Production and Operation Management Project

Project : Production & Operation
management
Production/operations management is the process, which
combines and transforms various resources used in the
production/operations subsystem of the organization into value
added product/services in a controlled manner as per the policies
of the organization. Therefore, it is that part of an organization,
which is concerned with the transformation of a range of inputs
into the required (products/services) having the requisite quality
level.
The set of interrelated management activities, which are involved
in manufacturing certain products, is called as production
management. If the same concept is extended to services
management, then the corresponding set of management
activities is called as operations management .
Nature and Scope of Operations Management
Operations management is often used along with production
management in literature on the subject. It is therefore, useful to
understand the nature of operations management .Operations
management is understood as the process whereby resources or
inputs are converted into more useful products .A second reading
of the sentence reveals that, there is hardly any difference
between the terms produ7ction management and operations
management .But, there are a least two points of distinction
between production management and operations management
.First, the term production management is more used for a system
where tangible goods are produced .Whereas ,operations
management is more frequently used where various inputs are
transformed into tangible services .Viewed from this perspective,
operations management will cover such services organization as
banks ,airlines ,utilities ,pollution control agencies super bazaars,
educational institutions ,libraries ,consultancy firm and police
departments, in addition ,of course ,to manufacturing enterprises.
The second distinction relates to the evolution of the subject.
Operation management is the term that is used now a days
.Production management precedes operations management in the
historical growth of the subject
The two distinctions not withstanding, the terms production

management and operations management are used
interchargeably .
Scope of Production and Operation Management

The scope of production and operations management is indeed
vast .Commencing with the selection of location production
management covers such activities as acquisition of land,
constructing building ,procuring and installing machinery
,purchasing and storing raw material and converting them into
saleable products.
Added to the above are other related topics such as quality
management ,maintenance management ,production planning
and control, methods improvement and work simplification and
other related areas.
PRODUCTION SYSTEM
The production system of an organization is that part, which
produces products of an organization.
It is that activity whereby resources, flowing within a defined
system, are combined and transformed in a controlled manner to
add value in accordance with the policies communicated by
management.
A simplified production system is shown above.
The production system has the following characteristics:
1. Production is an organized activity, so every production system
has an objective.
2. The system transforms the various inputs to useful outputs.
3. It does not operate in isolation from the other organization
system.
4. There exists a feedback about the activities, which is essential
to control and improve system performance.
Production systems can be classified as Job Shop, Batch, Mass and

Continuous Production systems.
Project Vs Operations
Projects are always used to bring about something new, some
change!
Operations are used for
- routine, ongoing and repetitive undertakings in an organization.
- sustain the existing business of the organization
- Make the existing operations more and more efficient.
In practice, both operations and projects have many
characteristics that are common to each other although they are
undertaken to fulfill different aims and objectives.
Some common characteristics between projects and

operations are that they are both:
Performed by people
Both have limited resources at their disposal
To be successful both operations and projects must be properly
planned, executed and controlled Differences between a
project and operations: Though projects and operations have
many features in common there are many differences between
them. A key difference between projects and operations is in their
objectives, the aims for which they are performed.
Projects Operations
Unique Ongoing
Temporary Repetitive
Aim is to achieve the Objective of operation is
objectives of the project to sustain the
and then to close the business
project
Future orientation Present Orientation
Creation of new things Maintenance of existing
things
Productivity
Productivity is a measure of the effective use of resources, usually
expressed as the ratio of output to
input .Also called Efficiency at times
Productivity ratios are used for
Planning workforce requirements
Scheduling equipment
Financial analysis
Productivity
Partial measures is output/(single input)
Multi-factor measures is output/(multiple inputs)
Total measure is the output/(total inputs)
Productivity Growth = Current Period Productivity Previous Period
Productivity
---------------------------------------------------------------
Previous period productivity
Factors Affecting Productivity

