Operations

Management
Study Material For
MBA 2nd Semester

Compiled by:
Published by: Mrs. Viraja.Kanawally

1.6 Operations Management

1. Operations Management: product strategies

Product life cycle Productive system types
Impact of technology and organization of the
operations function Requirements of forecasting
for operations.
2. Plant Location and Types of Plant Layout:
product planning and control Inventory planning
and control Materials requirements planning
Planning production in aggregate terms.
3. Job Designing: work study and time study
Statistical quality control methods Japanese
manufacturing systems Flexible manufacturing
system Operations systems of the future.
4. Total Quality Management: trends in quality
management benchmarking and business process
reengineering, Kaizen Six Sigma Motorola systems
Quality criteria based on Deming prize Malcolm
Baldrige Award. Quality Management Systems, ISO
Standards.
5. Supply Chain Management: concept of SCM.
Operating model for supply chain. Managing the
external and internal supply chain. Global SCM and
sourcing.
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Chapter1
1. Operations Management: product strategies
Product life cycle Productive system types
Impact of technology and organization of the
operations function Requirements of
forecasting for operations.

Meaning of Production
Production is an intentional act of producing something in an organized manner. It is the
fabrication of a physical object through the use of men, material and some function which has
some utility e.g. repair of an automobile, legal advice to a client, banks, hotels, transport
companies etc.
The main inputs are information, management, material, land, labour and capital. This figure
shown below explains the production process of an organization.

PRODUCTION PROCESS SYSTEM

INPUTS

PROCESS

OUTPUT

Information
Management

Transformation

Material & land

Goods
&
service
s

Labor, capital

Meaning Of Production Management

A few definitions of production management are being reproduced here under to understand the
meaning of the term clearly:
1. Production management is the process of effectively planning and regulating the
operations of that part of an enterprise which is responsible for actual transformation of
materials into finished products.
Elwood S. Buffa has defined the term in a broader sense as:
2. Production management deals with decision making related to production process so that
the resulting goods or services are produced according to specifications, in amounts and by
the schedules demanded and at a minimum cost.
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Production management, thus, is assigned with the following tasks.

i.
ii.
iii.

Specifying and accumulating the input resources, i.e., management, men, information,
materials, machine and capital.
Designing and installing the assembling or conversion process to transform the inputs into
output, and
Coordinating and operating the production process so that the desired goods and services
may be produced efficiently and at a minimum cost.

The production department in an enterprise is not only concerned with the full exploitation of
production facilities but also the human factor that indirectly affects the production, utilization of
latest techniques of production and the production of quality goods to the satisfaction of customers
of the product.
The various activities that form scope of production function can be studied in the following
broad areas:

Product selection
& Design

Activities relating to
production system
Designing

Production
Control

Facilities
Location

Inventory
Control

Production
planning

Method
Study

Capacity
Planning

Facilities layout
& materials handling

i.

Product selection and design: the product mix marks the production system either
efficient or inefficient. Choosing the right products keeping the mission and overall
objective of the organization in mind is the key to success. It is the design of the product,
which makes the organization competitive or noncompetitive.

ii.

Activities relating to production system designing: decision related to the production

system design is one of the most important activities of the production management. This
activity is related to production engineering and includes problems regarding design of
tools and jigs, the design, development and installation of equipment and the selection of
the optimum size of the firm. All these areas require the technical expertise on the part of
the production manager and his staff.

iii.

Facilities location: the selection of an optimum plant location very much depends upon the
decision taken regarding production engineering. A wrong decision may prove disastrous.
Location should as far as possible cut down the production and distribution cost. There are
diverse factors to be considered for selecting the location of a plant.

iv.

Method study: the next decision regarding production system design concerns the use of
those techniques, which are concerned with work environment and work measurement.
Standard method should be devised for performing the repetitive functions efficiently.
Unnecessary movements should be eliminated and suitable positioning of the workers for
different processes should be developed. Such methods should be devised with the help of
time study and motion study. The workers should be trained accordingly.

v.

Facilities layout and materials handling: plant layout deals with the arrangements of
machines and plant facilities. The machine should be so arranged that the flow of
production remains smooth. There should not be overlapping, duplication or interruption in
production flow. Product layout where machines are arranged in a sequence required for
the processing of a particular product, and process layout, where machines performing the
similar processes are grouped together are two popular methods of layout. The departments
are layout in such a way that the cost of material handling is reduced. There should be
proper choice of material handling equipment.

vi.

Capacity planning: This deals with the procurement of productive resources. Capacity
refers to a level of output of the conversion process over a period of time. Full capacity
indicates maximum level of output. Capacity is planned for short-term as well as for long
term. Process industries pose challenging problems in capacity planning, requiring in the
long run, expansion and contraction of major facilities in the conversion process.

Tools for capacity planning are marginal costing (Break Even Analysis), learning
curves, linear programming, and decision trees.
vii.

Production planning: the decision in production planning include preparation of shortterm production schedules, plan for maintaining the records of raw materials, finished and
semi-finished stock, specifying how the production resources of the concern are to be
employed over some future time in response to the predicted demand for products and
services

viii.

Production control: after planning, the next managerial production function is to control
the production according to the production plans because production plans cannot be
activated unless they are properly guided and controlled.
Acc. To Soriebal and Lansburgh Production control is the process of planning
production in advance of operations; establishing the exact route of each individual item,
part or assembly; setting, starting and finishing dates for each
important item, assembly and
the finished products; and releasing the necessary orders as well as initiating the required followup to effect the smooth functioning of the enterprise
ix.

Inventory Control: inventory control deals with the control over raw-materials, work-inprogress, finished products, stores, supplies, tools, and so is included in production
management. The raw materials, supplies etc should be purchased at right time, right
quality, in right quantity, from right source and at right price.
ORGANIZATIONAL CHART OF PRODUCTION MANAGEMENT DEPARTMENT
Managing Director

Works Manager

Managers of Various Production Departments

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Sections Headed by Foreman or Superintendents

PRODUCTS VERSUS SERVICES

The output is spoken as a bundle of products and services . The line between product & services
is not necessarily always clear. Nevertheless, there are important differences between them.
Products are tangible things that we can carry away with us, where as services are intangible and
perishable and are consumed in the process of their production. Products may be produced to
inventory and made available off-the-shelf whereas the availability of the services requires
keeping the productive system that produces them in readiness to produce the services, as they are
needed. In addition the person being served often participates in the productive process. In product
systems, there is very little if any, contact between the producers and consumer.

Characteristics Of Systems To Produce Products Versus Systems To Produce

Services
PRODUCTS
Tangible

SERVICES
Intangible and perishable; consumed
in the process of their production

Can be produced to inventory for-off theshelf availability

Availability achieved by keeping the

productive system open for services

Minimal contact with ultimate consumer

High contact with clients or customers

Complex and interrelated processing

Simple processing

Demand on productive systems variable Demand commonly variable

on weekly, monthly, and seasonal basis
hourly, daily and weekly bases .

on

Markets served by productive system are

regional, national and international
Markets served by productive system
are usually local
Large units that can take advantage of
economies of scale
Relatively small units to serve local
markets
Location of system is in relation to
regional, national and international Location dependent on location of
markets
local customers, clients and users

PRODUCTS AS A PART OF SERVICE

Similarly, the clear line between products and services in a service-oriented system seems to fade.
A fast-food operation delivers physical product along with the service. An auto repair service
repairs the car and provides the required parts as well. Hospital care involves medication,
bandages, X-ray film, and so on
Thus, although it may be valid to think of systems as primarily producing either products or
services, it is better to think in terms of relative emphasis. Some manufacturing systems are
predominantly the producers of goods and provide very little service. Some service organizations,
such as tax consultants, provide almost no physical product as a part of the service. But most
productive systems provide a bundle of products and services, and an appropriate analysis of the
problems of production/operations management should recognize both aspects of the outputs of the
system.

OBJECTIVES OF PRODUCTION/ OPERATIONS MANAGEMENT

Every system (or organization) has a purpose, certain objectives & goals to achieve since the
objectives of an organization have hierarchical structure, sub-goals lead to accomplishment of
goals, which contribute, to the achievement of objectives and eventually the purpose or mission of
an organization .It is very important that these objectives should be unambiguously identified,
properly structured and explicitly stated.
In general terms, the objectives of an organization may be to produce the goods/or services in
required quantities and of right quality as per schedule and at a minimum cost.
Thus quantity, quality and time schedule are the objectives that determine the extent of customer
satisfaction. If an organization can provide for these at a minimum cost then the value of goods
created or services rendered enhances and that is the only way to remain competitive. Thus various
objectives can be grouped as- performance objectives and cost objectives.

Performance Objectives
The performance objectives may include:

a) Efficiency or productivity expressed as output per unit of input.

b) Effectiveness: It concerns expressed whether a right set of outputs is being produced.
Where efficiency may refer to doing things right, effectiveness may mean doing the
right things.
c) Quality: Quality is the extent to which a product or service satisfies the customer needs.
The output has to conform to quality specifications laid down before it can be accepted
d) Lead times: Manufacturing lead-time or throughput time is the time elapsed in the conversion pr
Minimization of idle time, delays, waiting etc. will reduce throughput time.

e) Capacity utilization: Percentage utilization of manpower, machines etc. is calculated in

order to enhance overall capacity utilization.
f) Flexibility: If the conversion process has the flexibility of producing a combination of
outputs, it is possible to satisfy a variety of customer needs.

Cost objectives
Attaining high degree of customer satisfaction on performance front must be coupled with lower
cost of producing the goods or rendering a service. Thus cost minimization is an important systems
objective. Costs can be explicit or implicit. These could be tangible in economic terms or
intangible in social cost terms- such as delayed supplies, customer complaints etc. While managing
production systems we must consider the visible and invisible, tangible and intangible costs some
examples of these costs are:
a) Explicit costs:

Material cost
Direct and Indirect labour cost
Scrap/rework cost
Maintenance cost

b) Implicit costs:
Cost of carrying inventory
Cost of stock outs, storage, back-logging, lost sales
Cost of delayed deliveries
Cost of material handling
Cost of inspection
Cost of grievances, dissatisfaction
Down time cost
Opportunity cost
For the purpose of managerial decision-making, we should consider the total relevant
systems costs including visible and invisible. A longer term cost implication rather than
only short-term will help in arriving at better decision.

OPERATIONS MANAGEMENT DECISIONS

The process of management
Essentially management can be considered as a process of planning, organizing, coordinating and
control.
There are different ways in which the production management functions can be grouped . For
instance, all the decisions concerning the production system could be divided as:-

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1. Periodic decisions which include selection, design and updating of resource, structure,
systems and procedures.
2. Continual decisions which are required in day-to-day operations and control of production
systems.

Value Analysis
Value analysis is a cost reduction & control technique, which operates by attacking the basic
design of the product or service.
Value analysis is an organized procedure for the efficient identification of unnecessary costs by
analysis of function --function being that property of product which makes it work or sell.
This means value analysis involves:1. Identification of function- the first & most important, step in the value analysis is to make a
formal statement of the function of the product or service.
Function means- what is purpose of operation?
What does it do?
A lamp function is to give light
A beam function is to support weight
A cheques function is to transfer cash
A shafts function is to transmit force.
- Identification of function of product
- Examine alternative way in which this function can be done.
- Choosing the least cost alternative.
Value Engineering The application of value analysis techniques at the design stage of a product
or service.
Value
1. Value may be equated with a price, which is that which must be given, done sacrificed to
obtain a thing and any product or service will have several different values.
Exchange value, the price a purchaser will offer. This is sum of two parts, value due to
usefulness & the value the ownership itself bestows.
Exchange value = use value + esteem value.
Use value = the price the purchaser will offer in order to ensure that the purpose (or function)
is achieved.
Esteem value = the price which is offered beyond the use value e.g. possession of ----------?
Exchange value is set by the market & is influenced by the usefulness & esteem in which the
product is held.
2. Cost value (intrinsic value)- sum of all the costs incurred in providing the product.
Profit = exchange value cost value
The task of a value analyst is to increase exchange value & decrease cost value.
Carrying out a value analysis exercise:
Value analysis team it must consist of a small core of experienced people + concerned people
+ intelligent laymen to raise basic & fundamental questions.

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A Structured Approach Gage has laid down a 12-step process for conducting value analysis
exercise.
1. Select the product to be analysed based on
- Multiplicity of components.
- Large forecast usage.
- Small difference between use value & cost value.
- Considerable market competition.
- A long designed product.
- Generation of considerable documentation.
- Creation of organizational complexity.
2. Extract the cost of product the cost required here is the marginal or out of pocket cost as
overheads can distort the picture. Details of individual components at this stage are not
required.
3. Record the number of parts the larger the number of parts, greater the chances of reduction.
4. Record all the functions purpose of the product.
5. Record the number required currently & in future.
6. The above five questions are the fact finding they firmly establish the bases upon which all
further work is created.
7. Determine primary function from all the functions already listed in 4. Some priority must
be established among functions.
8. List of all other ways of achieving the primary function here creativity & brainstorming
plays important role. This should include part wise/component wise discussion.
9. Assign costs to various alternatives.
10. Examine the 3 cheapest alternatives.
11. Decide which idea should be further developed.
12. See what other functions need to be incorporated reexamining of step 11. Does its use
contribute value.
Can anything be removed without degrading the product? While the new product is being
developed the value analysis team can undertake the final step.
13. Ensure the new design is accepted. This will mean:
- A model
- Anticipated savings.
- Anticipated capital expenditure.
- Improvement in value.
- Critical path analysis.

Operations strategy:
Operations strategy is defined as the set of decisions that are warranted in the
operational processes in order to support the competitive strategies of the business.
Operatios strategy is a long-range business plan for the company's products and will
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provide a road map for the operational functions to be pursued. Therefore, the
strategic decisions include the capacity to be built into the production system, the
type of processes and manufacturing technology to be adopted, the nature of
products to be produced, and the type of material flow and other logistics required to
achieve the level of performance. Planning of operations strategy is very essential as
it will enable the organization to respond to the market needs in an effective manner.
It also gives the opportunity to align the resources and manufacturing activities to
produce and deliver the products and become successful in the market.

Definition of Strategy
Strategy is a deliberate search for a plan of action that will develop a
business's distinctive competence and compound it.
Definition of Operations Strategy
An operations strategy consists of a sequence of decisions that, over time,
enables a business unit to achieve a desired operations structure,
infrastructure, and set of specific capabilities in support of the competitive
priorities.
Operations strategy as a competitive weapon
The important objective of any business is to occupy a position from where the
organization is able to attract more customers than its competitors. For this, they
should identify the distinctive competencies that will give the leading position in the
market segment.
Competitiveness is one of the crucial factors that decides the survival and
growth of a firm. This competitiveness is how effectively an organization meets the
needs of its consumers as compared to its immediate operational strengths and equip
themselves effectively to use their strengths and opportunities as competitive
weapons.

The competitive weapons are explained below in detail:

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Product / services expertise: Expertise gained through operational strengths in the

areas of functionalities and process capabilities will make them the market leaders
for such products.
The competitive weapons are explained below in detail:
Product/Services expertise: Expertise gained through operational strengths in the
areas of functionalities and process capabilities will make help sustain the product
and the such products.
Quick delivery : the flexible capacity built into the production line and the process
adopted to produce and supply in time will all together provide the much desired
customer satisfaction. This strategy will help sustain the product and its market lead.
Flexibility in production : The organization has to develop a capability for change.
The adaptation to change begins with environmental scanning by which trends can
be monitored to suit the needs of the society. There may be a threat to the product if
competitors gain an edge over the broadening product lines, improved quality, or
lowering costs. New entrants onto the market or competitors offering substitute
product may also throw challenges to the dominant product. To counter this, the
desired flexibility in production must be built in and operations strategy must be
monitored accordingly.
Low cost production and processes: the unit cost of each product is required to be
lowered to meet the competition. The cost review on labour, material, and overhead
costs of production lines are to be assessed. An organization with an efficient and
effective production system will procide such feasibilities to reduct costs. The
operations strategy should also facilitate the processing of products at lower costs.
Product variety and product mix: The organizations are producing multiple products
variety to customers. "Here the size of operations matters. Higher the volume, lower
the production costs. Accordingly, operational strategy is to be fine-tuned to suit the
desired product mix.
Quality : the operations strategy should ensure that the desired quality level is
maintained, and it meets the customer needs. Competing in the quality of the
product is one of the most important corporate strategies.
Linkage between Corporate, Business, and operations strategy:
The mission statement is unique to an organization. It contains a set of long-range
goals. It details the kind of business the company wants to be in, the type of
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customers they serve, the basic beliefs of their business, and the expected goals and
profitability.
Similarly, business strategy is a long-range plan and serves as a road map to
achieve the above said corporate mission. These plans encompass many functional
areas like production, marketing, finance, human resources, etc.
Operations strategy translates all the decision processes that supports the
business strategy. How these operating strategies work under the corporate strategies
and serve the business strategy is explained in developing operations strategy.

Developing operations strategy:

Once a business strategy has been developed, an operations strategy must be
formulated. This will provide a plan for the design and management of the
operations function in ways that support the business strategy. The operations
strategy relates the business strategy to the operations function. It focuses on specific
capabilities of the operation that give the company a competitive edge. These
capabilities are called competitive priorities. By excelling in one of these
capabilities, a company can become a winner in its market. These competitive
priorities and their relationship to the design of the operations function are shown in
Figure
Competitive priorities: Capabilities that the operations function can develop in
order to give a company a competitive advantage in its market.

Competitive Priorities Operations managers must work closely with marketing

in order to understand the competitive situation in the companys market
before they can determine which competitive priorities are important. There
are four broad categories of competitive priorities:
1. Cost Competing based on cost means offering a product at a low price relative to
the prices of competing products. The need for this type of competition emerges
from the business strategy. The role of the operations strategy is to develop a plan
for the use of resources to support this type of competition. Lets look at some
specific characteristics of the operations function we might find in a company
competing on cost.

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To develop this competitive priority, the operations function must focus primarily on
cutting costs in the system, such as costs of labor, materials, and facilities.
Companies that compete based on cost study their operations system carefully to
eliminate all waste. They might offer extra training to employees to maximize their
productivity and minimize scrap. Also, they might invest in automation in order to
increase productivity. Generally, companies that compete based on cost offer a
narrow range of products and product features, allow for little customization, and
have an operations process that is designed to be as efficient as possible.
NOTE: Cost A competitive priority focusing on low cost.
EXAMPLE: One company that successfully competes on cost is Southwest
Airlines. Southwests entire operations function is designed to support this strategy.
Facilities are streamlined: only one type of aircraft is used, and flight routes are
generally short. This serves to minimize costs of scheduling crew changes,
maintenance, inventories of parts, and many administrative costs. Unnecessary costs
are completely eliminated: there are no meals, printed boarding passes, or seat
assignments. Employees are trained to perform many functions and use a team
approach to maximize customer service. Because of this strategy, Southwest has
been a model for the airline industry for a number of years.
2. Quality Many companies claim that quality is their top priority, and many
customers say that they look for quality in the products they buy. Yet quality has a
subjective meaning; it depends on who is defining it. For example, to one person
quality could mean that the product lasts a long time, such as a Volvo, a car known
for its longevity. To another person quality might mean high performance, such as a
BMW. When companies focus on quality as a competitive priority, they are focusing
on the dimensions of quality that are considered important by their customers.
Quality as a competitive priority has two dimensions. The first is highperformance
design. This means that the operations function will be designed to focus on aspects
of quality such as superior features, close tolerances, high durability, and excellent
customer service. The second dimension is product and service consistency, which
measures how often the product or service meets the exact design specifications. A
good example of product consistency is McDonalds, where we know we can get the
same product every time at any location. Companies that compete on quality must
deliver not only high-performance design but product and service consistency as
well.
A company that competes on this dimension needs to implement quality in every
area of the organization. One of the first aspects that needs to be addressed is
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product design quality, which involves making sure the product meets the
requirements of the customer. A second aspect is process quality, which deals with
designing a process to produce error-free products. This includes focusing on
equipment, workers, materials, and every other aspect of the operation to make sure
it works the way it is supposed to. Companies that compete based on quality have to
address both of these issues: the product must be designed to meet customer needs,
and the process must produce the product exactly as it is designed.
NOTE: Quality A competitive priority focusing on product and service quality.
EXAMPLE: To see why product and process quality are both important, lets say
that your favorite fast-food restaurant has designed a new sandwich called the Big
Yuck. The restaurant could design a process that produces a perfect Big Yuck
every single time. But if customers find the Big Yuck unappealing, they will not
buy it. The same would be true if the restaurant designed a sandwich called the
Super Delicious to meet the desires of its customers. Even if the Super Delicious
was exactly what the customers wanted, if the process did not produce the sandwich
the way it was designed, often making it soggy and cold instead, customers would
not buy it. Remember that the product needs to be designed to meet customer wants
and needs, and the process needs to be designed to produce the exact product that
was intended, consistently without error.
3. Time Time or speed is one of the most important competitive priorities today.
Companies in all industries are competing to deliver high-quality products in as
short a time as possible. Companies like Federal Express, LensCrafters, UPS,
and Dell Computer compete based on time. Todays customers dont want to
wait, and companies that can meet their need for fast service are becoming
leaders in their industries.
Making time a competitive priority means competing based on all time-related
issues, such as rapid delivery and on-time delivery. Rapid delivery refers to how
quickly an order is received; on-time delivery refers to the number of times
deliveries are made on time. When time is a competitive priority, the job of the
operations function is to critically analyze the system and combine or eliminate
processes in order to save time. Often companies use technology to speed up
processes, rely on a flexible workforce to meet peak demand periods, and
eliminate unnecessary steps in the production process.

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NOTE: A competitive priority focusing on speed and on-time delivery.

EXAMPLE: Federal Express, the worlds largest provider of expedited delivery
services, is an example of a company that competes based on time. To support this
strategy, the operation function had to be designed to promote speed. For example,
bar code technology is used to speed up processing and handling, and the company
uses its own fleet of airplanes. Federal Express also relies on a very flexible parttime
workforce, such as college students who are willing to work a few hours at night.
This allows Federal Express to cover workforce requirements during peak periods
without having to schedule full-time workers.
4. Flexibility As a companys environment changes rapidly, including customer
needs and expectations, the ability to readily accommodate these changes can
be a winning strategy. This is flexibility. There are two dimensions of flexibility.
One is the ability to offer a wide variety of products or services and customize
them to the unique needs of clients. This is called product flexibility. A flexible
system can quickly add new products that may be important to customers or
easily drop a product that is not doing well. Another aspect of flexibility is the
ability to rapidly increase or decrease the amount produced in order to
accommodate changes in the demand. This is called volume flexibility. You can
see the meaning of flexibility when you compare ordering a suit from a custom
tailor to buying it off the rack at a retailer.
EXAMPLE: Another example would be going to a fine restaurant and asking to
have a meal made just for you, versus going to a fast-food restaurant and being
limited to items on the menu. The custom tailor and the fine restaurant are
examples of companies that are flexible and will accommodate customer
wishes. Another example of flexibility is Empire West, Inc., a company that
makes a variety of products out of plastics, depending on what customers want.
Empire West makes everything from plastic trays to body guards for cars.
Companies that compete based on flexibility often cannot compete based on
speed, because it generally requires more time to produce a customized product.
Also, flexible companies typically do not compete based on cost, because it
may take more resources to customize the product. However, flexible
companies often offer greater customer service and can meet unique customer
requirements. To carry out this strategy, flexible companies tend to have more
general-purpose equipment that can be used to make many different kinds of
products. Also, workers in flexible companies tend to have higher skill levels
and can often perform many different tasks in order to meet customer needs.

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NOTE: Flexibility A competitive priority focusing on offering a wide variety of

products or services.

To help us decide which competitive priorities to focus on, we can distinguish

between order winners and order qualifiers. Order qualifiers are those competitive
priorities that we have to meet if we want to do a business in a particular market.
Order winners, on the other hand, are the competitive priorities that help us win
orders in the market. Using our pizza example, order qualifiers might be low price
(say, less than RS.10.00) and quick delivery (say, under 15 minutes), because this is
a standard that has been set by competing pizza restaurants. Our order winner may
be fresh ingredients and home-made taste. This may be what makes us different
from all the other pizza restaurants. Knowing the order winners and order qualifiers
in a particular market is critical to focusing on the right competitive priorities.
NOTE: Order qualifiers Competitive priorities that must be met for a company to
qualify as a competitor in the marketplace.
NOTE: Order winners Competitive priorities that win orders in the marketplace.

