Operations Management Operations Management Operations Management Operations Management

MET ICSs PGDM/ MMS 2016-2018 batch
Operations Management
Session # 1
(Mr. Shashank Tilak)
Session no. 13 & 14
Dated: 22/08/2016
Topic: PRODUCTION MANAGEMENT
Notes prepared by:
Notes critiqued
critiqued by:
Nikita Khatri
03
Rohan Mudras
10
Shivshanker Upadhyay 05
Keshav Agarwal
11
Kyle Dsouza
19
Ronak Sharma
14
Avi Jhaveri
30
Bharat Choudhary
24
Viral Jain
33
Shubham Tarate
40
Rushabh Parekh
Payal Mehta
50
54
AOMSess13n14InvMgmtFinal
Page 1 of 22
AB /KD

Session # 1
While Managing Inventory
We are looking at two things that are balancing of Demand and Supply.
Demand side is not really in your hands. Customer says he wants a product; you
better have the requisite materials, stocks to meet those requirements in a given time
and a reasonable cost. Demand side actions are generally customer centric but not
necessarily always. The bulk of the customer centric is going to be related to say
providing customer service, making sure the customer is happy and the customer
receives the product in time for the specified purpose.
Situations could be different, wherein you have 3-4 customers asking for products
and you have to balance the raw materials amongst those, so youll have to optimise
your materials around these 3-4 customers. You may have to negotiate with a
customer saying if a particular product can be given a little later or a little earlier as
the case maybe, can any compensation be made of any sorts. You can offer an
incentive, a credit period extension to your customer to perhaps lift the product
earlier than later. This is also needed to ensure you dont have excessive stock on
hand. Excessive stock is just one problem that your accountant may have, but say if
the product is time sensitive and has an expiry date, in that case, keeping that period
for 10 days in your stock is going to sort of ruin the product rather than that if the
customer is able to use it immediately, you might as well give it away. So in such
cases, you have to generate the demand artificially and make the customers take
your product for your own good.
Example: Seasonal discounts, wherein customers are offered discounts to buy
products during the week, or even Happy Hours wherein alcohol is offered at a
cheaper rate to induce customers to come into restaurants, bars etc.
These actions are needed to stimulate the demand and also make sure the product
keeps moving
Supply Side is the main side, always towards the factory, warehouse as in where
youre going to mobilise the stock and make sure theyre available as and when the
Page 2 of 22
AB /KD

Session # 1
customer needs. Both needs to be balanced to make sure the money is coming in
and goods are going out.
A setup needs to be there to know which customer location is going to get materials
from which plant, which warehouse, from which supply point. This setup is generally
geared up for achieving a given business goal. This can be in form of achieving
lowest costs or achieving highest revenue or higher profitability or better customer
service. This can also change dynamically.
Make or Buy
A lot of times it makes sense to buy a product from outside rather than make it inhouse. Most drug manufactures procure the mainstay drug from outside the country
and then market it under their name in India, except the biggies like Glenmark or
Cipla, Dr.Reddy etc.
The make or buy decisions refers to the problem encountered by an
organisation when deciding whether a product or service should be purchased
from outside sources or manufactured internally.
The majority of the make or buy decisions are made on the basis of price. But
this is only one criteria which is to be evaluated in this strategic decision. Most
of the make or buy decisions are complex, time consuming and affect many
parts of the organisation.
Source: Industrial Engineering and Production Management by Martand
Telsang
Say TATA motors, it makes perfect sense to not invest in a fuel pump, when they
need it for their diesel vehicles, they just buy it from a secondary source.
Factors to be considered: (Starting from the Bottom, as explained in class)
1. Volume, Speed and Timing of Need: Certain components are needed on an
urgent basis, if it can be manufactured on our own and with reasonable speed,
then why not. Else we would have to buy it from outside.
Page 3 of 22
AB /KD

Session # 1
2. Quality & Skills considerations: Certain skill sets are available with certain
people/entities. For example, Indians are considered good in their English
speaking skills, they could be considered for the purpose of BPOs and
Chinese people are known for their discipline work life and would ensure the
product is delivered on time. In such cases it makes sense to outsource these
parts of operations.
3. Proprietary/Specialized/Patented knowledge or technology or methods:
Sometimes you do not have the necessary specialisation to a particular
operation or the process to do a particular operation in a faster, economical
manner is patented. Since this is legally protected, it is not possible to use
these methods for our production internally.
4. Capacity &Availability: Sometimes the capacity available to us is limited and
can be used to produce only one product at a time instead of two products.
The one is that is produced is perhaps more valuable and has to be given
more priority, the other product can be procured from outside
5. Costs: The sum total of all the above boils down to the costs. It makes sense
to buy a product for 30 paise rather have it made in house for Rs.2/- unless
the product is strategically important and it is desirable to produce it inhouse.
Lot Sizing Models
Also known as Order quantity.

