• Technology management

Responsibilities of Production manager

1. Planning of geographical location of factory
2. Purchasing production equipment
3. Layout of equipment
4. Process Design
5. Establishment of work standards
6. Capacity planning
7. Production planning and scheduling
8. Production control
9. Inventory management
10. Supply chain management
11. Quality control
12. Industrial relations
13. Equipment Maintenance
14. Health and safety
15. Staff selection and training
16. Budgeting and capital planning

Some factors affecting Production management

1. High Quality level demands by customer ( PPM, 6 sigma)

2. Low lead time for manufacture
3. Large verities
4. Low Batch Quantities
5. Global Competition
6. Pressure on operating cost reduction ( raising input costs with product prices declining)

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Good production management can offer competitive advantage to a firm by:

1. Sorter new-product lead time

2. More inventory terns
3. Sorter manufacturing lead time
4. Higher quality
5. Greater flexibility
6. Better customer service
7. Reduced wastage

Types of production
• Continuous production
– very few verities
– very long production runs
– Eg. Cement , Steel, Plastic
• Semi-continuous production
– Few varieties
– Long production runs
– High volume of output
– Repetitive in nature
– Eg. Automobiles, electronic items, Soaps, White goods

• Intermittent production
– Batch production
• Many verities
• Short production runs
• low volume of output
• Repetitive in nature
• Eg. Standard tools, products to customer specifications, earth moving
machinery
– Job shop
• Few numbers
• Specials
• Not repetitive
• Eg. Specials Tools, custom built cars,

Competitiveness means :
1. Existing demand for products
2. Value for money
3. No threat from competitors
4. No threat of obsolescence
5. Continuous additions to product features insuring future acceptance and demand
6. Quality, pricing meets customer expectations and competitors at a distance
7. High customer satisfaction

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Productivity
Productivity ensures competitive edge
1. Labour productivity
2. Inventory Turn over
3. Return on Investment (ROI)
4. Quick product Design & development
5. Less time to Market
6. Marketing efficiency
7. Supplier rationalization
8. Total Productive Maintenance (TPM)

Strategic management means formulations of long term goals and actions plans to accomplish
those goals. It consists of the following broad steps:
1. Analysis of opportunities and constraints in the market place
2. Formulation of strategies
3. Implementation of the strategies
4. Evaluate and control till objectives are reached

Typical; corporate strategies

• Horizontal integration
• Vertical integration
• Mergers
• Alliances
• Disinvestment

Typical unit level strategies:

• Increase market share by 4%
• Launch 10 new products in next 3 years
• Increase exports by 100%
• Reduce cost by 15%

Some strategy factors:

• Make –buy decisions
• Automation
• Computerization
• Supplier development
• Waste elimination
• Value addition
• Cost reduction
• New product introduction and timing
• Value engineering
• Business process re-engineering

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Production and Operations Management

Module 2: Product, Process and Service design

Product Design
P r o du ctio n
• Products are designed to
and meet customer
M a r k eting O pe ration s requirements , needs
C usto me r
and expectations
• Examples: Car, TV,
Soap, Garments,
Produ ct
D e sign a n d perfumes, Apartments
D e velo p m e nt • Examples: Bank loans,
course curriculum,
postal services,

Product design and

Development stages
1. Design and
development Inputs( eg.
Features, safety, customer needs and expectations, Regulations)
2. Design and Development Outputs ( eg Specifications, Drawings )
3. Design and development review ( with production, maintenance, QA for
manufacturability and serviceability)
4. Design Verification ( eg. calculations, prototype and testing)
5. Design and development validation ( eg. Performance testing , field trials)

Product design concepts

1. Research and development
• Using state of knowledge on the subject for commercial applications ( Applied
research)
2. Reverse Engineering
• Dismantling and studying competitors products. Reduces development time.
Provides opportunity to improve on the competitor’s product
3. Manufacturability
• To ensure ease of manufacture and assembly. Using existing manufacturing
capabilities such as machines, equipment, Skills of workers .

4. Standardization
• Refers to use of less variety of parts to build a products.
• Modular design refers to standardization of modules or sub-assembly of parts.
• Reduced cost. Faster time to market, Ease of maintenance and servicing.
• Example: use of indicator lamps, meters for various models of Motorcycles

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 5. Robust design
• Designing a product that is operational in varying environmental and other
conditions of usage (eg. dust, vibration, temperature , humidity, over load )
6. Concurrent Engineering
• Involvement of other functional areas during early stages of design
• Functions like Marketing, production, purchase, Tool design, servicing are
involved for review and incorporation of any changes required.
• Faster time to market. No holdups during production.
7. Computer-aided design
• Use of computer soft ware for design
• Three dimensional visualizations possible.
• Faster, accurate, cost effective, easy to change, easy to transmit, easy to
collaborate,
• Links to computer aided manufacturing possible

P r o d uc t d esi g n c o nc e pts
• L ife C yc le o f pr o d uct

M a t u ri t y
Dem and
D e cl i n e

g ro wt h

Incubati on

Ti me

Manufacturing processes ( Production processes)

Broad classification:
1. Forming processes
• Change shape of work piece without adding or removing material
2. Machining processes
• Change shape of work piece by removal of material in the form of chips or
particles
3. Assembly processes
• Joining or fastening of parts/ components
4. Heat treatment

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 • Heating , soaking and cooling of parts in furnace at determined levels to obtain
desired mechanical properties
5. Finishing processes
• Change the surface properties of parts. For protective and decorative purposes. Eg
corrosion resistance, coloring, aesthetics

Forming processes

• Casting- pouring or forcing molten material into moulds of desired cavity. Eg.
Gravity casting, injection moulding, pressure die- casting
• Forging-Formed during plastic state by impact or force. Eg. Die forging, upset
forging, roll forging
• Extrusion- forcing the metal through to obtain desired cross section
• Drawing -Pulling material through dies of desired cross section. Eg. Wire drawing
• Stamping- normally for thin sheets. Impacting in a press to obtain desired size and
shape.
• Embossing or coining- Stretching of metal in a closed die. Eg. Making of currency
coins. Medals
Machining processes
• Turning- material is removed by a cutting tool in contact with rotating work piece.
• Drilling and boring- making of holes using drill bit. Making of large circular cavities
using boring tools
• Milling- making of flat surfaces on work piece using a milling cutter
• Grinding- Finishing of circular parts or flat parts using a rotating grinding wheel.
Normally for hardened parts.
• Shaping and planning- material is removed by linear motion of a cutting tool on work
piece.
• Electro –discharge machining( EDM)- Erosion of material by sparking between
electrode and work piece. For very hard materials , intricately shaped parts, tooling
Assembly processes
• Welding-joining of work pieces by fusion due to heat. eg. Gas welding, arc welding,
spot welding, seam welding, laser welding
• Brazing- joining of metals using brazing alloys. Strength of joint less than welding
• Soldering- joining of metals using soldering alloys. Eg. Making of PCBs. Soldering
of wires. Normally for electrical connections
• Riveting- joining of overlapped plates by upsetting rivets in holes . Eg. Boiler
• Fastening-joining using screws, nut and bolts
• Assembly using adhesives- used for metals, wood, plastics, rubber. Eg furniture,
shoes, toys
Heat treatment processes
• Annealing- softening to improve machinablity
• Normalizing-to improve grain structure and relive internal stresses
• Hardening- to increase hardness which improves wear properties.
• Tempering- normally follows hardening. To decrease brittleness
• Case hardening- to increase hardness in surface only leaving the core tough.

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 • Cyaniding-immersion of steel in molten bath of carburizing salt followed by
quenching. Distortion is less.
Finishing processes
cleaning is done to remove dirt, oil, scale, rust before and after finishing operations
• Metallic coatings- Electroplating, Hot dipping, Galvanizing ( zinc coating), Tin
coating, Phosphating, anodizing ( for aluminum)
• Plastic coating- PVC, Nylon, Polythene etc to prevent rusting for tanks, pipelines etc
• Organic finishes- Paints, varnishes, enamels
• Inorganic finishes- ceramic coatings, porcelain enamels. Highly wear resistant

Process planning
• Process planning deals with methods of converting Input materials into finished
products. A Production process is a series of manufacturing operations performed at work
stations to achieve the design specifications at planned output.
• Types of processes
– Continuous process
– Semi-continuous
– Batch process
– Job shop
– Project

Starting point for process design is the outputs from product design. These may be product
specification, Drawing, Technical specifications , Product standards etc.

Output Quantity requirements greatly influences the process planning and design

Process planning consists of two areas:

• Process design
• Operations design

Process design
covers the overall conversion/ transformation process
1. Input materials required
2. Sequence of operations
3. Existing Infrastructure
1. Machine and equipments
2. Facilities ( handling, storage)
3. Layout of plant
4. Tooling ( devices required to produce a particular product- commercial tools, special
tools)
6. Inspection and testing stages and methods
7. Quantities to be produced

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Operation design:
Covers how individual operation are to be.
1. Design of individual operations in a process
2. Man-machine relation ship
3. Economics
4. Work standards

The Basic objective of Process planning and design is to:

• Produce products that consistently meet design specifications
• Produce products at the lowest cost
• Produce products with proven production technology

System approach to process planning and design

Input Process Output

Inputs
• Product information
• Resources ( machines, equipment, facilities)
• Output requirements
• Manpower availability

Process
• Selection of type of processes ( forming, machining etc)
• Make or buy decisions
• Equipment studies
• Production sequence
• Tooling studies
• Inspection and testing studies

Out puts
•
• Production sequence and equipments
• Raw material specifications
• Layout of machines
• Tooling requirements
• Inspection stages and equipments

Process planning aids:

Assembly charts- gives pictorially step by step assembly sequence and what items to be
assembled till finished product is produced

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Process charts:
Operation process chart- gives the sequence of operations, machine to be used, tooling
needed, inspection stages. These are also called “ROUTING SHEETS”
Flow process charts-gives graphically, with symbols, manufacturing operations,
inspection stages, Transport operations, Delays, storage requirements.
Man-machine chart- gives a graphical representation of what worker will be doing and
machine will be doing over time. This is to effectively use workers time when machine is
operating unattended. This is to increase productivity.

Types of process designs

• Product focused production system
o All production processes or organized an a continuous flow. Required
machines are lined up to make the product
• Process focused production system
o Machines/ equipments are grouped according to process ( machining,
forming etc). products flow from one location to another depending on
the process. Travel distances are more. Products are stored without
processing for want of machine.
• Group Technology ( Cellular manufacturing)
o Products are grouped into families based on processing requirements .
o Machines re lined up to process each family . this gives the advantage
of product focused system to batch production.

Economic analysis
• Process which gives lowest cost per unit is the best
• Processes to have the same capability. Otherwise we may have to take cost of rejections
into calculations. Increase production by rejection percentage and add raw material cost
to your calculation
• Take into consideration the total number of products to be made , if there are any
limitations
• Manufacturing cost per unit may include
• Setup cost
• Tooling cost
• Fixture cost
• Operating cost ( labour, power etc)

Production costs
• Fixed costs (Depreciation, Insurance, administration etc)
• Variable costs ( material, consumables, power , Direct labour costs etc)

Break even analysis is done to determine quantity to be produced to cover the production cost.
Producing less than break even quantity results in loss to the company.

Example

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Fixed cost is Rs 50 000 per year, Material cost is Rs. 50/ pc, other variable cost is Rs 30/ pc . the
selling price is Rs 100 / pc . What is the break even point?
Let X be the break even Quantity. Then 50, 000 + 50 X + 30 X = 100 X
X = 50000 / 20 =2500.

Comparing processes to determine which is the best.

Process A Process B
Components / setup 4000 3000
Setup cost Rs 300 Rs 1500
Production rate / hr 10 15
Operating cost /`hr 20 20
Operating hrs /setup 4000/10=400 3000/15=200

Operating cost 400 X 20=8000 200 X 20=4000

Total mfg. cost 300+8000=8300 1500+4000=5500

Cost/piece 8300/4000=2.057 5500/3000=1.833

Production Technology
Mechanisation- deals with replacement of hard manual muscle power by using devices like
power lifts, conveyors , hydraulic and pneumatic devices etc.