Translating Competitive Priorities into Production

Requirements Operations strategy makes the needs of the business strategy specific
to the operations function by focusing on the right competitive priorities. Once the
competitive priorities have been identified, a plan is developed to support those
priorities. The operations strategy will specify the design and use of the
organizations resources; that is, it will set forth specific operations requirements.
These can be broken down into two categories:
1. StructureOperations decisions related to the design of the production process,
such as characteristics of facilities used, selection of appropriate technology, and the
flow of goods and services through the facility.
2. InfrastructureOperations decisions related to the planning and control systems
of the operation, such as the organization of the operations function, the skills and
pay of workers, and quality control approaches. Together, the structure and

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infrastructure of the production process determine the nature of the companys

operations function.
The structure and infrastructure of the production process must be aligned
to enable the company to pursue its long-term plan. Suppose we determined that
time or speed of delivery is the order winner in the marketplace and the competitive
priority we need to focus on. We would then design the production process to
promote speedy product delivery. This might mean having a system that does not
necessarily produce the product at the absolutely lowest cost, possibly because we
need costlier or extra equipment to help us focus on speed. The important thing is
that every aspect of production of a product or delivery of a service needs to focus
on supporting the competitive priority. However, we cannot neglect the other
competitive priorities. A certain level of order qualifiers must be achieved just to
remain in the market. The issue is not one of focusing on one priority to the
exclusion of the others. Rather, it is a matter of degree.

NOTE:

Structure Operations decisions related to the design of the production

process, such as facilities, technology, and the flow of goods and services through
the facility.
NOTE: Infrastructure Operations decisions related to the planning and control
systems of the operation, such as organization of workers and their pay, management
policies, and quality measures.
Productivity:
A sound business strategy and supporting operations strategy make an organization
more competitive in the marketplace. But how does a company measure its
competitiveness? One of the most common ways is by measuring productivity. In
this section we will look at how to measure the productivity of each of a companys
resources as well as the entire organization.
Measuring Productivity Recall that operations management is responsible for
managing the transformation of many inputs into outputs, such as products or
services. A measure of how efficiently inputs are being converted into outputs is
called productivity. Productivity measures how well resources are used. It is
computed as a ratio of outputs (goods and services) to inputs (e.g., labor and
materials). The more efficiently a company uses its resources, the more productive it
is:
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Productivity = output/input (2-1)

We can use this equation to measure the productivity of one worker or many, as well
as the productivity of a machine, a department, the whole firm, or even a nation. The
possibilities are shown in Table.When we compute productivity for all inputs, such
as labor, machines, and capital, we are measuring total productivity. Total
productivity describes the productivity of an entire organization. For example, lets
say that the weekly dollar value of a companys output, such as finished goods and
work in progress, is Rs8,600 and that the value of its inputs, such as labor, materials,
and capital is Rs10,200. The companys total productivity would be computed as
follows:

Total Productivity = Output/Input= 8,600/10,200=.84

Often it is much more useful to measure the productivity of one input variable at a
time in order to identify how efficiently each is being used. When we compute
productivity as the ratio of output relative to a single input, we obtain a measure of
partial productivity. Following are two examples of the calculation of partial
productivity:
1. Our new cookie oven produced 346 cookies in 4 hours. What is its productivity?
Machine productivity= no. of cookies /oven time
346 cookies/4hours=86.5 cookies /hour

2. We hired two new workers to paint small tables in our furniture shop. If the
workers painted 22 tables in 8 hours, what was their productivity?
Labour productivity = no. of tables/workers*hours
= 22 tables/2workers*8 hours=1.4 tables/hour

3. Sometimes we need to compute productivity as the ratio of output relative to a

group of inputs, such as labor and materials. This is a measure of multifactor

21

productivity. For example, lets say that output is worth Rs.382 and labor and
materials costs are Rs.168 and Rs.98, respectively. A multifactor productivity
measure of our use of labor and materials would be
Multifactor productivity= output/(labor +materials)

22

Note: Productivity A measure of how efficiently an organization converts

inputs into outputs.
Note: Total productivity Productivity computed as a ratio of output to all
organizational inputs.
Note: Partial productivity Productivity computed as a ratio of output to only
one input (e.g., labor, materials, machines)
Note: Multifactor productivity Productivity computed as a ratio of output to
several, but not all, inputs.

Productivity Measures
Total Productivity Measure
Partial Productivity Measure

Output produced/all inputs used

Multifactor Productivity Measure

Output/(labor+ machines) or Output/

(labor +materials) or Output/(labor+
capital energy)

Output/labor or
Output/machines or
Output/materials or
Output/capital

23

DEVELOPING AN OPERATIONS STRATEGY

CORPORATE STRATEGY

GLOBAL
BUSINESS
ENVIRONMENT

BUSINESS STRATEGY

COMPETENCIES

PRODUCT OR SERVICE

COMPETITIVE PRIORITIES
COST, TIME, QUALITY, FLEXIBILITY

OPERATIONS STRATEGY
Develops a plan for the operations
function focusing on specific
competitive priorities in order to
meet the long range plan.
Competitive Cost
Priorities: Quality Time
Flexibility

DESIGN OF THE OPERATIONS FUNCTION

Developed to focus on the identified competitive properties
Structure: Facilities, flow of goods, technology
Infrastructure: Planning & control system, workers, pay, quality

24

Elements of operations strategy:

An operations strategy is a high level integrated plan for business effectiveness or
competitiveness. Key components of operations strategy are described below:
The six elements of operations strategy are:1. Designing of the production system
2. Facilities for production and services
3. Product or service design and development
4. Technology selection, development, and process development
5. Allocation of resources
6. Focus on facilities planning
1. Designing of the production system: - The designing of the production system
involves the selection of the type of product design, processing system, inventory
plan for finished goods, etc. The product design has two varieties.
Customized product design
Standard product design
There are two types of production systems. They are product focused and process
focused. Product-focused system is adopted where there is mass production by using
a group of machines. For example, products like automobiles, computers, etc.
2. Facilities for production and services: - Certain specialization in production
allows the firm to provide the customers with products of lower cost, faster delivery,
on-time delivery, high product quality, and flexibility.
3. Product or Service design and development: Generating the idea
Creating the feasibility reports
Designing the prototype and testing
Preparing a production model
Evaluating the economies of scale for production
Testing the product in the market
Obtaining feedback
Creating the final design and starting the production
4. Technology selection and process development: - A product selected for
production will be analyses for the process and the applicable technology for optimal
production. There are many challenges faced by the operations managers in this
25

decision as the alternatives are many. The techno-economic analysis for each
alternative will help to decide the required technology.
5. Allocation of resources: - The production units face continuous problems of
allocating the scarce resources like capital, machines, equipment, materials,
manpower, services, etc. Allocation at the right time to the right place of production
indicates the efficiency of the production planners. Optimal use of resources will
enable economical production. Minimizing waste, optimal utilization of resources,
and the best quality product demand a sound operations strategy.
6. Facility, capacity, and layout planning: - The location, layout, and facilities
creation for the production are the key decision areas for the operations manager.
These are critical for achieving the competitiveness. The decision also influences the
future expansion of the plant. While evaluating the alternatives, the operations
manager will consider the availability of raw materials, access to market, etc.
Enormous capital requirement is required and the planning is always long range.
Here, the production process adopted and the technology pursued dictates the
volume, quality, and cost of production.

PRODUCT LIFE CYCLE:

Every product undergoes a life of its own. Any product has four stages. The four
stages of a product life cycle are:
1.Introduction stage or start up stage
2.the growth stage.
3.Maturity stage
4.Decline stage
A. Introduction stage: in this stage the main emphasis is on promotional activities
and marketing efforts. Profits are negative or less. The products that goes
through this stage enter growth stage
B. The growth stage: here the sales of the product increases. Depending on the
sales the decision on more production takes place, depending on the market
result.
C. Maturity stage: the sales growth becomes stagnant in maturity stage the
organization thinks about the efficiency of the processes, and minimizing the
production cost.
D. Decline stage: the product enters the decline stage here in this stage the sales
falls down or shows downward trend because of the other competitive

26

products entries into market, changing customer requirements, availability of

substitute or complementary products.

Productive system types:

27

INTERMITTENT SYSTEM
In this system, the goods are manufactured specially to fulfill orders made by
customers rather than for stock. Here the flow of material is intermittent. Intermittent
production systems are those where the production facilities are flexible enough to
handle a wide variety of products and sizes. These can be used to manufacture those
products where the basic nature of inputs changes with the change in the design of
the product and the production process requires continuous adjustments.
Considerable storage between operation is required, so that individual operations can
be carried out independently for further utilization of men and machines. Examples
of intermittent system are: machine shops, hospitals, general office etc.
Chief characteristics of intermittent system are: (i) Most products are produced in small quantities
(ii) Machines and equipment are laid out by process.
(iii) Workloads are generally unbalanced.
(iv) Highly skilled operators are required for efficient use of machines and
equipment.
(v) In-process inventory is large.
(vi) Flexible to suit production varieties.
Planning and Control Mechanism for Intermittent System : Organization of production planning and control operations in intermittent systems
needs estimation of jobs, routing, scheduling, preparation of manufacturing orders,
dispatching and production control.
Here customer provides the blue print and other specification regarding the product
to be manufactured. Then the organization formulates their production strategy to
suit the needs of the customer.
(i) This type of manufacturing system covers specialties of every type and sub
assemblies or parts which are required to manufacture the product. Due to this there
is continuous planning at each fresh order.
(ii) Due to variety of orders and different lot sizes, the system needs wise and careful
sequencing of operations which makes routing and scheduling operations elaborate
and complex.
(iii) Proper regulation and close inspection is required at different stages of
production.
28

(iv) Storage facilities are to be provided at each operational stage.

So the job of stock control of raw materials, semi-finished goods and finished goods
should be entrusted to competent personnel, who can regulate the operations and
flow of material smoothly.
Intermittent systems can be further classified into two categories, namely
(a) Project production
Project production where a single assignment of complex nature is undertaken for
completion within the given period and within the estimated expenditure.
(b) Job production
Jobbing production where one or few units of a product are produced to customers
requirement within the given date amid within the price fixed prior to the contract.
(c) Batch production
Batch production where limited quantity of each type of product is authorized for
manufacture at a time.
CONTINUOUS SYSTEM
In this system the items are produced for the stocks and not for specific orders.
Before planning manufacturing to stock, a sales forecast is made to estimate likely
demand of the product and a master schedule is prepared to adjust the sales forecast
according to past orders and level of inventory. Here the inputs are standardized and
a standard set of processes and sequence of processes can be adopted. Due to this
routing and scheduling for the whole process can be standardized.
After setting of master production schedule, a detailed planning is carried on. Basic
manufacturing information and bills of material are recorded. Information for
machine load charts, equipment, personnel and material needs is tabulated. In
continuous manufacturing systems each production run manufactures in large lot
sizes and the production process is carried on in a definite sequence of operations in
a pre-determined order. In process storage is not necessary which in turn reduces
material handling and transportation facilities. First in first out priority rules are
followed in the system. In short, here the input-output characteristics are
standardized allowing for standardization of operations and their sequence.
Production Control Mechanism for Continuous manufacturing system: -

29

In this system the control mechanism is not as elaborate and complex as for
intermittent system. In continuous system large quantities of standardized products
are produced using standardized production process.
Following points of control mechanism are worth noting for such a system
(i) This system does not involve diverse work, due to which routing standardized
route and schedule sheets are prepared.
(ii) In case of standard products meant for mass production, master route sheets are
prepared for more effective co- ordination of various departments.
(iii) Scheduling is required to rate the output of various standard products in their
order of priority, operations and correct sequence to meet sales, requirements.
(iv) Work relating to dispatching and follow-up is usually simple. Dispatch
schedules can be prepared well in advance in such systems. Continuous system can
be divided into two types of production, namely
(A) Mass &
(B) Process production.
Mass and flow production where a production run is conducted either on a single
machine or on a number of machines, arranged according to the sequence of
operations and several number of a product are manufactured at a time and stocked
in warehouse awaiting sales.
INTERMITTENT PRODUCTION SYSTEM
PROJECT PRODUCTION
Project production is characterized by complex sets of activities that must be
performed in a particular order within the given period and within the estimated
expenditure. Where output of a project is a product, such products are generally
characterized by immobility during transformation. Operations of such products are
carried out in fixed position assembly type of layout which can be observed in
production of ships, locomotive and aircraft, construction of roads, buildings, etc.

30

Characteristics of Project Production : (A) Definite beginning and definite end

Each project has a definite beginning and a definite end.
(B) Fixed position layout
Where the output of a project is a product, such products are generally characterized
by immobility during transformation. Operations on such products are carried out in
fixed position assembly type of layout which can be observed in production of
ships, locomotive, aircraft, construction of roads/ buildings, etc.
(C) High cost overruns
Often delays take place in the completion of the projects. Such delays are generally
very expensive due to escalation in the cost of factors of production and incident of
penalties.
(D) Personnel problems
Project production has many personnel related problems namely:
When there is a fast build up, staff is either borrowed from other departments or
hired for short duration. Therefore, personnel involved in the project have limited (or
short lived) interest in the project.
Since each project has a limited duration, the staff starts spending more time
forgetting prepared for the next project.
Site for the project may be in the underdeveloped region and it may change from
project to project which causes dislocation of the normal life.
Importance of Project Production: (A) Non -uniform requirement of resources
Requirement of resources for project production is not uniform. At the end of the
project, resources from the project are redeployed elsewhere in other projects. Even
during the life of the project, requirement of resources is not uniform. Generally
resource requirement (men, materials, money, etc.) in the beginning of the project is
low which builds up fast with the progress of the project as more and more resources

31

are absorbed, and then it levels off until there is gradual cutback as the project
approaches completion.
(B) Involvement of different agencies
A project generally involves many tasks, each having its own specialization to be
performed by different agencies. The tasks generally have strict precedence (i.e.
certain tasks must be completed before the next begins) amid as such co-ordination
between agencies is of utmost importance.
(C) Scheduling and control
Because of large number of activities, involvement of different agencies and strict
precedence requirements, scheduling and control assumes great importance. Some
network planning techniques like PERT and CPM have been found to be very useful
to overcome the problems mentioned above.
JOB PRODUCTION
Jobbing production is characterized by the manufacture of one or few numbers of a
single product designed and manufactured strictly to customers specifications,
within, the given period and wit/tin the price fixed prior to tile contract. Some
typical examples of industries engaged in jobbing production are: general repair
shops; special purpose machine tool manufacturers; workshops to manufacture jigs
and fixtures for other units; building contractors; tailoring shops manufacturing
made-to-measure suite of clothes; manufacturers of ships, cranes, furnaces, turbogenerators, pressure vessels; and others manufacturing articles made to customers
orders.
Characteristics of Job production
(A) Disproportionate manufacturing cycle time
A considerable amount of pre-planning and organization is necessary in such a
venture. Relatively long delays occur at the assembly as well as at the materials
processing stages due to lack of materials or components, imbalanced work flow,
design changes, design errors detected during manufacture, inaccurate work
measurements, etc. which tend to lengthen the manufacturing cycle time. At times,
tile time needed to design the product exceeds its manufacturing time.
(B) Large work-in-progress
The work-in-progress inventory in a jobbing production is generally very large as
detailed scheduling and progress control in this type of production is economically
infeasible. For various reasons, jobs get delayed causing temporary work shortages.
32

To overcome work shortages and keep men and machines busy, more work is
released to the shops which in turn increases work-in-progress.
(C) Limited functions of production planning and control
The success of jobbing production mainly depends on the ability of the engineer in
charge of the contract.
(D) Materials are indented and purchased on receipt of orders unlike in batch or
mass production where material requirements are planned well in advance.
(E) Process planning activity is almost absent. Drawings and specifications are
directly given to the supervisor who is expected to decide work methods, select
optimum process, fix up machine tools to be used and estimate time required
completing an operation.
Importance of Job production: (A) Small production runs
Jobbing production is characterized by the manufacture of one or few pieces of a
product at a time under a separate contract, the production is made strictly to
customers specifications.
(B) Discontinuous flow of materials
The flow of materials and components between different stages of manufacture is
highly discontinuous due to imbalance in operation wise work content.
(C) General purpose machines and process layout
Plant and equipment is designed or procured and arranged to obtain maximum
flexibility. General purpose machines and handling equipments capable of
performing variety of operations with minimum set-tip times are installed in lie of
variety in products. Tile machines are arranged to give process layout - layout by
function. Similar machines, capable of doing similar type of operations, are grouped
together. Presses, for example are kept at one place; milling machines are placed at
another place; drilling machines are kept at third place; and so on and so forth. Each
group of machines is usually designated as a work centre or a section or a shop.
The grouping of machines gives a lot of flexibility in loading and scheduling.
Temporary machine breakdowns and operators absenteeism can be taken care of by
shifting jobs to another machine or shifting operators from less important jobs to
important jobs.

33

(D) Highly skilled Labour

The labor force is usually highly skilled-highly qualified trade apprentices who are
expected to work from minimum instructions. Instructions regarding what to make
are issued in the form of specifications while instructions as to how to
manufacture are usually oral. The workmen being highly skilled are expected to
work independently and display a great deal of initiative and judgment. They are
required to set up their own machines and prepare their OW special tools or
production aids in order to further the manufacture of a part or a assembly.
(E) Highly competent knowledgeable supervision
Highly competent general engineers are engaged as foreman in the base workshop
and a group of site engineers, practical men, with thorough training, capable of
taking independent charge of each contract are employed to work at site. Therefore,
these engineers (supervisors) in a jobbing production are the reservoir of job
knowledge. The supervisor besides being able administrator is expected to improvise
and determine best work methods, determine tool requirements, select the best
process and provide management with reliable estimates of labor and materials for
specific orders. The span of control - the number of workmen to be supervised by a
supervisor - is kept low because of technical nature of the job.
(F) Simple Mechanism
Tools control function is simple. Standard tools are stocked while special tools are
either made on the shop floor by the operators or purchased on request from
supervisor.
(G) Decentralized Process
The scheduling activity is more or less decentralized. A schedule is prepared to show
the start and completion date of each major component of the product. Job tickets
giving completion date of each component are raised and given to the shop. The
activity of day to day scheduling is left to the individual shop supervisor.
EXAMPLE OF JOB PRODUCTION SYSTEM
Job production involves firms producing items that meet the specific requirements of
the customer. Often these are one-off, unique items such as those made by an
architect or wedding dressmaker. For an architect, each building or structure that he
designs will be different and tailored to the needs of each individual client. With job
production, a single worker or group of workers handles the complete task. Jobs can
34

be on a small-scale involving little or no technology. However, jobs can also be

complex requiring lots of technology.
With low technology jobs, production is simple and it is relatively easy to get hold
of the skills and equipment required. Good examples of the job method include:
Hairdressers
Tailoring
Painting and decorating
Plumbing and heating repairs in the home
High technology jobs are much more complex and difficult. These jobs need to be
very well project-managed and require highly qualified and skilled workers.
Examples of high technology / complex jobs include:
Film production
Large construction projects (e.g. the Millennium Dome)
Installing new transport systems (e.g. trams in Sheffield and Manchester)
ADVANTAGES
The advantage of job production is that each item can be altered for the specific
customer and this provides genuine marketing benefits. A business is likely to be
able to add value to the products and possibly create a unique selling point (USP),
both of which should enable it to sell at high prices.
DISADVANTAGES
Whether it is based on low or high technology, Job production is an expensive
process as it is Labour intensive (uses more workers compared to machines). This
raises costs to firms as the payment of wages and salaries is more expensive than the
costs of running machines.
BATCH PRODUCTION
Batch production is characterized by the manufacture of a limited number of
product (but many such, quantities of different products) produced at regular
intervals and stocked in warehouses as finished goods (or finished parts,) awaiting
sales (or withdrawal for assembly). Typical examples of batch production are :
Process industries such as pharmaceuticals, paints, chemicals; medium and heavy
engineering industry engaged in the manufacture of electric motors, switch gears,
heavy motor vehicles, internal combustion engines; manufacturers of readymade
garments; manufacturing and assembly shops such as machine tools; sub-contractors
which take on machining of batches of components to the drawings of a large
manufacturer.
35

Batch production is used to produce or process any product in groups that are called
batches, as opposed to a continuous production process, or a one-time production.
An example of batch production can be found in a bakery. The products, for example
bread, are made in batches of however many will fit in the baker's oven at a time.
When that batch is made, the baker will start the process again with a new batch.
Batch production techniques are used in the manufacture of specialty chemicals such
as active pharmaceutical ingredients, inks, paints and adhesives.
In the manufacture of inks and paints, a technique called a color-run is used. A colorrun is where one manufactures the lightest color first, such as light yellow followed
by the next increasingly darker color such as orange, then red and so on until
reaching black and then they start over again. This minimizes the cleanup and
reconfiguring of the machinery between each batch. White (by which is meant
opaque paint, not transparent ink) is the only color that cannot be used in a color run
due to the fact that a small amount of white pigment can adversely affect the
medium colors.
There are inefficiencies associated with batch production. The production equipment
must be stopped, re-configured, and its output tested before the next batch can be
produced.
Time between batches is known as 'Down Time' where the factory would make
seasonal items or consumables such as toasters where no one can predict the
quantity needed.
There are several advantages of batch production; it can reduce initial capital outlay
because a single production line can be used to produce several products. As shown
in the example, batch production can be useful for small businesses who cannot
afford to run continuous production lines. Also, companies can use batch production
as a trial run. If a retailer buys a batch of a product and people do not buy them then
the producer can cease production without having to sustain huge losses. Other types
of production include: assembly line, job production, continuous, cell, and project.
Characteristics of batch production: (A) Supervisor to possess knowledge of a specific process
The supervisors have considerable knowledge of a specific process. Supervisor in
the grinding section for example, may not know about turning and drilling work but
is expected to a fund of knowledge of different types of grinding operations.
Similarly, a supervisor in the gear shop is expected to have sound knowledge in
working of different types of gear cutting machines.
(B) General purpose machines and process type of layout

36

Plant and equipment is procured and arranged to obtain maximum flexibility.

General purpose machines and handling equipments capable of performing variety
of operations with minimum set-lip tunes are installed in lieu of variety of products.
The machines are arranged to give process layout- layout by function. Similar
machines capable of doing similar types of operations are grouped together and kept
at one place. Presses, for example, are put together and kept at one place, milling
machines are placed together at another place, drilling machines are kept at the third
place, and gear cutting machines are located at the fourth place and so on. Each
group of machines is usually designated as a work centre or a section or a shop.
(C) Manual materials handling:
Materials handling in batch production as compared to jobbing production are small.
Individual components and parts arc placed in trolleys or in bins and are transported
as unit loads. Materials handling may be mechanized by deploying power driven
trucks.
(D) Manufacturing cycle time affected due to queues
The manufacturing cycle time is comparatively smaller than jobbing production but
is much more than mass and flow production. The batches of work tend to queue up
at different machines due to differing cycle times, batch sizes and sequence of
operations.
(E) Large work-in-progress
Work in progress is comparatively large due to varying work content of different
components, imbalances in manufacturing times, formation of queues between the
machines.
(F) Need to have production planning and control
Functions of production planning and control in a batch production unit are more
complex than those in jobbing production or mass and flow production.
Materials control and tools control functions are important. Scientific stock-control
system needs to be used to ensure routine replenishment.
Detailed operational layouts and route sheets are prepared for each part of the
product.
Lo and scheduling needs to be more detailed and more sophisticated since
every machine requires to be individually scheduled.

37

 Progressing function is very important to collect information on progress of work.