Optimisation of Costs would include:
Loss of production when set up of the plant is being done.
Clerical Costs are those in case of any documentation needed to be
produced. Apart from direct costs of employees who actually write or prepare
these documents and other methods, such costs also include costs of any
verification and other procedures.
Carrying cost would relate to the storage and pilferage aspect of the product.
Pilferage is the theft of part of the contents of a package may also include
theft of contents but leaving the package, perhaps sealed with bogus
contents. Carrying costs also include interest and opportunity costs for capital
Page 4 of 22
AB /KD

Session # 1
locked up in this inventory. It will also include costs for risks that part of this
inventory becomes obsolete or non usable or lose value during storage.
Transportation & Transaction costs would relate to those costs say every time
you import products , a charge is paid by way of brokerage, about $4000/- is
charged to load/unload a 20 tonne container at the dock
Each time you split a lot, the clerical work increases, plus if you have to track
each one, more uncertainty arises due to the tediousness involved and possible
risk about mix up of incorrect or different lots so that final delivery may be for a
wrong lot or product. This will imply an inability to deliver on time to the customer
arises.
Principles in Managing Inventory
Independent demand is customer generated, directly from the market. Its a demand
for a finished product such as a Motorbike or a Pizza.
Dependent demand on the other hand is a demand for component parts to make a
finished product.
For example, we can forecast the amount of automobiles we expect to sell, and then
we can derive the quantities needed of wheels, tires, braking systems, and other
component parts. For example, if a company plans to produce 200 cars in a day, it
would need 800 wheels, 400 windshield wipers, and 200 braking systems. The
number of wheels, windshield wipers, braking systems, and other component parts is
dependent upon the quantity of the independent demand item from which it is
derived.
In some cases a product particularly a spare part or other replacement material will
simultaneously have both dependent and independent demand.
Page 5 of 22
AB /KD

Session # 1
Nature of Demand
Uniform Demand Take a live example of Times of India. Its something we all
read on a daily basis. The demand for the paper is quite stable, there wouldnt
be a sudden increase or decrease in its demand overnight as the population
wont increase overnight and also people are normally accustomed to reading
it and have a loyalty towards it.
Lumpy Demand This gets fulfilled as and when its required by customers.
Take for example our canteen, during the lecture hours theres not much
demand for the food items, however during the break the demand is too much.
Also say maybe a building under construction, the slab needs cement to be
built. So on some days more cement is needed, and then until its dried, the
next lot of cement is not asked for. So some days the demand for cement is
more, and some days its less. Depending on demand for end item
(independent demand item), requirement for number of dependent demand
items will just move up or down based on lead time required to build end items
from such component parts. Hence these parts will be required in large
numbers on some days while at other times demand will be nil.
Depending on demand patterns, total costs for procurement or production of some
items particularly during these periods, will vary depending on type of algorithm
used for actual procurement.
Following examples will illustrate this principle.
Page 6 of 22
AB /KD

Session # 1

Time Replenishment of stock
2 bin policy
An empty bin is a good order.
It also serves as a order in 2 bin system.
Session # 1

Session # 1
Inventory control method (used usually for small or low value items) in which when
the first bin is used up, an order is made out for replenishment. The second bin
contains enough quantity of the item to last until the ordered quantity arrives
Source: www.businessdictionary.com
Periodic Review System