Productivity stands tall on four important pillars of Capital,
Quality, Management and Technology.
These pillars are also responsible for positively as well as
negatively affecting the Productivity of the Organization.
1. CAPITAL An existing machine or facility if it is not functioning up

to full capacity or turning out products which are not acceptable
can lower productivity. A new machine or repair of existing
machine would require capital input.
2. QUALITY Poor quality products would not meet customer
requirements and would need repairs and reworks on the product
to meet the standards.
3. MANAGEMENT With better scheduling, planning, coordinating
and controlling activities of management the machine operations
can be carried to improve productivity.
4. TECHNOLOGY Technological improvements have increased
productivity. A machine of today would outperform machine of
yesterday but may not withstand machines of tomorrow.
CAUTION: Without careful planning technology can reduce
productivity as it often leads to increased costs, inflexibility or
mismatched operations. All leads to reduction in value.
How is productivity Improved?
Achieving more output for the same input
Achieving the same output from less input
Achieving much more output for slightly more input
Getting slightly less output for much less input
Six lines of attack to improve the productivity ratio of an

organization
Improve basic process by research and development (long
term)
Improve and provide new plant, equipment, and machinery
(long term)
Simplify product and reduce variety (medium term)
Improve existing methods and procedures (short term)
Improve the planning of work and the use of manpower (short
term)
Increase the overall effectiveness of employees (short term)
The fundamentals of productivity improvement
Applicable for all types of organizations.
Productivity is a state of mind
More involvement of employees, greater will be the success.
Productivity is a continued program; there is no end.
Concentration should be made on controlling the controllable.
Historically, Productivity has come by improved methods and
improved equipments
Improving productivity is the real key to organizational and
national wealth.
Productivity leadership flows from top to down.
Improving productivity requires resourcefulness, creativity and
enthusiasm.
Lack of proper planning, keeping workers waiting between jobs

or waiting for material
Failure on the supervisor's part to thoroughly understand orders
and instructions received
Lack of knowledge of what constitutes a full day's work
Failure to make orders and instructions clear to workers
Failure to insist that tools supplies, and portable equipment be
kept in proper places
Ordering overtime work that could be avoided
Not seeing that workers are supplied with proper tools and
equipment for every job
Allowing workers intentionally to do less work than they can
Failure to inform human resources department when more
labor is required
Keeping too many workers
Failure to write records and requisitions intelligibly
Failure to question and correct workers who lay off
Allowing workers to get habit of talking, visiting, killing time
Failure to get workers to start on time, slack supervision
Delay in making decisions
Unnecessary absenteeism or tardiness on the supervisor's part
Being late with reports
Not investigating immediately when repairs are needed
Unnecessary visiting and conversation on the job
Failure on the supervisor's part to organize his / her time and
work
Lack of proper planning, keeping workers waiting between jobs
or waiting for material
Ignoring Potentially Good Ideas
Failure to listen and comment when workers offer suggestions.
Failure to encourage workers to offer suggestions.
Not asking workers advice on problems.
Failure to read and study about the work and about business
methods.
Failure to get from new employees helpful ideas which they
may bring from previous employment.
Not consulting enough with other departments, such as
engineering, etc.
Failure to consider or refer to the proper person all usable
suggestions no matter where they come from.
Failure to take proper interest in meetings.
Failure to benchmark performance of organization with other
similar organizations and the sector as a whole.
Facilities Location and Planning
Factors to be considered in plant location:
Nearness to sources of raw materials
Proximity to markets
Availability and cost of transportation
Availability and cost of power, water, fuel.
Availability and cost of skilled labor, productive labor
Availability and cost of capital for investments
Nearness to related and ancillary industries
Cost of land and construction costs
Local topography, climate, living conditions
Taxes
Regulations on pollution, waste disposal.
Factors affecting the design of plant or premises