A separate progress card needs to be maintained to record progress of each
component.
Expediting is generally necessary since quite often jobs, due to imbalances in work
content, tend to lag behind.
Importance of Job production: (A) Short runs
Batch production is also characterized by short production runs and frequent
changes of set up. The equipment and the assembly set up is used for a limited
number of parts or assemblies and is then changed to make. a different product. The
production is generally made to stock.
(B) Skilled labor in specific trades
The labor force is expected to possess skill in one specific manufacturing process
turning, milling, drilling, welding, grinding, hobbing, filling etc. Simpler machine
set-ups may be performed by the operator but those involving complex operations
arc set by the separate machine setter.
(C) Limited span of control
The amount of supervision required in batch production is lower than that of jobbing
production and is dependent of the batch size. The ratio of direct workmen to
supervisors is more or less a function of batch size. The smaller the batches, the
lower are the ratio of direct workers to supervisors, and vice-versa. This is because
smaller lots require each supervisor to spend a great deal of their time in allocating
new work, giving instructions, follow up n the shop floor for proper movement of
materials from and to the machines, identifying delays and interruptions, and
arranging, in consultation with planning, work load in his section to keep his men
busy.
(D) Flexibility of production schedules
Disruptions due to machine breakdowns or absenteeism do not seriously affect
production as another machine can be used or another operator from another
machine can be shifted.
EXAMPLE OF BATCH PRODUCTION SYSTEM
As businesses grow and production volumes increase, the production process is
often changed to a batch method. Batch methods require that a group of items
move through the production process together, a stage at a time.
38

For example when a bakery bakes loaves of whole meal bread, a large ball of whole
meal dough will be split into several loaves which will be spread out together on a
large baking tray. The loaves on the tray will then together be cooked, wrapped and
dispatched to shelves, before the bakery starts on a separate batch of, for example,
crusty white bread. Note that each loaf is identical within a batch but that loaves can
vary from batch to batch.
Batch production is a very common method of organizing manufacture. Good
examples include:
Production of electronic instruments
Fish and chip shops
Paint and wallpaper manufacturers
Cereal farming
ADVANTAGES
1. The batch method can be an advantage for businesses that produce a
range of products. It is cheaper to produce a number of each item in one
go because machines can be used more effectively, the materials can be
bought in bulk and the workers can specialize in that task. There are
two particular advantages of workers being able to concentrate their
skills.
2. They should become more expert at their tasks, which will in turn
increase productivity (output per worker). This will lower costs, as
fewer workers are needed to produce a set amount.
3. Better quality products should be produced as workers are more
familiar with the task and so can find ways of improving it.
DISADVANTAGES
1. Batch production requires very careful planning to decide what
batch will be produced when.
2. Once a batch is in production it is difficult to change, as
switching to another batch takes time and will mean a loss of
output.
3. Batch methods can also result in the build up of significant work
in progress or stocks (i.e. completed batches waiting for their
turn to be worked on in the next operation). This increases costs
as it takes up space and raises the chance of damage to stock.

39

CONTINUOUS PRODUCTION SYSTEM

MASS PRODUCTION
Standardization is the fundamental characteristic of this system. Here items are
produced in large quantities and much emphasis is not given to consumers orders. In
fact the production is to stock and not to order. Standardization is there w.r.t.
materials and machines. Uniform and uninterrupted flow of material is maintained
through pre determined sequence of operations required to produce the product. The
system can produce only one type of product at one time.
These days, mass production system is generally used to manufacture subassemblies or particular parts/components of an item. These parts are assembled
together by the enterprise to get the final product. One distinct advantage of this
approach is that different combinations of sub-assemblies or parts can be used to
manufacture different kinds of products. Specialization and standardization in
manufacturing single component also leads to economies in production and product
diversification to meet specific demands of consumers.
Mass production is the name given to the method of producing goods in large
quantities at low cost per unit. But mass production, although allowing lower prices,
does not have to mean low-quality production. Instead, mass-produced goods are
standardized by means of precision-manufactured, interchangeable parts. The mass
production process itself is characterized by mechanization to achieve high volume,
elaborate organization of materials flow through various stages of manufacturing,
careful supervision of quality standards, and minute division of labour. To make it
worthwhile, mass production requires mass consumption. Until relatively recent
times the only large-scale demand for standardized, uniform products came from
military organizations. The major experiments that eventually led to mass production
were first performed under the aegis of the military.
Machine tools and interchangeable parts The material basis for mass production was
laid by the development of the machine-tool industry--that is, the making of
machines to make machines. Though some basic devices such as the woodworking
lathe had existed for centuries, their translation into industrial machine tools capable
of cutting and shaping hard metals to precise tolerances was brought about by a
series of 19th-century innovators, first in Britain and later in the United States. With
precision equipment, large numbers of identical parts could be produced at low cost
and with a small work force.
Mass production (also called flow production or repetitive flow production) is the
production of large amounts of standardized products on production lines. It was
40

popularised by Henry Ford in the early 20th Century, notably in his Ford Model T.
Mass production is notable because it permits very high rates of production per
worker and therefore provides very inexpensive products. Mass production is capital
intensive, as it uses a high proportion of machinery in relation to workers. With
fewer labour costs and a faster rate of production, capital is increased while
expenditure is decreased. However the machinery that is needed to set up a mass
production line is so expensive that there must be some assurance that the product is
to be successful so the company can get a return on its investment. Machinery for
mass production such as robots and machine presses have high installation costs.
One of the descriptions of mass production is that the craftsmanship is in the
workbench itself, not the training of the worker; rather than having a skilled worker
measure every dimension of each part of the product against the plans or the other
parts as it is being formed, there are jigs and gauge blocks that are ready at hand to
ensure that the part is made to fit this set-up. It has already been checked that the
finished part will be to specifications to fit all the other finished parts - and it will be
made quicker, with no time spent on finishing the parts to fit one another. This is the
specialized capital required for mass production; each workbench is different and
each set of tools at each workbench limited to those necessary to make one part.
Use of assembly lines in mass production
Mass production systems are usually organized into assembly lines. The assemblies
pass by on a conveyor, or if they are heavy, hung from an overhead monorail.
In a factory for a complex product, rather than one assembly line, there may be
many auxiliary assembly lines feeding sub-assemblies (i.e. car engines or seats) to a
backbone "main" assembly line. A diagram of a typical mass-production factory
looks more like the skeleton of a fish than a single line.
This is also used in food manufacturer to produce foods continuously.
Characteristics of mass & flow production
(A) Special purpose machines and product type layout:
Special purpose machines are used and the plant assembly stages are laid out on the
basis of product layout, the layout-by-sequence.
(B) Lesser flexibility in production schedules
Interruptions due to breakdowns and absenteeism seriously affect production as
stoppage of one machine usually disturbs the working of other machines. Systematic
maintenance and provisioning of stand-by operators are, therefore, two major
management functions.
Importance of Job production: -

41

(A) Continuous flow of material

The flow of materials is continuous and there is little or no queuing at any stage of
processing.
(B) Mechanized materials handling
Materials handling is comparatively less firstly because materials move through a
short distance between stages and secondly the materials handling activity is mostly
mechanized by conveyors and transfer machines.
(C) Low skilled labor
Relatively low skilled labor is employed.
(D) Short manufacturing cycle time
The manufacturing cycle time is very short. The machine capacities are balanced by
duplicating machines wherever necessary.
(E) Easy supervision
Supervision is relatively easier as only few instructions are necessary and that too at
the start of the job.
(F) Limited work- in- progress
Work-in-progress is comparatively less since the manufacturing line is balanced.
EXAMPLE OF MASS PRODUCTION SYSTEM
Flow production involves a continuous movement of items through the production
process. This means that when one task is finished the next task must start
immediately. Therefore, the time taken on each task must be the same.
Flow production (often known as mass production) involves the use of production
lines such as in a car manufacturer where doors, engines, bonnets and wheels are
added to a chassis as it moves along the assembly line. It is appropriate when firms
are looking to produce a high volume of similar items. Some of the big brand names
that have consistently high demand are most suitable for this type of production:
Heinz baked beans
Kelloggs corn flakes
Mars Bars
Ford cars
ADVANTAGE
Flow production is capital intensive. This means it uses a high proportion of
machinery in relation to workers, as is the case on an assembly line. The advantage
of this is that a high number of products can roll off assembly lines at very low cost.
42

This is because production can continue at night and over weekends and also firms
can benefit from economies of scale, which should lower the cost per unit of
production.
DISADVANTAGE
The main disadvantage is that with so much machinery it is very difficult to alter the
production process. This makes production inflexible and means that all products
have to be very similar or standardized and cannot be tailored to individual tastes.
However some variety can be achieved by applying different finishes decorations
etc at the end of the production line.
PROCESS PRODUCTION
Process production is characterized by tile manufacture of a single product produced
and stocked in the warehouses awaiting sales. The flexibility of such plants is almost
zero as only one type of product can be produced in such plants. Typical examples of
such plants are sugar, steel, cement, paper, coke, refineries, etc.
Characteristics of process production: (A) Special purpose machines with built-in controls
The layout of plant, shape and size of its buildings, location of services and storage
yards, position of cranes and conveyors is such that material flow is unidirectional
and at the steady rate. Special purpose machinery and equipment with built-in
controls to measure output and regulate input are employed to suit the needs.
(B) Highly mechanized materials handling
Materials handling is highly mechanized. Conveyor system and automatic transfer
machines move materials from one stage to another.

Impact of technology and organization of the operations

function
Operations strategy defines the way in which a firm competes in the marketplace.
Examples of these strategies include (a) low cost, (b) quality, (c) speed of delivery,
and (d) customization. As we learned in Chapter 2, managers in the past had to
decide which of these strategies was most applicable to the particular market
43

segment they were serving. In so doing, they recognized that there were trade-offs
involved. For example, you couldnt have both low cost and a high degree of
customization, or that there was a choice to be made between providing fast product
delivery and providing a highly customized product.
These traditional trade-offs are no longer valid for most businesses because
technology has raised the performance bar by allowing firms to compete on
several of these dimensions simultaneously. For example, firms using technology,
such as Dell Computer, can now produce and quickly deliver individually
customized products, and at a very competitive price. Technology now provides
firms with the opportunity to move to a superior performance curve

In moving from A1 to B1, a firm, for example, can achieve superior performance in
terms of both lower cost and also faster service. In comparison, a firm that doesnt
44

use technology must remain on Curve A and consequently must revert to the
traditional trade-off where improvement in one dimension is accomplished only at
the sacrifice of another dimension (for example, in going from A2 to A3 along Curve
A, where lower cost is achieved only by providing slower service).

Technology in Manufacturing
Automation
The term automation is familiar to all, but a commonly agreed-upon definition still
eludes us. Some authorities view automation as a totally new set of concepts that
relate to the automatic operation of a production process; others view it simply as an
evolutionary development in technology in which machinery performs some or all of
the process-control function. Automation
is a set of concepts, but it is also evolutionary in the sense that it is a logical and
predictable step in the development of equipment and processes.
Some major developments in manufacturing automation include machining
centers, numerically controlled machines, industrial robots, computer-aided design
and manufacturing systems, flexible manufacturing systems, computer-integrated
manufacturing, and islands of automation.

Machining centers not only provide automatic control of a machine but carry
out automatic tooling changes as well. For example, a single machine may be
equipped with a shuttle system of two worktables that can be rolled into and out of
the machine. While work is being done at one table, the next part is mounted on the
second table. When machining on the first table is complete, it is moved out of the
way and the second part is moved into position.
Note: machining centers Operations where machine tools are changed automatically
as part of the process.
Numerically controlled (NC) machines are under the control of a digital computer.
Feedback control loops determine the position of the machine tooling during the
work, constantly compare the actual location with the programmed location, and
correct as needed. This eliminates time lost during setups, and applies to both highvolume, standardized types of products as well as low-volume, customized products.
Note: numerically controlled (NC) machines Manufacturing equipment that is

45

directly controlled by a computer.

Industrial robots are substitutes for human manipulation and other highly repetitive
functions. A robot is a reprogrammable machine with multiple functions that can
move devices through specialized motions to perform any number of tasks. It is
essentially a mechanized arm that can be fitted with a variety of handlike fingers or
grippers, vacuum cups, or a tool such as a wrench. Robots are capable of performing
many factory operations ranging from machining processes to simple assembly.
Note: industrial robots Programmable machines that can perform multiple functions
One of the major contemporary approaches to the product design process is
computer aided (or -assisted) design (CAD). CAD may be defined as carrying out
all structural or mechanical design processes of a product or component at a
specially equipped computer terminal. Engineers design through a combination of
console controls and a light pen that draws on the computer screen or electronic pad.
Different perspectives of the product can
be visualized by rotating the product on the screen, and individual components can
be enlarged to examine particular characteristics. Depending on the sophistication in
software, on-screen testing may replace the early phases of prototype testing and
modification. CAD has been used to design everything from computer chips to
potato chips. FritoLay, for example, used CAD to design its OGradys doubledensity, ruffled potato chip. CAD is also now being used to custom design
swimsuits. Measurements of the wearer are fed into the CAD program, along with
the style of suit desired. Working with the customer, the designer modifies the suit
design as it appears on a humanform drawing on the computer screen. Once the
design is decided upon, the computer prints out a pattern, and the suit is cut and
sewn on the spot.

Note: computer-aided (or -assisted) design (CAD) Designing a product using a

specially equipped computer.
Computer-aided design and manufacturing (CAD/CAM): uses a computer to
integrate component design and processing instructions. In current CAD/CAM
systems, when the design is finalized, the link to CAM is made by producing the
manufacturing instructions. Because of the efficiency of CAD/CAM systems, design
and manufacture of small lots can be both fast and low in cost.
46

Even though CAD/CAM systems are usually limited to larger companies because of
the high initial cost, they do increase productivity and quality dramatically.
More alternative designs can be produced, and the specifications can be more
exact. Updates can be more readily made, and cost estimates more easily drawn. In
addition, computer-aided process planning (CAPP) can shorten and, in some cases,
even eliminate traditional process planning
Note: computer-aided design and manufacturing system (CAD/CAM)
Integration of design and production of a product through use of a computer.
A flexible manufacturing system (FMS) actually refers to a number of systems that
differ in the degree of mechanization, automated transfer, and computer control and
are sufficiently flexible to produce a wide variety of products.
A flexible manufacturing module is a numerically controlled (NC) machine
supported with a parts inventory, a tool changer, and a pallet changer.
A flexible manufacturing cell consists of several flexible manufacturing
modules organized according to the particular products requirements. A flexible
manufacturing group is a combination of flexible manufacturing modules and cells
located in the same manufacturing area and joined by a materials handling system,
such as an automated guided vehicle (AGV).
A flexible production system consists of flexible manufacturing groups that
connect different manufacturing areas, such as fabrication, machining, and assembly.
A flexible manufacturing line is a series of dedicated machines connected by AGVs,
robots, conveyors, or some other type of automated transfer device
Note: flexible manufacturing system (FMS) Manufacturing facility that is automated
to some extent and produces a wide variety of products.
Computer-integrated manufacturing (CIM) integrates all aspects of production
into one automated system. Design, testing, fabrication, assembly, inspection, and
materials handling may all have automated functions within the area. However, in
most companies, communication between departments still flows by means of
paperwork. In CIM, these islands of automation are integrated, thus eliminating the
need for the paperwork. A computer links all sectors together, resulting in more
efficiency, less paperwork, and less personnel expense.
Note: computer integrated manufacturing (CIM) Integration of all aspects of
manufacturing through computer.

47

Islands of automation refer to the transition from conventional manufacturing to

the automated factory. Typical islands of automation include numerically controlled
machine tools, robots, automated storage/retrieval systems, and machining centers.
Note: islands of automation Automated factories or portions that include NC
equipment, automated storage/ retrieval systems, robots, and machining centers.
Information technology
The use of information technology in manufacturing operations can be divided into
four major groups of software systems:
(a) enterprise resource planning (ERP): Enterprise Resource Planning (ERP) An
ERP system provides a firm with a common software infrastructure and databaseThe
speed with which a company can design and develop new products is critical to its
ability to introduce them quickly into the marketplace. Rapid prototyping machines
are a new generation of CAD equipment that can produce three-dimensional
prototypes quickly in the initial stages of the product design cycle. These rough draft
models result in both higher-quality products and lower development costs..

48

(b) supply chain management (SCM): Supply Chain Management (SCM) These
software systems primarily focus on how firms interact with the suppliers that are
part of their overall supply chain. Depending on where the firm is in its supply
chain, this also can involve customers.
(c) new product development (NPD): New product development software focuses
on linking the engineering function with the operations function within a firm to
facilitate the 128 Chapter 4 transfer of new product drawings and models into
manufactured products. These software systems include CAD/CAM, which was
discussed earlier in this chapter. Some software packages, such as that offered by
Parametric Technology, also provide similar links with vendors who are directly
involved in a firms new product development process.
(d) customer relationship management (CRM): Customer relationship
management software, such as that provided by Siebel Systems, focuses on the
interface between the firm and its customer. In addition to having order entry
capability, these systems collect customer-specific data, which allow the firm to
provide customer-specific solutions. These software systems are typically addressed
in marketing.
These software packages, as the exhibit suggests, have significant overlap in
terms of their capabilities and what they provide.

49

Enterprise Resource Planning (ERP) Systems

In the last decade, there has emerged a new generation of software systems that link
all of the various functional areas within an organization.
The goal of these systems, which are known as enterprise resource planning (ERP)
systems, is to provide a company with a single, uniform software platform and
database that will facilitate transactions among the different functional areas within a
firm, and, in some cases, between firms and their customers and vendors.
Defining ERP Systems Prior to the introduction of ERP systems, each functional
area within an organization typically had its own software and database. These
software packages often were incompatible with each other, which prevented
transactions from taking place directly between systems.
Enterprise resource planning systems or enterprise systems are software systems for
business management, encompassing modules supporting functional areas such as
planning, manufacturing, sales, marketing, distribution, accounting, financial, human
resource management, project management, inventory management, service and
maintenance, transportation and e-busi- The Evolution of ERP Systems: A Historical
Perspective 3 ness. The architecture of the software facilitates transparent integration
of modules, providing flow of information between all functions within the
enterprise in a consistently visible manner. Corporate computing with ERPs allows
companies to implement a single integrated system by replacing or re-engineering
their mostly incompatible legacy information systems. American Production and
Inventory Control Society (2001) has defined ERP systems as a method for the
effective planning and controlling of all the resources needed to take, make, ship and
account for customer orders in a manufacturing, distribution or service company.
We quote several definitions from the published literature to further explain the
concept: ERP (enterprise resource planning systems) comprises of a commercial
software package that promises the seamless integration of all the information
flowing through the companyfinancial, accounting, human resources, supply chain
and customer information (Davenport, 1998). ERP systems are configurable
information systems packages that integrate information and information-based
processes within and across functional areas in an organization (Kumar & Van
Hillsgersberg, 2000). One database, one application and a unified interface across
50

the entire enterprise (Tadjer, 1998). ERP systems are computer-based systems
designed to process an organizations transactions and facilitate integrated and realtime planning, production, and customer response (OLeary, 2001).
EVOLUTION OF ERP SYSTEMS

The evolution of ERP systems closely followed the spectacular developments in the
field of computer hardware and software systems. During the 1960s most
organizations designed, developed and implemented centralized computing systems,
mostly automating their inventory control systems using inventory control packages
(IC). These were legacy systems based on programming languages such as COBOL,
ALGOL and FORTRAN. Material requirements planning (MRP) systems were
developed in the 1970s which involved mainly planning the product or parts
requirements according to the master production schedule. Following this route new
software systems called manufacturing resources planning (MRP II) were introduced
in the 1980s with an emphasis on optimizing manufacturing processes by
synchronizing the materials with production requirements. MRP II included areas
51

such as shop floor and distribution management, project management, finance,

human resource and engineering. ERP systems first appeared in the late 1980s and
the beginning of the 1990s with the power of enterprise-wide inter-functional
coordination and integration. Based on the technological foundations of MRP and
MRP II, ERP systems integrate business processes including manufacturing,
distribution, accounting, financial, human resource management, project
management, inventory management, service and maintenance, and transportation,
providing accessibility, visibility and consistency across the enterprise. During the
1990s ERP vendors added more modules and functions as add-ons to the core
modules giving birth to the extended ERPs. These ERP extensions include
advanced planning and scheduling (APS), e-business solutions such as customer
relationship management (CRM) and supply chain management (SCM). Figure 2
summarizes the historical events related with ERP.

2000
1990
1980
1970
1960

Extended ERP
Enterprise Resource Planning
(ERP)
Manufacturing
Resources
Planning (MRP II)
Material
Requirements
Planning (MRP)
Inventory Control Packages

Benefits of ERP systems:

What benefit

How

Reliable information access

Common DBMS, consistent and accurate

data, improved reports.
Modules access same data from the
central database, avoids multiple data
input and update operations.
Minimizes retrieving and reporting
delays
Time savings, improved control by
enterprise-wide
analysis
of

Avoid data and operations redundancy

Delivery and cycle time reduction
Cost reduction

52

Easy adaptability
Improved scalability
Improved maintenance
Global outreach
E-Commerce, e-business

organizational decisions.
Changes in business processes easy to
adapt and restructure.
Structured and modular design with
addons.
Vendor-supported long-term contract as
part of the system procurement.
Extended modules such as CRM and
SCM.
Internet commerce, collaborative culture.

Disadvantages:
Disadvantage
Time-consuming
Expensive

Conformity of the modules

Vendor dependence
Features and complexity

Scalability and global outreach

Extended ERP capability

How to overcome
Minimize sensitive issues, internal
politics and raise general consensus.
Cost may vary from thousands of dollars
to
millions.
Business
process
reengineering cost may be extremely
high.
The architecture and components of the
selected system should conform to the
business processes, culture and strategic
goals of the organization.
Single
vendor
vs.
multi-vendor
consideration, options for best of
breeds, long-term committed support.
ERP system may have too many features
and modules so the user needs to
consider carefully and implement the
needful only.
Look for vendor investment in R&D,
long term commitment to product and
services,
consider
Internet-enabled
systems.
Consider middle-ware add-on facilities
and extended modules such as CRM and
SCM.

53

Technology Trends in Services

Increase in Self-Service:
Increase in Self-Service Many service industries have seen an increase in
selfservice operations. Examples include self-service gas stations, ATMs at
banks, and automated toll collections on highways. Self-service also is used
extensively in e-businesses, ranging from the purchasing of sweaters from
L.L. Bean and airline tickets from American Airlines to the purchase of stocks
and bonds through Fidelity and conducting online checkbook transactions
with your bank. As another example of how technology increases
opportunities for self-service, many supermarket and drug store chains have
installed self-service checkout lanes. (See Operations Management in Practice
box.) With this new equipment, customers scan their own purchases, bag
them, and then pay by either cash or credit card. In this case, labor isnt
completely eliminated, as an individual must be assigned to every three or
four automated lanes to assist shoppers as the situation requires.
Decrease in the Importance of Location: Decrease in the Importance of
Location The combination of inexpensive data storage, transmission, and
retrieval costs coupled with electronic access to virtually every corner of the
world has decreased the importance of location for many services. Online
banking services reduce the need for a customer to go to the bank. Home
delivery services for groceries, dry cleaning, and so forth eliminate the need
for customers to visit these retail locations. Similarly, any purchase made on
the Internet, whether it is a book from Amazon.com or airline tickets from
Expedia.com, eliminates the need for the customer to visit a specific retail
location that offers these goods and services. When such services can be
conducted remotely, it doesnt matter where they are located as far as the
customer is concerned.

54

Methods of Pricing to Encourage Self-Service

Shift from Time-Dependent to Non-Time-Dependent Transactions There is a

growing trend away from time-dependent service transactions toward non-timedependent transactions. Time-dependent transactions are those transactions that
require a service worker to be available at that exact time when the customer
requests the service. Examples of time-dependent service transactions can include
the waitress at a restaurant who is there to serve you when you are hungry, the
reservations clerk at an airline call center who answers the telephone when you call
to reserve a flight, the front-desk personnel who is on duty at the hotel when you
check in, and your stockbroker who is available when you want to conduct a stock
transaction. Non-time-dependent transactions do not require the presence of the
service worker at the exact moment when the customer requests service. Examples
of non-time-dependent transactions include e-mail, faxes, and voice messages. Timedependent transactions often are referred to as synchronous transactions or
communications while non-time-dependent transactions are referred to as
asynchronous transactions or communications.

55

Demand Forecasting
Patterns of demand
Factors affecting demand
Methods of forecasting

DEMAND FORECASTING
Forecasts are needed to aid in determining what resources are needed, scheduling existing
resources, and acquiring additional resources. Accurate forecasts allow scheduler to use machine
capacity efficiently, reduce production times, and cut inventories.
Forecasting methods may be based on mathematical models using historical data available,
qualitative methods drawing on managerial experience, or a combination of both.
Forecasting demand in such situations require uncovering the underlying patterns from available
information.
Patterns of Demand
The five basic patterns of the most demand time series are-:
1. Horizontal, or the fluctuation of data around a constant mean;
2. Trend, or systematic increase or decrease in the mean of the series overtime;
3. Seasonal, or a repeatable pattern of increase or decrease in demand, depending on the time
of day, week, month, or season;
4. Cyclic, or less predictable gradual increases or decreases in demand over longer periods of
time (years or decades); and
5. Random, or unforecastable, variation in demand

56

Four of the patterns of demands- Horizontal, Trend, Seasonal, and Cyclic- combine in varying
degrees to define the underlying time pattern of demand for a product or service. The fifth pattern,
random variations, results from chance causes and thus cannot be predicted.
Factors Affecting Demand
Generally such factors can be divided into main categories: - Externals and Internals.