With the periodic review system, you determine the quantity of an item your
company has on hand at specified, fixed-time intervals (such as every Friday
or the last day of every month). You place an order for an amount (Q) equal to
the target inventory level ( ), minus the quantity on hand (OH), similar to the
min-max system. The difference is that with the periodic review system, the
time between orders is constant (such as every hour, every day, every week,
or every month) with varying quantities ordered. The min-max system varies
both the time between orders and the quantities ordered.
TI
Source: www.safaribooksonline.com
Eg. Mom is the best example of this functioning. Like at the end of the month, she
knows what to order for grocery. Why? She also knows monthly usage of the items,
whether it is festival season or not and orders accordingly.
Page 9 of 22
AB /KD

Session # 1
Master Scheduling
Is the key activity of placing orders for range of items required in manufacturing over
a given period of time. In most cases such schedules are for period of 1 month.
Aspects of scheduling - help to ensure that different customer needs are met
effectively and efficiently using different scheduling and sequencing methods
for effective usage of resources as well as meeting customer orders on time.
To balance:- Delivery needs, maintain velocity all customer orders must be
met within given time. At the same time rate of production and effective
utilization of plant capacities for covering operating costs in good manner.
Measuring Capacity- Major Constraint capacity of a plant is ability of different
machineries and equipments to give required output volumes within given time
period. In every plant there are at least one or some small number of
equipments for which such capacities are much lesser than capacities of other
equipments. IN most cases, any part or other production will be carried out in
series of steps running on sequence of machines. In most cases each plant
has at least one (and possibly few generally less than 5) stages or machines
where capacity for production is fairly low compared to other adjoining stages.
In such cases one will notice good measure of WIP piled up for processing at
that stage. Such stages are called bottleneck stages.
Production Activity Control- Main Tool which helps to monitor and control
flow of materials through different stages of production processes.
Objectives of Scheduling must be spelt out and made clear to all stakeholders
as well as people responsible for movement of such WIP materials. This will
be done through mainly two ways such as o Lead Time Management- Components Mainly by understanding
different components of lead time. In most cases management of lead
time consists of adjusting or eliminating the waiting time at that work
center.
Page 10 of 22
AB /KD

Session # 1
Standard Scheduling Steps & Tools Used which are well thought out
and are meant to setup clear rules for giving priority to specific orders
or processing stages.
Gantt Charts, Scheduling Rules, TOC are tools used for ensuring that a
proper logic is set out for any rescheduling or other realignment of orders.
TOC Considerations Lot Sizing is the most common method used while
rescheduling orders at a constrained resource. In most cases, it is common
practice to combine lots for production at the constrained resource. This action
helps to save setup time at constrained resource. Similarly just after
completing production at the constrained resource, it is common practice to
split lots so that it is possible to speed up production at subsequent steps and
ensure early delivery to customers.
Managing TOC Schedules
Managing Purchasing &Scheduling is a similar activity whether production is
carried out within own facility or at vendor location (for purchased materials)
o
Production has to Address Customer Needs

Customer needs and Production Capacities may not match as such it may be
necessary to make adjustments of schedules and sequencing of different
orders to meet customer needs especially in terms of timing and sequencing
It is necessary to plan & sequence production for ensuring that customer gets
requisite quality, quantity and sequence / group of items required
Helps to sequence Deliveries &meet Demands in line with customer demands
and expectations.
Deliveries of customer needo Done with quality & in quantities Required
o At time & place required
o In sequence & Combinations
Page 11 of 22
AB /KD

Session # 1
Ensuring this needs careful planning for arranging coordination and flow
through all stages of production.
And Disciplined Execution for carrying out all activities under all kinds of
pressure and any missed opportunities.
Measuring Capacity
Must have good means to measure &control capacity

Will depend on companys needs & Practices in respect of organizing all
resources as well as how many shifts / days does a particular plant or
equipment remain in operation in normal mode of working.
In Modern Enterprise Variety of components are Bundled into final customer
delivery. This is mainly because each vendor is expected to deliver range of
parts and services in a predetermined and controlled manner. As such the
vendor organization must have a range of equipments and capabilities on
hand to meet these customer expectations. It is also necessary to ensure that
vendor organization is able to plan and control movement of all requisite
inputs and materials in very disciplined manner.
Each has different process & output - each requirement parts and services
is made ready through range of equipments, processes, people and methods
of operation. Hence the need for coordination and control is highest.
Need to balance & ensure maximizing overall out put- Goods & services to
customer
Usage of Labour as means of capacity or productivity control is outdated
Page 12 of 22
AB /KD