Automation- deals with all activities in production operations and service operations to make
them faster, accurate, with minimum human intervention and cheaper at high production
volumes

Production technology deals with automation all aspects of manufacturing, which includes:
o Production activities
o Planning and procurement activities
o Inspection activities
o Integration of design with production ( CAD/CAM)
o handling, storage , transport

Automation levels/`areas
• Automated machines
– Machines with pallet changers, Tool magazine , Automatic tool changers, strip
feeders, tool wear detection and correction, in- built inspection system
• Machine attachments

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 – Attachments to make the machine more versatile. Grinding attachments on lathe,
power operated holding devices, Quick change tooling, copying attachments ,
digital readouts, strip feeders
• Numerically controlled machines
– Machine movements controlled by servo motors , stepper motors (closed loop or
open loop), multi-axis controls, eg. Lathes, milling machines
• Robots
– Programmable devices . Can pick and place, weld, paint . Load and unload
components with in its reach. Can work in hazardous areas. Can tend many
machines.
• Automated inspection devices
– Vision systems, on –line inspection devices, Computerized measuring machines
• Automated Identification systems
– Automatic acquisition of information, eg bar code systems, smart cards, RFID,
biometrics
• Automated process controls
– Continuous checking of performance and automatic correction/ adjustment of
process parameters. Eg. Power stations, oil refineries, chemical plants
• Automated storage and retrieval systems (ASRS)
– Taking orders , collecting materials from locations in ware house and delivery to
dispatch section or to production areas. Eg. Garments, tools, hardware
• Automated lines
– Machines linked together by automatic raw material feeders, transport
equipments. Hard automation. Good for single part produced in very large
quantities
• Flexible manufacturing systems
– CNC Machines linked together by AGVs( automatic guided vehicles). Highly
programmable and hence flexible. Normally used for a family of similar
components. Set up times are less and hence can handle very small batch
quantities economically.

Advantages of automation
1. Enhanced productivity
2. Improved and uniform Quality
3. Reduced total cost per unit
4. Better production control
5. Dangerous and unpleasant tasks can be easily handled
6. Fewer accidents

Disadvantages of automation ( constraints)

1. Heavy capital investment
2. Displacement of Labour

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 3. Tighter input material specification may be needed.
4. Cost of material shortages/ breakdowns are high
5. Reduced demand is disastrous.
Problem
An automotive component manufacturer wants to improve competitiveness. Cost of 3
manufacturing methods are as below:
1. On the basis of economic analysis , rate the three alternatives.
2. If 1,50,00 units are to be produced in a year, what would be the most desirable and least
desirable alternative?

CM CNC FMS
Annual production( units) 1,00,000 1,00,000 1,00,000

Annual fixed costs Rs 90,000 1, 90.000 3, 20, 000

Variable cost per unit Rs 29.40 Rs 28.50 Rs 27.30

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Production and Operations Management
Module 3: Facility, capacity, location and layout

Forecasting
• Estimating future demand for products and service

Need for forecasting

– New facility planning
– Production planning
– Work force scheduling
– Material planning
– Financial planning
Types of Forecasts
• Long range ( years)
– Factory capacity, new product development,
• Intermediate range ( months)
– Purchasing, inventory management
• Short range( weeks)
– Cash out flow, production planning, labour planning

Forecasting methods
• Quantities methods
– Based on previous data
– Appropriate for shot period
• Qualitative methods
– Based on judgment of experts
– Long periods in future
• Demand patterns
– Constant
– Linear
– Seasonal

Models for forecasting:

• Simple moving average ( SMS)
• Weighted moving average( WMA)
• Exponential smoothening model ( ESM)
• Regression analysis (identifying the variables and developing a model for forecasting)
• Delphi Method ( taking views of experts from inside and outside the organisation)
• Field expectation method
• Customer expectation method

SMS example : If the demand for a product was 100, 120, 120 for the months of Jan, Feb. and
March, fore cast for April would be ( 100+120+120)/ 3 = 113.33 rounded off to 114.

WMA example : demand forecast for above example with weightage of 4, 2, 1 for previous
months would be ( 100 x 1 + 120 x 2 + 120 X 4 ) / 7 = 117.44 rounded off to 118

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ESM example
Formula: smoothened forecast = forecast + smoothening factor ( Actual demand last period-
forecasted demand for last period)

Example : a company fore casts a demand of 400 units every month but would like to smoothen
forecast based on previous month actual demand by factor 0.25. if the demand for April was 375
what is the forecast for May?

Forecasted demand = 400 + 0.25 X ( 375-400) = 400- 6.25 =393.75 rounded off to 394

Plant Location ( Facility Location)

Consists of identifying location:
1. Within the country or outside
a. Political stability
b. Exchange rates
c. Closeness to consumption
d. Human resources and skills

2. Selection of the region

a. Availability of Raw materials
b. Nearness to market
c. Availability of power
d. Transport facilities
e. Climate
f. Governmental policy
g. Competition between regions

3. Selection of locality
a. Availability of labour
b. Amenities for workers
c. Existence of competitors
d. Finance facilities
e. Local taxes

4. Selection of the exact site.

a. Topography, size
b. Disposal of wastes
c. Land cost

Location Models
1. Factor Rating method
2. Point rating method
3. Break even analysis
4. Quantitative factor analysis

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Factor rating method

Point rating method

Factor Max. points Location A Location B

Availability of Fuel 300 200 150
Water supply 200 200 200
Topography 200 150 175
Factor
Other factors Factor Location rating Location rating X Factor
rating rating
Total Location
X Location Location
Y A Location B
A B
Tax advantage 4 8 6 32 24
Closeness to Customer 3 2 3 6 9
Closeness to suppliers 5 8 10 40 50
Factor 4
Factor n
Total X Y

Break even analysis

1. Determine all relevant costs
2. Categorize as fixed cost and variable cost
3. Total cost=fixed cost + variable cost X quantity produced
4. Compare total cost for all locations and determine the most suitable location

A graph can also be drawn which helps analysis over different production outputs

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 A
Total B
C
cost

Quantity

Problem :A firm is considering 4 alternate locations for a new plant annual interest on capital is
10%. Determine the best location for an output of 1, 20, 000 units
Data Rs A B C D
Labour cost/unit 0.75 1.10 0.80 0.90
Plant construction cost 46 lakhs 39 lakhs 40 lakhs 48 lakhs
Material and 0.43 0.60 0.40 0.55
equipment cost per
unit
Electricity charges per 30, 000 26, 000 30,000 28,000
year
Water charges per year 7,000 6,000 7,000 7,000
Transportation cost per 0.02 0.10 0.10 0.05
unit
Taxes per year 33,000 28,000 63,000 35,000

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Qualitative Factor analysis method

Factors Assigned Score for locations Weighted scores

Weight A B C A B C
Production 0.35 50 40 60 17.5 14.0 21.0
cost
Raw 0.25 70 80 80 17.5 20.0 20.0
material
supply
Labour 0.20 60 70 60 12.0 14.0 12.0
Availability
Cost of 0.05 80 70 40 4.0 3.5 2.0
living
Environment 0.05 50 60 70 2.5 3.0 3.5

Markets 0.10 70 90 80 7.0 9.0 8.0

Total 1.00 60.5 63.5 66.5

Manufacturing Facility planning

Basic input for manufacturing capacity planning is the long range forecast for demand for
products and services

Deals with:
1. Identification of production and operating equipments
2. Space and building requirements
3. Raw material requirements and Sources
4. Storage quantities and facilities
5. Inspection facilities
6. Maintenance facilities
7. Material handling equipments ( eg. conveyors, cranes)
8. Administrative areas ( eg. purchase, personnel)
9. Canteen, conveniences
10. Other requirements of the plant based on product produced, environmental requirements,
power requirements, storage of hazardous materials

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Manufacturing planning may be :

• Long range planning is normally for 3 to 10 years

• Medium range planning normally for 1 to 3 years
• Short range planning is normally for 3 months to 1 year

Plant Layout (Facility Layout)

Plant layout deals with locations for:

1. Production machinery
2. Location of stores ( Raw materials, WIP, Finished goods)
3. Inspection facilities ( Receiving, In- process and Final inspection)
4. Tool rooms
5. Maintenance requirements
6. Material handling equipments ( eg. conveyors, cranes)
7. Administrative areas ( eg. purchase, personnel)
8. Canteen, conveniences
9. Other requirements of the plant based on product produced, environmental requirements,
power requirements, storage of hazardous materials.

Since the plant layout is not frequently changed because of economic reasons and long
production stoppages, utmost attention has to be paid for layout design. However layout may be
changed based on changes in product design; change in production methods or towards
expansion.

Some of the objectives of a good layout:

1. Provide required production capacity
2. Reduce material handling costs
3. Provides for free movement of materials and people
4. Reduce hazards and hence safety and health of personnel
5. Utilization of available space efficiently and effectively
6. Enhancement of employee morale
7. Flexible to handle variations in volume and product variations
8. Supervision to be easy
9. Easy maintenance on equipments
10. High utilization of equipment
11. Enhanced productivity

Major factors influencing the layout are:

1. Materials- solid or liquid, light or heavy
2. Product- normally product moves from work station to work station. When product is
very large, machinery and men are moved to product
3. Worker-whether stationery or moving. On conveyor belt operations worker is stationery
and belt stops for prearranged time at every work station
4. Machinery- depends on the type of manufacturing operations, size of product, volume of
product. Manual, semi automatic, automatic

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Principles of layout (Importance of Layout)

1. Minimum travel-Materials and men should travel the shortest distance. Heavier
materials are to travel the least. Typically 30% of the production cost is because of
material handling
2. Minimum production delays: materials should spend minimum time as possible in the
facility. Operations to flow in a sequential order. Back tracking for operations on the
same machine to be eliminated. bottle necks to be avoided
3. Usage of space- every meter of space to be effectively utilized. Land costs are high.
Maintenance costs are also high.
4. Early detection of Quality problems: Continuous flow, Inspection points
5. Better production control. Less chasing work. Visual control. Few control points.
6. Improved utilization of labour: workers time to be used effectively.
7. Compactness- all functional areas are fully integrated and act as a well knit facility
8. Safety- hazards to be as less as possible. Work place to be economic for productivity
9. Flexibility- slight variations in volume or change in product features should not affect the
productivity of the layout
10. Maximum return Investment- fixed capital cost to be as low as possible and
Investments to be fully utilized
Some types of Layout
1. Process layout ( job shop layout, functional layout)
2. Product layout ( flow line layout, line processing layout)
3. Cellular manufacturing ( CM) or Group Technology layout
4. Combined layout

1.Process layout

Turning
Grinders Packing
machines

Milling Drilling
machines machines Assembly

Features

1. Different sizes of machines are grouped

2. Distance between grouped machines are made as short as possible
3. Groups are arranged such that there is no back tracking
4. Convenient Inspection

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 5. Convenience of supervision
6. Many types of products can be manufactured
7. Low volume of production
8. Many inspection points are required

Advantages
1. Machines are general purpose and hence reduced investment
2. Flexibility in production
3. Better supervision
4. Capacity expansion is easy
5. Better utilization of men and machines
6. Break downs can be easily handled

Disadvantages
1. Movement of material is difficult. Mechanization not easily possible.
2. Requires more floor space
3. Production control is difficult
4. Distance traveled is more
5. Accumulation of WIP ( work- in -progress)

2. Product Layout

Features
1. Individual machines are arranged as per sequence of operations
2. No back track at all. Flow is continuous.
3. All operations eg production, inspection, assembly is include in a line
4. One or two standard products can be produced
5. Large volume of production
6. Minimum inspection required

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 Individual machines

Assembly line Testing Packing

Advantages
1. Mechanization is possible thus reducing martial handling costs
2. Production bottle necks are avoided
3. Better production control
4. Less floor space required for production
5. WIP is very minimum
6. Early detection of mistakes
7. Very high Through put time

Disadvantages
1. Inflexible
2. Layout is expensive
3. Expansion is difficult
4. Breakdown or rejections in a line or machine stops the entire production

Comparison of product and process layout

# Characteristics Product Process

layout layout
1 Mechanization of material handling •
2 Reduced bottle necks •
3 Minimum Manufacturing time ( trough put time) •
4 Minimum work in progress •
5 Better production control •
6 Early detection of bad workmanship •
7 Better performance measurement of workers •

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8 Reduced investment in machines •
9 Flexibility in production •
10 Scope for expansion •
11 Easier handling of breakdowns •
12 Better utilization of workers and equipment •
13 Specialisation in supervision •

3. Cellular manufacturing

Features
This brings the advantages of product layout to identified products in a process layout facility.
Some Machines are grouped into cells to manufacture a group of products with similar
characteristics and process flow (family of products). Cells could exist in a manufacturing
facility along with process layout for other products
Machines can be laid out in ‘U’,’L’ and Straight line to suit the material flow and overall layout
of the facility

Advantages
1. Lower WIP
2. Reduced material handling
3. Shorter throughput times
4. Simplified production planning
5. Improved visual control
6. Less time for setup because of few tool changes
7. Lower cost of production
8. Sorter delivery
9. Improved Quality due to early detection of problems

24
Disadvantages
Reduced flexibility
Less machine utilization
Additional machines may be required to create cells

In a cellular manufacturing setup advantages heavily overweigh the disadvantages

4. Combined layout

Forging Gear cutting Heat Gear

presses mcs treatment Grinding mcs
Furnaces

Features
o Machines are grouped as process layout.
o Products are processed on identified machines to maintain flow.
o Used when batch processing like heat treatment is necessary.
o Used when costly machines are involved and duplication for pure product layout
is not economical.