External Factors. External factors that affect demand for a firms products or services are
beyond managements control.
Leading indicators. Such as the rate of business failures, are external factors with turning points
that typically precede the peaks and troughs of general business cycle. Coincident indicator, such
as unemployment figures, are the time series with turning points that generally match those of the
general business cycle.
Lagging indicators, such as retail sales, follow those turning points, typically by several weeks or
months.
INTERNAL FACTORS: internal decision about product or service design, price and advertising
promotion, packaging design, sales persons quotas or incentive and expansion and contraction of
geographic market, target areas all contribute to changes in demand volume. The term demand
management describes the process of influencing the timing and volume of demand or adapting to
the undesirable effects of unchangeable demand patterns.

Forecasting methods
The two general types of forecasting techniques used for demand forecasting are: Qualitative
methods and Quantitative methods
Qualitative Method:
Qualitative methods include judgment methods, which translate the opinions of managers, expert
opinions, consumer surveys and sales force estimates into quantitative estimates.
Quantitative Methods:
Quantitative methods include casual methods and time series analysis.
Casual Methods:
Use historical data on independent variables, such as promotional campaigns, economics
conditions, and competitors actions, to predict demand. Time series analysis is a statistical
approach that relies heavily on historical demand data to project the future size of demand and
recognize trends and seasonal patterns.
Judgement Methods
When adequate historical data are lacking, as new product is introduced or technology is expected
to change, firms rely on managerial judgment and experience to generate forecasts.
I
Sales Force Estimate
Sales force estimates are forecasts compiled from estimates of future demand made periodically by
members of a companys sales force. This approach has several advantages.
The sales force is the group most likely to know which products or services customers will
be buying in the near future, and in what quantities.
57

Sales territories often are divided by district or region. Information broken down in this
manner can be useful for inventory management, distribution, and sales force staffing
purposes.
The forecasts of individual sales force members can be combined easily to get regional or
national sales.
But it also has several disadvantages.
Individual biases of the sales people may taint the forecast; moreover, some people are
naturally optimistic, other more cautious.
Sales people may not always be able to detect the difference between what a customers
wants (a wish list) and what a customer needs (a necessary purchase).
If the firm uses individual sales as a performance measure, salespeople may underestimate
their forecasts so that their performance will look good when they exceed their projections
or may work hard only until they reach their required minimum sales.
II

EXECUTIVE OPINION

Executive opinion is a forecasting method in which the opinions, and technical knowledge of one
or more managers are summarized to arrive at a single forecast. As we will discuss later, executive
opinion can be used to modify an existing sales forecast to account for unusual circumstances,
such as a new sales promotion or unexpected international events. Executive opinion can also be
used for technical forecasting. This method of forecasting has several disadvantages. Executive
opinion can be costly because it takes valuable executive time. Although that may be warranted
under certain circumstances, it sometimes gets out of control. In addition, if executives are allowed
to modify a forecast without collectively agreeing to the changes, the resulting forecast will not be
useful.
III

MARKET RESEARCH

Market research is a systematic approach to determine consumer interest in a product or services

by creating and testing hypotheses through data-gathering surveys. Conducting a market research
study includes
1. Designing a questionnaire that request economic and demographics information from each
person interviewed and asks whether the interviewee would be interested in the product or
services;
2. Deciding how an administrative sample of household to survey, whether by telephone
polling, mailings, or personal interviews;
3. Selecting a representative sample of households to survey, which should include a random
selection within the market area of the proposed product or service; and
4. Analyzing the information using judgment and statistical tools to interpret the responses,
determine their adequacy, make allowance for economic or competitive factors not
included in the questionnaire, and analyze whether the survey represents a random sample
of the potential market.
Market research may be used to forecast demand for the short, medium, and long term. Accuracy is
excellent for the short term, good for the medium term, and only fair for the long term.
IV

DELPHI METHOD
58

The Delphi method is process of gaining consensus from a group of experts while
maintaining their anonymity. This form of forecasting is useful when there are no historical data
from which to develop statistical models and when managers inside the firm have no experience on
which to base informed projections. A coordinator sends a question to each member of the group of
outside experts, who may not even know who else, is participating. The Delphi method can be
used to develop long-range forecasts of product demand and new product sales projections. It can
also be used for technological forecasting. The Delphi methods can be used to obtain a consensus
from a panel of experts who can devote their attention to following scientific advances, changes in
society, government regulations, and the competitive environment.
The Delphi method has some shortcomings, including the following major ones.
The process can take a long time (sometime a year or more). During that time the panel of
people considered to be experts may change, confounding the results or at least further
lengthening the process.
Responses may be less meaningful than if experts were accountable for their responses.
There is little evidence that Delphi forecasts achieve high degrees of accuracy. However,
they are known to be fair- to- good in identifying turning points in new product demand.
Poorly designed questionnaires will result in ambiguous or false conclusions.
CAUSAL METHODS:
I
LINEAR REGRESSION
In linear regression, one variable, called a dependent variable, is related to one or more
independent variables by a linear equation.
In the simple linear regression models, the dependent variable is a function of only one
independent variable, and therefore the theoretical relationship is a straight line:
Y=a + bX
Where
Y = dependent variable
X = independent variable
a = Y-intercept of the line
b = slope of the line.
The objectives of linear regression analysis is to find values of a and b that minimize the sum of
squared deviations of the actual data points from the graphed line.
The sample correlation coefficient, r, measures the direction and strength of the relationship
between the independent variable and the dependent variable. The value of r can range from 1.00
to + 1.00.
II
TIME SERIES METHODS
Simple Moving Averages. The simple moving average method is used to estimate the average of
demand time series and thereby remove the effects of random fluctuation. It is most useful when
demand has no pronounced trend or seasonal influences.
Specially, the forecast period t + 1, can be calculated as
Ft+1 = sum of last n demands

Dt + Dt+1 + Dt-2 +..Dt-n+1

59

n
where

Dt = actual demand in period

t
n = total number of periods in the average
Ft+1 = forecast for period t + 1

Weighted Moving Averages. In the simple moving average method, each demand has the same
weight in the average --namely, 1/n. In the weighted moving average method; each historical
demand in the average can have its own weight. The sum of the weight equal 1.0.
The advantage of a weighted moving average method is that it allows you to emphasize recent
demand over earlier demand. The forecast will be more responsive than the simple moving average
forecast to changes in the underlying average of the demand series. Nonetheless, the weighted
moving average forecast will still lag behind demand because it merely averages past demands.
This lag is specially noticeable with a trend because the average of the time series is systematically
increasing or decreasing.
III EXPONENTIAL SMOOTHING.
The exponential smoothing method is a sophisticated weighted moving average method that
calculates the average of a time series by giving recent demands more weight than earlier
demands. It is the most frequently used formal forecasting methods because of its simplicity and
the small amount of data needed to support it.
Ft+1 =(Demand this period) + (1-) (Forecast calculated last period)= Dt+(1-)Ft
Ft+1 =Ft + (Dt-Ft)
Larger values emphasize recent levels of demand and result in forecasts more responsive to
changes in the underlying average. Smaller values treat past demand more uniformly and result
in more stable forecasts.
Exponential smoothing requires an initial forecast to get started. There are two ways to get this
initial forecast: Either use last periods demand or, if some historical data are available, calculate
the average of several recent periods of demand. The effect of the initial estimate of the average on
successive estimate of the average diminishes over time because, with exponential smoothing, the
weights given to successive historical demands used to calculate the average decay exponentially.
Exponential smoothing has the advantages of simplicity and minimal data requirements. It is
inexpensive to use and therefore very attractive to firms that make thousands of forecasts for each
time period. However, its simplicity also is disadvantage when the underlying average is changing,
as in the case of a demand series with a trend.

60

Facilities location

Factors affecting size of the firm

Factors affecting location of a firm
Selection of a site (urban, rural, sub-urban)
Recent trends in location

FACILITIES LOCATION
Every organisation has to face location problem one or the other day . Before finding out those
reasons for location decision and the factors affecting thereof one would like to know the
following :-

FACTORS AFFECTING SIZE OF THE FIRM

1. Availability of capital: the size of the firm depends upon the availability of capital.
2. Entrepreneurial ability and efficiency: the ability, experiences and managerial efficiency of
the entrepreneur is one of the important factors that determine the size of the business unit.
3. Risk of uncertainties: firms have to face fluctuations in demand for their products and
accordingly adjust their policies and strategies in order to survive and maintain the
positioning in the market.

61

TYPE OF ORGANIZATION:
The size of the firm also depends on the type of organization, e.g., sole trading business concern or
individual proprietorship, partnership firm, private companies that are managing business on small
and medium scale. Joint Stock Companies require capital on large scale.
Availability of inputs: The size can be larger if the inputs are available on a large scale. Where
the inputs will have to be transported from a distance and there is also some uncertainty, the size is
bound to be small.
Nature of product: In the case of processing of raw materials resulting in the production of joint
and by products, the scale is naturally more if the entrepreneur decides to process all the products.
In case of production of less standardized and more artistic products the size is bound to be small.
Laws of returns: But where increasing returns apply, large production will result in lower cost, so
that the firms can keep on growing larger in size provided the demand for the product is elastic.
Government regulation or licensing policy of government: The size of the firm depends on the
decision taken by the entrepreneur and on the attitude of the government.

FACTORS AFFECTING THE PLANT LOCATION

1.

Primary factors

Supply of
Raw-material
Supply
Of
Capital
to market
Transport
facilitities

Nearness

Availability
of power

Labour
Supply

62

2.

Secondary factors

Miscellaneous

Facilities

Factors
Personal
Factors
Initial start
& goodwill
Historical
& Religious
Factors

Natural
Factors

Political
Factors
Govt.
Subsidies &
Facilities

FACTORS OF LOCALISATION:
a)Primary factors
1.Supply of raw material: It is necessary to consider the adequate supply of raw materials and the
nature of raw materials. The cost of raw materials is an important element of the total cost of
production.
2.Nearness to market: Nearness to market is important from the point of view of control over the
market. In those industries where the raw materials are obtained from different source, nearness to
source of raw materials is not as important as nearness to the market.
3.Transport Facilities: Speedy transport facilities are needed for the regular and timely supply of
raw materials at low .
4.Supply of labour :The supply of labour at low cost is important .It should also be regular .
Nearness to source of labour supply is very important . Therefore , producers should have regular
labour supply by reducing absenteeism and strikes due to unsatisfactory working conditions .

63

5.Power: power may be electrical , diesel and atomic energy . All types of power required must
be in abundance in order to ensure smooth flow of production.
6.Supply of capital :Industries require huge capital hence capital market must be developed at
industrial centres . Not only this , industrial development banks and other financial services must
also be encouraged .
b)Secondary Factors
1.Natural factors--affect the location of those industries which require a particular climate or
weather conditions
2.Political factors-States with stable government attract more industries
3.Government Subsidies and Facilities- Government gives subsidies and good industrial
development facilities in backward areas . Industries reach these places to reap the benefits of such
facilities.
4.Historical and Religious Factors- some places have industrial importance and some have
religious importance e.g. Kohlapur, Benaras ,Agra ,Nasik etc. Industries grow because of these
important features.
5.Initial Start and Goodwill- Once one industry starts at a certain place other industries come
their. E.g. Jamshedpur became an industrial town in the following manner .
6.Personal Factor: Personal likeness for a place affects the establishment of business at a place .
7.Miscellaneous factorsa)sufficient water supply
b)Disposal of waste
c)Dangers of air-attacks
d)Community attitude
e)Ecological and environment considerations etc.

Selection Of Site (Urban, Rural Or Suburban Area)

There are broadly three possible alternatives open for the selection of the locality of the industrial
unit:
1. urban or city area
2. rural area
3. suburban area
The relative advantages and disadvantages of each area are discussed as under:

64

URBAN AREA
Due to certain typical advantages available only in the city area, promoters show preference for the
city area as the location of the industrial unit.
ADVANTAGES OF CITY AREA
1. Availability of good transportation facilities
2. Good and prompt postal and communication services
3. Banking and credit facilities.
4. Services of insurance companies.
5. Sufficient storing facilities.
6. Ample availability of skilled and unskilled workers.
7. Vicinity of the market.
8. Facility of the ancillary and service units.
9. Transport facilities by road and railways.
10. Development of the training institutes.
11. Educational, medical and recreational institutes increase the amenities of lives.
DISADVANTAGES OF URBAN OR CITY AREA
1.
2.
3.
4.
5.
6.
7.

The cost of land is very high.

Sufficient land is not available.
The cost of labour is relatively high.
The rate of labour turnover is very high.
Trade union movement is very strong.
The rates of taxes are also relatively high.
The industrialization in the city area gives birth to slums and dirty residences which creates
the typical problems of sanitation and health.

RURAL AREA
The following are its advantages and limitations.
Advantages of Rural Area
1.
2.
3.
4.
5.
6.

The land is available at cheaper rates.

Large plots of the land available.
The rates of labour are relatively lower.
The rate of labour turnover is low.
The industrial relations between labour and management are relatively amicable.
The municipal restrictions, which are found in city areas, do not exist in rural areas, e.g.,
height of building, constructed area in total land etc.
7. Slums and dirty residence are not found in rural areas.
8. No danger of bombardment in wartime.
65

LIMITATIONS OF RURAL AREA

1. Transportation facilities are not available
2. Sometimes the services of post and telegraph and means of communication are not
available
3. Banking and credit facilities are also not available
4. Absence of insurance facilities
5. Storing and warehouse facilities
6. Passenger facilities are not available
7. The advantage of ancillary units and service unit is not available
8. Such units are very far from the market place and this increases the cost of distribution of
finished goods
9. Skilled workers are not available
10. Municipal facilities like water supply, drainage, fire fighting are not available in rural areas
11. There is absence of recreation facilities, good educational institutes, good and sufficient
medical facilities etc.

Suburban area
The city area as a location of industrial unit has got many negative aspects. The other extreme is a
rural area, which again is not free from many limitations. The better compromise in the decision is
in the selection of suburban area as the location of the industrial unit. Suburban area is the area
located on the outskirts of the city area. Suburban area matches the advantages of the rural area
with those of city area which is located at a short distance, e.g. Odhav, narol, kathawada, naroda,
and vatva are the suburban areas of the ahmedabad city.
Advantages of suburban area
1.
2.
3.
4.
5.

Land is available at a cheaper rate

Adequate land is available
Infrastructure facilities like road, water supply, drainage etc.
Skilled and unskilled both type of labourers are available
It is possible to tap the advantage of industrial training institutes, management development
programmes etc, which are available in nearby city area
6. The nearby city area provides a substantial market for the products of the unit
7. Educational institutes, medical facilities and other recreational facilities are available in the
suburban area itself as well as in the nearby city area
The limitation of suburban area as a site for industry is that in the development process, it may be
converted into a part of the urban area with all its merits and demerits.

Recent trends in the location of industries

66

The traditional factors like nearness of sources of materials, motive power, nearness of markets,
labour supply etc. have no longer remained the effective pulling forces for location of industries.
The location trends have changed substantially due to the development of substitute raw materials,
network of electrification and transportation by roads and railway, mobility of the labour and
persuasive and compulsive policies of the government for balanced regional development.
The recent trends in the selection of industrial locations can be described as under.
1. Priority for the sub urban areas: the industrialist shows their preference of the sub urban
area as the sight for establishment of a new unit or relocation of the existing one. The
industrial policy of the government does not permit the establishment of a new unit or
expansion of an existing one in city areas.
2. Industrial development in the notified backward areas: in order to have balanced
regional development, the central government as well as the state government has notified
certain backward areas; example punch mahals, bharuch and sunder nagar are the centrally
notified backward district of gujarat state. Similarly, gujarat state government has also
notified certain backward talukas. Different types of incentives like cash subsidy, tax
relieves, concessional financial assistance, cheaper land and power supply etc. are
provided. So, many such areas have been developed substantially in recent times. An
illustration can be cited for the industrial development of dhabol in punch mahals,
ankleshwar in bharuch and sunder nagar.
3. Establishment of industrial estate: industrial estate is a piece of vast land divided into
different plots wherein factory shades are constructed. The government of India has
planned a national policy for the development of industrial estate. It has assigned a
responsibility of the development of the industrial estate to state governments. In each
state, the state development corporation (sdc) has developed many industrial estates
practically in all the districts of the state. Industrial estates have also been developed by
private entrepreneurs and chambers of commerce. The plots of land along with factory
shades and infrastructure facilities are developed in the industrial estates and are sold to the
prospective promoters. The establishment of industrial states has greatly affected the
location of industry.
4. Decentralization of industries: under the conscious industrial policy of the government,
concentration of industrial units is prevented through licensing policy. New units are not
permitted to be started and certain industrially congested areas. Similarly, existing units are
established in additional plants in a less developed areas or sometimes relocate the whole
unit in such areas.
5. Increased role of the govt in the decision of location of industries: government through
persuasive and compulsive methods greatly affects the location decisions in recent times. It
provides certain attractive incentives to the promoters to establish their units in less
developed areas, at the same time it does not permit excessive industrialization in certain
developed areas.

67

6. Competition between government and institutions: as industry provides job

opportunities to the local population, many local organizations attempt to tempt the
prospective promoters to establish the units in their areas. They provide different types of
incentives like cheap land, relief in local taxes etc. Sometimes the objective of local
organizations and the government comes in conflict on the issue of the location of the
industries. Thus, the whole pattern of decision about the location of industries has
undergone substantial changes in recent times.

Capacity planning
Meaning of capacity
Measures of capacity

68

Capacity Planning
The long-range operations strategy of an organization is expressed by capacity plans. Following
issues must be considered in capacity planning: 1. Market trend in terms of market size, location, & technology innovation.
2. Effect of new product.
3. Variation (seasonal) in demand.
4. Review of existing policies for using overtime & multiple shifts.
5. Should we expand existing facilities or build new capacities.
6. Should we add small units or big units?
The above issues should be resolved as a part of capacity planning.
In assessing alternatives, the revenues, capital costs, & operating costs may be compared, but
managers should strike a trade off between possible effects of the strategic issues against economic
advantages & disadvantages.

Measures of capacity: -

When outputs are relatively homogenous, capacity units are rather obvious. For e.g .an Auto
plant uses number of autos, beer plant uses cases of beer etc.
When the output units are diverse, it is common to use the measure of the availability . For
e.g.- airlines use seat available i.e. seat miles as a measure instead of seats.
When different types of equipment are used for performing a wide variety of machinery
operation, & the output may be unique parts. The value of the labor & material of the output
could vary widely. Thus the capacity of the shop is normally stated as the capacity of the
limiting resources, e.g., the labour hours.
Measure of capacity of different organizations
Type Of Org.

Capacity Measures

Auto Plant
Beer Plant
Power Plant
Airlines
Hospital
Restaurant

Number Of Autos
Cases Of Beer
Mw
Available Seat Miles
Available Bed Days
Available Seat Turns

Industry capacity & competitive dynamics: Should any capacity be added with in the industry . is an important question. In answering this
question, one has to take care of long-term projections of demand & competitors capacity too.

69

For further discussion we assume decision to add capacity already taken for industry & in principle
for organisation.

Capacity decision for mature products with stable demand: Many products enjoy mature stable markets e.g. steel, aluminum, and fertilizer, cement, and airline
services, health care services.
Many products & services are also affected by recession but their trend in demand is relatively
stable. The casual/normal sales forecasting methods are used for these products are common
methods for estimating future demands. In addition to formal perspective methods, executive
opinion & extrapolation are also used.
Given long-range predictions of demand, we must generate capacity requirements. First of all we
find out individual capacity of each sub-unit. e.g. M/C shop, assembling, shipping etc.
identifying the size & timing of projected capacity gaps provides input for the generation of
alternative plans. We may plan to meet demand either by providing the expected required capacity
or by partially utilizing alternative sources or we may enlarge existing facilities, establish new
producing; locations for the additional capacity, or relocate the entire operation.

Capacity decision for new products & risky situations.

It is difficult to predict capacity requirements for new products initially or in the rapid
development phase of product life cycles. There are also situations involving mature, stable
products, such as oil, in which the capacity planning environment is risky owing to unstable
political factors. The prediction of capacity requirements in these kinds of situation must place
greater emphasis on the distribution of the expected demand. Optimistic & pessimistic predictions
can have a profound effect on capacity requirements.
There are widely different capacity needs for the optimistic & pessimistic predictions. If we accept
the optimistic schedule, we need capacity additions & huge capacity addition within 10 years
(approx). If we fail to provide the capacity, we may miss the market & lost sales could be an
important opportunity cost. On the other hand, if we assume the pessimistic schedule, we need
only modest amounts of capacity within 5 years that might be provided by multiple shifts &
overtime.
Decision tree analysis is used to incorporate uncertainties in the evaluation of alternative capacity
plans.

Generation of alternative capacity plans.

When capacity gaps have been identified alternative plans should be considered. These
alternatives may involve the size & timing of added capacity, the use of overtime & multiple shifts,
the use of outside capacity resources, the absorption of lost sales, or the location of new capacity.

Economies of scale
For a given facility there should be an optimum output that minimizes fixed plus variable costs.
Optimum output for a given facility.
TOTAL COST/UNIT

70

Cost/un
it

VARIABLE COST/UNIT

FC

Units

The above diagram indicates the optimum output for a given facility. Optimum output is that
output for which the total cost/unit is minimum.
In the above figure variation in variable cost is due to overtime otherwise variable cost remains
same for each unit.

Economies of scale by successively larger plants

COST/UNIT

SMALLER SIZE

MONTHLY PRODUCTION UNITS

71

In above figure there is variation in cost curve due to successive increase in size of plant.
There are economies of scales that may come from two basic sources: lower fixed cost/unit &
variable cost/unit.
The lower fixed cost accrues because plant & equipment costs of larger plants are lower in
proportion to capacity. Larger plants are likely to have a better balance of sub units with less slack
capacity in sub units.
Lower variable cost may also accrue with the larger plant because larger volume may justify more
mechanization and automation. The result is that minimum unit costs are less for larger plants.
Economic evaluation of capacity: 1. Mature products with stable demandCapacity plan alternative may involve various size units that differ in their productivity
reflecting economies to scale.
Capacity plan alternative may include different size (different investment) & locations.
All the costs involved in capacity planning are future costs & the time span may be long, a
discounted cash flow (DCF) analysis is appropriate for comparing alternatives. DCF is
based on investment & operating costs.
2. New products & risky situations.
Capacity planning in case of new products requires an assessment of risks. The effect of
the probability that risky events will occur must be accounted for. If the market is
uncertain a probabilistic prediction of the market provides basic data. Suppose that we are
planning future capacity for a product that is in the rapid development phase.
The probability of optimistic demand = 0.25
The probability of expected demand = 0.50
The probability of pessimistic demand = 0.25
Alternatives of capacity expansion are: existing capacity 17000 items
- Install 15000 units
- Install 5000 units every year for three years.
- No capacity addition.
The above e.g. can be represented in the form of decision tree.

$1,778,150

$ 1,588,800

72

$1,588,800
$ 2,459,300

$595,800
Install 5000 Units in
1989,1990 and 1991
$595,800
$ 2,749,000

$819,400
$ 261,350

Expected value of decision

Installation of 15000 units
Installation of 5000 units
No capacity addition

= 1778150+1588800+1588800
= 4955750
= 2459300+595800+595800
= 3650900
= 2749000+819400+261350
= 3829750

Framework for analyzing capacity planning decision.

1.Structuring alternatives.
Capacity expansion involves extremely important strategic issues that must be addressed before
the balance of the planning process can proceed. These issues involve existing industry capacity,
where it is located, the nature & strength of competition, the status of the technology in the
industry including the potential for influence on whether or not to pursue an expansion at all as
well as on the structuring for alternatives for expansion.
Given a go signal for the capacity planning process, alternatives need to be structured around
different locations that may have the competitive advantages, the process technology that can be
used, & the nature of the product & its market. One of the outcomes will be in terms of the
riskiness of the situation, with regard to both the product & its markets (mature or new & risky) &
the anticipation of chance occurrences or developments usually involving technological choices.

73

2.Choice Of Criteria For Decision

Capacity expansion invariably means the criteria of assets that have value over long periods. The
building & the process equipment normally involve the largest assets of an enterprise, & since the
alternatives may involve expenditures & revenues with different timings, present values should be
used to place all of the monetary values on a common basis for comparison. But if we are dealing
with risky situations that require decision-tree analysis, then probabilities must be taken into
account, & the expected monetary values become the criteria.

3.Evaluation Of Alternatives & Decisions.