Session # 1
Production Activity Control
Operation Scheduling is part of production activity control (PAC)

Detailed scheduled for operations provide an explicit road map for progress of
production so that it is possible to monitor and control movement of all inputs
in consistent and disciplined manner.
Schedules are outgoing instructions given from planning and control function.
These instructions are followed through on shop floor and stores functions as
well as all other activities required for movement of materials.
Feedback from shop in two formso Status information WIP location, operation completion, Order closure
etc this is available by way of daily or shift wise production reports.
Such reports highlight actions or orders that have been completed as
well as reports related to usage of different inputs used in the process.
o If the progress is NOT as plans it generates warning signals. These
signals are related to highlighting reasons for shortfall so that it will be
possible to take preventive and corrective actions in future.
Helps to control Actual Production
Production control provides the foundation on which most of the other controls
are based. Control is described as the constraining the activities to follow the
plans. Production control is the function of management which plans, directs
and controls the material supply and processing activities of an enterprise, so
that products are produced by specified methods to meet an approved sales
programme. These activities being carried out in such a manner that the
labour, plant and capital available are used to the best advantage. The
production control specifies three levels programming, ordering and
dispatching.
Programming plans the production output of products.
Ordering plans the output of components from the suppliers and departments
which is necessary to meet the programmes.
Page 13 of 22
AB /KD

Session # 1
Dispatching considers each department in turn and plans the output from
machines and work centres necessary to carry out the orders.
If there is a deviation between actual production and planned production, the
control function comes into action. Production control through control
mechanism tries to take corrective action to match the planned and actual
production. Thus production control reviews the progress of the work and
takes corrective steps in order to ensure that programmed production takes
place.
The essentials steps in control activity are:
(i)
Initiating the production.
(ii)
Progressing.
(iii)
Corrective action based upon the feedback and reporting back to the
production planning mainly for organizing alternate set of resources
or for adjusting priority for changing schedules and sequence of
processing different orders. These escalations and adjustments are
useful in ensuring that final delivery schedules can be met with
minimum delays.
Lead Time Management

Session # 1
In this process first Operation Sequence 10 takes place after that Operation
Sequence 20.
Process to explain lead time management:
Order is released for starting actual production
Review open orders to decide which order to take up next
Prepare special packet consisting of all documentary and other supports such as
drawings, toolings, requisitions for material, any special resources etc
Pick Material from stores for issue to specific orders and as per required
sequence. This will be essential to ensure that all materials required for
manufacturing as per order are available on time
Move to first operation move all the materials and other physical inputs to machine
or other resource required for first operation task
Queue Time this is the time that an order may have to wait at that resource before
actual production or setup work can be started. This time will be determined by rules
followed for loading different orders on machines.
Set Up time is the time required to organize and prepare all machine, tooling and
other resources required for actual production and processing work.
Tear down Clean up
Mount tools Run first piece

Run time
Adjust
Wait Time
Move time
Page 15 of 22
AB /KD

Session # 1
Lead time Consist of
Set up: Get equipment ready
Run: Actual Production activity
Move: Send to/Arrive @ next work center
Wait time: At either end just before actual starting of production as well as just after
completing the production for moving to next work station. In normal case, this lead
time is a fixed quantum such as 4 to 8 hours. But this waiting time can be till start of
next shift / working day as well. But in case of schedule crunch
it is possible for shop
floor team or supervisor to take up these movements or starting the next batch for
manufacturing based on priorities. Hence this lead time component is considered
more as padding.

Session # 1
Gantt Charts
A Gantt chart is a type of bar chart, devised by Henry Gantt in the 1910s, that
illustrates a project schedule. Gantt charts illustrate the start and finish dates of the
terminal elements and summary elements of a project. Terminal elements and
summary elements comprise the work breakdown structure of the project. Modern
Gantt charts also show the dependency (i.e., precedence network) relationships
between activities. By drawing separate but related charts for different activities as
well as each or group of resources within an activity, it is possible to bring out
relations between resources, their occupancy times and other details. This is
extremely useful for drawing up effective schedules of different activities.
Source: www.wikipedia.org
It is a principal tool used for both loading and scheduling. The chart was
originated by the American engineer, Henry L. Gantt and consists of a simple
rectangular grid, divided by series of parallel horizontal and vertical lines.
Vertical lines divide the chart in to units of time. The scale units can be years,
months, weeks or days or hours according to duty for which chart is required.
The horizontal lines divide the chart into sections, which can be used to
represent either work tasks or work centres. The Gantt chart offers the
advantages of ease and clarity in communicating important shop information
Telsang
Each schedule is done in a different way. One needs to find out whats best and then
follow it and abide by it.
Page 17 of 22
AB /KD