Size
Number of floors
Access
Services
Headroom required
Loads to be carried
Lighting
Heating and ventilation
Disposal of waste
Special process requirements
PLANT LAYOUT
WHY PLAN FACILITIEWHY PLAN FACILITIES
The primary causes that trigger new or
altered facilities are:
1. Expanding production, based on increased demand.
2. Entering a new field of endeavor.
3. Replacing an obsolete or inadequate facility.
4. Reallocating or consolidating production facilities.
5. Improving service to market(s).
THE NEED FOR GOOD FACILITIES PLAN THE NEED FOR
GOOD FACILITIES PLANNING
1. Plant facilities influence the costs of operating and therefore
profits.
2. Planning allows facilities to comply with laws ad/or
regulations.
3. Facilities involve high capital-cost expenditures.
4. Facilities are fixed investments, not readily convertible to
money or resale.
5. Facilities are inflexible (i.e. physically fixed and have limited
opportunities to be changed).
6. Facilities are long term commitments with protracted periods
of financial return.
7. Facilities planning, design and construction require long lead
times.
8. Sound plans for implementation can avoid disruptions in
production, and discontinuities for shipping or delivery.
9. Operations often produce detrimental wastes that affect entire
communities.
The safety, convenience, appearance, and comfort of industrial
facilities influence the attitudes of and the ability to attract
suitable
employees.
2. Industrial facilities must be planned to meet anticipated future
requirements yet compete profitably today.
3. Facilities need to be planned for an appropriate degree of
flexibility,
expandability, versatility
4. Good planning buys time for making commitments; it
minimizes
being taken by surprise.
5. If plans are made, managements can react faster and take
advantage
of business opportunities that arise.
6. Good planning, especially if presented well visually, is an aid to
obtain financing monies.
7. The single most important cause of high materials handling
costs is
ad hoc expansion of plant facilities in the absence of a
strategic
site-development plan. Thus layout is disposition of various facilities
and services of the plant within the specified area. It is arrangement of
location of different machines and plants within the factory in such a
way that there is minimum possible cost, the maximum output and the
best quality product. In it all the requirements connected with
production like the raw materials, machines, tools, fixtures etc. to be
properly cared from the very beginning with the design of the factory.
It is the agreement with the main focus that each operation is
performed without the least inconvenience.
Types of layouts
1) Process or functional layout
2) Product or line layout
3) Project or fixed position layout
A) Process or functional layout

Process layout also called layout by function is generally associated
with batch production. The factory is divided into process units (or
departments), and within these process units all similar facilities are
grouped together. Process, for example, is kept at one place; milling
machines are placed at another place; drilling machines are kept at
third place; gear-cutting machines are located at fourth place; and so
on and so forth.
Process type of layout is suitable when,
1) The products are non-standard, or
2) There are wide variations in the processing times of individual
operations.
Advantages:
1. Lower capital investment on account of comparatively less number
of machines and lower costs of general-purpose machines.
2. Higher utilization of available equipment.
3. Greater flexibility in regards to allocation of work to equipment and
workers.
4. Breakdown of equipment, absenteeism of the workmen and/or non-
availability of certain materials do not dislocate the manufacturing
activity on the shop floor.
5. Workers attain greater skills since they have to attend to one type of
machines and operations.
6. Imbalance of work in one section does not affect the working of the
other sections.
7. New jobs with varying work content and different operations
sequences can be taken up without any difficulty.
8. Variety of the jobs makes the work interesting to the workmen.
Disadvantages:
1. For the volume of production, space requirements are higher.
2. Materials handling cannot be mechanized which adds to the extra
cost.
3. Work-in-progress inventory is higher since jobs have to queue up for
each operation.
4. Routing and Scheduling is difficult since different jobs have different
operation sequences.
5. Inspection requires to be done after each operation as material
passes to the next department. This causes delays and results in high
cost of inspection.
6. Setup costs are high because of frequent changes of jobs.
B) Product or Line Layout:

Product layout is also called layout by sequence. The layout of plant,
shape and size of its buildings, locations of services and storage yards,
position of materials handling equipments is such that material flows
unidirectionally and at the steady rate. Special purpose machinery and
equipments with build in-controls to measure output and input are
employed. The equipment, if necessary, is duplicated to avoid
backtracking and to ensure that materials always flow in the forward
direction towards stage of completion. Suitability
Product type of Layout is suitable when:
1. The products are standard and require to be produced in large
quantities.
2. The products have reasonably stable demand.
3. The processing times of individual operations is more or less equal.
4. Uninterrupted supply of materials can be maintained.
Typical examples of product layout are:

assembly line for automobiles, refrigerators, radios, televisions sets,
transformers, motors, domestic appliances like food mixing machines,
pressure cookers, etc. continuous or process production units,
characterized by the manufacture of single product, such as sugar,
steel, cement, paper, coke, refineries etc. also have product type of
layout.
Advantages:
1. Manufacturing cycle is small which reduces work-in-progress.
2. Material handling is minimum and automatic.
3. Space required is small as the use of conveyors and gravity for
material handling reduces the need for aisles.
4. The work is simplified by breaking into elemental tasks, which are
mechanized wherever possible. Consequently, labour costs are
lowered.
5. Quality control is easy to exercise and more effective. SQC practices
can be used to control quality of the process.
6. Production control is simplified due to lesser product variety, simpler
routings, easier progressing and lower work-in-progress.
7. Delivery commitments to customers are more reliable and easy to
conform.
8. Material requirements can be scheduled easily and more accurately.
Disadvantages:
1. The changes in products and work contents necessitate the change
in the layout of the machinery.
2. All machines may not be used to their full capacity.
3. Manufacturing cost is heavily dependent upon volume of production.
4. Breakdown of any one of the machines in the line renders other
machines idle till it is repaired.
5. Expansion of the capacity by addition of machines is not possible.
6. Specialization creates monotony and reduces labour turnover as
workers can not find jobs in their industries.
COMPARISION BETWEEN PRODUCT LAYOUT AND PROCESS

LAYOUT
The relative characteristics of product and process layout are :
(1) Plant investment : product layout requires higher initial
investment than process layout as a special purpose machines are
costly and a times requires to be duplicated to balance the production
line.
(2) Requirement of space : process layout requires comparatively
more space than product layout since additional space is required to-
keep the jobs which queue up before each time.
accumulate jobs until they are moved next work station.
This is because unlike in product layout material flow is discontinuous.

(3) Manufacturing time : Under process layout, it takes
comparatively more time in manufacturing goods. Higher
manufacturing time results on on account of formation of queues at
different machines due to different cycle times, batch sizes and
sequence of operations.
Manufacturing cycle time under product layout is small since machines
capacities are intermediate activities like travel, storage and inspection
are reduced. Product layout for continuous or process production may
be looked upon as one large machine wherein raw material enter at
one end and emerge as finished product at other end.
(4) Material handling: process type of layout results in more
handling than product layout because:
Flow of materials between different stages of manufacturing is
highly discontinuous due to imbalance in operation wise work content
while flow of material in product layout is continuous and there is little
and no queuing at any stage of processing.
Distance between departments in the process layout is large which
increases transport distance and raises the cost of material handling.
On the contrary, in the product layout materials move through a short
distance between stages.
Materials, components and parts in a process layout are handled
either singly or are placed in trolleys or in bins and are transported as
unit loads by fork lift trucks. Material handling in a product layout is
highly mechanized. Conveyors system automatic transfer machines
moves material from one stage to another.
(5) Flexibility: process layout offers a very high flexibility as alteration

in operation
Sequence can be made when they are required. Also , new job, each
having different routing than other and varying content can be taken
up without any difficulty .
However, such flexibility does not exist in a product layout. Only jobs
having the same routing and equal work content can be
accommodated. It also rather difficult to adjust proportionately in
accordance with change in demand.
(6) Adaptability in the event of absenteeism/ breakdown /
shortage etc.
Process layout offers flexibility in production schedule since

disturbance due to machine breakdown, absenteeism of key operators
and non-availability of raw material do not seriously affect production
as another machine can be used or another operator from another
machine can be shifted or another job can be taken up.
Flexibility in production schedules in case of product layout is seriously
affected due to interruptions due to breakdown and absenteeism as
stoppage of one machine usually disturbs the working of other
machine. Shortage of materials also affects the production line.
Systematic maintenance and provisioning of standee operators are
therefore two major management functions.
(7) Function of production control: production control activity
in a product type of
Layout is comparatively simple and limited.