Although the economic criteria are of great significance in the basic decision to expand capacity
they may yield to qualitative differences in the selection of an alternative. Questions of location &
timing may depend on qualitative criteria that cant be reflected in the economic analysis.
Competitor factors among the alternatives may be of extreme importance and may outweigh
economic differences among the alternatives in the minds of the decision makers. As with
the analysis of technological alternatives, decision makers can make trade-offs between
economic & subjective values, thereby pricing the subjective advantages.

74

UNIT II
Chapter III
Plant layout
Meaning of plant layout
Objectives of plant layout
Types of layout
Costs associated with layout
Techniques of plant layout

MEANING OF PLANT LAYOUT

Plant layout means the disposition of the various facilities (equipments, material, manpower etc.)
within the areas of the site selected. Plant layout begins with the design of the factory building and
goes up to the location and movement of work. All the facilities like equipment, raw material,
75

machinery, tools, fixtures, workers etc. are given a proper place. In the words of James Lundy, It
identically involves the allocation of space and the arrangement of equipment in such a manner
that overall cost are minimized. According to MoNaughton Waynel, A good layout results in
comforts, convenience, appearance, safety and profit. A poor layout results in congestion, waste,
frustration and inefficiency.
Plant layout is very complex in nature as it involves concept relating to such fields as engineering,
architecture, economics and business administration. Hence a plant layout, with proper design,
encompasses all production and service facilities and provides for the most effective utilization of
men, with materials and machines constituting the process, is a master blue print for coordinating
all operations.

Objectives of a Good Plant Layout

The principal objective of a proper plant layout is to maximize the production at the minimum of
the costs. This objective should be kept in mind while designing a layout for a new plant as well
as while making the necessary changes in the exiting layout in response to change in
management polices and processes and techniques of production with the production system, i.e.
workers, supervisors and managers.
If a layout is to fulfill this goal, it should be planned with the following clear objectives in mind.
1)

2)
3)
4)
5)
6)
7)
8)
9)
10)
11)
12)

There is the proper utilization of cubic (i.e. length, width and height). Maximum use of
volume available should be made. For example, conveyors can be run above head
height and used as moving work in progress or tools and equipments can be suspended
from the ceiling. The principle is particularly true in stores where goods can be stored at
considerable height without inconvenience.
Waiting time of the semi-finished products is minimized.
Working conditions are safer, better (well ventilated rooms etc.) and improved
Material handling and transportation is minimized and efficiently controlled. For this ,
one has to consider the movement distances between different work areas as well as the
number of times such movements occur per unit period of time.
The movements made by the worker are minimized.
Suitable spaces are allocated to production centers.
Plant maintenance is simpler.
There is increased flexibility for changes in product design and for future expansion.
It must be capable of incorporating, without major changes, new equipment to meet
technological requirement or to eliminate waste.
A good layout permits material to move through the plant at the desired speed with
the lowest cost.
There is increased productivity and better product quality with reduced capital cost.
Boosting up employee morale by providing employee comforts and satisfaction.
The work should be so arranged the there is no difficulty in supervision, coordination
and control. There should be no hiding-places into which goods can be mislaid.

76

Goods raw materials and ready stocks must be readily observed at all times. It
will reduce the pilferage of material and labour.
It should be noted here that the above stated objectives of plant layout are laudable in themselves;
it is often difficult to reconcile all of them in a practical situation. And as such, the highest level of
skill and judgment are required to be exercised. For this, close association between the
entrepreneurs and experienced engineers is a must.

Types of Plant Layout

There are three basic types of plant layout:
(1) Functional or process layout,
(2) Product or line layout,
(3) Stationary layout. However the choice of one or the other type of layout depends upon the
machine and techniques used in the production.
(a)

(b)

Process Layout: It is also known as functional layout and is characterized by keeping

similar machines or similar operation at one location (place). In other words, separate
departments are established for each specialized operation of production and machines
relating to that functions are assembled there. For example, all lathe machines will be at
one place, all milling machines at another and so on. This type of layout is generally
employed for industries engaged in job-order production and non-standardized
products. The process layout may be illustrated in the
Diagram given below.
Receiving

Shipping
Surface

Lathe

Milling

Deptt

Deptt

Packaging

Finishing

Assembling
F I

C E

inspection

Advantages:
1)

Wide flexibility exits as regards allotment of work to equipments and workers.

The production capacity is not arranged in rigid sequence and fixed rate
capacity with line balancing. Alteration or change in sequence of operation can

77

2)
3)
4)
5)
6)

7)

easily be made as and when required without upsetting the existing plant layout
plan.
Better quality product, because the supervisors and workers attend to one type
of machine and operations.
Variety of jobs, coming as different job orders make the work more interesting
for workers.
Workers in one section are not affected by the nature of operations carried out in
another section. E.g. the rays of welding do not affect a lathe operator, as the
two sections are quite separate.
Like product layout, the breakdown of one machine does not interrupt the entire
production flow.
This type of layout requires lesser financial investment in machines and
equipments because general-purpose machine, which are usually of low cost,
are used and duplication of machine is avoided. Moreover, general-purpose
machine do not depreciate or become obsolete as rapidly as specialized
machines. It results in lower
investment in machines.
Under process layout, better and efficient supervision is possible because of
specialization in operation.

Disadvantages:
1) Automatic material handling is extremely difficult because fixed material handling
equipment like conveyor belt is not possible to use.
2) Completion of same product takes more time.
3) Raw material has to travel larger distances for getting processed to finished food.
This increases material handling and the associated costs.
4) It is not possible to implement the group incentive schemes on the basic of quantity
of the product manufactured.
5) This type of layout requires more floor space than the product layout because a
distinct department established for each operation.
6) Compared to line layout inventory investment are usually higher in case of process
layout. It increases the need of working capital in the form of inventory.
7) Under process layout, cost of supervision is high because (i) the number of
employees per supervisor is less that result in reduced supervisory span of
control, and (ii) the work is checked after each operation.
c) Product Layout: it is also known as line (type) layout. It implies that various operations on
a product are performed in a sequence and the machine are placed along the product flow line
i.e. machines are arranged in the sequence in which a given product will be operated upon.
This type of layout is preferred for continuous production i.e. involving a continuous flow inprocess material towards the finished product stage.

78

IN

OUT

Operation1

operation2

operation3

operation4

operation4

Advantages:
i)
ii)

iii)
iv)
v)

vi)

Automatic material handling, lesser material handling movement, times and cost.
Product completes in lesser time. Since material is fed at one end of the layout and
finished product is collected at the other end, there is no transportation of raw material
backward and forward. It shortens the manufacturing time because it does not require
any time-consuming interval transportation till the completion of the process of
production. Line balancing may eliminate idle capacity.
Smooth and continuous flow of work- This plant ensures steady flow of production
with economy because bottlenecks or stoppage of work at different point of production
is got eliminated or avoided due to proper arrangement of machine in sequence.
Less in-process inventory- The semi-finished product or work-in-progress is the
minimum and negligible under this type of layout because the process of production is
direct and uninterrupted.
Effective quality control with reduced inspection points -It does not require frequent
changes in the machine set-up. Since production process is integrated and continuous,
defective parts can easily be discovered and segregated. This makes inspection easy
and economical.
Maximum use of space due to straight production flows and reduced need of interim
storing.

Disadvantages:
i)
ii)
iii)
iv)
v)
vi)
vii)

Since the specific product determines the layout, a change in product involves major
changes in layout and thus the layout flexibility is considerably reduced.
The pace or rate of working depends upon the output rate of the slowest machine. This
involves excessive idle time for other machines if the production line is not adequately
balanced.
Machines being scattered along the line, more machines of each type have to be
purchased as stand by, because if one machine in the line fails, it may lead to shut
down of the complete production line
It is difficult to increase production beyond the capacities of the production lines.
As the entire production is the result of the joint effort of all operation in the line, it is
difficult to implement individual incentive schemes.
Since there is no separate department for various types of work, supervision is also
difficult.
Under this system, labour cost is high because

79

(a)

(b)
(c)

Absenteeism may create certain problems because every worker is specialist in

his own work or he specializes on a particular machine .In order to avoid the
bottleneck, surplus workers who are generalists and can be fitted on a number of
machines will have to be employed;
Monotony is another problem with the workers .By doing the work of repetitive
nature along assembly line, they feel bored. They have no opportunity to
demonstrate their talent;
Noise, vibrations, temperature, moisture, gas etc. may cause health hazards .In
this way, labour costs are high.

It is now quite clear from the above discussion that both the systems have their own merits and
demerits. Advantages of one type of layout are generally the disadvantages of other type. Thus
with a view to securing the advantage of both the systems a combined layout may be designed.

(c) Static Product Layout or Project Layout or Stationary Layout

The manufacturing operations require the movements of men, machines, and materials, in the
product layout and process layout generally the machines are fixed installations and the operators
are static in terms of their specified workstations. It is only the materials, which move from
operation to operation for the purpose of processing. But where the product is large in size and
heavy in weight, it tends to be static e.g. ship building. In such a production system, the product
remains static and men and machines move performing the operations on the product.

Advantages of stationery Layout:

The advantages of this type of layout are as under:
1. Flexible: This layout is fully flexible and is capable of absorbing any sort of change in
product and process. The project can be completed according to the needs of the customers
and as per their specifications.
2. Lower labour cost: People are drawn from functional departments. They move back to
their respective departments as soon as the work is over. This is economical, if a number of
orders are at hand and each one is in the different stage of progress. Besides, one or two
workers can be assigned to a project from start to finish. Thus it reduces labour cost.
3. Saving in time: The sequence of operations can be changed if some materials do not arrive
or if some people are absent. Since the job assignment is so long, different sets of people
operate simultaneously on the same assignment doing different operations
4.Other benefits:
(1) It requires less floor space because machines and equipment are in moving position
there is no need of fixing them.
(2) This arrangement is most suitable way of assembling large and heavy products.
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and

Disadvantages Of Stationery Layout:

The disadvantages of this type of layout are:
1. Higher capital investment: As compared to product or process layout, capital investment
is higher in this type of layout. Since a number of assignments are taken, investments in
materials, men and machines are made at higher cost.
2. Unsuitability: This type of layout is not suitable for manufacturing or assembling small
products in large quantities. It is suitable only in case where the product is big or the
assembling process is complex.

Factors influencing plant layout

The following are some important factors, which influence the planning of effective layout to a
significant degree.
1) Nature of the product: The nature of the product to be manufactured will significantly
affect the layout of the plant. Stationary layout will be most suitable for heavy products while
line layout will be best for the manufacture for the light products because small and light
products can be moved from one machine to another very easily and, therefore, more attention
can be paid to machine locations can be paid to machine locations and handling of materials.
(2) Volume of production: Volume of production and the standardization of the product also
affect the type of layout. If standardized commodities are to be manufactured on large scale,
line type of layout may be adopted.
(3) Basic managerial policies and decisions: The type of layout depends very much on the
decisions and policies of the management to be followed in producing the commodity with
regard to the size of plant, kind and quality of the product, scope for expansion to be provided
for, the extent to which the plant is to be integrated, amount of stocks to be carried at anytime,
the kind of employee facilities to be provided etc.
(4) Nature of plant location: The size shape and topography of the site at which the plant is
located will naturally affect the type of layout to be followed in view of the maximum utilization
of the space available .For e.g., if a site is near the railway line the arrangement of general layout
for receiving and shipping and for the best flow of production in and out the plant may be made by
the side of the railway lines .If space is narrow and the production process is lengthy, the layout of
plant may be arranged on the land surface in the following manner:

IN
IN

OUT
OUT

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(5) Type of industry process: This is one of the most important factors influencing the choice of
type of plant layout. Generally the types of layout particularly the arrangement of machines and
work centers and the location of workmen vary according to the nature of the industry to which the
plant belongs. For the purpose of lay out, industry may be classified into two broad
categories:
(i) Intermittent and (ii) continuous. Intermittent type of industries is those, which manufacture
different component or different machines.
Such industries may manufacture the parts, when required according to the market needs.
Examples of such industries are shipbuilding plants. In this type of industry functional layout may
be the best. The second type of industry in continuous industry. in this type of industry raw
material are fed at one end and the finished goods are received at another end. A continuous
industry may either be analytical or synthetic . A analytical industry breaks up the raw material into
several parts during the course of production process or changes its form, e.g. oil and sugar
refineries. A synthetic industry on the other hand mixes the two or more materials to manufacture
one product along with the process of production or assembles several parts to get finished
product. Cement and automobiles industries are the examples of such industry. Line layout is more
suitable in continuous process industries.
6. Types of methods of production: Layout plans may be different according to the method of production proposed to be adopted. Any
of the following three methods may be adopted for production- (1) Job order production, (2) batch
production, and (3) mass production. Under job production goods are produced according to the
orders of the customers and therefore, specification vary from customer to customer and the
production cannot be standardized. The machines and equipment can be arranged in a manner to
suit the need of all types of customers. Batch production carries the production of goods in batches
or group at intervals. In this type of manufacturing the product is standardized and production is
made generally in anticipation of sales. In such cases functional or process layout may be adopted.
In case of mass production of standardized goods, line layout is most suitable form of plant layout.
7. Nature of machines:Nature of machines and equipment also affects the layout of plants. If machines are heavy in
weight or create noisy atmosphere, stationery layout may reasonably be adopted. Heavy machines
are generally fixed on the ground floor. Ample space should be provided for complicated machines
to avoid accidents.
7. Climate:Sometimes, temperature, illumination and air are the deciding factors in the location of machines
and their establishments. For example, in lantern manufacturing industry, the spray-painting room

82

is built along the factory wall to ensure the required temperature control and air expulsion and the
process of spray painting may be undertaken.
9.Nature of material: Design and specification of materials, quantity and quality of materials and combination of
materials are probably the most important factors to be considered in planning a layout. So,
materials storage, space, volume and weight of raw materials, floor load capacity, ceiling height
,method of storing etc. should be given special consideration. This will affect the space and the
efficiency of the production process in the plant. It will facilitate economic production of goods
and prompt materials flow and soundly conceived materials handling system.
10. Type of machine: Machines and equipment may be either general purpose or special purpose. In addition certain
tools are used. The requirements of each machine and equipment are quite different in terms of
their space; speed and material handling process and these factors should be given proper
consideration while choosing out a particular type of layout. This should also be considered that
each machine and equipment is used to its fullest capacity because machines involve a huge
investment. For instance, under product layout, certain machines may not be used to their full
capacity so care should be taken to make full use of the capacity of the machines and equipment.
12.Human factor and working conditions:Men are the most important factor of production and therefore special consideration for their
safety and comforts should be given while planning a layout, specific safety items like obstructionfree floor, workers not exposed to hazards, exit etc. should be provided for. The layout should also
provide for the comforts to the workers such as provision of rest rooms, drinking water and other
services etc. sufficient space is also to be provided for free movement of workers.
13. Characteristics of the building: Shape of building, covered and open area, number of storeys, facilities of elevators, parking area
and so on also influence the layout plan. In most of the cases where building is hired, layout is to
be adjusted within the spaces available in the building. Although minor modification may be done
to suit the needs of the plants and equipment. But if any building is to be constructed, proper care
should be given to construct it according to the layout plan drawn by experts. Special type of
construction is needed to accommodate huge or technical or complex or sophisticated machines
and equipment.
Costs Associated With Plant Layout
The costs associated with a decision on plant layout are:
Cost of movement of material from one work area to another.
Cost of space.
Cost of production delay, if any, which are indirect costs.

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 Cost of spoilage of material, if any, when the materials are staged or stored in condition which
determine the quality of the material
Cost of labor dissatisfaction and health risks
Cost of changes required, if the operational conditions changed in the future. This is the longterm cost.
A good layout should minimize all these costs put together.

Techniques of plant layout

In designing or improving the plan of plant layout, certain techniques or tools are developed and
are in common use today. The techniques or tools are as follows:
1)Charts and diagrams:
In order to achieve work simplification, production engineers make use of several charts and
diagrams for summarizing and analyzing production process and procedure. These include
a)Operation process chart:
It subdivides the process into separate operations and inspection. When a variety of parts and
products are manufactured which follow a different path across several floor areas, an operation
process chart may be necessary for the important material items or products. The flow lines of the
charts indicate the sequence of all operation in the manufacturing cycle.
Flow process chart:
This chart is the graphic summary of all the activities taking place on the production floor of an
existing plant. By preparing this type of chart, it can be found out as to where operations can be
eliminated , rearranged, combined, simplified or subdivided for greater economy.
Process flow diagram:
The diagram is both supplement and substitute of process flow chart. It helps in tracing the
movement of material on a floor plan or layout drawing. A diagram may be drawn to scale on the
original floor plan to show the movement of work. It is a good technique to show long materials
hauls and backtracking of present layouts, thereby indicating how the present layout may be
improved. Colored lines can show the flow of several standards products.
Layouts, thereby indicating how the present layout may be improved. Colored lines can show the
flow of several standard products.
This diagram can be used to analyze the effectiveness of the arrangement of the plant activities, the
location of specific machines, and the allocation of space. It shows how a more logical
arrangement and economical flow of work can be devised.
(2) Machines data card: This card provides full information necessary for the placement and
layout of equipment. The cards are prepared separately for each machine. The information
generally given on these cards include facts about the machine such as capacity of the machines,
scape occupied, power requirements, handling devices required and dimensions.
(3) Templates: Template is the drawing of a machine or tool cut out from the sheet of paper.
Cutting to scale shows the area occupied by a machine. The plant layout engineer prepares a floor
plan on the basis of reel vent information made available to him. The template technique is an
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important technique because (i) it eliminates unnecessary handlings, (ii) minimize backtracking of
materials, (iii) it makes the mechanical handling possible, (iv) it provides a visual picture of
proposed or existing plan of layout at one place, (v) it offers flexibility to meet future changes in
the production requirements.
(4) Scale models: Though the two-dimensional templates are now in extensive use in the fields of
layout engineering but it is not much use to executives who cannot understand and manipulate
them .One important drawback of template technique is that it leaves the volume, depth, height and
clearance of the machines to the imaginations of the reader of the drawing. These drawbacks of the
template technique have been removed through the development of miniature scale models of
machinery and equipment cast in metal.
With scale models, it has now become possible to move tiny figures of men and machines around
in miniature factory .The miniature machines and models of material handling equipment are
placed in a miniature plant and moved around in pawn on a chessboard.
(5) Layout drawings: Completed layouts are generally represented by drawings of the plant
showing wall, columns, stairways, machines and other equipments, storage areas and office areas.
The above techniques and tools are used for the planning of layout for the new plant.

UNIT II

Chapter V
Material handling system
Factors & principles of material handling system
Types of material handling equipment

85

MATERIAL HANDLING SYSTEMS

According to American Handling Society Materials Handling is the art and science involving the
movement, packing and storing of substances in any form.

Material Handling includes: 1.

2.
3.
4.
5.

Lifting, moving, dropping, positioning, holding, releasing, stacking etc.

Single or in lot movement.
Vertical, horizontal or combination of both.
Fluid, semi-fluid and discrete items.
Attribute to 20% of production cost.

Analysis of material handling problem

1. The reduction of material handling cost
2. Collection of factual data e.g.- type, weight of goods, transportation area, type of material
handling
3. Analyzing the data so that cost advantage can be taken
4. Application of principles of material handling
5. The formulation of solution

Factors affecting material handling1.

2.
3.
4.

Type of product- bulk, shape, weight, fragility, liquidity etc.

Plant layout- sequence of movement of materials depends on layout
Type of production system
Factory building- Floor strength, ceiling heights, type and strength of roofs, door locations
and sizes.
5. Production planning and control- Routing and scheduling are closely related to material
handling.
6. Packaging
7. Material handling equipment- Available and proposed

Principles of material handling

1.
2.
3.
4.
5.

Least movement
Type of each move should be minimized
Distance of each move should be short route
Movement in lots rather than on individual basis
Gravity should be used
86

6. Rehandling and back tracking should be avoided

7. Appropriate material handling which is safe, efficient and flexible should be used,
8. Material handling service should not interrupt production flow
9. Safety of people
10. Provision of stand-by facilities
11. Repair and maintenance-periodically
12. Periodical review of material handling system

TYPICAL FLOW PATTERN OF MATERIAL

Types of equipment1.
2.
3.
4.
5.
6.
7.

Cranes and Hoists

Conveyors
Chutes
Trucks, Tractors
Rails
Rope ways
Pipelines
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Features of good material handling equipment

1.
2.
3.
4.
5.
6.

Minimizes movement of material

Avoids unproductive handling
Reduces idle machine capacity
Reduces factory hazards
Effective production control
Better customer services
i. Reduced operating cost
ii. Better quality of products
iii.
Timely production

Types of material handling systems

The material handling systems can be classified according to the type of handling equipment used,
type of material handled and the methods ,need or function performed.
1. Equipment Oriented Systems depending upon the type of equipment used are:a)
b)
c)
d)
e)
f)

Overhead systems
Conveyor systems
Tractor transfer system
Fork-lift truck and pallet truck system
Industrial truck system
Underground truck system

2. Material Oriented Systems Consisting of:a) Unit Handling Systems

b) Bulk Handling System
c) Liquid Handling System

3. Method Oriented Systems are of following types:a)

b)
c)
d)

Manual System
Mechanized or automated system
Job Shop handling system
Mass-production handling system

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4. Function Oriented Systems such as:a) Transportation Systems

b) Transferring Systems
c) Elevating Systems
Steps to be followed in the selection and design of material handling system.
1.
2.
3.
4.
5.
6.
7.

Identification of the appropriate Systems

Review of design criteria and objectives of handling systems
Collection of data regarding flow pattern and flow requirement
Identification of activity relationship between departments
Determination of space requirement and establishment of material flow pattern
Analysis of material and building characteristic
Preliminary selection of basic handling system and generation of alternative system
considering feasibility of mechanization and equipment capabilities
8. Evaluation of alternatives with respect to optimal material flow, utilizing gravity minimum
cost, flexibility, case of maintenance and capacity utilization
9. Selection of the best suitable alternative system and checking it for compatibility with the
layout
10. Specification of the system
11. Procurement of the equipment and installation of the system.

Types of materials handling equipment

Conveyors
These are gravity or powered devices, commonly used for moving loads from point to point over
fixed paths. The various types of conveyors are:a) Belt conveyor- Motor driven belt, usually made of rubberized fabric or metal fabric on a
rigid frame.
b) Chain Conveyor- Motor driven chain that drags material along a metal slide base.
c) Roller conveyor- Boxes, large parts or unit loads roll on top of a series of roller mounted
on a rigid frame
d) Pneumatic conveyor:- High volume of air flows through a tube, carrying material
along with the air flow.

Cranes, Elevators and Hoists

These are overhead devices used for moving varying loads intermittently between points within an
area, fixed by supporting and binding rails.

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1. Graves are devices mounted on overhead rails or ground level wheels or rails.
2. Elevator are a type of graves that lift material usually between floors of building
3. Hoists are devices, which move materials vertically and horizontally in a limited area.

Industrial Trucks
These devices are used for moving mined or uniform loads intermittently over variable paths. They
are electric, diesel, gasoline or liquefied petroleum, gas-powered vehicle equipped with lead,
forklift truck, pallet trucks, tractor with trailers, hand trucks and power trolleys.

Miscellaneous Handling Equipment

1. Pipelines, which are closed tubes that transport liquids by means of pumps or gravity
2. Automatic transfer devices, which automatically grasp material, hold them firmly while
operation are being performed and move them to other location.
3. Automated guided vehicle are the devices, which do not require operators and provide a
great deal of flexibility in the path they travel and the function they perform.
4. Industrial robots are the devices, which has a movable arm like projection with a gripper
on the end that can perform a variety of repetitive tasks.

UNIT III

Chapter I
Aggregate planning

Meaning
Characteristics and objectives
Linear programming model
Transportation model
H.M.M.S MODEL

90

Aggregate Planning
Production planning in the intermediate range of time is termed as Aggregate Planning . It is
thus called because the demand on facilities and available capacities is specified in aggregate
quantities e.g. aggregate quantities of thousands of litres of paint , or tons of fabrication work ,
or number of automobiles etc.
Aggregate planning is made within the broad framework of the long-range plan. Usually the
planning horizon for such plan is from a month to a year . The physical plant and equipment
capacity would be fixed over this planning horizon . Therefore the sales orders have to be met
by strategies like : 1. Overtime
2. Additional temporary workers .
3. Inventory .
4. Sub- contracting .
5. Having backlog of orders .
6. Smoothening of demand .
7. Turning down some sales orders .
Each of these strategies has a cost associated with it . The marginal cost of overtime is easy to
estimate , whereas the costs of undertime are not easy to determine . The hiring costs include
the costs of selection , the costs of training and the cost of maintaining additional records .
There are also costs associated with learning on the job of a newly hired employee.
Costs of inventory include the cost of capital for carrying the inventory , the cost of
obsolescence , taxes and insurance etc.
Stock- out costs are cost due to loss of goodwill and loss of sales of the customer . The cost of
sub- contracting is the amount by which
the subcontracting costs is greater than the
manufacturing cost at the higher level of production .
Characteristics of aggregate planning:

91

Considers a "planning horizon" from about 3 to 18 months, with periodic updating

Looks at aggregate product demand, stated in common terms

Looks at aggregate resource quantities, stated in common terms

Possible to influence both supply and demand by adjusting production rates, workforce
levels, inventory levels, etc., but facilities cannot be expanded.