Apart from location of production machines, a layout has to integrate the following
facilities:

• Receiving and dispatch areas- space, material handling equipments,

• Storage areas- space , Safety, Material handling equipments
• Maintenance areas- storage of spares, area for repairs

25
• Inspection areas- inspection equipments, Space
• Employee facilities- Quarters, , rest rooms, change rooms
• Others – diesel generating sets, treatment plants, Laboratories, tool rooms

Design and Selection of layout depends on:

Material handling cost- using material handling equipments, keeping the distances shorter,
keeping sequential processing activities in adjacent areas
Worker effectiveness- good communication, well placed supporting areas, ergonomics

Methods for Selection of layout

Travel Chart method

The solution may be trial and error. Principle is most active departments should be close together
or adjacent.

Problem
A manufacturing concern has 4 departments and number of moves between departments is as
follows.
From To
A B C D
A - 2 - 2
B 2 - 4 -
C - 3 - 1
D 2 - 1 -

Step1 ; locate most active departments ( compute no. of links)

Department A B C D
No. of links 4 4 4 4

Step2: try to locate the most active departments at the centre

All are important here.

2
A B
2
2 2 4 3
1
D C
1

26
Step3 : ensure there are no non adjacent movements. Enter no. of moves in the chart

Load –Distance analysis

Problem : A company wants to add a new wing to its manufacturing shop which layout is better.
1 2 4 5 6
Lay out A

3 7

2 5 6
Layout B 3

1 4 7

Distances are as below;

Between Departments Distances between departments
Layout A Layout B
1-2 24 50
1-3 24 30
1-4 38 48
2-3 44 20
2-4 30 72
3-4 44 52
4-5 50 40
5-6 50 44
5-7 50 60
6-7 40 40

Products produced , Batches produced per year and sequence of processing;

Products Processing sequence Batches of products

produced per year
P1 1-2-3-4-5-6-7 1400
P2 1-2-4-5-6-7 200
P3 1-3-4-5-6-7 1200
P4 1-3-4-5-7 300
P5 1-4-5-6-7 200

27
Solution;
Step 1: calculate distance traveled for each batch of products for each layout

Product Sequence Distance moved

Layout A Layout B
P1 1-2-3-4-5-6-7 24 + 44 + 44 + 50 + 50 + 40 50 + 20+ 52+ 40+ 44+ 40
=252 =246
P2 1-2-4-5-6-7 24 + 30 + 50 + 50 + 40 50 + 72+ 40 + 44 + 40
=194 =246
P3 1-3-4-5-6-7 24 + 44 + 50 + 50 + 40 30+52 +40 + 44 + 40
=208 =206

P4 1-3-4-5-7 24 + 44 + 50 + 50 30 + 52 + 40 + 60
=168 =182

P5 1-4-5-6-7 38+ 50 + 50 + 40 48 + 40+ 44+ 40

=178 =172

Step 2 : compute total distance moved per year

Product Batches Distance Product Total distance =Batches

per year per batch per year x Distance per
batch
Layout A Layout B Layout A Layout B
P1 1400 252 246 3, 52, 500 3, 44, 400
P2 200 194 246 38, 800 49, 200
P3 1200 208 206 2, 49, 600 2, 47, 200
P4 300 168 182 50, 400 54, 600
P5 200 178 172 35, 600 34, 400

Total 7, 26, 900 7, 29, 800

Layout A is better. The material movement is lower.

28
Production and Operations Management

Module 4: Capacity Management

Method study

Job enlargement
Job design Job rotation
Job enrichment

Principles of
motion economy
Work design

Stop watch Time

study
Work measurement
Work Sampling

Work Design is the over all term used for Job design and Work measurement.

Job design aims to organize tasks, duties and responsibilities into a unit of work .
The objective may be:
• to increase Productivity
• To reduce costs.
• job satisfaction
• motivation

Poor job design may lead to

• Lower productivity
• High attrition rate
• Absenteeism
• Complaints
• Sabotage

29
Objectives of Job design
Technical feasibility – Jobs ( set of tasks) should be able to be performed by the person (s) with y
the equipments and systems available.
Economic feasibility – cost of performing the job should \be as low as possible
Behavioral feasibility- motivation and mental simulation are considered.

Techniques of Job design

Work simplification- Big job is broken down into small parts and assigned to one employee.
Less trained or less skilled persons can do the job. This may also result in
highly repetitive jobs and less job satisfaction.

Job rotation - Persons are assigned different jobs at different times . reduces boredom ,
monotony and exposes employees to different aspects of the process.

Job enlargement - Adding similar tasks to a job. to add variety and autonomy . to make
work more meaningful.
Job enrichment - tasks of planning, organizing and controlling are assigned along with routine
tasks. Objective is more involvement, motivation and satisfaction.

Ergonomics
Ergonomics is concerned with designing of work situations with human characteristics in mind.

1. Human and machine interfaces- some considerations are : location on tools , switches,
parts for assembly , controls, levers, push buttons, Working height, sitting height, left
hand and right hand operations, heights at which readings are taken, weights lifted, forces
applied , direction of force .

2. Environmental factors – which affect morale, productivity, quality and long term heath
problems. Ambient temperature ( 26-38 C) , Noise ( < 90 dB), Lighting( 100 ft-candles
Machines), vibrations, air circulation, comfortable furniture.

Work Study

Work study is concerned with the analysis of work methods and the equipment used in
performing the job, the design of optimum work method and the standardization of proposed
work methods.
Work study covers:
• Method study
• Work Measurement

30
Objective of work study:
Analysis of present method and to develop a new and better method
• To measure work content by measuring time and to establish standard time.
• To increase the productivity by ensuring best possible man- machine interface
• To reduce cost of production / increase efficiency

Benefits of work study

1. Increased productivity
2. Reduced production costs
3. Better layout
4. Better manpower planning
5. Reduced handling costs
6. Better Morale and satisfaction of employees
7. Standard performance measurement and basis for incentive schemes

Methods study
Method is a technique of observing, recording and examining the present method of performing
the work with a view to develop a cheaper and productive method. It covers work processes,
working conditions, equipments and tools used to carry out the job.

When method study is conducted:

1. High operating cost
2. Heavy rejections
3. Excessive movement of materials and men
4. Production bottle necks
5. Quality problems
6. Poor working conditions
7. Excessive overtime
8. Poor delivery performance

Objectives of Method study:

1. To study present method and propose new and improved method
2. Improvement in productivity and cost
3. Reduce material handling and operator fatigue
4. Elimination of wasteful motions
5. To standardize work methods

Advantages of Method study:

1. Work simplification
2. Improved method( cheaper and productive0
3. Better quality product
4. Improved layout
5. Better material handling

31
 6. Better work flow
7. Less fatigue to operator
8. Shorter production time
9. Job satisfaction

Method study procedure

1. Selection of work based on present problems and scope for improvement

2. Record relevant facts and information on existing method , use appropriate charts and
diagrams
3. Examining recorded facts ( use what, when , how, who, where, why type of
questioning on collected facts)
4. Developing improved method by
a. Eliminating wasteful tasks
b. Simplifying tasks
c. Combining tasks
d. Evaluating alternatives with respect to cost, savings, feasibility , reaction of
employees, short term and long term implications etc.

5. Installing improved method ( plan, schedule, coordinate, involve all concerned)

6. Maintaining the new method ( feed back on performance towards objectives)

Symbols used in process charts:

Operation Movement /‘
( conversion) Transportation

Inspection Delay / waiting

Storage Combined activity

Recording Charts and diagrams used in method study:

# Chart type Usage

1 Outline process chart
2 Operations process chart
3 Flow process charts
4 Two handed process charts
Covers only main operations and Inspections
Includes operations, inspections and material
inputs
Includes sequence of operations, transportation,
inspections, delays and storages.
• For Material or product
• For Man
• For Machine
Depicts the activities of both hands or limbs

32
5 Multiple activity chart For more than one worker/ machine or equipment

6 Man- machine chart • Worker and machine on common time scale

• Worker and two machines on common time
scale

7 Flow diagram Actual paths followed by materials. Diagram

drawn to scale

8 String diagram Sting used to trace the path of materials or

workmen in a scale plan or a Model. To measure
distances traveled.
9 SIMO chart Simultaneous motion cycle chart . used for cery
small cycle time operations .

Micro motion study is useful for analysis of very small cycle operations, rapid movements and
high production rates. E.g. Sewing, assembly of small parts.
Video pictures are taking and analyzed to understand the minute tasks and to eliminate
unnecessary movements. Therbligs which indicate basic body motions of worker is used to
analyse the activities.

Some therbligs are:

Search , Select, Grasp ,Transport empty, Transport loaded, Hold, Release load, Position, Inspect,
Assemble, Disassemble

Principle of motion economy

Aims at minimizing the fatigue of workers due to repetitive motions of various parts of body
such as hands, feet, eyes etc.
Some principles:
• Two hands should begin and complete their motions at the same time
• Two hands should not be idle at the same time except during rest
• Curved motions are preferred to straight line motions
• Fixed place for tools and materials
• Materials to be fed to point of use by feeders
• Materials and tools to be located for best sequence of motions
• Height to be such that alternate suiting and standing is easily possible
• Materials to be prepositions
• Operations to be combined
• Levers, clamps to have greatest mechanical advantage

33
Work Measurement
Work measurement is concerned with techniques to establish work content of specified task by
measuring the time required to carry out the job at defined standard of performance by a
qualified worker.