Materials control function is of crucial importance and needs to be
on scientific inventory control system.
Process planning function is almost absenr since the plant decides
the route
Tools control function is either absent or is drastically simplified.
Tools control function in an engineering firm is limited to
replenishments of consumable tools, which can be simplified adopting
the scientific inventory control and replacement of worn out jigs &
fixtures. And tools control function in a continuous or process industries
is almost absent due to nature of the plant.
Scheduling activity is very simple and is merely restricted either to
sequencing of production or limited to final targets.
Progressing and expanding functions are extremely simplified and
are merely limited to recording of the final production at end of the
shift.
Production control is bit complicated in case of process layout.
Materials require to be intended and purchased on receipt of customer
order except in case of batch production where material requirement
can be planed in advance. Tools control functions needs to be more
detailed and more elaborate. Loading and scheduling chart need to be
prepared, one for each machine. Progress of different components
need to be recorded each day. Separate progress cards need to be
maintained for different items of manufacture.
(8) Inspection: inspection under process layout is necessary at each
stage. The work from the previous operation is routed to the inspection
bay before being forwarded to the next operation. This involves
material handling, production hold ups and interruptions at the
succeeding operations. The rejection at certain stages requires re-
routing of rework on the faulty part back to same machine or
department, which causes unnecessary material handling and
confusion.
Under product layout, inspection is performed at some critical point in

production line.
(9) Skill of labourers: the skill of labour forces in a process type of
layout is usually higher than in the product type of layout since the
workmen are expected to operate number of general purpose
machines capable of performing wide variety of jobs. In fact labour
force in project or jobbing production is expected to be highly skilled.
Highly qualified trade apprentices are employed who are expected to
work for minimum instructions. Instruction regarding what to make
are issued in form of specifications while instruction as to hoe to
manufacture are usually oral. The workman be highly skilled are
expected to work independently and display a great deal of initiative
and judgment. They are required to set their own special tools or
production aids to further of a part or an assembly.
The skill production in batch production units (another group of firms

which employ process layout) is expected to be skilled in one specific
manufacturing process; turning. Milling, welding, grinding, hobbing,
fitting etc. the simple machine setups are performed by the operator
but those involving complex operations are done by the separate
machine setter.
Supervision: supervisor in process type of layout is the reservoir of
job knowledge. In a project and jobbing production, the supervisor
besides being able administrator is expected to improvise and
determine best work methods, determine tool requirements, select
best process and provide management with reliable estimates of
labour and materials for specific order. The span of control is kept low
because of technical nature of job.
In batch production unit employing process layout, supervisor is
supposed to have considerable knowledge of specific process.
Supervisor in the grinding section, for example, may not know about
turning and drilling but is expected to posses fund of knowledge of
different type of grinding operations. Similarly, a supervisor in the gear
shop is expected to have good knowledge of different types of gear
shaping, gear hobbing and gear shaving machines.
C) Project or Fixed Position Layout:
Project type of industries such as manufacturers of aeroplanes, ships,
locomotives, large turbines, heavy machinery, pressure vessels and
others,
which involve heavy materials and sub-assemblies have this type of
layout.
The heavy materials, components or sub-assemblies, under this
layout remains fixed at one place. Men, machines and tools are
brought to the
location to complete the job. Minor components and sub-assemblies
are also
brought to the site for assembly.
Suitability
This type of layout is suitable for:
1. When or few pieces of an identical product are to be manufactured.
2. When assembly consists of a large number of heavy parts, the cost
of transportation of which is very high.
Advantages :
1. This layout method is useful because in it there is less handling of
material and thus the time wasted in material movement and also the
labour involved in that can be saved.
2. Since both labour cost is less and there is time saving, therefore,
there is less production cost, which enables the management to earn
more profits and conveniently compete the competitors.
3. Since there is no possibility of delays in the supply of materials,
therefore continuity of operations is ensured.
4. As only few machines are needed therefore, capital cost too is not
high.
Disadvantages:
1. Only high skilled workers are needed. They are not only in short
supply but are to be paid well. Their salaries and other benefits add to
cost of production.
2. In fixing jobs and tools complicated fixtures are needed which again
add to the production cost.
3. Bulky and heavy machines are required to be taken to the work
place. This take a very long time to reach their destination.
Factors affecting layout decision