Production Plan (manufacturing aggregate plan):

A managerial statement of the period-by-period (time-phased) production rates, work-force
levels, and inventory investment, given customer requirements and capacity limitations.
Staffing Plan (service aggregate plan):
A managerial statement of the period-by-period staff sizes and labour-related capacities,
given customer requirements and capacity limitations.

Objectives of Aggregate Planning

Objective of aggregate planning frequently is to minimize total cost over the planning
horizon.
Other objectives which should be considered:

maximize customer service

minimize inventory investment

minimize changes in workforce levels

minimize changes in production rates

maximize utilization of plant and equipment

Aggregate Planning Strategies

Active strategy:

Attempts to handle fluctuations in demand by focusing on demand management

Use pricing strategies and/or advertising and promotion

Develop counter-cyclical products

Request customers to backorder or advance-order

Do not meet demand

Passive strategy (reactive strategy):

Attempts to handle fluctuations in demand by focusing on supply and capacity

management

Vary work force size by hiring or layoffs

92

Vary utilization of labour and equipment through overtime or idle time

Build or draw from inventory

Subcontract production

Negotiate cooperative arrangements with other firms

Allow backlogs, back orders, and/or stockouts

Mixed strategy:

Combines elements of both an active strategy and a passive (reactive) strategy

Firms will usually use some combination of the two

Linear Programming Model

It is the most common model. Linear Programming models can be solved manually if they are
simple enough or by means of computer packages if they are complex. By solving a linear
programming model, we can get a period wise allocation of our regular time capacities in order to
meet the sales forecast or the requirements forecast in the most economical fashion .

Transportation Problem Model

E.H. Bouman has given a transportation problem approach to aggregate planning . The model
considers a combination of only three strategies :
1. Regular time production .
2. Overtime production .
3. Inventory.

H.M.M.S Model
The H.M.M.S. model , (C.C. Hold , F. Modiglani , J.Muth, H.Simon ) uses quadratic functions
for the different costs such as overtime , inventory , hiring and lay-off , backlog etc. For this
model the following costs are considered :
1. Costs relating to production level with optimal workforce .
2. Hiring costs
3. Layoff costs
4. Overtime costs .
5. Undertime costs .
6. Inventory holding costs.
7. Back- order costs.
Finding Optimal Solutions Using Linear Programming
- Aggregate planning problems can be solved optimally using linear programming (LP).
- Given the constraints on requirements, production capabilities, allowed workforce changes,
overtime and subcontracting limits plus all relevant costs LP will find an optimal solution to the
problem which minimizes total costs.
93

UNIT III

Chapter II
Production planning and control
Meaning and objectives of production planning
Production planning an integral part of corporate plan
Meaning of production control
Objectives of production control
Production planning and control(PPC)
PPC for shop production
PPC for mass production

94

 Sequencing or prioritisation

Production Planning And Control

Planning and control are basic managerial functions which are essential to every organized
activity. Proper planning and control of manufacturing activities or the production system is equally
essential for efficient and economical production. Economy and productivity are to a large extent
directly proportional to the thoroughness with which the planning and control functions are
performed. In a modern enterprise, production is a complex system and steps must be taken to
ensure that goods are produced in the right quantity and quality, at the right time and place and by
the most efficient methods possible. This is the task of production planning and control.

Production planning
Production planning is concerned with deciding in advance what is to be produced, when to be
produced, where to be produced and how to be produced. It involves foreseeing every step in the
process of production so as to avoid all difficulties and inefficiency in the operation of the plant.
Production planning has been defined as the technique of forecasting or picturing ahead every step in
a long series of separate operations, each step to be taken in the right place, of the right degree, and
at the right time, and each operation to be done at maximum efficiency. In other words, production
planning involves looking ahead, anticipating bottlenecks and identifying the steps necessary to
ensure smooth and uninterrupted flow of production. It determines the requirements for materials,
machinery and man-power; establishes the exact sequence of operations for each individual item and
lays down the time schedule for its completion.

Objectives of Production Planning

The basic objectives of production planning are as under:(i)
On the basis of the sales forecast and its engineering analysis, to estimate the kind of the
resources like men, materials, machines, methods etc. in proper quantities and qualities.
It also estimates when and where these resources will be required so that the production
of the desired goods is done most economically.
(ii)

It also aims to make all necessary arrangement so that the production targets as set in the
production budget and master schedules are reached. While attaining these targets,
adjustments are made for the fluctuations in the demand.

95

For an effective planning of production activities, the executives concerned must have
complete information regarding the following:(i)

Engineering data including complete analysis of the product to be manufactured ,the

operations, processes and methods through which each component or class of product
must pass, the nature of inspection required, and the method of assembly.
(ii)
Machine analysis giving full information regarding speeds of all available machines
and their maximum capacity to perform certain operations, and the rate of output per
day, week or month, and the maximum plant capacity per day for each process or
operation.
(iii)
The various types and classes of tools and equipment required of production.
(iv)
Material analysis giving full information as to the type, quality and quantity of the
raw material to be used in each process or operation. Also, information as to raw
materials in stores, how much are on order, and how much are a located or reserved
for current orders.
(v)
The characteristics of each job and the degree of skill and personnel qualifications
required for the effective performance of each such job.
(vi)
Information relating to power production and consumption, internal transport and
material handling service.
(vii)
Job analysis giving information as to what methods of operation would yield
uniformity of output, ease in production and reduction in costs.
(viii)
Information as to the customers orders on hand, and the delivery for customers, and
what for stock purpose.
It is the job of the production department to arrange for the order in which the work will be done
the routing and scheduling of work, and determine what machines tools, workplaces materials
and operatives should do the work.
A balanced production planning would tend to increase operating efficiency by stabilizing
productive activities, facilitate selling and customer service, and help reduce production cost by
providing reliable basis for investment in raw materials and tools. It would promote fuller
utilization of plant, equipment and labour by controlling all time and efforts essential in
manufacturing.
Levels of Production Planning
Production planning can be done at three levels namely Factory Planning, Process Planning and
Operation Planning which are as follows:
(i)
Factory Planning: At this level of planning the sequence of work/ tasks is planned in
terms of building machines and equipment required for manufacturing the desired goods
and services. The relationship of workplaces in terms of departments is also planned at
this stage taking into consideration the space available for the purpose.
(ii)
Process Planning: There are many operations involved in factory planning for
transforming the inputs into some desired end product. In process planning these
operations are located and the sequence of these operations in the production process is
determined. Plans are also made for the layout of work centers in each process.
(iii)
Operation Planning: It is concerned with planning the details of the methods required
to perform each operation viz. selection of work centers, designing of tools required for

96

various operations. Then the sequences of work elements involved in each operation are
planned. Specifications about each transfer, work centers, nature of tools required and
the time necessary for the completion of each operation are prescribed.

Production Control
All organizations irrespective of size, use production control to some degree. In small organizations,
the production control may be performed by one person; but in large complex industries the
production control department is normally well-organised and highly specialized. Production
control presupposes the existence of production plans, and it involves the use of various control
techniques to ensure production performance as per plans. Co-ordinating men and materials and
machines is the task of production control.
Production control may be defined as the process of planning production in advance of operations;
establishing the exact route of each individual item, part of assembly; setting and finishing dates for
each important item, assembly and the finished products, and releasing the necessary orders as well
as initiating the required follow-up to effectivate the smooth functioning of the enterprises.
According to Henry Fayol, production control is the art and science of ensuring that all which occurs
is in accordance with the rules established and the instructions issued. Thus, production control
regulates the orderly flow of materials in the manufacturing process from the raw material stage to
the finished product.
Production control aims at achieving production targets, optimum use of available resources,
increased profits through productivity, better and more economic goods and services etc. An
effective production control system requires reliable information, sound organization structure, a
high degree of standardization and trained personnel for its successful operation.
A sound production control system contributes to the efficient operation of plant. In terms of
manufacturing customers orders, production control assures a more positive and accurate
completion and delivery date. Delivering an order on time is obviously important to the customer
and to the development of customer goodwill. Production control also brings plan and order to
chaotic and haphazard manufacturing procedures. This not only increases the plant efficiency but
also makes it a more pleasant place in which to work. Most people recognize that employees prefer
to work and do better work under conditions of obvious control and plan. Morale may be
considerably improved.. Effective production control also maintains working inventories at a
minimum, making possible a real saving in both labour and material investment. Thus, good
production control helps a company operate and produce more efficiently and achieve lowest
possible costs.

Objectives of Production Control

The success of an enterprise greatly depends on the performance of its production control
department. The production control department generally has to perform the following functions:
(i)
Provision of raw material, equipment, machines and labour.
(ii)
To organize production schedule in conformity with the demand forecasts.
(iii)
The resources are used in the best possible manner in such a way that the cost of
production is minimized and delivery date is maintained.
(iv)
Determination of economic production runs with a view to reduce setup costs.
97

(v)

Proper co-ordination of the operations of various sections/departments responsible for

production.
(vi)
To ensure regular and timely supply of raw material at the desired place and of prescribed
quality and quantity to avoid delays in production.
(vii) To perform inspection of semi-finished and finished goods and use quality control
techniques to ascertain that the produced items are of required specifications.
(viii) It is also responsible for product design and development.
Thus the fundamental objective of production control is to regulate and control the various
operations of production process such a way that orderly flow of material is ensured at different
stages of the production and the items are produced of right quality, in right quantity, at the right
time with minimum efforts and cost.
Levels of Production Control
Production control starts with some particular goal and formulation of some general strategy for the
accomplishment of desired objectives. There are three levels of production control namely
programming, ordering and dispatching. Programming plans the output of products for the factory
as a whole. Ordering plans the output of components from the suppliers and processing
departments. Dispatching considers each processing department in turn and plans the output from
the machine, tools and other work centers so as to complete the orders by due date.
Factors Determining Production Control Operations
The nature of production control operations varies from organization to organization. The
following factors affect the nature and magnitude of production control methods in an
organization.
(i)
Nature of production: In job-oriented manufacturing, products and operations are
designed for some particular order which may or may not be repeated in future. Hence
production usually requires more time, whereas in a continuous manufacturing system
inventory problems are more complex but control operations are rather simple due to
fixed process. In mixed stock and custom manufacturing systems the problem of
control is further complicated due to simultaneous scheduling of combined process.
(ii)
Nature of operations/activities: In intermittent manufacturing system the operations are
markedly varied in terms of their nature, sequence and duration. Due to this the control
procedure requires continuous modifications and adjustments to suit the requirements
of each order.
(iii)
Magnitude of operations: Centralised control secures the most effective co-ordination
but as an organization grows in size, decentralization of some production control
functions becomes necessary. The degree to which the performance of an activity
should be decentralized depends upon the scope of operations and convenience of their
locations.

Production planning and control

Planning and control are interrelated and interdependent. Planning is meaningless unless control
action is taken to ensure the success of the plan. Control also provides information feedback
which is helpful in modifying the existing plans and in making new plans. Similarly, control is
dependent on planning as the standards of performance are laid down under planning. Therefore,

98

production and control should be considered an integrated function of planning to ensure the most
efficient production and regulation of operations to execute the plans successfully.
Production planning and control may be defined as the direction and coordination of the firms
material and physical facilities towards the attainment of pre-specified production goals in the
most efficient available way .It is the process of planning production in advance of operations,
establishing the exact route of each individual item, part or assembly, setting starting and finishing
dates for each important item or assembly and finished products, and releasing the necessary
orders as well as initiating the required follow up to effectuate the smooth functioning of the
enterprise. Thus, production planning and control involves planning, routing, scheduling,
dispatching and expediting to coordinate the movements of materials, machines and manpower as
to quantity, quality, time and place. It is based upon the old adage of first plan your work and
then work your plan.

Objectives of Production Planning and Control

The main objective of production planning and control is to ensure the coordinated flow of
work so that the required number of products are manufactured in the required quantity and of
required quality at the required time at optimum efficiency. In other words, production planning
and control aims at the following purposes:
(i)

(ii)

(iii)

(iv)
(v)
(vi)

(vii)
(viii)

Continuous Flow of Production: It tries to achieve as smooth and continuous

production by eliminating successfully all sorts of bottlenecks in the process of
production through well-planned routing and scheduling requirements relating to
production work.
Planned Requirements of Resources: It seeks to ensure the availability of all the inputs
i.e. materials, machines, tools, equipment and manpower in the required quantity, of the
required quality and at the required time so that desired targets of production may be
achieved.
Co-ordinated work Schedules: The production activities planned and carried out in a
manufacturing organization as per the master schedule. The production planning and
control tries to ensure that the schedules to be issued to the various
departments/units/supervisors are in co-ordination with the master schedule.
Optimum Inventory: It aims at minimum investment in inventories consistent with
continuous flow of production.
Increased Productivity: It aims at increased productivity by increasing efficiency and by
being economical. This is achieved by optimizing the use of productive resources and
eliminating wastage and spoilage.
Customer Satisfaction : It also aims at satisfying customers requirements by producing
the items as per the specifications or desires of the customers. It seeks to ensure
delivery of products on time by co-ordinating the production operations with
customers orders.
Production and Employment Stabilisation: Production planning and control aims at
ensuring production and employment levels that are relatively stable and consistent
with the quantity of sales.
Evaluation of Performance: The process of production planning and control is expected
to keep a constant check on operations by judging the performance of various

99

individuals and workshops and taking suitable corrective measures if there is any
deviation between planned and actual operations.

Importance of Production Planning and Control

The system of production planning and control serves as the nervous system of a plant. It
is a co- ordinating agency which co-ordinate the activities of engineering, purchasing, production,
selling and stock control departments. An efficient system of production planning and control
helps in providing better and more economic goods to customers at lower investment. It is
essential in all plants irrespective of their nature and size. The principal advantages of production
planning and control are summarized below:
(i)
Better Service to Customers: Production planning and control, through proper scheduling
and expediting of work, helps in providing better services to customers is terms of better quality of
goods at reasonable prices as per promised delivery dates. Delivery in time and proper quality,
both help in winning the confidence of customers, improving relations with customers and
promoting profitable repeat orders.
(ii)
Fewer Rush Orders : In an organization, where there is effective system of production
planning and control, production, operations move smoothly as per original planning and matching
with the promised delivery dates. Consequently, there will be fewer rush orders in the plant and
less overtime than, in the same industry, without adequate production planning and control.
(iii)
Better Control of Inventory : A sound system of production planning and control helps in
maintaining inventory at proper levels and, thereby, minimizing investment in inventory. It
requires lower inventory of work-in-progress and less finished stock to give efficient service to
customers. It also helps in exercising better control over raw-material inventory, which contributes
to more effective purchasing.
(iv)
More Effective Use of Equipment : An efficient system of production planning and control
makes for the most effective use of equipment. It provides information to the management on
regular basis pertaining to the present position of all orders in process, equipment and personnel
requirements for next few weeks. The workers can be communicated well in advance if any
retrenchment, lay-offs, transfer, etc. is likely to come about. Also, unnecessary purchases of
equipment and materials can be avoided. Thus, it is possible to ensure proper utilization of
equipment and other resources.
(v)
Reduced Idle Time : Production planning and control helps in reducing idle time i.e. loss
of time by workers waiting for materials and other facilities; because ensures that materials and
other facilities are available to the workers in time as per the production schedule. Consequently,
less man-hours are lost, which has a positive impact on the cost of production.
(vi)
Improved Plant Morale : An effective system of production planning and control coordinates the activities of all the departments involved in the production activity. It ensures even
flow of work and avoids rush orders. It maintains healthy working conditions in the plant thus
,there is improve plant morale as a by-product.

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(vii) Good public image: A proper system of production planning and control is helpful in keeping
systematized operations in an organization .Such an organization is in a position to meet its orders
in time to the satisfaction of its customers. Customers satisfaction leads to increased
sales,increased profits ,industrial harmony and, ultimately, good public image of the enterprise .
(viii)
Lower capital requirements: Under a sound system of production planning and control ,
everything relating to production is planned well in advance of operations.
Where, when and what is required in the form of input is known before the actual production process
starts .Inputs are made available as per schedule which ensures even flow of production without any
bottlenecks .Facilities are used more effectively and inventory levels are kept as per schedule neither
more nor less .Thus ,production planning and control helps, in minimizing capital investment in
equipment and inventories.

Sequencing Or Prioritization
After assignment it is also necessary to decide on the sequence in which the jobs are to be processed
in a work center. This relative prioritization determines the actual time schedule of the individual
jobs.
OBJECTIVE OF SEQUENCING- completing by the due date, or with as little delay as possible, as many work orders as
possible. (this has three components: one is completing , another is on- time and third is
minimum delay which could be expressed as delay or a range of delay.
- Utilizing the machinery and such other capital investment to the maximum extent possible
- utilizing the manpower capacity to the maximum extent possible.
- Minimizing the working capital investment in inventories of semi- processed materials.
- Sequencing decides the actual time schedule of each job.
- Imagine there are 2 machines and 2 jobsJOB1
JOB2

LATHE
10 HRS
12 HRS

MILLING
15 HRS
14 HRS

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We can conclude from above that there will be a queue. In an actual factory, a job involves a no: of operations
with use of machines. Therefore the priority rules will have a significant effect on the shop performance.
A job shop can be thought of a complex queuing s system with probabilistic times multiple channels, multiple
servers, with different set of servers, the priority rule or queue discipline has a very important role to play in a
queuing system.
VISUAL AIDSOne of the simplest methods /approaches to scheduling is through the use of various visual aids,
facilitating the planning of jobs through work centers and depicting the progress of jobs against
what is planned. The earliest of these charts was developed by Henry L. Gantt during the early part
of the 20 th century. The gnat chart shows how each machine or work center is planned for work
on diff job orders- the scheduled start or finish times the extent of actual completion of various
jobs every day. Gnat chart is useful for control & corrective actions.
Johnsons rule
S. M Johnson presented a sequencing rule for a situation where there are n jobs to be processed
through two machines/ work centers. The rule results in min total completion time for there
n jobs by minimizing the total idle- times of the machines could be any no: of machines.

UNIT III

Chapter III
Production scheduling
Meaning of scheduling
Techniques of scheduling

102

Scheduling
In this Chapter , we will discuss methods of scheduling tasks or operations on available resources
so as to achieve some objectives . An example of a scheduling problem is to determine the order in
which jobs in a manufacturing plant will be completed so that the number of on time deliveries
are maximized . other examples of scheduling include the running of programs at a computing
center the processing of loan applications by a bank , the landing of procedure aircraft at an
airstrips , and performing medical tests on a default , an arbitrary , such as first come first served to
a companys objectives we hope to demonstrate that demonstrate that , by using scientific
procedures for scheduling ,a scheduling , a company can achieve significantly better performance
on started objectives.

Single Processor Scheduling

Consider a hypothetical automated chemical plant that produce several different products, but only
one product can be produced at a time . suppose that production manager of the plant has to decide
on the scheduling of four products , the production time and due dates for which are shown in table
10-1. the table shows, for example , that product 4 will require 8 days in manufacturing and that it
is due to be Delivered in 17 days . The production manager has several alternatives for scheduling
the production of these products . For example, he could produce product 1 first and then product
2,followed by product 3, and finally product 4, alternatively , he could produce product 4 product 2
next , then product 1, and finally product 3. In fact , there are 4x 3x 2x1 =24 distinct ways of
scheduling the production of these four products . The decision facing the production manager is
which one of these possible 24 schedule should be chosen ?
This simplified example Illustrates the problem of scheduling on a single processor . single
processor or single machine scheduling is of interest for the following reasons .

There are many situations where an entire plant can be viewed as a single processor , as is
the case in chemical manufacturing , paint manufacturing , and the manufacturing of
products in automated plants .

.In plants that employ multiple processor , there is often a bottleneck processor that control the output
of the plant because of its limited capacity . The analysis of this bottleneck processor may determined
the decision for the entire plant .The analysis of a single processor illustrates many important problem
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that arise in more complex scheduling situation , therefore , it serves as a building block for
understanding the decision problem in these more complex situations.
Product
-Prodution time , days
Due date , days
1
4
6
2
3
4

7
2
8

9
19
17

Notation &definitions
Each job in the single processor-scheduling model is described by two parameters:
Pi = processing time for job i
di =due date for job i
In addition, in some cases, ri, the ready time, release time, or arrival time of job I may be useful. In
the models discussed here, all jobs are available for processing at time zero and hence ri = 0 for all
jobs.
The definition of Pi includes set-up time for job i. If job I is defined as a lot of several
identical pieces then Pi will denote the time required to process the complaining considerations.
We will consider the due date to be the time by which a job must be completed ;otherwise the job
will be deemed late.
Several variables determine the solution of a scheduling decision. Some of the more
important of these are
Wi= waiting time for job i
Ci = completion time of job i
Fi= flow time of job i
Li= lateness of job i
Ti = tardiness of job i
Ei=earliness of job i
Wi is the amount of time job I has to wait before its processing begins. The first job on the
schedule will have zero waiting time, and the second job on the schedule will have to wait by the
amount of the processing time of first job. Ci is simply the time at which the processing of job I is
completed. Fi is the amount of time a job spends in the system; thus Fi = Ci-Ri. Since in our case
ri=0, Fi =Ci... Lateness Li, is the amount of time by which the completion time of job I exceeds its
due date. Thus Li =Ci-di. Note that Li can be either positive or negative. A positive lateness
represents the completion of a job before its due date and is called tardiness, Ti.similarly a nagative
lateness represents the completion of a job before due date and is called earliness Ei., Thus, the
three measures of schedule, Li,,Ti ,Ei measures the deviation of the completion time from the due
date. Since there is often a penalty associated with not meeting due dates, the tardiness measure is
usually used. However in some case there may be a penalty for being either or too late (e.g., crop
harvesting), so both tardiness &earliness measures may be useful.

104

Criteria and objective functions for scheduling

Several criteria can be employed to evaluate the performance of a schedule. The scheduling criteria
chosen in a given situation depend on the objective function of the manager. For example the
underlying objective function or cost function of the company may be such that a penalty is
associated with a tardy job ,but once a job is delayed , the amount of tardiness does not influence
the cost . In this situation, a scheduling criterion that minimizes the number of tardy jobs will be
most appropriate for selecting an optimal schedule.
Suppose there are n jobs to be scheduled. Some commonly employed criteria are described
in the following material:
Mean flow time = F =1/nFi
This criterion measures the average amount of time that a job spends in the system. Minimization
of F is appropriate when rapid turnaround is required &when the objective is to keep a low in
process inventory. Rapid turnaround may provide a competitive advantage to the company when
customers are sensitive to fast deliveries.
Mean tardiness = T =1/nTi
This criterion is useful when the objective function of the company includes a penalty per unit of
time if job completion is delayed beyond a specified due date. For example, a penalty of $x per
day may be imposed for each job that is delayed beyond its specified due date.
Mean tardiness = T max = max {Ti}
To compute maximum tardiness for each job is calculated. The job that has the largest tardiness of
all the jobs determines Tmax. For example T1=3,T2= 5,T3=1&T4=4then T5=5 and is determined
by job 2. This criterion is useful when the penalty per day for tardiness increases with the amount
of tardiness.
Number of tardy jobs =nT
This criterion simply counts the total number of jobs that are not completed by their due dates.
Several other criteria and procedures for selecting a schedule that optimize these criteria have been
discussed in Conway, Maxwell and Miller (1967) and baker (1974).