Qualified worker ( ILO Definition):

A qualified worker is one who has the necessary physical attributes, intelligence, education and
skills and knowledge to carry out the work to satisfactory standards of safety, quality and
quantity

Objectives of Work Measurement

• Improved planning and control
• Basis for sound incentive schemes
• Better utilization of manpower
• Better labour productivity
• Better labour cost control

Work measurement procedure: ( arriving at standard time for the job)

1. Divide the job into elements
2. Record observed time for each element by
• Time study
• Synthesis
• Analytical estimation
• Predetermined motion time system ( PMTS) ( for basic body movements)
3. Establish elemental value by normalizing observed values
4. Add relaxation allowances ( personal, fatigue)
5. Add contingency allowances ( for non-repetitive elements)
6. Process allowance ( for forced idleness , wating for operation to complete)

Time study
Determination of the amount of time required to perform a unit of work at defined level of
performance.
Objective of Time study
1. To set standards of performance
2. To determine labour costs
3. To balance the work of operators
4. To establish a incentive scheme

Conducting time study

1. Select job
2. Select worker to be studied
3. Plan and stopwatch study
a. divide into elements. Elements may be repetitive, occasional, manual ,
machine foreign etc
b. Measure time with stop watch

34
 c. Note rating factor ( normal pace of work is equivalent of walking 4 kmph )
4. Determine normal time for each element by:
Normal time = observed time x rating factor

Synthesis method

Synthesis method takes values of normal time for reach element from the data base
developed and available . data base has elemental times for all similar job elements eg.`
loading, unloading, clamping, checking etc.
Advantages: less time to establish, reliable , good for estimation for new jobs

Analytical estimation
Takes data from elemental time data base as far as possible. Estimation of time is made for
remaining elements based on experience
Advantages : good for non-repetitive jobs and for estimation for new jobs

Predetermined motion time systems

Times for basic motions ( Therbligs ) are established in TMUs ( time measurement units) .
1 TMU =0.036 sec. Times for reach, move , grasp etc are available in TMUs.

Problem1:
Calculate standard production per shift of 8 hours with following data.
Observed time per unit= 5 mins
Rating factor =120%
Total allowance =33 1/3 % of Normal time

Ans: observed time X observed rating = Normal time x normal rating

5 x 120 =Normal time X 100 : normal tine = 5 x 120 / 100 = 6 min.
allowance = 33 1/3 percent = 1/3 of normal time = 6/3 =2 min.
Standard time =normal time + allowance = 6 +2 =8 min
Standard production / shift = time available / standard time per piece = (8 x 60)/ 8 =60 pcs.

Problem 2;
Time for making 4 pieces of an item with elements a, b, c, d is as follows .. Fatigue
allowance is 25% of normal time. find the standard time per piece

Element Cycle 1 Cycle 2 Cycle 3 Cycle 4 Rating

( min) ( min) ( min) ( min)
a 1.2 1.3 1.3 1.4 85
b 0.7 0.6 0.65 0.75 120
c 1.4 1.3 1.3 1.2 90
d 0.5 0.5 0.6 0.4 70

35
Ans
# average observed time Normal time
a 1.3 1.105
b 0.675 0.81
c 1.3 1.17
d 0.5 0.35

Total Normal time = 3.435

Allowance = 25/100X 3.435 = 0.858 : Standard time = 3.435 + 0.858 =4.29 min.
Standard time per pc = 4.29 / 4 =1.073 min per pc

Work sampling

Work sampling is based statistical theory of random sampling and probability of Normal distribution.
Normally used for determining fraction of time the machines are idle or the operators are idle. More
the number of samples taken, less is the error.

No. of observations n= pqz2 / a2

p= percentage of observations where machine was idle

q= 100-p( percentage machine not idle)
z= desired confidence level ( z=1 for 68.3%, 2 for 95.4%, 3 for 99%)
a= desired accuracy or error ( in percentage)

Advantages
• Economical
• Not necessary to use trained work study experts
• No stop watch measurements

Limitations
• Little value to improve the operations
• If random sampling is not done results will be erroneous

Problem
Nine observations were made for machine busy or idle. If an accuracy of +- 15% is required
at a confidence level of 95.4%, determine the sample size necessary.

No. Working

1 yes
2 yes
3 yes
4 no

36
 5 yes
6 no
7 no
8 yes
9 yes

Ans p= 3/9 X 100 = 33.33% ; q =66.67% ; z=2 ; a= 15%:

n= pqz2 / a2 : n= 33.33 x 66.67 x (2 x 2) / 15 x 15 = 39.50 = 40 observations

Productivity

Production – refers to total out put : 1000 pcs per month ; 100 tons of castings per month
Productivity = Out put / input = Quantity of goods and services / Amount of resources used

Productivity can be improved by:

• Increase production with same amount of resources
• Decrease resources while keeping the production same
• Add few resources and get higher production
• Allow slight production decrease while utilizing significantly less resources

Productivity can be applied to labour, space, money, materials energy used .

Ways of measuring labour productivity;

• Output per man –hour = Output / man hours used ( 50 pcs per man-hr)
• Labour hour per unit of out put = man-hours/ output ( 100man-hrs per part)
• Added value per unit of labour cost = added value for the product/ total wages ( eg. 8, 10 )

Some ways to increase productivity:

1. Reducing rejections and rework
2. Reducing cycle time
3. Reducing setup time
4. Reducing wasted time by method study
5. Good training
6. Automation

Learning curve
Workers take more time in the beginning when the task or product is new. As they gain
experience the performance improves. The reduction in time taken is drastic in the beginning ,
tapers off and finally the time taken is constant .

37
There are mathematical models to estimate the time taken such as :
• Arithmetic analysis
• Logarithmic analysis

Typical learning curve is as below

Time
taken

No. of components

Aggregate planning

Aggregate planning involves best quantities to be produced during the time period ( normally
6months to 18 months) at the lowest cost. It involves:
• Planning work force size
• Production rate
• Inventory levels

Aggregate production planning involves determining the output levels of product groups for the
planning period.
Aggregate planning or aggregate capacity planning consists of devising a plan to support the
production required.

Why aggregate planning is required?

1. It facilitates loading of facilities fully. Minimizes over loading and under loading
2. Provision of production capacity to meet aggregate demand
3. Helps in Systematic production in spite of peaks and valleys in customer demand.
4. Utilization of resources is enhanced

Steps in Aggregate capacity planning

38
 1. Prepare sales forecast for each product over the planning period (normally 6-18 months)
2. Indicating quantities for weeks/ months .
3. Sum up individual product requirements into one arrogate demand for the factory.
4. Convert aggregate demand into labour, materials, machines and other elements of
production capacity
5. Identify alternate resources for supplying necessary production capacity , if required.
6. Develop alternatives and select one which meets the objectives of the organization.

Production capacity may have to be computed with respect to:

1. Size of work force
2. Use of over time or idle time
3. Inventories or back orders
4. Use of subcontractors

Costs associated with aggregate planning are:

Pay roll costs
Cost of overtime
Second shift/ third shift operation
Cost of hiring or laying off workers
Cost of inventories
Cost of backlogs ( liquidity damages – reduced price in case of delays as a part of contract)

Approaches to Aggregate planning

Topdown approach – consideration is given to product families , products and quantities. Does
not consider small capacity differences that may exist among specific products

Bottomup approach- each product with details at lower level ( say parts) are taken into
consideration while developing the plan. This the most popular method of arriving at aggregate
plan.

Capacity planning

Capacity indicates the ability of the firm to meet the market demand
Types of capacity planning
• Long range capacity planning
• Medium range capacity planning
• Short range capacity planning
Long range capacity planning
• Meets corporate / business objectives
• Normally for 3 or more years ahead
• Planning of land
• Planning of facilities
• Planning of technology and equipments
• Planning of human resources

39
Medium range capacity planning
• Making of aggregate plans
• Normally for 6 to 18 months or more years ahead
• Work force reallocation
• Inventory management
• Work force recruitment
• Second shift and third shift operation
• Subcontracting ( development and permanent loading)
• Make –buy decisions

Short tem capacity planning

• Normally for 3-6months
• Overtime management
• Control of inventories ( raw material, WIP and finished goods)
• Work force reallocation
• Subcontracting
• Alternate tooling

Capacity requirement planning (CRP)

Capacity requirement planning is concerned with determining the following requirement for a
Master production schedule.( MPS)
• What and when materials are required ( MRP – Material requirement planning)
• Machine hours required
• Labour hours and categories required

Major CRP inputs are:

• Planned orders and released orders
• Loading information from work centre file ( standard hours for jobs and hours available)
• Routing information and alternate routing , if any

Major CRP outputs are

• Load reports
• Revisions to MPS for rescheduling if any
• Verfication of materials planned as per MRP system

If the load reports indicate inadequacy of capacity, overtime or subcontracting to be resorted to

or changes to be made to MPS.

Strategies to meet non –uniform demand

Strategy 1: Absorbing demand fluctuations by varying inventory levels or allowing backlogs

Method1- Produce in earlier period and hold in inventory until the product is demanded
Cost- Inventory carrying cost

40
Method 2- deliver product when capacity is available
Result- lost revenue, lost customers, unhappy customers

Stategy2 : Change production according to demand

Method 1- Work additional hours with out changing work force size
Cost- overtime pay ( normally double)

Method 2- Add work force for higher production

Cost- excessive labour charges during period of slack demand

Method 3- Sub -contract

Cost- company overhead and sub-contact cost
Quality and production schedules may be affected

Strategy 3 : vary work force according to demand

Method1- Hire additional personnel when demand increases

Cost- cost of advertisement, interview, training
Skilled labour may not be available when needed

Method 2- lay-off when demand reduces

Cost- cost of lay off ( half pay during lay off)
Capital investments are idle

Problems;
Order position for a certain product is as below
Month Units Month Units
1 13, 000 7 11,000
2 12, 000 8 7, 000
3 10, 000 9 15, 000
4 9, 000 10 13, 000
5 11, 000 11 12,000
6 13, 000 12 10,000
Given:
Capacity of shop is10,000 per month on regular basis
Overtime capacity is 3000 per month
Sub-contract capacity is3000 per month with 3 months lead time
Initial inventory is 1000 units

Production cost is Rs 5 / unit on regular basis

Production cost is Rs 9 / unit on Overtime basis
Subcontract cost is Rs 7 / unit
Cost of carrying inventory is 1.00 per month per unit

41
No back log of orders is allowed. Work out the total production cost on:
• leveled production basis
• No inventory basis
and suggest which to be adopted

Ans :
Plan A : Level production basis

Month Units Regular Overtime Subcontract From Inventory

production production production Inventory carried
( stock) ( stock)
1 13, 000 10,000 2000 nil 1000
2 12, 000 10, 000 2000 nil
3 10, 000 10, 000
4 9, 000 10, 000 1000
5 11, 000 10, 000 1000
6 13, 000 10, 000 3000
7 11,000 10, 000 1000
8 7, 000 10, 000 3000
9 15, 000 10, 000 2000 3000
10 13, 000 10, 000 3000
11 12,000 10, 000 2000
12 10,000 10, 000
Total 1, 36, 000 1, 20, 000 4000 11,000 1000*
* from initial inventory

Cost of production;
1. Regular basis :1,20, 000 X Rs .5 = Rs. 6, 00, 000
2. Overtime basis: 4000 x Rs 9 = Rs 36, 000
3. Subcontract basis 11, 000 X Rs 7 = Rs 77, 000
4. Inventory carrying cost : 1000 X 1 (month) X Rs 1 + 3000 x 1 x Rs 1 = Rs 4000
5. Total cost = Rs 7, 17, 000

Plan B : No Inventory basis

Month Units Regular Overtime Subcontract From
production production production Inventory
( stock)
1 13, 000 10,000 2000 nil 1000
2 12, 000 10, 000 2000 nil
3 10, 000 10, 000
4 9, 000 9, 000
5 11, 000 10, 000 1000

42
6 13, 000 10, 000 3000
7 11,000 10, 000 1000
8 7, 000 7, 000
9 15, 000 10, 000 2000 3000
10 13, 000 10, 000 3000
11 12,000 10, 000 2000
12 10,000 10, 000
Total 1, 36, 000 1, 16, 000 6000 13000 1000

Cost of production;
1. Regular basis :1,16, 000 X Rs .5 = Rs. 5, 80, 000
2. Overtime basis: 6000 x Rs 9 = Rs 54, 000
3. Subcontract basis 13, 000 X Rs 7 = Rs 91, 000
4. Inventory carrying cost : nil
5. Total cost = Rs 7, 25, 000

Plan A is to be adopted because of lower total production cost.