a) Factory building: The nature and size of the building determines the
floor
space available for layout. While designing the special requirements,
e.g. air
conditioning, dust control, humidity control etc. must be kept in mind.
b) Nature of product: product layout is suitable for uniform products
whereas
process layout is more appropriate for custom-made products.
c) Production process: In assembly line industries, product layout is
better. In
job order or intermittent manufacturing on the other hand, process
layout is
desirable.
d) Type of machinery: General purpose machines are often arranged as
per
process layout while special purpose machines are arranged according
to
product layout.
e) Repairs and maintenance: machines should be so arranged that
adequate
space is available between them for movement of equipment and
people
required for repairing the machines.
f) Human needs: Adequate arrangement should be made for
cloakroom,
washroom, lockers, drinking water, toilets and other employee
facilities,
proper provision should be made for disposal of effluents, if any.
g) Plant environment: Heat, light, noise, ventilation and other aspects
should be
duly considered, e.g. paint shops and plating section should be located
in
another hall so that dangerous fumes can be removed through proper
ventilation etc. Adequate safety arrangement should also be made.
Thus, the layout should be conducive to health and safety of
employees. It
should ensure free and efficient flow of men and materials. Future
expansion and
diversification may also be considered while planning factory layout.
Quality of a good Layout
Plant layout is an important decision as it represents long-term
commitment. An
ideal plant layout should provide the optimum relationship among
output, floor
area and manufacturing process. It facilitates the production
process, minimizes
material handling, time and cost, and allows flexibility of
operations, easy
production flow, makes economic use of the building, promotes
effective
utilization of manpower, and provides for employees
convenience, safety,
comfort at work, maximum exposure to natural light and
ventilation. It is also
important because it affects the flow of material and processes,
labour efficiency,
supervision and control, use of space and expansion possibilities
etc.
BENEFITS TO SMALL ENTREPRENEUR
Production planning and control can facilitate the small
entrepreneur in the
following ways
(1) Optimum Utilisation of Capacity:
With the help of Production Planning and Control [PPC] the
entrepreneur can
schedule his tasks and production runs and thereby ensure that
his productive
capacity does not remain idle and there is no undue queuing up of
tasks via proper allocation of tasks to the production facilities. No
order goes unattended and no machine remains idle.
(2) Inventory control:
Proper PPC will help the entrepreneur to resort to just- in- time
systems and
thereby reduce the overall inventory. It will enable him to ensure
that the right
supplies are available at the right time.
(3) Economy in production time:
PPC will help the entrepreneur to reduce the cycle time and
increase the turnover
via proper scheduling.
(4) Ensure quality:
A good PPC will provide for adherence to the quality standards so
that quality of
output is ensured.
To sum up we may say that PPC is of immense value to the
entrepreneur in
capacity utilization and inventory control. More importantly it
improves his
response time and quality. As such effective PPC contributes to
time, quality and
cost parameters of entrepreneurial success.
STEPS OF PRODUCTION PLANNING AND CONTROL
Production Planning and Control (PPC) is a process that comprises the
performance of some critical; functions on either side, viz., planning as well as
control.
Production planning:
Production planning may be defined as the technique of
foreseeing every step in a long series of separate operations,
each step to be taken at the right time and in the right place and
each operation to be performed in maximum efficiency. It helps
entrepreneur to work out the quantity of material
manpower, machine and money requires for producing
predetermined level of
output in given period of time.
Routing: Under this, the operations, their path and sequence are
established. To
perform these operations the proper class of machines and
personnel required are also worked out. The main aim of routing
is to determine the best and cheapest sequence of operations and
to ensure that this sequence is strictly followed. In small
enterprises, this job is usually done by entrepreneur himself in a
rather adhoc manner. Routing procedure involves following
different activities.
(1) An analysis of the article to determine what to make and what
to buy.
(2) To determine the quality and type of material
(3) Determining the manufacturing operations and their
sequence.
(4) A determination of lot sizes
(5) Determination of scrap factors
(6) An analysis of cost of the article
(7) Organization of production control forms.
Scheduling: It means working out of time that should be
required to perform each
operation and also the time necessary to perform the entire series
as routed,
making allowances for all factors concerned. It mainly concerns
with time
element and priorities of a job. The pattern of scheduling differs
from one job to
another which is explained as below:
Production schedule: The main aim is to schedule that amount
of work which
can easily be handled by plant and equipment without
interference. Its not
independent decision as it takes into account following factors.
(1) Physical plant facilities of the type required to process the
material being
scheduled.