Scheduling Procedures
We will now illustrate several scheduling procedures using the example in table 10-1
Shortest Processing Time (SPT) Procedure.. A schedule obtained by sequencing jobs in nondecreasing order of processing times is called a shortest processing time (SPT) schedule. This

105

schedule minimizes mean flow time, F. In addition, the SPT rule also minimizes mean lateness and
mean waiting time. In the example in Table 10-1, the SPT schedule is
<3,1,2,4, >
This shows that the job 3 is processed first, followed by jobs 1,2, and 4, in that order. In table 10-2,
the calculations for obtaining the flow time for each job are shown. Job 3 is first in the sequence;
hence, its completion time is 2 days. Job 1 is started after job 3 is finished and takes 4 days. Thus
the completion time for job 1 is 6 days. The completion times for the remaining jobs are similarly
computed. Since all the jobs are available at time zero, the flow time for each job is identical to its
completion time. The mean flow time is computed by simply adding the flow time for each job and
dividing by 4.
(F1+F2+F3+F4)
(6+13+2+21)
F=
--------------------- = ----------------- = 42/4 =10.5
4
4
It can be checked that no other sequence can produce a better mean flow time than the sequence
obtained by the SPT rule. The optimality of the SPT rule can be mathematically proved. By
finishing the shorter jobs first, both the turnaround time &the work-in-process inventory are
reduced. The SPT procedure is simple to implement and provides good results even in the more
complex scheduling situations discussed later.
Due date (DD) Procedure. In the due date procedure, jobs are sequenced in the order of nondecreasing due dates. In our example, job 1 will be sequenced in first because it has the earliest
due date. The sequence obtained by this rule is
<1, 2, 4, 3>
:
The due date procedure minimizes the maximum tardiness. In the Table 10-3, the computations for
individual job tardiness, T, for the due date sequence are shown. The maximum tardiness is 2 days.
No other schedule can produce a tardiness of less than 2 days. For comparison, the maximum
tardiness for the SPT schedule is 4 days as shown in Table 10-2.
COMPUTIONS USING THE SPT PROCEDURE FOR THE DATA IN TABLE 10-1
Job

Processing
Time (pi)

Due
(di)

1
2
3
4

4
7
2
8

6
9
19
17

date Completion
Time
For SPT
Schedule
(Ci)
6
13
2
21

Flow
(Fi)

6
13
2
21

time Tardiness
(Ti)

0
4
0
4

MOORE PROCEDURE. The number of job tardy for the SPT schedule is 2 & for the DD
schedule, it is 3. The Moore procedure minimizes the total number of tardy jobs. This procedures
is described in the following steps.

106

Step 1. Arrange the jobs in no decreasing order of their due dates (DDSchdule). If this sequence
yields one or zero tardy jobs, then the DDSchedule is optimal & procedure stops. In our example,
3 jobs are tardy in the DDSchdule, so we proceed to step 2.
Step 2. Identify the first tardy job in the DDSchedule. In our example, the first tardy job in the
DDSchdule is job 2, which is marked by an asterisk (*) in the following schedule:
DD Schedule
Completion time
Due date

<1
4
6

2*
11
9

4
19
17

3>
21
19

Step 3.identify the longest job from among the jobs including & to the left of the job marked with
the * in the schedule in step 2. That is, we pick the longest job among the jobs that are completed
no later then the completion time of the first tardy job in step 2. In our example, job 1 & 2 are
candidates, & since3 job 2 longer processing time of the two, it is identified.
COMPUTIONS USING THE DD PROCEDURE FOR THE DATA IN TABLE 10-1
Job

1
2
3
4

date Completion Tardiness

Time
(Ti)
For DD
Schedule
(Ci)
4
6
4
0
7
9
11
2
2
19
21
2
8
17
19
2
The identified job is removed and the completion times for the remaining jobs are revised.

Completion time
Due date

Processing
Time (pi)

Due
(di)

< 1
4
6

4
12
17

3 >
14
19

We now repeat step 2. In our example, all the jobs now on time, so we terminate the procedure.
The Moore schedule is
< 1, 4, 3, 2 >
which is obtained by simply putting the jobs removed in step 3 at the end of the schedule.
Weighted Shortest Processing Time (WSPT) Procedure. If jobs are not of equal importance,
then it may be more appropriate to minimize the weighted flow time
n

wiFi

I =1

107

Where wi is the weighted associated with the flow of job i. The weights reflect the relative
importance of individual job flow time. For example, if w1 = 1 and w2 = 2, it is as desirable to
reduce the flow time of job 1 by 2 days as it is to reduce the flow time of job 2 by 1 day.
Considerations of the relative costs of each job, the importance of the customer requiring a job,
and so forth will influence the determination of wis.
A simple procedure to minimize the weighted flow time is to compute the weighted
processing time, pi/wi, for each job. Now, the job with the smallest pi/wi is scheduled first in the
sequence. From the remaining jobs, the job with the lowest pi/wi is selected and is placed in the
second position in the schedule. The procedure is repeated until all of the jobs are scheduled.
Essentially, the schedule is obtained by arranging the jobs in order of no decreasing pi/wi ratios.
Other Procedures. Several other procedures for optimizing a specified criterion are available in
the literature. However, even for single processor scheduling, optimization for some criteria is
quite difficult. For example, no simple procedure exists for minimizing mean tardiness, T. In such
cases, a manager has the choice of using either a simpler procedure that produces good results but
cannot guarantee an optimal solution (called a heuristic) or a complex procedure utilizing
techniques of combinatorial optimization, which will require the use of a computer and may be
expensive to implement but will guarantee optimal results.
Several extensions of the basic single processor-scheduling model have been
examined in the literature. These include the no simultaneous arrival of jobs, the incorporation of
dependence among jobs (e.g., a precedence constraint, such as job i. must be completed before job
j), and the allowance for set-up times that depend on the sequence (e.g., the processing of beige
paint after black paint may require a higher set-up time than the processing of beige paint after
white paint). In addition,
Probabilistic situations, where the arrival of jobs is uncertain or jobs have random processing times
or due dates, have also been examined.

Flow Shop Scheduling

In many situations, there is more than one processor and a job consists of several
operations that are to be performed in a specific order. Moving form a single processor job shop to
a multiple processor job shop poses a formidable challenge. We first consider a special job shop
case in which the flow of work is indirectly A flow shop is a special type of job shop in which
machines are numbered 1,2 m and a job may require a maximum of m operations-one operation
on each machine. Further, for every job, if operation j precedes operation k, then the machine
required for operation j has a lower number than the machine required for operation k. An example
of a flow shop is shown in Figure 10-1. In Figure 10-1a, all the jobs require one operation on each
processor; such a shop is called a pure flow shop. In Figure 10-1b, even though the flow of work
is unidirectional, a job may require fewer than m operations and the operations need not be
performed on adjacent processors. In Figure 10-1b, job 1 is processed on all three processors, job 2
is processed on processors 2 and 3, and job 3 is processed on processors1 and 3. An example of a
flow shop is an assembly line where work progresses form one stage to the next in the same
direction. In several manufacturing situations (e.g., the manufacture of printed circuit boards), the
same sequence of operations is required for a large number of orders. Further, in any cases,
manufacturing can be divided into two stages. One stage is like a flow shop with all jobs having
the same sequence, whereas the second stage requires a more complex of operations. One example

108

of such a process is furniture manufacturing where the front end is a flow shop and customization
for upholstery, paint , and like accomplished at the back end of the manufacturing process .

Figure 10-1
Schematic of flow shops:(a) pure flow shop;(b) a general
Flow shop.
------------------------------------------------------------------------------------------------------------

In Machine 1 Machine 2 Machine 3

In

Machine 1

Out

Machine 2

Machine 3

Out

Job 1
Job 2
Example of such a process is furniture manufacturing, where the front end is a flow shop and
customization for upholstery, paint and the like is accomplished at the back end of the
manufacturing process.
To demonstrate scheduling procedures for flow shops, consider the example problem in table
10-4.In this example; there are two machines & five jobs.
If we schedule the jobs on machine 1&2 in order of the job numbers, we obtain the schedule
shown in figure 10-2a .the shaded area show the amount of time during which a machine is idle.
The completion time of last job determines the makespan of the schedule, which measures
machine utilization. In figure 10-2a, the makespan is 33 units of time.
For the special case of a two - machine flow shop, Johnsons procedure minimizes the
makespan. This procedure works as following;
Step 1.Determine the minimum processing time on either machine. In our example, it is 2 for job 3
machine1.
Step 2a. If the minimum processing time occurs on machine 1,place the associated job in the first
available position in the sequence. In our example, job 3 is placed in the first position. Proceed to
step 3.
Step 2b. The job sequenced by either Step 2a or Step 2b is removed from consideration. The
process is repeated, starting with Step 1, until all the jobs are sequenced. Ties can be broken
arbitrarily.
In our example, once job 3 is removed, the minimum processing time occurs for job 2 on machine
2; hence, by step 2 b, job is placed last in sequence. For remaining machines 1,2&5, the minimum
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processing time occurs for job 5 on machine 2 ; using stero 2b again , job 5 is placed in the sole
available position , the third position the sequence obtained is <3,1,4,5,2> .As shown in figure 102b, this sequence gives a make span of 30 units.
FLOW SHOP SCHEDULING EXAMPLE (ALL JOBS MUST BE PROCESSED FIRST
MACHINE 1 AND THEN ON MACHINE 2)
Job

Processing time on machine1 Processing time on machine2

1
4
7
2
6
3
3
2
3
4
7
7
5
8
6
SCHEDULE FOR FLOW SHOP EXAMPLE IN TABLE 10-4.(a)SCHEDULE FOR SEQUENCE
<1,2,3,4,5,> ON EACH MACHINE. (b) SCHEDULE USING JOHNSON S PROCEDURE.

Time
0
Machine 1

Machine 2

Time 0

JO
B3

13

Time

JOB1

Machine1

JOB
Machine2
3
5

Time

JOB
Job1
4
JOB
1
13

21

JOB5
Job2
JOB
4Job1
20

27

10

JOB2
Job3

12

19

Job4

JOB5
Job2
11

27

Job5

JOB2
Job3
Job4
14

17

30

Job5
26

33

Two- machine flow shop, few results are available for other criteria . In fact for scheduling a flow
shop with m machines, one has to rely on combinatorial techniques or heuristic procedure. This
shows the difficulty in scheduling and the combinatorial nature of problem for even a wellstructured environment like a flow shop.

General Job Shop Scheduling

Our conclusion in the proceeding discussion of flow shops provides a guide for our introduction to
general job shops, in which the flow of work may take any pattern. There are no optimal rules or
procedures for job shops with more then two machines and two jobs. We will therefore focus on
some rules that provide good solution most of time.
To illustrate the preparation of schedules for schedules for general job shops, we will use the
example in Table 10-5.job 3 in this example is due in 12 days, and it must be processed first on
machine A for 4 days and finally on machine C for 3 days.
As we begin scheduling with machine A, we face the decision of whether job 1 or job2 should
be scheduled first. Several simple rules can be employed to resolve the choice of a job from a set

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of available jobs waiting to be processed on the same machine at a given point in time. Some
commonly employed rules are
Earliest Due Date First (EDD)
Priority is given to the job with the earliest due date.

TABLE 10-5
GENERAL JOB SHOP EXAMPLE
Job
1
2
3
4
5
6

Sequence and Processing Times

A (3), B(3), C(2)
A(5), C(2)
B(4), A(4), C(3)
B(3), C(5), A(2)
C(5), B(4)
C(2), A (5), B(5)

Due Date
10
13
12
18
14
15

First In System First Served (FISFS) : Priority is given to the job that arrived in
the shop (not on the machine) First.

First Come First Served (FCFS).

: Priority is given to the prcessing of the

job that arrived at the machine first.

Least Slack First (LSF): Priority is given to the processing of the job that has least slack. Slack is
the difference between the due date and the work remaining on the job. At time zero the
slack for job 1 is 10 (3+3+2) = 2 days in our example.
Shortest Processing Time (SPT)
: Priority is given to the job with the shortest processing time
on the machine under consideration.
Least Work Remaining (LWR)
: Priority is given to the job with the least
amount of
total processing remaining to be done.
Several other rules can be devised to select a job from a set of waiting jobs for
scheduling on a machine. The managerial objectives are the simplicity of implementation
of a rule as well as the attainment of some desired performance, such as reducing the
congestion in the shop, improving machine utilization, and meeting job due dates.
Figure 10-3 contains Gantt Charts that show the schedules developed using the
aforementioned rules. A Gantt chart is prepared by determining the set of jobs waiting for
each machine. If more than one job is waiting for a machine, a rule is used to choose a job
to be processed next. When the processing of a job on one machine is completed, that job is
added to the waiting list for the machine it needs to be processed by next. The procedure is
repeated each day (or unit of time) until all the jobs are scheduled.

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It is clear from Figure 10-3 that different rules produce different schedules. In Table
10-6, the performance of these rules on the criteria number of jobs tardy total tardiness,
mean flow time, and makespan is evaluated. The relative performance of a rule may change
if the problem data are modified. In a static situation where all jobs are available
simultaneously, it is possible to compare the perform.

112

UNIT IV

Chapter I
Inventory control
Meaning and objectives of material management
Purpose of inventories
Purchasing process
Vendor development
Economic order quantity
Selective inventory control

INVENTORY
Inventory are those stocks or items which are used to support production (raw materials and workin-process items), supporting activities (maintenance, repair, and operating supplies), and customer
service (finished goods and spare parts).

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The purpose of inventory management is to determine the amount of inventory to keep in stockhow much to order and when to replenish, or order.

Reasons for holding inventory: - Inventory helps us in following

areas

Meeting variations in supplier lead time

Getting quantity discounts
Facing price changes
Meeting scarcities of materials
Controlling manufactured parts and goods
Cover period between production runs
Allow flexibility in production scheduling
Cope up variations in product demand (safety stock)
Getting economies of scale.

Types of inventories
Inventories include
Raw materials: purchased items or extracted materials that are converted via the manufacturing
process into components and products.
Work-in-process: a product or products in various stages of completion throughout the plant.
Finished-goods:

Items

ready

for

sale

to

customer

MRO: maintenance, repair and operation supplies.

Important terms in inventory :Safety stock
To avoid customer services problem and the hidden costs of unavailable components, companies
hold safety stock.. Safety stock protects against uncertainties in demand, lead time, and supply.
Safety stocks are desirable when supplies fail to deliver the desired quantity on the specified date
with acceptable quality or when manufactured items have significant amounts of scraps or rework.
Safety stock inventory ensures that operations arent disrupted when such problems occur,
allowing subsequent operations to continue.
Lead time
The lead time is the time between the moment an order is placed and when the merchandise arrives
in inventory . Lead times may vary greatly depending on the number of resources required and
how congested these resources are currently. If the order is placed to a wholesaler across the street
who carries adequate inventory, then few resources are involved and the lead time will be quite
short. In such a case, it is convenient to model the lead time as zero.
If long transportation times are involved, or if the vendor typically produces after receiving the
order, then it may be convenient to model the lead time as a constant.
However, if either transportation or the shop floor have variable loads over time, the lead time will
vary significantly and may be treated as probabilistic.

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Selective Inventory Control

ABC Analysis
1.Select a criterion (sales / usage) based on importance
2. Rank the inventory items on criterion
3. Calculate the cumulative sales and/or usage for all items
4. Assign items into A, B, C groups
5. Assign inventory levels and warehouse locations for each item.
Based on Paretos Law of Cause and Effect
Means Always Better control
Indicates Vital few- Trivial many
A- Few items are of key importance and value
B&C-Numerous in number, but less significant.
A ITEMS: A items are those items which have a high rate of usage and/or high unit cost and
account for 80%of the total value of usage in the inventory .
High consumption Value
Very Strict Control
No Safety Stock
Frequent Ordering
Weekly Control Statement
Many Sources of Supply
Rigorous Value Analysis
Accurate Forecast in Material Planning
Minimization of Waste Obsolete and Surplus
Maximum Efforts to Reduce Lead Time.
B ITEMS: B items are those numbers of items which in total account for 15%of the total value
of usage.
Moderate consumption Value
Moderate Control
Low Safety Stock
Ordering Once in a week
Monthly control statement
Two or More sources of supply
Moderate value Analysis
Estimate based on past
Quarterly control
Moderate efforts

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C ITEMS: C are those great many items with low individual usage and or low unit value in total
and account for only 5% of the value of usage.
Low Consumption Value
Low Control
High safety stock
Bulk ordering once in 6 months
Quarterly control statement
Only Two source of supply
Minimum value Analysis
Rough estimate for planning
Annual review
Minimum clerical efforts

Inventory costs
There are three basic costs associated with inventory: Carrying (or Holding), cost Ordering Costs;
and Shortage Costs
Holding costs: associated with keeping stock over time

Storage costs

Rent/depreciation

Labor

Overheads (e.g. heating, lighting, security)

Money tied up (loss of interest, opportunity cost)

Obsolescence costs (if left with stock at end of product life)

Stock deterioration (lose money if product deteriorates whilst held)

Theft/insurance

Ordering costs - associated with ordering and receiving an order

Clerical/labor costs of processing orders

Inspection and return of poor quality products

Transport costs

Handling costs

Shortage or Stock out Costs: A stock-out occurs when we have insufficient stock to supply
customers. Usually stock outs occur in the order lead-time, the time between placing an order and
the arrival of that order.
Given a stock-out the order may be lost completely or the customer may choose to backorder, i.e.
to be prepared to wait until we have sufficient stock to supply their order

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UNIT IV

Chapter II
Quality assurance
Meaning
Aspects of quality
Importance of quality
How does management decide quality
Quality insurance system
Quality control through statistical techniques

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Quality Assurance
What is Quality?
1. Is it customer satisfaction?
2. Is it fitness for use?
3. Is it attributes or properties of the product?
4. Does it mean the lowest price?
5. What is perfect from customers point of view?
6. Is honoring the commitment made to the customer?
7. Is it influenced by purchasing power of the customer?
8. Is it excellence in every thing you do?
9. Is it minimization of chances of poor quality or defectives?
10. Does it affect goodwill of the firm?
All the above questions reveal the meaning of quality. Quality is fitness for use whether for a
product or a service.

C. D. Lewis defined quality as the degree to which a specific product satisfies a particular
class of consumers or consumers in general or the degree to which it confirms to a design
specification or the distinguishing feature of a products taste, colour, appearance etc.
Product quality has entered the consciousness of the managers with a vengeance. It has become
crystal clear that high quality products have a distinct advantage in the marketplace, that market
share can be gained or lost over the quality issue. Therefore quality is the competitive priority.
The top management sets basic quality standards and goals based on corporate and market
inputs, engineering and R&D express
these standards in terms of detailed specifications,
purchasing and incoming inspections attempt to ensure that meet specifications, the production
system must be designed so that it is capable of meeting quality standards and must then
produce the requisite quality; inspection and quality controls establish the procedures to ensure
that quality is actually produced maintenance keeps equipment capable of producing the
requisite quality and so on.
The slogan, Quality is everyones job is really true. In order to produce quality products
everyone should be in on the act. Quality assurance is designed to maintain reliability of the entire
productive system to do what it was designed to do.

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The following are the typical quality measures of the output of the productive
systems: TYPE OF SYSTEM
Manufacturing
Medical service
Postal service
Banks

MEASURE OF OUTPUT
Dimensions, tolerances on dimensions, chemical composition,
surface finish, performance tests
False positive diagnosis, false negative diagnosis
Waiting time at post office, errors in delivery, overall delivery
time.
Waiting time at windows, clerical errors

Produce what consumer wants

Product quality is what is perfect from customers point of view. There is no point in making
chemically pure salt for the consumer market because the customer will not accept it . The goods
must be delivered constantly and as per the specifications required by the customers.
Some
customers feel that high priced product is of right quality. The idea behind this is that they do not
want cheap quality. But they will also not pay too much for their requirements
because
customers purchasing power becomes the upper limit for customers willingness to pay. Hence
best quality for a customer is best product at the price he can sacrifice.

Aspects of quality
1. Quality of design
2. Quality of conformance
Quality of design refers to properties and characteristics acquired by the product at the design and
development stage. These properties depend on the type of material used, safety factors allowed,
knowledge and skill of design, personnel employed etc. . Quality of design is the fundamental
requisite.
Quality of conformance is adherence to the quality of design while the product is being actually
produced.
Howsoever successful the production is in achieving quality of conformance; it cannot go beyond
quality laid down by design. Design itself should consider the type of manpower available and the
equipment used. If design is blind to these aspects, the quality of conformance is likely to drop.
Quality is a collaborative effort of the designer and the production engineer.

Importance of quality
Existence of manufacturing organization depends on the quality of the product or services it
manufactures or supplies.
Employees feel proud to be associated with a producer of quality product and service.

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 Departments and branches in the same organization also feel proud when appreciated for
higher quality.

Customers also like to buy products of high ranked companies.

A producer of high quality products and services earns high profits and goodwill in the long
run.
Quality is the only tool to compete in todays world.
Quality product manufacturers attract highly skilled and professional people.

Cost of poor quality

Reduction in sales, thus reduction in profits.
Re-establishment of goodwill lost due to poor quality is difficult and time consuming.
Cost of rework of the defectives.
Need of more rigorous inspection and testing.
People in organisation shift responsibility of defectives on others.
Indemnity in case of guarantees to customers.
Replacement of inferior quality products sold.
Sale of sub- standard products at low price.
Defective products may cause delays and stoppages in production processes.
Supplier may have to incur legal cost to face the suits and claim under consumer protection
act.
Forcible withdrawal of substandard product by instruction of the court.
Wrong use of a product may happen because of improper instructions and labels on the product
packing. This may lead to enormous problems.

Two dimensions of quality-positive and negative

Positive costs
These costs are attributed to having a spell out optimum quality right from procurement of raw
materials to the delivery of the finished product to the final customer.
These costs have two aspects, costs for formulation of strategic policies for total quality. There
is an attempt to prevent problems, and solve them when they arise. There are training costs to have
a quality culture. Another aspect of positive cost is the inspection cost. Both these aspects are
investments, which no organisation can avoid. The positive costs should not exceed 6 p.c. Of total
turnover, which is a trivial cost to bear considering the benefits, which accrue therefrom.
Negative Costs
They are three types:
1) Costs attribute defects creeping in the manufacturing process.
2) Costs due to rectification of defects like after sales service costs.
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3) Costs on account of rejection of a consignment by a customer for sub-standard quality goods,

especially by an importer.
Many a time, non- production departments contribute a great deal to the negative costs e.g.
purchase department, maintenance department, design and engineering department.

How does the manufacturer decide quality ?

The marketing department in terms of quality, quantity and price makes the assessment or study of
customer needs. This information is passed on to the design-engineering department. Then a
detailed specification
is prepared by the design engineer with the help of heads of all
departments. The cost of production and ability to produce are also considered while developing
the detailed specifications. Thus one can say that specifications are the detailed description of
products design in quantitative terms. Generally three types of specifications are used: 1) Technical specifications- physical and chemical properties desired in the product. When the
desired properties are in the measurable form, they are termed as
2)

Performance specifications - describe, the performance or use of the products

of the
products or the services that a product will give. The conformance to the quality can be
conformed by using the product.

3)

Brand Name - Performance specification s are extensively used in purchasing highly

technical military and space products and also complicated machines and machine tools with
sophisticated technology. When it becomes very costly to develop performance or technical
specifications or such a practice does prove satisfactory, purchases are made on the basis of
brand names.

It should be noted that on the basis of strict specifications, materials parts, and tools etc. may not
be available continuously. In such circumstances, if a slight difference in specifications does not
affect the quality of the final product or the performance of the product materials or parts or
tools should not be rejected. Considerable judgement should be applied while taking decision of
acceptance or otherwise.

Control loops for maintaining system reliability by monitoring

quality and quantity of output
Figure 1

The quality assurance system

Inputs

Processes

Outputs

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Breakdowns
Monitor quality and quantity of
output

Standards
Readjust processes
to conform to
standards

Interpret
results

Maintain equipment through repair

and preventive programs

Figure 1 suggests the nature of control loops for quality and maintenance control However it is
local in nature and great deal unsaid We must ask where did the standards come from? What is the
nature of productive system, and is it appropriate for the quality tasks?

Establishment of policies regarding quality

desired in relation to markets, investments
requirements, return on investment,
potential competition, etc.

Quality and the design of

products and services in
relation to productive system

Design of productive system to

be compatible with quality, cost,
and capacity requirements

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Quality standards for

materials processes
performance of: services
products
Information for
revision of nature
of services offered
and product
designs

Inspection and
control of
incoming
materials

Information
for revision of
quality
standards

Production of
goods and services

Inspection and control of

processes and
performance of products
and/or services

Maintenance and
preventive maintenance
systems

Schematic representation of the relationships among policies, design of products and

services, design of the productive system, and the maintenance of system reliability for
qualities and quantities.
Fig 2 places the reliability system in context. The organisation must set policies regarding the
desired quality in relation to markets and needs, investment requirements, return on investment
potential competition, and so forth. For profit making organisations, this involves the judgement
of where in the market the organisation has a relative advantage. Thus one can say that the
production system must be designed so that it is capable of meeting quality standards and must
then produce the requisite quality; inspection and quality control establish procedures to ensure
that the quality is actually produced; maintenance keeps equipment capable of producing the
requisite quality; and so on.
The slogan quality is every ones job is really true. In order to produce quality products, every
one must be on the act. Quality assurance is designed to maintain the reliability of the entire
productive system to do what it was designed to do.