Production and Operations Management

Module 5: Materials management

Scope of materials management:

1. Amount of materials is high compared to other inputs , and it is increasing year to year.
Proper materials management is key to the survival and growth of the company.
2. Cost of materials could be as high as 70-75% of the cost of the product in engineering
industries. In other industries it could be between 40- 60 % . Hence reduction in the cost
of materials plays an important role in the profitability of a company
3. Materials form a important part of current assets of the organization. Its proper
utilization is vital for ROI ( return on Investment)
4. Added value of a product = Value of produced goods- value of materials purchased. It is
imperative that not only that purchase cost of materials are to be low but also expenses
incurred in purchasing, storing, handling should be as low as possible.
5. Quality of end product depends on quality of input materials. Hence it is important that
right quality of products are to be procured at right time. Giving detailed description of
requirements to supplier in the Purchase order ensures the same.
6. Materials management is one of the Key centers of accountability for performance. It
includes purchasing, handling of materials, maintaining appropriate inventory levels and
ensuring storage conditions.
7. Minimizing the use of scarce resources and finding alternatives
8. Ensuring safety during handling and storage of hazardous materials and compiling with
regulatory requirements

43
 9. Efficiency of business depends on ensuring right quality of materials in right quantity ant
the right time. Otherwise it hampers the production to a great extent. Cost of production
shoots up.

Primary Objective of materials management

1. Low prices- to be lowest - includes transportation: enhances profit

2. High inventory Turnover- value of inventories to be low in relation to sales. Reduces
storage costs
3. Low cost acquisition and possession- reduced handling and storage costs.
4. Continuity of supply- alternative sources, , captive suppliers, flexible suppliers
5. Low payroll costs- Low operating costs of material management personnel
6. Favorable supplier relations- supplier development

Secondary objectives of Materials management

1. New materials and products- working closely with Design and research departments for
development of new materials and products
2. Economic make-buy- Coordinating and assisting other departments in Make-Buy
decisions
3. Standardization- coordinating with Design departments in reducing no. of items.
4. Product improvement- Contribution towards product improvement by giving
appropriate inputs and assisting Design department.
5. Interdepartmental Harmony- Success of materials management department depends on
the success of other departments . hence relations are to be harmonious
6. Forecasts- Forecasts in terms of prices, availability and general market conditions are to
be regularly monitored towards taking important business decisions.

Functions of Materials Management

1. Purchasing
2. Vendor selection and rating
3. Material storage and handling
4. Inventory management

Purchasing:
Objectives of Purchasing;
1. To pay reasonably low prices for best value of products
2. To keep inventories low
3. To develop satisfactory sources of supply
4. To secure good vendor performance
5. To locate new materials or products as required
6. To develop good purchasing policies and procedures
7. To implement programs like value analysis , cost analysis and make-or-buy decisions
8. To keep overheads of the department Low.
9. To have a high degree of coordination with other departments

44
Low price, inventory low, supply, vendor performance, new materials reqd., good purchasing
policies, value analysis, cost & make- buy, low overheads, coordination.

Main Functions of Purchasing department

1. Selection of vendors
2. Obtaining quotations/prices
3. Awarding purchase orders
4. Follow-up for delivery
5. Handling complaints , if any
6. Supplier development/ vendor relations
7. Payment of invoices
Other functions of purchase department ( in coordination with other departments)
1. Establishing specifications
2. Scheduling orders
3. Inspection
4. Accounting
5. Market research
6. Inventory policy
7. Sale of scrap
8. Customs clearances ( during import of materials)
9. Transportation
10. Make-or-buy decisions
Steps in Purchasing
1. Receipt of Purchase requests ( qty, delivery, item description)
2. Development Purchase specifications
3. Obtaining quotations from sources
4. Selection of source
5. Release of purchase order and acceptance by supplier ( technical and commercial terms)
6. Follow up for receipt
7. Checking invoice and approval for payment

Vendor / supplier selection is based on the following considerations

1. Availability of Infrastructure ( equipment, building, inspection facilities etc)

2. Availability of human resources ( managerial, workers, Inspectors)
3. Technical capability
4. Meeting delivery requirements
5. Reasonable prices
6. Flexibility to take up variations in demand
7. Willing to work and grow with the company

Normally suppliers are selected on the basis of few trail orders . if the performance is satisfactory
, they are included in approved supplier list and future purchase orders are placed on them.

45
Single source or Multiple sources
Single source:
1. Quantities may be very small for multiple sources
2. Supplier may be exclusive ( eg patent)
3. Supplier is outstanding in quality and delivery and no need to consider others
4. Ordering and scheduling is very easy and less costly

Multiple sources:
1. Suppliers will be competitive
2. Delivery disruptions cannot be sustained (because of Breakdowns , strike, floods etc)
3. Quantities too huge for one supplier
4. Scheduling flexibility
Vendor rating
Vendor rating is carried out periodically (once in 6 months / 12 months ) to gauge the
performance of the approved supplier and to intimate him regarding improvement if needed.
Suppliers may be classified as( example)
A-good > 80%
B-satisfactory > 60 and < 80%
C-unsatisfactory < 60%
If the performance is not satisfactory , supplier may be given a chance to improve. If the supplier
still falls under not satisfactory category, the supplier may be considered for removal from
approved suppliers list

Some of the criteria for Vendor rating ( weightages may be given for the criteria )
1. Quality of products received
2. Delivery performance
3. Price of product
4. Flexibility in meeting demand fluctuations
5. Assistance in Product development
6. Cost reduction suggestions
7. Implementation of Inventory plans / JIT system
8. Credit terms
9. Management competence
10. Financial position

Problems
Calculate vendor rating with the data below and indicate which supplier is better
Weightages for Quality=50; delivery=25; price =15 : response to suggestions = 10

Supplier data Supplier A Supplier B

Quantity supplied 108 90
Quantity accepted 102 90
Price Rs 1 Rs 1.2
Delivery promised 3 weeks 4 weeks
Actual delivery 2.7 weeks 5 weeks
Response to suggestions 90% 85%

46
Solution:

# Description Supplier A Supplier B

1 Percentage accepted ( quality 102/108 x 100 =94.4% 90/90 x 100 = 100%
ratio)
2 Quality rating 94.4 x 50 /100 =47.2% 100 x 50/100 = 50 %
3 Delivery against promise 3/2.7 x 100=111.11% 4/5 x 100=80%
4 Delivery rating 111.11 x 80 x 25/100 =20%
25/100=27.77%
5 Price ratio ( in percentage )= 1/1 x 100 =100% 1/1.2 x 100=83.33%
lowest price/supplier price X 100
6 Price rating 100 x 15/100= 15% 83.33 x 15/100
=12.50%
7 Response to suggestions rating 90 x 10/100= 9% 85 x 10/100= 8.5%
8 Total 98.97% 91%

Supplier A is better.

Stores management

Functions of stores management

1. To receive materials and account for them
2. To provide adequate and proper storage various materials
3. To ensure proper identification
4. To preserve product from deterioration
5. To receive indents from consuming departments , issue and maintain accounts
6. To minimize obsolescence by stock rotation ( FIFO method) especially shelf life items
7. To highlight stock accumulation, discrepancies and abnormal consumption
8. Ensure good house keeping
9. To ensure efficient material handling
10. To verify stock periodically

Stores layout is critical to good stores management. It should have:

1. Adequate storage areas
2. Good lighting
3. Good material handling equipments
4. Safety provisions
5. Areas marked for receipt of material, inspection areas and area for rejected goods
6. Easy access to all storage areas
7. Storage areas are clearly identified for quick location and fast service
8. Good usage of floor space and heights
9. Secure areas for costly items to prevent theft, pilferage.

Stock verification is conducted to verify the physical stock against book stock. If the
discrepancies are less , it indicates good stores management.
Types of stock verification:

47
• Periodic verification- stock is verified once in 6 months or 12 months. Receipts and issues
are closed and all materials are checked physically.
• Continuous verification- materials are divided into 52 groups and physical stock is checked
weekly. This will distribute the stock verification burden over the complete year.
Proper classification and codification of various items helps in management of stores in an
efficient way. It reduces duplication and enables reduction in sizes and varieties.

Some broad classifications are – raw materials, parts, spares, tools, packing materials, hardware
Inventory Management
Inventory is the materials stocked in order to meet an unexpected demand or distribution in the
future. The materials may include Raw materials, Materials in –process, Finished goods, spares,
Tools and others.

Level of inventories depend on :

1. Nature of product
2. Nature of customer demand
3. Lead times for manufacturing
4. Lead times for procurement
5. Consumption pattern
6. Shelf life of product

Purpose of holding Inventories:

1. Meeting delivery requirements

2. Better utilization of manpower and equipment
3. flexibility in scheduling

Carrying Inventories costs money. It increases production cost.

Inventory costs are:

• Ordering costs - preparation of purchase order, processing payments, Receiving and
inspection
• Carrying costs- deterioration, pilferage, taxes, insurance, storage, Interest
• Capital costs- space, buildings, equipments
• Storage space costs- rent, power, maintenance
• Service costs- salaries of employees, bonus, security, Record keeping, Overtime
• Looses- pilferage, damages, expired products

Inventory carrying costs per year may be 20-30% of the value of Inventory.

Because of high costs involved in inventories proper management and control assumes
importance .
Inventory management involves;
• Development of policies, systems and procedures
• Administration of policies, systems and procedures

48
• Close interaction with other functions like customer service, production scheduling,
purchasing and transport
• Inventory control pertains only to administration of policies, systems and procedures

Factors influencing Inventory management and control:

1. Type of product – if the unit cost is high, closer control is needed. Short supply may
have to be stocked more. custom built products may have to be stocked more. Standard
products may be stocked less.
2. Type of Manufacture - stock out situation should not be allowed to occur. Batch
production and intermittent manufacture allows greater flexibility in inventory control.
3. Volume of production – inventory may not increase with volume of production. If
products have many components then inventory required may be high.
4. Others- objective of the company, supplier capabilities, information systems, capabilities
of personnel

Benefits of Inventory management and control:

1. Ensures adequate supply of materials and minimizes stock out situations
2. Reduces costly interruptions in production
3. Keeps down investment in inventories and inventory costs
4. Bring in purchasing economies by monitoring consumption
5. Better utilization of stocks of common materials for various departments
6. Better accountability
7. enables identification of obsolete items and their disposition
8. enables reliable and consistent financial statements

Steps in inventory management and control:

1. Determination of optimum inventory levels- too much inventory blocks capital. Less
inventory may result in production interruptions. Consumption trends and sales trends
offer inputs for fixing the inventory levels. Inventory levels have to be reviewed
periodically and adjusted as necessary.
2. Determine degree of control – normally based on value of item. ABC analysis is made
and a class items are controlled closely for variations in consumption , stock, record
keeping and review. ( A- high value, low , C- low value, high quantities)

49
 3. Plan and design inventory system-

a. Fixed Quantity system

Maximum
level
I
n E
v OQ
e
n Re order
t level
o
r Safety
y stock
Lead time

b Fixed period system Time

Replenishment level
I
n
v
e
n
t
o
r
y

Fixed periods

4. Organise structure to manage inventory- responsibility for inventory control, monitoring,

keeping records, handling exceptions, raising requests etc ( normally production planning and
control)

Inventory control techniques

• ABC classification- based on identification of “vital few” from ”trivial many”. And
controlling the vital few whose rupee value is high. Steps in classification is as follows;
o List each item carried in inventory
o Determine annual volume and Rupee value of each item
o Calculate product of annual volume and rupee value
o Compute percentage of each item in terms of total inventory in rupees

50
 o Select top 10% of all items which has the highest rupee percentages and
catagorise as ‘A ‘ items
o Select next 20% of all items which has the highest rupee percentages and
catagorise as ‘B‘ items
o Select next 70% of all items which has the highest rupee percentages and
catagorise as ‘C ‘ items

• VED analysis ( effect on production)– V-vital, E- essential, D- desirable

• SDE analysis ( based on availability)- S=scarce, D-Difficult, E-easy
• FSN analysis ( based on consumption)- F-fast moving, S-slow moving, N- non moving
• Economic order quantity- EOQ is based on

TC=DC +D/Q x S + Q/ 2 x H
TC = Total cost
D=Annual demand
C= purchase cost per unit
Q =quantity to be ordered ( EOQ)
S= cost of placing order
H= holding cost per unit

D/Q x S = Q/ 2 x H : Q= Sq Rt ( 2DS/H )

When wide variations are there in demand or usage EOQ method does not work
satisfactorily. Also inaccurate cost estimates lead to poor calculation of EOQ.
EOQ must be modified with judgment.