Session # 1
Priority Sequencing Rules
Earliest Due Date (EDD)

It is basically like a home work rule i.e. doing it as late as
possible and then doing those activities that are required at
earliest due date / time..
First Come First Served (FCFS / FIFO)
It follows the basics of first in and first out method as in a normal
queue that one observes in ticket counter or for a bus.
Least Processing Time (Current Work Station)
It is generally used to reduce congestion at current work station.
Shortest Total Processing Time
Generally when you want to speedup revenue and meet
customer requirement in fastest possible time.
Smallest Number of Operations
When new operation to start, jobs are to go through there is
generally a degree of uncertainty about wait time and otherwise
chances of some other job jumping the queue. Hence number of
change over to next operation (@ another workstation)
introduces more uncertainties. Thus jobs with smallest number
of operations help to bring in more stability in operations.
(Shortest time processing and Smallest number of operations
causes increase in Work in Progress without any glitches)
Slack Time Availability
Some jobs can be delayed due to slack time available without
affecting work. Slack time is an indication about how late one
can start a new job without affecting the end delivery. Hence
jobs with more slack time can be taken up later and vice versa
Critical Ratio
Page 18 of 22
AB /KD

Session # 1
Formal way of slack time. Ratio is Total calendar time /Time of

work is left. Value of Critical ratio less than one indicates that job
is already late. A job with lowest Critical ratio is to be taken up
first.
Theory of Constraints
The theory of constraints (TOC) is a management paradigm that views any
manageable system as being limited in achieving more of its goals by a very

small number of constraints. There is always at least one constraint, and TOC
uses a focusing process to identify the constraint and restructure the rest of
the organization around it. TOC adopts the common idiom "a chain is no
stronger than its weakest link." This means that processes, organizations,
etc., are vulnerable because the weakest person or part can always damage
or break them or at least adversely affect the outcome.
Source: www.wikipedia.com
Bottleneck means any department, facility , machine or resource already working at
its full capacity and still not being able to handle total workload expected from it and
which therefore cannot handle any additional demand placed on it.
Source-www.businessdictionary.com
Bottleneck is defined as any resource whose capacity is less than the demand
placed upon it. A bottleneck is a constraint within the system that limits
throughput. It is that point in the manufacturing process where flow is to a
narrow stream. A bottleneck may be a machine, scarce or highly skilled labour
or a specialised tool.
Telsang
Page 19 of 22
AB /KD

Session # 1
Means to Improve Bottleneck:
Ensure that bottleneck is utilized most effectively.

It should be run for maximum hours possible-in line with overall plan
requirement.
If necessary run the machine during Lunch/Coffee breaks with alternate
crews.
Eg. Two operator should be available all the time. If there is a break for 15 minutes,
machine should not stop for even that period and another operator should take the
job of previous operator. Even during shift changeover the machine should be
running continuously.
Utilize any alternate routing or outsource options mainly to divert maximum

possible jobs away from such critical resource. This will help to reduce total
workload on the resource and improve overall utilization
Ensure that bottleneck never runs out of work
For example if there are two machines and one machine breaks down, then
another machine should have enough resources.
Maintain a buffer inventory in front of bottleneck so that even if the machine

feeding this critical machine stops working, the critical resource will still be
providing good output.
Schedule feeding work backwards from bottleneck for all work leading to this
critical resource
Concentrate on horizontal loading-maximize throughput.
Throughput is the rate at which the system generates money through sales. It
is specifically defined as Goods Sold. An inventory in finished goods is not
throughput. Actual sales must occur. This definition is specifically intended to
prevent the system from continuing to produce under the illusion that goods
might be sold. Such a decision simply increases costs, build inventory and
Page 20 of 22
AB /KD

Session # 1
consumes cash. To calculate the throughput per unit of each product, we

need to subtract Total variable cost from its selling price.
Telsang
Lot Sizing Meaning- also known as order quantity, lot size represents the quantity
of an item you order for delivery on a specific date, or manufacture in a single

production run.
Source-www.likeforex.com
Lot Sizing For TOC Scheduling:
Normally lot sizing is fixed and splitting is done at bottleneck

For TOC combine lots at bottleneck so that one can save on setup time.
Lot sizes will differ for different machines.
For transfer and other operations split lots so that work can be speeded up
Helps to smooth overall work flow
Splitting & sequencing of non bottleneck lots by any standard rule.
Considerations For TOCTOC-Drum:
It is also known as Drum Buffer and Rope.