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Statistical Quality Control

Historical perspective
Quality Control has been with us for a long time. It is safe to say that when manufacturing began
and competition accompanied manufacturing, consumers would compare and choose the most
attractive product (barring a monopoly of course). If manufacturer A discovered that manufacturer
B's profits soared, the former tried to improve his/her offerings, probably by improving the quality
of the output, and/or lowering the price. Improvement of quality did not necessarily stop with the
product - but also included the process used for making the product.
The process was held in high esteem, as manifested by the medieval guilds of the Middle Ages.
These guilds mandated long periods of training for apprentices, and those who were aiming to
become master craftsmen had to demonstrate evidence of their ability. Such procedures were, in
general, aimed at the maintenance and improvement of the quality of the process.
In modern times we have professional societies, governmental regulatory bodies such as the Food
and Drug Administration, factory inspection, etc., aimed at assuring the quality of products sold to
consumers. Quality Control Science of statistics is fairly recent.
On the other hand, statistical quality control is comparatively new. The science of statistics itself
goes back only two to three centuries. And its greatest developments have taken place during the
20th century. The earlier applications were made in astronomy and physics and in the biological
and social sciences. It was not until the 1920s that statistical theory began to be applied effectively
to quality control as a result of the development of sampling theory.
Walter Shewhart first advanced the concept of quality control in manufacturing
The first to apply the newly discovered statistical methods to the problem of quality control was
Walter A. Shewhart of the Bell Telephone Laboratories. He issued a memorandum on May 16,
1924 that featured a sketch of a modern control chart.
Shewhart kept improving and working on this scheme, and in 1931 he published a book on
statistical quality control, "Economic Control of Quality of Manufactured Product", published by
Van Nostrand in New York. This book set the tone for subsequent applications of statistical
methods to process control.
Two other Bell Labs statisticians, H.F. Dodge and H.G. Romig spearheaded efforts in applying
statistical theory to sampling inspection. The work of these three pioneers constitutes much of
what nowadays comprises the theory of statistical quality and control. There is much more to say
about the history of statistical quality control

Control Charts
Control charts are used to routinely monitor quality. Depending on the number of process
characteristics to be monitored, there are two basic types of control charts. The first, referred to as
a univariate control chart, is a graphical display (chart) of one quality characteristic. The second,
referred to as a multivariate control chart, is a graphical display of a statistic that summarizes or
represents more than one quality characteristic.

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Characteristics of control charts

If a single quality characteristic has been measured or computed from a sample, the control chart
shows the value of the quality characteristic versus the sample number or versus time. In general,
the chart contains a center line that represents the mean value for the in-control process. Two other
horizontal lines, called the upper control limit (UCL) and the lower control limit (LCL), are also
shown on the chart. These control limits are chosen so that almost all of the data points will fall
within these limits as long as the process remains in-control. The figure below illustrates this.
Chart demonstrating basis of control chart

The control limits as pictured in the graph might be .001 probability limits. If so, and if chance
causes alone were present, the probability of a point falling above the upper limit would be one out
of a thousand, and similarly, a point falling below the lower limit would be one out of a thousand.
We would be searching for an assignable cause if a point would fall outside these limits. Where we
put these limits will determine the risk of undertaking such a search when in reality there is no
assignable cause for variation.

Variables Control Charts

During the 1920's, Dr. Walter A. Shewhart proposed a general model for control charts as follows:
Shewhart Control Charts for variables

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Let w be a sample statistic that measures some continuously varying quality characteristic of
interest (e.g., thickness), and suppose that the mean of w is w, with a standard deviation of w.
Then the center line, the UCL and the LCL are
UCL = w + k w
Center Line = w
LCL = w - k w
where k is the distance of the control limits from the center line, expressed in terms of standard
deviation units. When k is set to 3, we speak of 3-sigma control charts.
Historically, k = 3 has become an accepted standard in industry.
The centerline is the process mean, which in general is unknown. We replace it with a target or the
average of all the data. The quantity that we plot is the sample average, . The chart is called the
chart.
We also have to deal with the fact that is, in general, unknown. Here we replace w with a given
standard value, or we estimate it by a function of the average standard deviation. This is obtained
by averaging the individual standard deviations that we calculated from each of m preliminary (or
present) samples, each of size n. This function will be discussed shortly.
It is equally important to examine the standard deviations in ascertaining whether the process is in
control. There is, unfortunately, a slight problem involved when we work with the usual estimator
of . The following discussion will illustrate this.
Sample Variance
If 2 is the unknown variance of a probability distribution, then an unbiased estimator of 2 is the
sample variance

However, the sample standard deviation is not an unbiased estimator of . If the underlying
distribution is normal, then s actually estimates c4 , where c4 is a constant that depends on the
sample size n. This constant is tabulated in most text books on statistical quality control and may
be calculated using C4 factor

To compute this we need a non-integer factorial, which is defined for n/2 as follows:
Fractional Factorials

126

With this definition the reader should have no problem verifying that the c4 factor for n = 10 is .
9727.
Mean and standard deviation of the estimators
So the mean or expected value of the sample standard deviation is c4 .
The standard deviation of the sample standard deviation is

What are the differences between control limits and specification limits ?
Control limits vs. specifications
Control Limits are used to determine if the process is in a state of statistical control (i.e., is
producing consistent output).
Specification Limits are used to determine if the product will function in the intended fashion.
How many data points are needed to set up a control chart?
How many samples are needed?
Shewhart gave the following rule of thumb:
"It has also been observed that a person would seldom if ever be justified in
concluding that a state of statistical control of a given repetitive operation or
production process has been reached until he had obtained, under presumably the
same essential conditions, a sequence of not less than twenty five samples of size
four that are in control."
It is important to note that control chart properties, such as false alarm probabilities, are generally
given under the assumption that the parameters, such as and , are known. When the control
limits are not computed from a large amount of data, the actual
General rules for detecting out of control or non-random situations
WECO stands for Western Electric Company Rules
Any Point Above +3 Sigma
--------------------------------------------- +3 LIMIT
2 Out of the Last 3 Points Above +2 Sigma
--------------------------------------------- +2 LIMIT

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4 Out of the Last 5 Points Above +1 Sigma

--------------------------------------------- +1 LIMIT
8 Consecutive Points on This Side of Control Line
=================================== CENTER LINE
8 Consecutive Points on This Side of Control Line
--------------------------------------------- -1 LIMIT
4 Out of the Last 5 Points Below - 1 Sigma
---------------------------------------------- -2 LIMIT
2 Out of the Last 3 Points Below -2 Sigma
--------------------------------------------- -3 LIMIT
Any Point Below -3 Sigma
Trend Rules:
6 in a row trending up or down. 14 in a row alternating up and down

Attributes Control Charts

Attributes data arise when classifying or counting observations
The Shewhart control chart plots quality characteristics that can be measured and expressed
numerically. We measure weight, height, position, thickness, etc. If we cannot represent a
particular quality characteristic numerically, or if it is impractical to do so, we then often resort to
using a quality characteristic to sort or classify an item that is inspected into one of two "buckets".
An example of a common quality characteristic classification would be designating units as
"conforming units" or "nonconforming units". Another quality characteristic criteria would be
sorting units into "non defective" and "defective" categories. Quality characteristics of that type are
called attributes.
Note that there is a difference between "nonconforming to an engineering specification" and
"defective" -- a nonconforming unit may function just fine and be, in fact, not defective at all,
while a part can be "in spec" and not functions as desired (i.e., be defective).
Examples of quality characteristics that are attributes are the number of failures in a production
run, the proportion of malfunctioning wafers in a lot, the number of people eating in the cafeteria
on a given day, etc.
Types of attribute control charts
Control charts dealing with the number of defects or nonconformities are called charts (for count).
Control charts dealing with the proportion or fraction of defective product are called p charts (for
proportion).
There is another chart which handles defects per unit, called the u chart (for unit). This applies
when we wish to work with the average number of nonconformities per unit of product.
Counts Control Charts
Defective items vs. individual defects
The literature differentiates between defect and defective, which is the same as differentiating
between nonconformity and nonconforming units. This may sound like splitting hairs, but in the
interest of clarity let's try to unravel this man-made mystery.
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Consider a wafer with a number of chips on it. The wafer is referred to as an "item of a product".
The chip may be referred to as "a specific point". There exist certain specifications for the wafers.
When a particular wafer (e.g., the item of the product) does not meet at least one of the
specifications, it is classified as a nonconforming item. Furthermore, each chip, (e.g., the specific
point) at which a specification is not met becomes a defect or nonconformity.
So, a nonconforming or defective item contains at least one defect or nonconformity. It should be
pointed out that a wafer can contain several defects but still be classified as conforming. For
example, the defects may be located at no critical positions on the wafer. If, on the other hand, the
number of the so-called "unimportant" defects becomes alarmingly large, an investigation of the
production of these wafers is warranted.
Control charts involving counts can be either for the total number of nonconformities (defects) for
the sample of inspected units, or for the average number of defects

Acceptance Sampling
A lot acceptance-sampling plan (LASP) is a sampling scheme and a set of rules for making
decisions. The decision, based on counting the number of defectives in a sample, can be to accept
the lot, reject the lot, or even, for multiple or sequential sampling schemes, to take another sample
and then repeat the decision process.
Types of acceptance plans to choose from
LASPs fall into the following categories:

Single sampling plans:. One sample of items is selected at random from a lot and the
disposition of the lot is determined from the resulting information. These plans are usually
denoted as (n,c) plans for a sample size n, where the lot is rejected if there are more than c
defectives. These are the most common (and easiest) plans to use although not the most
efficient in terms of average number of samples needed.

Double sampling plans: After the first sample is tested, there are three possibilities:
1. Accept the lot
2. Reject the lot
3. No decision
If the outcome is (3), and a second sample is taken, the procedure is to combine the results
of both samples and make a final decision based on that information.

Multiple sampling plans: This is an extension of the double sampling plans where more
than two samples are needed to reach a conclusion. The advantage of multiple sampling is
smaller sample sizes.

Sequential sampling plans: . This is the ultimate extension of multiple sampling where
items are selected from a lot one at a time and after inspection of each item a decision is
made to accept or reject the lot or select another unit.

Skip lot sampling plans:. Skip lot sampling means that only a fraction of the submitted lots
are inspected.

129

EXERCISE 1
Fill up the blanks in the following statements with appropriate words,
phrases or short sentences:

130

1. In selective inventory management one of the methodology used is known as

VED analysis. VED stands for
2. ABC Analysis is selection control of times based on.
3. FSN stands for..
4. ABC stands for..
5. MRP stands for.
6. Aggregate planning is planning forterm and is not for.planning
7. SQC stands for
8. SPC stands for.and does control of process through..charts.
9. Various types of control charts used are.andcharts,..charts,
and.charts
10.The SQC technique used for incoming inspection of material is
calledplans.
11.JIT concept in quality means..
12.QC stands forand QA stands for..
13.ISO 9001,ISO 9002 and ISO 9003 are the three modules which are for
certification.
ISO 9001 involves.. ,..,.. and
ISO 9002 involves...,..and.
ISO 9003 involves..and ..only.
Where ISO.and ISO.are only guidelines for Quality Assurance for
selection of..andelements respectively.
14.Ordering cost and inventory carrying costs are..in nature and hence
they give rise to a point of intersection at which Total Inventory Carrying cost
is
15.A quality circle is a small.of employee in companies who discuss and
try to improve the quality of the output and other work related matters.
16. The p chart is used fortype of data and c type of chart is used
for.type of data.
17.Quality costs can be mainly divided into 3 costscosts,.. cost
andcost.
18.TQM stands for..

EXERCISE 2
State whether the following statements are True (T) or False (F)
1. A forklift can be used for horizontal as well as vertical movements
2. Mobile cranes cannot move from one place to another.
131

3. Selection of material handling equipment depends upon the nature of the

commodity to be handled.
4. Line layouts generally involve low investments by way of equipment and
machinery.
5. Plant layout and material handling are closely interred related.
6. A stock item is a part of inventory.
7. EOQ strikes a balance between inventory carrying cost and ordering costs.
8. Decrease of death rate due to advancement in medical sources is associated
into trend analysis of Time Series.
9. Increase sale of cloth and garments during the months of Oct. and Nov. is
associated with Trend analysis of Time Series.
10.Decline of ice-cream sales during winter season is associated with seasonal
analysis of Time Series
11.Senior executive spend more time on A items than on B or c items.

CASE I
PART EMPORIUM
Its June 6, Sue McCaskeys first day in the newly created position of materials manager for parts
Emporium. A recent graduate of a prominent business school, McCaskey is eagerly awaiting her
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first real-world problem. At approximately 8:30.It arrives in the form of status reports on inventory
and orders shipped. At the top of an extensive computer printout is a handwritten note from Joe
Donnell, the purchasing manager: Attached you will find the inventory and customer services
performance data. Rest assured that the individual inventory levels are accurate because we took a
complete physical inventory count at the end of last week. Unfortunately, we dont keep compiled
records in some of the areas as you requested. However, youre welcome to do so yourself.
Welcome aboard!
A little upset that aggregate information isnt available, McCaskey decide to randomly select a
small sample of approximately 100 items and compile inventory and customer service
characteristics to get a feel for the total picture. The results of this experiment reveal to her why
Parts Emporium decided to create the position she now fills. It seems that the inventory is in all the
wrong places. Although there is an average of approximately 60 days of inventory, a customer
service is inadequate. Parts Emporium series to backorder the customer orders not immediately
filled from stock, but some 10 percent of demand is being lost to competing distributorships.
Because stockouts are costly relative to inventory holding costs, McCaskey believes that a cycleservices level of at least 95 percent should be achieved.
Parts Emporium, Inc., was formed in 1967 as a wholesale distributor of automobile parts by two
disenchanted auto mechanics, Dan Block and ED sprigs. Originally located in Blocks garage, the
firm showed slow but steady growth until 1970, when it relocated to an old, abandoned
meatpacking warehouse on Chicagos South Side. With increased selection, combined with the
trend toward longer car ownership, led to an explosive growth of the business in the mid to late
1970s. By 1991, Parts Emporium was the largest independent distributor of auto parts in the North
central region.
In 1993, Part Emporium relocated in a sparkling new office and warehouse complex off interstate
55 in suburban Chicago. The warehouses space alone occupied more than 100,000 square feet.
Although only a handful of new products have been added since the warehouse was constructed,
its utilization has increased from 65 percent to more than 90 percent of capacity. During this same
period, however, sales growth has stagnated. These conditions motivated Block and sprigs to hire
the first manager from outside the company in the firms history.
Sue McCaskey knows that although her influence to initiate changes will be limited, she must
produce positive results immediately. Thus she decides to concentrate on two products from the
extensive product line: the EG151 exhaust gasket and the DB032 drive belt. If she can demonstrate
significant gains from proper inventory management for just two products, perhaps Block and
sprigs will give her the backing needed to change the total inventory management system.

The EG151 exhaust gasket is purchased from an over seas supplier, Haipei, Inc. actual demand for
the first 21 weeks of 1994 is shown in the following table
Week
1

Actual Demand
104

Week
12

133

Actual Demand
97

2
3
4
5
6
7
8
9
10
11

103
107
105
102
102
101
104
100
100
103

13
14
15
16
17
18
19
20
21

99
102
99
103
101
101
104
108
97

A quick review of past orders, shown in another document, indicates that a lot size of 150 units is
being used and that the lead-time from Haipei is fairly constant at two weeks. Currently, the end of
week 21, no inventory is on hand; 11 units are backordered, and there is a scheduled receipt of 150
units.
The DB032 drive belt is purchased from the Bendox Corporation of Grand Rapids, Michigan.
Actual demand so far in 1994 is shown in the following table.
Week
11
12
13
14
15
16

Actual Demand
18
33
53
54
51
53

Week
17
18
19
20
21

Actual Demand
50
53
54
49
52

Because this product is new, data are available only since its introduction in week 11. Currently,
324 units are on hand; there are no backorder and no schedule receipts a lot size of 1000 units is
being used, with the lead-time fairly constant at three weeks.
The wholesale price that part Emporium charges their customers are $ 12.99 for the EG151
exhaust gasket and $8.89 for the DB032 drive belt. Because no quantity discount are offered on
these two highly profitable items, gross margins based on current purchasing practices are 32
percent of wholesale price for the exhaust gasket and 48 percent of the wholesales price for drive
belt.
Parts Emporium estimates its cost to hold inventory at 21 percent of its inventory investment. This
percentage recognizes the opportunity costs of tying money up in inventory and the variable costs
of taxes, insurance, and shrinkage. The annual report notes other warehousing expenditures for
utilities and maintenance and debt services on the 100,000- square-foot warehouse, which was
built for $1.5 million. However, McCaskey reasons that these warehousing costs can be ignored
because they wont change for the range of inventory policies that she is considering.
Out-of-pocket costs for Part Emporium to place an order with suppliers are estimated to be $20 per
order for exhausts gaskets and $ 10 per order for drives belts. On the outbound side, there can be

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delivery charges. Although most customers pick up their parts at parts Emporium, some orders are
delivered to customers. To provide this services, Parts Emporium contracts with a local company
for a flat fee of $21.40 per order, which is added to the customers bill. McCaskey is unsure
whether to increase the ordering costs for parts Emporium to include delivery charges.
Questions
1. Put yourself in sue McCaskeys position and prepare a detailed report to Dan Block and Ed
Spriggs on managing the inventory of the EG151 exhaust gasket and the DB032 drive belt.
Be sure to present a proper inventory system and recognize all relevant costs.
2. By how much do your recommendations for these two items reduce annual cycle inventory,
stockout, and order ering costs?
Source: Professor Robert Bregman, university of Houston, provided this case.

CASE II
Fitness Plus, Part A

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Fitness Plus, Part B, explores alternatives to expanding a new downtown facility and is include in
the Instructors Manual. If youre interested in this topic, ask your instructor for a preview.
Fitness Plus is a full-service health and sports club in greenboro, North Carolina. The club
provides a range of facilities and services to support three primary activities: fitness, recreation,
and relaxation. Fitness activities generally take place in four areas of the club: the aerobics room
equipped with free weights; a workout room with 24 pieces of Nautilus equipment; and a large
cardiovascular workout room containing 29 pieces of cardiovascular equipment. This equipment
includes nine stairsteppers, six treadmills, six life-cycle bikes, three airdyne bikes, two crossaerobics machines, two rowing machines, and one climber. Recreational facilities comprise eight
recquetball courts six tennis courts, and a large outdoor pool. Fitness Plus also sponsors softball,
vollyball, and swim teams in city recreation leagues. Relaxation is accomplished through yoga
classes held twice a week in the aerobics room, whirlpool tubs located in each locker room. And a
trained message therapist.
Situated in a large suburban office park, fitness Plus opened its doors in 1988. during the first two
years, membership was small and use of the facilities was light. By 1992, membership had grown
as fitness began to play a large role in more peoples lives. Along with this growth came increased
use of club facilities. Record indicates that, in 1992, an average of 15 members per hour checked
into the club during a typical day. Of course, the actual number of member per hour varied by both
day and time. On some days during a slow period, only 6 to 8 members would check in per hour.
At a peak time, such as Mondays from 4 :00 P.M to 7:00 P.M, the number would be as high as
40per hour.
The club was open from 6:30 A.M. to 11:30 P.M. Monday through Thursday. On Friday and
Saturday the club closed at 8:00 P.M., and on Sunday the hours were 12:00 noon to 8:00 P.M.
As the popularity of health and fitness continued to grow, so did fitness Plus. By may 1997, the
average number of members arriving per hour during a typical day had increased to 25. The lowest
period had a rate of 10 members per hour; during peak periods 80 members per hour check in to
use the facilities. This growth brought complaints from members about overcrowding and
unavailability of equipment. Most of these complaints centered on the Nautilus, cardiovascular,
and aerobics fitness areas. The owners begin to wonder whether the club was indeed too small for
its membership. Past research has indicated that individuals work out an average of 60 minutes per
visit.Data collected from member survey showed the following facilities usage pattern: 30 percent
of the members do aerobics, 40 percent use the cardiovascular equipment, 25 percent use the
Nautilus machines, 20 percent use the free weights 15 percent use the racquetball courts and 10
percent use the tennis courts. The owners wondered whether they could use this information to
estimate how well existing capacity was being utilized.
If capacity levels were being stretched, now was the time deciding what to do. It was already May,
and any expansion of the existing facility would take at least four months. The owners knew that
January was always a peak membership enrollment month and that any new capacity needed to be
ready by them. However, other factors had just received a major facelift, and many new offices and
business were moving back to it, causing resurgence in activity.
With this growth came increased competition. A new YMCA was offering a full range of services
at a low cost. Two new health and fitness facilities had opened within the past year in locations 10
to 15 minutes from fitness Plus. The first, called the Oasis, catered to the young adult crowd and
restricted the access of children under 16 years old. The other facility. Golds Gym provided
excellent weight and cardiovascular training only.

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As the owners thought about the situation, they had many question: were the capacities of the
existing facilities constrained, and if so, where? If capacity expansion was necessary, should the
existing facility be expanded? Because of the limited amount of land at the present site, expansion
of some services might require reducing the capacity of others. Finally, owing to increased
competition and growth downtown, was now facility would take six months to renovate, and the
financial resources were not available to do both.
Questions
1. What method would you use to measure the capacity of fitness Plus? Has fitness plus
reached its capacity?
2. Which capacity strategy would be appropriate for fitness Plus? Justify your answer.
3. How would you link the capacity decision being made by fitness plus to other types of
operating decision?

ASSIGNMENTS
Guidelines for attempting the assignments

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 Only left margin of reasonable size should be made.

Diagram(s)/figure(s) should be given in each answer .
Each answer should have the layout in this manner .
1)introduction .
2)subject matter (body).
3)conclusion (summary )of the answer.
Attempt should be neat and clean as far as possible
handwriting. .

and in a good

Unit 1
Chapter1
Nature and scope of Production Management
1.Define production. Give a brief history of the development of production management .
2. Define production management and discuss its scope .
3. Production management deals with decision making related to production processes so that the
resulting goods or services are produced according to the specifications , in the amounts and by
the schedules demanded and at a minimum cost. Discuss.

Chapter II
Demand Forecasting
1.What do you mean by demand forecasting ? Explain various techniques of demand forecasting.

Unit 2
Chapter I
Facilities location
1.What factors affect the choice of a suitable place for location of a plant ?
2.Discuss the importance of facilities location decision in operations planning .
3.Why are some industries located near the source of raw materials, whereas some
industries are located near the markets for their finished goods ?

Chapter II
Capacity planning
1.What do you mean by capacity ? State various ways of defining capacity .
2. How do you do capacity planning in following situations :
a) New projects .
b) Existing projects requiring expansion.

Chapter III
Plant layout
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other

1. What is plant layout ? What are the objectives which management desires to attain through
the efficient plant layout ?
2. What are the different types of layout ? What are the advantages and disadvantages of each
type of layout ?
3. What are the factors to be borne in mind while deciding upon plant layout ?
4. Write short notes on the following :
(a) Techniques of plant layout .
(b) Factors affecting construction of plant building.
(c) Line balancing .

Chapter IV
Production system
1.What are the important types of production systems ? Explain
2.Make a comparative study of different types of production systems .

Chapter V
Material handling system
1.What is material handing ?Explain its importance .
2.How does plant layout affect material handling ?Explain
3. Explain the principles of material handling .
4. Explain various types of material handling equipment ?

UNIT 3
Chapter I
Aggregate planning
1.What is aggregate planning ? Explain various models of aggregate planning
2.What are the objects and advantages of aggregate planning ?

Chapter II
Production planning and control
1.What do you understand by production planning and control ? What is its need and importance
to a manufacturing organisation?
2.What does PPC aim for ? Discuss the steps involved in the same .
3.State the requirements of an effective system of PPC.
4.Discuss the production planning and control under different production systems .

Chapter III
Production scheduling
1. What is scheduling ?Why is it necessary ?
2. Explain the fundamentals of scheduling with reference to various production systems .

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UNIT 4
Chapter I
Inventory control
1.What is inventory .Why is it called a necessary evil for an organisation?
2.What do you favour --inventory depletion or inventory accumulation ? Explain.
3.Explain various methods of inventory control with a special stress on ABC analysis .
4. Explain selective inventory control and its techniques ?

Chapter II
Quality assurance
1.Explain the meaning of quality ? How does a manufacturer determine it.
2. Define quality control and tell how does it differ from inspection ?
3.In quality control what is meant by a process being in control?

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