(2) Personnel who possess the desired skills and experience to
operate the
equipment and perform the type of work involved.
(3) Necessary materials and purchased parts.
Master Schedule: Scheduling usually starts with preparation of
master schedule
which is weekly or monthly break-down of the production
requirement for each
product for a definite time period, by having this as a running
record of total
production requirements the entrepreneur is in better position to
shift the
production from one product to another as per the changed
production
requirements. This forms a base for all subsequent scheduling
acclivities. A
master schedule is followed by operator schedule which fixes total
time required
to do a piece of work with a given machine or which shows the
time required to
do each detailed operation of a given job with a given machine or
process. Manufacturing schedule: It is prepared on the basis of
type of manufacturing
process involved. It is very useful where single or few products
are manufactured
repeatedly at regular intervals. Thus it would show the required
quality of each
product and sequence in which the same to be operated
Scheduling of Job order manufacturing: Scheduling acquires
greater
importance in job order manufacturing. This will enable the
speedy execution of
job at each center point.
As far as small scale industry is concerned scheduling is of utmost
importance as
it brings out efficiency in the operations and s reduces cost price.
The small
entrepreneur should maintain four types of schedules to have a
close scrutiny of
all stages namely an enquiry schedule, a production schedule, a
shop schedule and an arrears schedule out of above four, a shop
schedule is the most important most suited to the needs of small
scale industry as it enables a foreman to see at a glance.
1. The total load on any section
2. The operational sequence
3. The stage, which any job has reached.
Loading: The next step is the execution of the schedule plan as
per the route
chalked out it includes the assignment of the work to the
operators at their
machines or work places. So loading determines who will do the
work as routing
determines where and scheduling determines when it shall be
done. Gantt Charts
are most commonly used in small industries in order to determine
the existing
load and also to foresee how fast a job can be done. The
usefulness of their
technique lies in the fact that they compare what has been done
and what ought to have been done.
Most of a small scale enterprise fail due to non-adherence to
delivery schedules
therefore they can be successful if they have ability to meet
delivery order in time
which no doubt depends upon production of quality goods in right
time. It makes
all the more important for entrepreneur to judge ahead of time
what should be
done, where and when thus to leave nothing to chance once the
work has begun.
Production control:
Production control is the process of planning production in
advance of operations, establishing the extract route of each
individual item part or assembly, setting, starting and finishing
for each important item, assembly or
the finishing production and releasing the necessary orders as
well as initiating the necessary follow-up to have the smooth
function of the enterprise. The production control is of
complicated nature in small industries. The production planning
and control department can function at its best in small scale unit
only when the work manager, the purchase manager, the
personnel manager and the financial controller assist in planning
production activities. The production controller directly reports to
the works manager but in small scale unit, all the three functions
namely material control, planning and control are often performed
by the entrepreneur himself production control starts with
dispatching and ends up with corrective actions.
Dispatching: Dispatching involves issue of production orders for
starting the
operations. Necessary authority and conformation is given for:
1. Movement of materials to different workstations.
2. Movement of tools and fixtures necessary for each operation.
3. Beginning of work on each operation.
4. Recording of time and cost involved in each operation.
5. Movement of work from one operation to another in accordance
with the
route sheet.
6. Inspecting or supervision of work
Dispatching is an important step as it translates production plans
into production.
Follow up: Every production programme involves determination
of the progress
of work, removing bottlenecks in the flow of work and ensuring
that the
productive operations are taking place in accordance with the
plans. It spots
delays or deviations from the production plans. It helps to reveal
detects in routing and scheduling, misunderstanding of orders
and instruction, under loading or overloading of work etc. All
problems or deviations are investigated and remedial measurer
are undertaken to ensure the completion of work by the planned
date.
Inspection: This is mainly to ensure the quality of goods. It can
be required as
effective agency of production control.
Corrective measures: Corrective action may involve any of those
activities of
adjusting the route, rescheduling of work changing the workloads,
repairs of machinery or equipment, control over inventories of the
cause of
deviation is the poor performance of the employees. Certain
personnel decisions
like training, transfer, demotion etc. may have to be taken.
Alternate methods may be suggested to handle peak loads.
Hierarchical Planning
1. Overall Manufacturing Planning
2. Detailed Materials and Capacity Planning
3. Execution of Plans
1.Overall Manufacturing Planning