• Minimum –maximum technique

Used with manual inventory control systems. Min quantity is and maximum
quantity are established. When withdrawal reduces the qty below min . qty.
order is placed to bring to maximum level.

• Two – Bin Technique-

Normally done for C class items. One bin contains enough to meet the demand
between orders. Other contains enough material to take care of consumption between
placement of order and receipt. When first bin is an empty order is placed and
materials are used from other bin.

• Material requirement Planning ( MRP)

For large firms with many different products and products with many components it is accurate
and fast to use software for material planning purposes. MRP is such a software .
Inputs to MRP are :
• Production plan with products, Quantities and delivery requirements
• Existing stock levels of various components

51
• Bill of materials ( BOM) – a list of components that make up the product. They may be
brought out, made in house or subcontracted.
• Purchasing information – products , suppliers and agreed prices
• Processing information – Production sequence, equipments, production rates

Outputs from MRP are :

• Purchase orders on suppliers with Quantities and delivery dates
• Production schedule

Customer orders / production

Plan
Purchase
information Processing
information

Inventory MRP Bill of Materials

Purchase Production
orders Schedules

• Just in time ( JIT)

The concept originated in japan and adopted by many companies in India.As a
concept , JIT means materials arrive on time and no inventories are held at any time. Either
in raw materials, WIP or finished goods. Materials are pulled in to the system. JIT system
ensures great efficiency in production To ensure a good JIT system the following are
essential:
 Reliable suppliers
 Good processes with least rejections
 Break downs of equipment to be very less
 Continuous flow of materials with no bottle necks
 Low setup times
Benefits of JIT are:
• Faster through put time
• Less or no storage place

52
 • Visual control and enhanced quality
• Greatly reduced production cost
• Constant flow of Finished goods to customers

Enterprise Resource Planning ( ERP)

Enterprise Resource planning is similar to MRP . It can do what MRP can do and much more.
ERP is very useful for planning and controlling activities in a very large firm with very many
products and operations are carried out in many locations including many countries.
ERP system can handle many functions and comes in modules, each of these can be individually
used or together . normally the modules are:
1. Sales and marketing
2. Materials
3. Production
4. Financial
5. Human resources

Inputs to ERP are :

• Production plan with products, Quantities and delivery requirements
• Existing stock levels of various components
• Bill of materials ( BOM) – a list of components that make up the product. They may be
brought out, made in house or subcontracted.
• Purchasing information – products , suppliers and agreed prices
• Processing information – Production sequence, equipments, production rates
• Sales information
• Human resource information
• Accounting information

Main vendors of ERP are SAP, Oracle, Microsoft.

It may take 1-2 years to put all the inputs and get the ERP online. Once the ERP is on line., all
transactions are input into ERP system on a daily basis and decisions are taken as per
recommendations of the system . With ERP system, the speed of transactions , accuracy and
availability of information to various persons for taking decisions are greatly improved.
Productivity of personnel is greatly improved.

Benefits of ERP are:

Tangible benefits:
• Reduction of lead time for manufacture
• Improvement in delivery performance
• Increased Inventory turn over
Intangible benefits:
• Better customer satisfaction

53
 • Improved supplier performance
• Reduced Quality costs
• Improved resource utilization
• Speed and accuracy of information
• Better decision making capability

Information systems for Material management:

Effectiveness of Materials management function is greatly enhanced if supported by good
information system. Some of the information computer system can provide are :
• Purchasing
o Automatic release of orders on approved parties
o Status of receipt ( dates, Quantities, acceptance details)
o Vendor rating
o Payments to vendors
o Handling of complaints and corrective actions
o Vendor Audit and action taken
• Inventory control
o Number and value of items in inventory
o Trends of consumption
o Fast moving, slow moving, and non-moving items
o FIFO control ( First- in –first-out)
o ABC analysis
o Inventory trends ( weekly, monthly etc)

• Measurements
o Inventory carrying costs
o Inventory turns
o Stock out or incidences of going below safety levels
o Over stock situations

Value Analysis / Value Engineering

Value analysis refers to the managerial activity which deals with study of existing products and
its components with the objective of reducing the cost and retaining its value or function. This is
done by a team of people comprising of , normally, Design, purchase, Methods engineering.
Value analysis is done on products which in market but loosing to competitors on price.
The following are the steps followed;
• Analysis of function of each component to check its contribution
• using less expensive material for same function
• Combining components to reduce cost
• Use of standard parts
• Taking ideas from suppliers

54
Problem1 : ABC analysis:
# Unit price( Rs) Consumption Annual value %
1 1.5 2000 3000 0.335
2 7.5 400 3000 0.335
3 20 3500 70, 000 7.826 A
4 80 800 64,000 7.155 A
5 4 2000 8000 0.894
6 65 500 32, 500 3.633
7 15 750 11, 250 1.257
8 22 800 17, 600 1.967
9 0.5 2000 1000 0.111
10 3 600 1800 0.201
11 2.5 2000 5000 0.559
12 17.5 1500 26250 2.934
13 22 1000 22, 000 2.459
14 45 2500 1, 12, 500 12.578 A
15 350 600 2, 10, 000 23.479 A
16 30 3500 1, 05, 000 11.739 A
17 45 700 31, 500 3.521
18 115 200 23, 000 2.571
19 260 450 1, 17, 000 13.081 A
20 15 2000 30, 000 3.354
8, 94, 400

Problem 2 : computation of EOQ

• No. of tires sold= 9600
• Annual carrying cost is Rs 16
• Ordering cost is Rs 75
Compute EOQ, total cost
EOQ = SQRT (( 2 x D x S )/ H )= SQRT (( 2 x 9600 x 75 ) /16 )= 300 tires

Problem 3 ; inventory carrying cost

• Average inventory = 60 lakhs
• Salaries o stores personnel=Rs 2, 75, 000
• Cost of security =Rs 80, 000
• Taxes and insurance = 1% of inventory
• Interest rate =20% p.a.

55
 • Handling of inventory= Rs 1, 50, 000
• Lost / damage= Rs 20, 000
Compute inventory carrying cost as a percentage of value of inventory

Total cost = 2, 75, 000 + 80, 000 + 60, 000 (1/ 100 x 60,00, 000) + 12, 00, 000 ( 20/100 X
60,00,000) + 1, 50, 000 + 20, 000 = 17, 85, 000.

Inventory carrying cost as a % of Inventory = 17, 85, 000 / 60,00,000 X 100 = 29.75%

56
Production and Operations Management

Module 6: Production Scheduling

Production scheduling on the shop floor aims to:

• Meet customer demands of Quantity
• Meet customer requirements of delivery
• Achieve maximum utilization resources ( human and infrastructure)
• Achieve lowest production cost

Production scheduling methods vary depending on type of product, continuous production or

batch production, made to order or made to stock etc.

Broadly the sequence of realizing the business plan is as follows;

1. Aggregate planning
Determines the production requirements over a period of 6 months to 18 months
2. Master production scheduling
Converts production plan into specific material and capacity require nets. This is the
beginning of all short range planning
3. Material requirement planning
Converts MPS into what materials are required , how much and when.
4. Loading
Assignment of jobs to various work centers based on future processing, resource
utilization and sequence of operations
5. Sequencing
Determines what jobs are to be processed when on each work centre. This depends on
priorities of jobs and best utilization
6. Detailed scheduling
Determines start and finish dates and times for jobs on each machine.
7. Expediting
Actions to ensure scheduling is met by coordination for materials, tools, availability of
machines and manpower.
8. Production control
Information on status of plan and accruals. Information on problems that may be faced in
future period. This helps in taking decisions to meet the aim of production planning and
scheduling.

57
 Master Production Scheduling (MPS)
MPS is a plan for future production . The plan unit may be weeks, months or Quarter
Inputs for MPS
• Customer orders
• Market forecasts
• Inventory levels
• Facility loading and capacity information

Objectives of MPS
• To schedule products to meet Delivery requirements
• To fully utilize capacity at lowest production cost

Procedure for preparation of MPS

1. Estimate product quantities and due dates ( based on customer orders and Stocking
requirements)
2. Decide time period For MPS ( week, month, Quarter)
3. check existing Inventory
4. Calculate load ( no.. of hours ) at each work centers for the time period
5. Check for over loading or under loading work centers
Updating of MPS
1. MPS is made as frozen, firm and open ( frozen –no change, firm –change in
exceptional cases, open- major changes may be effected0
2. Firm MPS is released for production planning and control
3. Based on actual production and inventories MPS is updated

Poorly Designed MPS results in:

• Over loaded facilities
• Under loaded facilities
• Excessive inventories or frequent shortages
• Excessive expediting
• Unreliable deliveries

Detailed scheduling:

Detailed scheduling is concerned with identifying and determining

• Product and operations to be carried out on specific work centre
• Period ( day, week, month)
Scheduling depends on volume of orders, nature of operations and job complexity.

58
 Two types of scheduling techniques are used:
• Forward scheduling: loading starts as soon as materials are available and work centers
are free. No control over when the product may be available. Results in excess
inventories. Used where supplier is unable to meet delivery dates.

• Backward scheduling: Here the delivery dates is the starting point and the loading date
is determined by the lead time taken in each work center working back wards

Facility loading
Facility loading is the process of determining which work centre receives which job
Loading depends on capacity determined by load schedules, priority sequencing and work centre
utilisation.
Finite loading – jobs are assigned to work centers based on required hours and hours available.
Infinite loading- Jobs are assigned to work centers without regard to available capacity. This
requires decisions regarding overtime, subcontracting or delaying selected orders.

Load charts helps in visualizing loading and progress;

Dept Machine shop Week no 3 Month January
2004
Work Mon Tue Wed Thu Fri Sat
centre
Turning

Milling

Grinding

Drilling

59
Priority sequencing
Question of sequencing arises when several jobs require same work centre for processing.
Priority indicates which is to be loaded first.

Some single-criterion priority sequencing rules

1. First in first served-Normally applied at service operations like banks, super bazaars
2. Shortest processing time- Job requiring least processing time is taken first. This may
ultimately increase throughput time.
3. Longest processing time-Job with longest processing time is taken first.
4. Least slack job first- slack= available time-processing time
5. Earliest due date job first
6. Truncated shortest processing time- Jobs waiting for more than specified time is given
priority
7. Preferred customer order- important customers are given priority
8. Random selection
9. Cost over time- based on ration of delay cost and processing cost
10. Least change over cost- change over is based on overall cost of all change over between
jobs

Example: Single machine, 6 waiting jobs

Jobs Processing time
( mins)
A 7
B 6
C 4
D 3
E 2
F 1

Rule: longest processing time first

Jobs Processing time Total flow time
( mins)
A 7 7
B 6 7+6=13
C 4 13+4=17
D 3 17+3=20
E 2 20+2=22
F 1 22+1=23

Average flow time = (7+13+17+20+22+23 )/6 = 102/6= 17 mins

Rule 2; Shortest processing time first

Jobs Processing time Total flow time

( mins)

60
F 1 1
E 2 1+2 =3
D 3 3+3=6
C 4 6+4=10
B 6 10+6=16
A 7 16+7=23

Average flow time = (1+3+6+10+16+23 )/6 = 59/6= 9.83 mins

Sequencing of ‘n’ jobs on 2 machines.

( Johnson’s rule )

• Minimum total flow time

• Minimum idle time

Step 1- List all processing times on two work centers

Step2-Scan the processing times
Step 3-Select the job with the shortest time. If the shortest time is at first work center , select the
job first. If it is at second work center , select the job last.
Step 4- remove the job from the list.
Step5- continue step 2 to 4 till all jobs are assigned..