The production system needs some control point i.e. to control the flow of
products through the system. If the system contains the bottlenecks, the
bottleneck is the best place of control. This control points is called the drum
The bottleneck is working throughout and the reason for using it, as a control
point is to make sure that the operation upstream do not over produce and
build excess WIP inventory that a bottleneck cannot handle.
Telsang
Page 21 of 22
AB /KD

Session # 1
Drum is the constraint/bottleneck operation

Work earliest start date at bottleneck
Adjust buffer and lead time till bottleneck
Use this date for releasing raw material
Check shipping date and buffer time at ship dock
Adjust lead time from bottleneck till finish
Mostly done through backward schedule.
Do not issue more material than the bottleneck can hold.
Page 22 of 22
AB /KD

Operations Management Operations Management Operations Management Operations Management

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Operations Management Operations Management Operations Management Operations Management

Uploaded by

Copyright:

Available Formats

MET ICSs PGDM/ MMS 2016-2018 batch

Session no. 13 & 14

Topic: PRODUCTION MANAGEMENT

Notes prepared by:

MET ICSs PGDM/ MMS 2016-2018 batch

While Managing Inventory

MET ICSs PGDM/ MMS 2016-2018 batch

MET ICSs PGDM/ MMS 2016-2018 batch

Also known as Order quantity.

MET ICSs PGDM/ MMS 2016-2018 batch

MET ICSs PGDM/ MMS 2016-2018 batch

MET ICSs PGDM/ MMS 2016-2018 batch

MET ICSs PGDM/ MMS 2016-2018 batch

Time Replenishment of stock

An empty bin is a good order.

It also serves as a order in 2 bin system.

MET ICSs PGDM/ MMS 2016-2018 batch

Periodic Review System

MET ICSs PGDM/ MMS 2016-2018 batch

MET ICSs PGDM/ MMS 2016-2018 batch

Production has to Address Customer Needs

MET ICSs PGDM/ MMS 2016-2018 batch

Must have good means to measure &control capacity

MET ICSs PGDM/ MMS 2016-2018 batch

Production Activity Control

Operation Scheduling is part of production activity control (PAC)

MET ICSs PGDM/ MMS 2016-2018 batch

Initiating the production.

Lead Time Management

MET ICSs PGDM/ MMS 2016-2018 batch

Mount tools Run first piece

MET ICSs PGDM/ MMS 2016-2018 batch

Lead time Consist of

Set up: Get equipment ready

Run: Actual Production activity

Move: Send to/Arrive @ next work center

it is possible for shop

MET ICSs PGDM/ MMS 2016-2018 batch

MET ICSs PGDM/ MMS 2016-2018 batch

Priority Sequencing Rules

Earliest Due Date (EDD)

MET ICSs PGDM/ MMS 2016-2018 batch

Formal way of slack time. Ratio is Total calendar time /Time of

manageable system as being limited in achieving more of its goals by a very

MET ICSs PGDM/ MMS 2016-2018 batch

Means to Improve Bottleneck:

Ensure that bottleneck is utilized most effectively.

Utilize any alternate routing or outsource options mainly to divert maximum

Maintain a buffer inventory in front of bottleneck so that even if the machine

MET ICSs PGDM/ MMS 2016-2018 batch

consumes cash. To calculate the throughput per unit of each product, we

of an item you order for delivery on a specific date, or manufacture in a single

Normally lot sizing is fixed and splitting is done at bottleneck

Considerations For TOCTOC-Drum:

It is also known as Drum Buffer and Rope.

MET ICSs PGDM/ MMS 2016-2018 batch

Drum is the constraint/bottleneck operation

You might also like