If the processing time is same on work centre 1 and 2 , arbitrarily assign either in the beginning
or last.

Processing time in hours

Job Work center 1 Work center 2
A 2 1
B 4 2.25
C 0.75 2.5
D 1.5 3.0
E 2.0 4.0
F 2.0 3.5

Sequence : C, D, E ,F , B , A

Calculation of cumulative flow time:

61
 0.75 1.5 2.0 2.0 4.0 2.0

2.5 3.0 4.0 3.5 2.25 1.0

17 hours

Total flow time = 17 hour

Idle time Work center 1= 4.75 hrs
Idle time Work center 2= 075 hrs
Total idle time =5..5 hrs.
Total operation time 12.25 + 16.25 = 28.5 hrs.

Check Total operation time + total idle time = twice cycle time
28.5 + 5.5 = 2 x 17= 34 hrs.

Line Balancing
Line balancing deals with apportionment of sequential work activities to work stations in order to
gain high utilization of labour and equipment and therefore minimize idle time.

Steps in line balancing

Step 1- determine tasks to be performed to complete one unit of finished product, determine
the sequence . Draw a precedence diagram.
Step2- estimate task time
Step3- determine cycle time to meet desired production ( hourly/ daily etc)
Step4 – assign tasks each task to worker and balance the assembly line

Analysis of line balancing ;

1. Determination of number of work stations and time available at each work station
2. Group the individual tasks into approximately equal amounts of work at each work
station
3. Evaluate the efficiency

Grouping of tasks should be at or slightly less than the cycle time or multiples of cycle times. If
multiples are present more than one worker will be doing the same job.

• Cycle time = Available time / out put required

• Theoretical number of workers required:

62
 =( total operation time X out puts per period )/ available time per period per worker.

• Balance efficiency = Out put of task time / cycle time x no. of work stations( workers)
Balance efficiency = Theoretical no. of workers/ Actual no. of workers

Problem:
Precedence diagram . operation time in minutes.

D
0.20

A B C F G
0.65 0.40 0.30 0.400 0.30

E
0.45

Operation time = 7 hours per day

Output desired is 550 units per day

Cycle time = Available time / output = 7 x 60 / 550 = 0.76 mins

Theoretical minimum no. of workers= (0.65 + 0.40 + 0.3 + 0.2 0 + 0.45 0.4 + 0.3 )/0.76
= 2.7 / 0.76= 3.552

Workstation 1 : idle time = 0.11

Workstation 2 : idle time = 0.06
Workstation 3 : idle time = 0..11
Workstation 4 : idle time = 0..06

Total idle time = 0.34 mins

Balance efficiency = (2.7 x100)/ 4 x 0.76 = 88.81%

Also = 3.552/ 4 X 100 = 88.81

Line of Balance ( LOB)

LOB is a technique used for production scheduling and control to ensure committed delivery
requirements.

63
There are 5 stages followed on LOB technique.

Stage 1 – Preparation of operation program chart. This is based on lead times for each activity.
Delivery date is taken as 0 and worked back wards

Stage 2- Preparation of completion schedule

Stage 3 – Construction of line of balance chart
Stage 4 – Construction of program progress chart
Stage 5 – Analysis of progress and corrective action.

Left part of chart indicates the week numbers and cumulative number of products to be
completed
Right side chart indicates the operations required
At any period line can be drawn from left hand chart and the quantity of products that should
have been completed at various operations can be easily read from the Right hand chart

Cumulative completion
LOB
Quantity

Q
T
Y

1 2 3 4
Week no.
Operation stages

Benefits of LOB Technique:

• LOB is a planning and controlling technique which enables controlling at each stage of
production line
• Production problems may be spotted early and necessary actions may be taken
• When products are to be delivered as per schedule and there are many processing steps and
production lead times, LOB has the greatest advantage.

64
Production and Operations Management
Module 7: Quality Management

Definitions

Quality

Degree to which a set of characteristics of a product or service meet requirements

Characteristics may be subjective or objective
Subjective characteristics may be poor, good, excellent etc.
Objective characteristics may be defective parts per million (PPM), complaints, Cost of
poor Quality)

Characteristics may be:

– Physical ( e.g.. Mechanical, electrical, chemical)
– Sensory ( e.g.. Smell, touch, taste, sight, hearing)
– Behavioral (e.g.. courtesy, honesty)
– Temporal (e.g.. Punctuality, availability, reliability)
– Ergonomic ( related to human safety)
– Functional ( performance oriented)
– Others (e.g.. maintainability, reliability, spares support)

Inspection:
Inspection deals with verification of products to ensure that product produced meet specified
requirements. Main purpose of Inspection is to segregate good products from bad.
Inspection may at receiving stage, in process stages and final stage
Inspection may be inspection with instruments , testing , visual
Inspection may be 100 %, sampling or Audit . extent of inspection depends on cost and risk of
bad products being accepted.

Quality Control
Quality control covers activities that are performed to ensure that product meet requirements.
These include right selection of materials, Statistical process control, calibration of instruments,
verification of tooling, setup inspections. Quality control activities cover inspection also.

65
Statistical Quality Control
Statistical Quality control deals with the application of statistical techniques for control of
processes to produce quality products and also for inspection

Variability of a process (Process variation)

Each work station in a manufacturing cycle converts inputs to outputs. These processes convert
material inputs to value added outputs.
The characteristics of Products produced may be:
• Dimensional characteristics (eg Length, thickness, diameter)
• Form characteristics ( eg. parallelism, ovality)
• Physical and chemical properties ( eg. Hardness, chemical composition)

If a batch of products is produced, none individual items are not identical. There will always be
very small differences. Some times, these differences are apparent only when measurements are
taken with high accuracy instruments.

Variation in the batch= maximum dimension – minimum dimension

These variations are due to two broad causes

• Chance causes or Common causes
• Special causes or Assignable causes

Examples of chance causes are:

• slight variation in materials
• equipment variations (eg. Run out, play, backlash ,geometric inaccuracies positional
accuracy, repeatability)
• clearances in fixtures
• minute tool wear
• variations in environment (temperature, humidity)
• slight variation in measurements
•
Characteristics of chance causes are:
• many individual causes are present at the same time
• any one cause results in only a very a small amount of variation
• cannot be economically eliminated
• Output of process follows predictable pattern ( bell curve/ Normal curve)

66
Examples of Special causes are:
• Tool not sharpened when worn out
• batch of defective material
• component not located properly
• power failure
• excessive variation in measurements
• machine malfunction
• setting disturbed
Characteristics of Special causes are:
• Consists of one or few individual causes
• any cause can result in large variation
• easy to detect and generally economical to eliminate
• no specific pattern n the Output

Variation in the process is minimum when only chance causes are present. Also the
distribution ( frequency diagram)out put exhibits normal curve.

Distribution pattern
(only common causes are present)

Average
Process Variation

variation in a process is the total variation that can be expected from the process when very
large quantities are produced.

67
Variation in the process is be computed based on the output values of a batch. Normally the
batch should be more 100 components .i.e. there should be at least 100 readings to calculate the
process variation.

Histogram or frequency diagram is drawn to make sure that only chance causes are present. In
other wards the process is under control (statistical control)
Suppose N readins are taken, then
Standard deviation ( sigma) ( σ ) is calculated from the formula

σ = root of ( (( M-X1)2 + ( M-X2)2 + ( M-X3)2 …….( M-XN)2 )/ N-1))

Where M= average of N readings

X1, X2 ,X3 ……. XN are individual readings

Process variation = 6 times σ or 6 σ

Property of Normal curve

Average

Process variation (6 σ)

68.3% of readings would lie

95.4% of readings in this range
would lie in this
range
99.7% of readings would lie
in this range

3 out of 1000 reading may fall outside +/- 3 σ limits

In manufacturing operations less variation means better quality.

If special causes are present , the variation will be more than 6 σ. Or the pattern would change.
This property is used in construction and use of control chats for statistical process control.

68
The out put of a process has two properties. Process average and process variation (6 sigma)
Out put of a process should meet process requirements.
Requirements are given in specifications or Drawings. A typical specification has a mean and
Tolerance.
Example: Length to be 100.0 +0.6mm means product is acceptable if the length is 100.0 or
100.6mm.
Alternatively specification can be given as 100.0/100.6. This gives the lower and upper
specification limits.

Difference between upper specification and lower specification is the tolerance.

Two process measurements are normally made to indicate the capability of the process to meet
requirements. Namely:
• Process capability Cp
• Process capability index Cpk

Example:

100.3
Specn. mean
100.4
Process average

Process variation
(6 σ)=0.3
100.0
LSL 100.6
USL

Tolerance =0.6

Process capability = Tolerance/ process variation

For the above example, the process variation is 0.3:
Process capability = 0.6/0.3 = 2.0

Process capability Index

This takes into account both tolerance and specification mean.
Cpk is calculated for both upper and lower specification limits and lower of the two, is the Cpk

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Cpk ( Upper)= (upper specification- process average)/ 3 sigma = (100.6-100.4)/.15 = 1.33
Cpk ( lower)= (process average –lower specification)/ 3 sigma = (100.4-100.0)/.15 = 2.66

Cpk of the process is 1.33.

If the process capability index is equal to 1.33 , the process is considered acceptable. More than
1.33 is desirable. This can take up variations in process average without producing rejects on the
long run.

Control charts
Control charts were developed by Walter Shewhart in 1920.
The chart is based on the principle that the variability of a process is minimum when the process
is running under chance causes (common causes) only. Trial batches are produced and process
variation ( 6 sigma)is established . Control charts are prepared with control limits calculated on
sample sizes . Sample sizes could be 2 to up to 9 . At fixed intervals ( eg, 30 min, one hr, 4 hrs
based on production quantity) samples are taken and sample averages are plotted on the chart.

When the process is under control, all the points will be

• with in the limits
• No unnatural patterns will be present
• Distribution of points will be denser in the centre and very infrequent at the limits.

Any change in the above indicates presence assignable/ special causes (out of statistical control).
The process is stopped and actions are taken to eliminate the causes of variation.

UCL

Mean

LCL

Time

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Construction of X bar –R chart

Step 1 - Choose quality characteristic to be controlled.

Step2 - determine sample size ( 3 to 5 is ideal) and no. of samples.
Step 3 - Collect samples at fixed intervals and note readings ; no. of samples depends on
production rate and total duration of manufacture.
Step4 -select No. of subgroups ( K ) Normally total no. of readings required is 75 to125
Step 5 – Calculate mean and range for each sample

Example : sample size =3 : No. of subgroups=26

parameter for charting -bond strength in grams

Sub Sample 1 Sample 2 Sample 3 Sub group Range ( R )

group Mean(X-bar)
no.
1 6.5 6.5 5.0 6.0 1.5
2 6.5 6.0 7.0 6.5 1.0
3 7.0 5.5 5.5 6.0 1.5
4 4.0 3.0 3.5 3.5 1.0
5 2.0 0.0 1.0 1.0 2.0
6 6.0 6.0 6.0 6.0 0
7 6.0 4.0 4.0 4.6 2.0
8 6.0 4.0 6.0 5.3 2.0
9 5.5 5.0 4.5 5.0 1.0
10 7.0 6.0 6.0 6.3 1.0
11 4.0 3.0 3.5 3.5 1.0
12 4.0 3.5 3.0 3.5 1.0
13 5.0 3.5 5.0 4.5 1.5
14 6.0 4.5 4.5 5.0 1.5
15 4.0 6.5 5.5 5.3 2.5
16 4.0 7.0 7.0 6.0 3.0
17 5.0 6.0 4.0 5.0 2.0
18 3.0 6.0 6.0 5.0 3.0
19 5.5 5.0 7.5 6.0 2,5
20 7.0 6.0 5.0 6.0 2.0
21 5.0 5.0 5.0 5.0 0
22 5.0 2.5 3.5 3.6 2.5
23 4.0 5.5 5.0 4.8 1.5
24 4.0 0 2.0 2.0 4.0
25 5.0 3.0 3.5 3.8 2.0
26 2.5 5.0 3.0 3.5 2.5

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Step 5 – Calculate mean of subgroups ( X-double bar)
= (6.0 + 6.5 + ………..+ 3.8 + 3.5 ) / 26 = 4.72

Step 6- Calculate mean of ranges ( R-bar)

=( 1.5 + 1.0 + ………… + 2.0 + 2,5) / 26 = 1.75

Step 7 - Calculate control limits for X-bar chart and R –chart

Use statistical tables below:

Sample A2 D3 D4
size
2 1.88 0 3.27
3 1.02 0 2.57
4 0.73 0 2.28
5 0.58 0 2.11

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 For X-bar chart:
ULC = X-double bar + A2 x R-bar = 4.72 + 1.02 x 1.75 = 6.50
LCL = X-double bar - A2 x R-bar = 4.72 - 1.02 x 1.75 = 2.94
For R chart:
ULC = D4 x R-bar = 2.57 x 1.75 = 4.50
LCL = D3 x R-bar = 0 x 1.75 = 0
Step 8 – test for Homogeneity
Check sample averages or Ranges fall outside the control limits for any subgroups.
• sub group averages for no. 5 and 24 fall below lower control limit
• all values in Range are within control limits

Step 9 – remove subgroups which are outside control limits .

Step 10- Recalculate control limits

Modified X- double bar = 4.99

For X chart : Modified UCL = 6.67 : modified LCL= 4.21
For range chart ; Modified ULC = 3.31 : modified LCL=0

Step 11- check for Homogeneity. Repeat the process till all reading are homogeneous.
In the example , All 24 subgroups are with in control limits.

Step 12- construct control chart for X-bar and R chart

X-bar chart
UCL = 6.67

Mean =4.99

LCL = 3.31

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 R chart
UCL = 4.21

Mean =1.64

LCL = 0

Types of control charts are:

1. For variable measurements (Quantitative) ( eg. Weight, dimensions):

• X-R chart ( mean -Range chart) - constant sample size – most popular
• X-MR chart ( mean – moving range chart)- for single value per batch
• Median- range ( middle value –range chart) – for easy calculations
• X-S chart ( mean –standard deviation chart – for large sample sizes

2 For Attribute measurements (Qualitative) (OK/not OK, Good/bad):

• np chart, - no of defectives – for constant sample size
• p chart, - percentage defectives – for varying sample sizes
• c chart – no of defects - for constant sample size
• u chart – no. of defects per part - for varying sample sizes

Control chart for attributes

Sample size = n : No. pf subgroups = K : Number of defectives in sub group = c

p= fraction defective = c/n ; p is calculated for each sub group ( p1=c1/n , p2=c2/n ……)
p-bar ( average/ mean ) = (c1 + c2 + …….) nK

UCL = n x p-bar + 3 Sqrt ( n x p-bar ( 1 - p-bar))

LCL = n x p-bar - 3 Sqrt ( n x p-bar ( 1 - p-bar))

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 np chart
UCL

Mean = p-bar

LCL

Acceptance sampling

100 % Inspection is costly and time consuming when quantity to be inspected is large. Sampling
inspection is the best way of estimating the quality of incoming or outgoing lots.

Acceptance sampling involves taking a random sample from the lot and by inspection of the
sample and after inspection to determine whether to accept the lot or not.

Sampling may be:

• Single sampling
• Double sampling
• Sequential sampling

The sampling plans are based on average outgoing quality levels required on the long run. Based
on the these quality levels sample sizes are determined and given in statistical tables. IS 2500 is a
standard which gives such a table.
Depending on the average outgoing quality levels the tables gives values for lot size, sample
size, quantity of defectives that is acceptable.

There is always a risk of rejecting good lots and risk of accepting bad lots in any sampling plan.

The probability o accepting bad lots is called consumer’s risk . bad lot are defined by LTPD
value ( lot tolerance percent defective) and The probability o rejecting good lots is called
producer’s risk. Good lots are defined by Acceptable quality levels ( AQL)

The graph which gives the characteristics of the sampling plan indicating producers risk and
consumers risk is known as OC curve

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 0.95
OC curve

Probabality
of
acceptance

0.10

AQL=0.1 LTPD=0.5

Actual percentage defective

Average Outgoing Quality level (AOQL) is the percent defectives after lots are accepted and
replacement of all defective items on rejected lots.

Single sampling
Sample is taken only once. If the no. of defects are more than acceptable then the lot is rejected
and 100 % inspection is carried out.
Double sampling
Depending on the number of defectives in the first sample , second sample is drawn and decision
is taken. Therte will be an acceptance number c1 and a rejection number c2 fixed during the first
sampling. If the value is between this , second sample is taken
Sequential sampling
Allows more samples to be drawn based on number of defectives in the previous sample .until
the lot is accepted or rejected

Quality Circles

Quality circle (QC) is a small group of people who carry out quality improvement activities
within their work area. The group may consist of 3 to 5 person normally.
Features of Quality circles are:

1. QC activities performed by operating level employees.

2. Voluntary participation

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 3. Small group of persons in the same work area or doing similar type of work
4. Identify, define and solve problems related to work area
5. QC members meet regularly( every week for an hour in normal)
6. Leads to improved performance I the work area
7. motivates and enriches work life
8. Nature of the problems are of such that they can be solved by themselves with little help
form management
9. Good work is recognized by management

Quality circles originated in Japan and has spread to other countries. Some of the organisations
in India which have very active QC circles are BHEL, BEL, Canara Bank, Indian airlines,
Apollo Hospital.

Quality Circle Forum of India ( QCFI), a Non-profit national body , Promotes Quality circle
movement in India. It has more than 2500 members and more than 25 chapters in various
locations in India. QCFI organises Quality circle conventions. QC presentations by circle
members and awards are a part of the convention.

Some of the don’ts in QC circles:

• QC members should not be chosen by management
• Problems should not be given by management
• Management persons should not be members.

Problems taken up by QC s are not restricted to Quality. Productivity improvements, cost

reduction, safety, Housekeeping etc. could also be taken up. QCs are not forum for airing
grievance or demands. Quality circles are not replacement for task forces, suggestion schemes,

Key benefits of Quality circles are:

1. Improved quality, productivity, cost reduction, House keeping, safety etc. which are the
objectives for improvement
2. Improvement of Human relations in work area
3. Effective team work
4. Improved communication between employees and management
5. Problem solving capabilities of members
6. Leadership development among members

Implementation of QCs
Top management must inform their decision to all employees about the implementation of QC
program
Steering committee to be formed with members from various departments
Steering committee should define:
• Goals of QC program
• Long rage plan for programs
• Select facilitator and commit resources

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 • Encourage and provide resources for QC meetings
• Participate in QC presentations

Facilitator: Facilitator forms the link between top management and QCs. Some of the duties of
facilitator are:
• Co-ordination of training activities for members.
• To get support from top management and steering committee
• To provide resources.

Circle leader: Circle leader is the leader of the circle and must:
 Inform status of activities to management
 conduct meetings regularly
 Monitor circle activities with regard to plan
 Maintain enthusiasm and motivate members

Circle members: Circle members must participate actively in meetings and discussions. They
should develop a good attitude towards Quality, productivity and improvements.

Five major steps in implementation of QC program are

• Top management orientation
• Training for middle management
• Training for facilitator, leaders and members
• Pilot testing in selected areas
• Company –wide implementation

Subjects for training for Quality circle include:

• Back ground and concept of Quality circles
• Structure of QC
• Problem solving methodology
• 7 QC tools
• Mock circle meetings
• Presentation skills

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 Total Quality management

TQM is a Management philosophy and company practices that aim to harness the human and
material resources in most effective way to achieve objectives of the organization

Total in “Total Quality management” means

• All Interested parties are considered
• All requirements are addressed
• All activities of the organization are covered
• All employees are involved

TQM-Fundamental concepts

Commitment
Commitment to TQM by top management is essential. Promotion of this concept at
all levels and all activities of the organization is fundamental for success. Every one
should be aware of his/her customers (internal and external)
Customer satisfaction
Understanding customer needs and expectations and striving to meet them should be
the key objective
Quality losses
Quality looses are losses caused by the failure to utilize most effectively the potential
of human, financial and material resources in a process.
• loss of customer satisfaction
• Loss of opportunity to add more value to customers, organization and
society
• Loss due to waste or misuse of resources

Participation by all
Abilities of all members in the organization should be fully and effectively utilized.

Process measurements
Process measurements to be applied to all organization activities

Continuous improvements
The means of improvement to people and processes performance need to be
Continually sought and monitored.

Problem identification
Provision for identification and resolution of potential and existing problem son a continuing
basis is essential
Alignment of corporate objectives and individual attitude

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 Removal of prejudices and restrictive approvals that inhibit effectiveness of the organization
needs continuous attention

Personal accountability
Recognition of individual responsibility and authority should be accepted by all

Personal development
There should be continuous appraisal, training and development of individuals at all levels

TQM- implementation
1. Policy and strategy of the organization

Mission
Establish mission statement, corporate objectives, strategy for achieving these objectives
and a business plan.
Leadership and commitment
Have visible and sustained commitment starting from chief executive and extending to
every member.
Divisional objectives
Establish objectives for each level of organization with roles and responsibilities

2 Management of the organization

Organization structure
Establish effective organization structure
Management system
Establish, audit and keep under review an effective management system
Information system
Establish a planned information system through out the organization

3 Improvement of the organization

Working environment
Structure Physical environment and relationships between individuals and the
organization
1Measurement of performance
Establish measures of performance of individuals or teams involved in each process
Improvement objectives
Improvement goals to be closely integrated with corporate objectives
Improvement plans
Establish plans for improvement of products, service or process quality, safety,
environment impact, dependability and customer satisfaction at all levels
Monitor and review
Ensure that all plans, targets, and measure compliment each other.
Review results of improvement plans to measure effectiveness

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Some recent trends in TQM
Improve customer satisfaction
Implement auditable Quality
management system
Improve environmental performance
Improve safety and Hygiene
Enhance social responsibility
Identify Improvement opportunities
Extensive use of tools and techniques
in problem solving
Improve supplier performance
Reduce lead time
Reduce inventory, reduce lead times
Effect Quantum leap/ break through
improvements
Participation by all employees
Improve product quality
Improve planning process
Implement ISO9001, QS9000, TS16949,
AS9000 as applicable
Implement ISO 14001
Implement OSHAS 18001/ ISO 15001
Implement SA 8000
Conduct value stream mapping
7 QC tools
7 Management tools
Supplier QMS development
Flexible Manufacturing systems
Computerization
Use of information technology
JIT system
Integration of suppliers
Bench marking, Six sigma initiatives
Business process re-engineering
Total productive maintenance(TPM)
Lean manufacturing
Suggestion schemes
5S House keeping
Quality circles
Quality teams
Quality function deployment
Design of Experiments
Policy deployment ( Goals, objective, Tasks)
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Barriers in implementation of TQM
Barriers to implementation of TQM may be divided into two groups. Both of them can be
tackled by systematic education, training and participation.

Organizational barriers
These consist of lack of senior management commitment, unwilling ness and non-
involvement of middle level management. Staff treating themselves as experts and not
amenable to suggestions from line people..

Behavioral barriers
These may be also called as attitudinal barriers. Artificial organizational structures, negative
attitude to changes and improvements, dislike because of previous experiences arte some of
the factors.

Effects of TQM implementation in a company

# Aspect Before After

1 Top management Not visible Highly visible
commitment
2 Policy clarity No policy Transparent , detailed
3 Participation in Very few persons All levels
improvements
4 Involvement of people < 10% >80%
5 Communication No or poor Effective
communication communication at all
levels
6 Recognition Seldom Always
7 Customer satisfaction low high
8 Cost of poor quality high Very low
9 Training activities Almost nil Continuous, every one
10 Performance Not focused Focused and targeted
measurements
11 Business results Stagnant or declining Steady improvement
12 Suppliers Outsiders keep them in Willing to work as
dark, squeeze them. extension of the
company

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