Demand Management
Forecasting
Order Promising
Order Processing
Order Entry
Spare parts
Production Planning
Monthly Plans for Product Families
Master Production Scheduling (MPS)

Weekly Plans for Individual Products
MPS must sum up to Production Plan
Resource Planning
Long-Range Capacity Requirements
Number of Machines
Number of Employees
Overtime
Shifts
Plants
Rough-Cut Capacity Planning
Capacity Requirements for Master Production
Scheduling
Capacity Bills
Resource Profiles
2.Materials & Capacity Planning

Detailed Capacity Planning
Labor Hours Required
Machine Capacity Required
In an MRP environment, this task is accomplished by using the
Capacity Requirements Planning (CRP) technique.
3Execution of Plans Shop Floor Control
Recent Trend, Manufacturing Cells
Similar parts are grouped into families

Corresponding machine cells are formed
Use production rates
Use schedules to control production (Family Sequencing, Product
Sequencing, Cell Loading, Cell Scheduling, etc.)
Use Kanban System (Pull, Just-in-Time) to control production
Purchasing
Purchasing Plan
Vendor Search
Quotation
Order Release
Order Follow-up
Vendor Capacity
Matching PPC with the Needs of the Firm
1. Flow-Oriented Manufacturing Systems
Very short time between successive units
A few components needed
Flow rate is the measure
Ex: Chemical, food, petroleum
2. Repetitive-Nature Manufacturing Systems

Short time between successive units
Assemble similar products
Flow Rate or Assembly Rate is the measure
Ex: Televisions, Radios, Watches, Cars
3. Just-in-Time
High production volume
Low Product Variety
Reduced Inventory and Leadtime
Ex: Cars, Computers, Jewelry, Copy Machines
4. Materials Requirements Planning (MRP)

Batch production
High product variety
Low production quantity
Ex: Electric Motors, Fans
5. CPM/PERT
Long leadtimes
Low production quantity
Mass Customization
Designing, producing, and delivering customized products to
customers for at or near the cost and convenience of mass-
produced
items.
Mass customization combines high production volume with high
product variety.
Elements of mass customization:
Modular product design
Modular process design
Agile supply networks
Continuous Production Processes
A production process, such as those used by chemical plants or
refineries, that runs for very long periods without the start-and-
stop
behavior associated with intermittent production.
Enormous capital investments are required for highly automated
facilities that use special-purpose equipment designed for high
volumes of production and little or no variation in the type of
outputs.
Mass Production System (Flow)
Continuous Production
Anticipation of demand
May not have uniform production
Standardized Raw material
Big volume of limited product line
Standard facility- high standardization.
Fixed sequence of operation
Material handling is easier
High skilled operator not required
More Human problem is foreseen
Huge investment.
High raw material inventory.
Processing Production System

Extended form of mass production system
F.G of one stage is fed to next stage
More automatic machines
One basic raw material is transferred into several products at
several stages.
Less highly skilled workers required
More human problems foreseen
Highly standardized system
BATCH PRODUCTION
Batch production is defined by American Production and Inventory
Control Society (APICS) as a form of manufacturing in which the
job passes through the functional departments in lots or batches
and each lot may have a different routing. It is characterised by
the manufacture of limited number of products produced at
regular intervals and stocked awaiting sales.
Characteristics
Batch production system is used under the following
circumstances:
1. When there is shorter production runs.
2. When plant and machinery are flexible.
3. When plant and machinery set up is used for the production of
item in a batch and change of set up is required for processing
the next batch.
4. When manufacturing lead time and cost are lower as compared
to job order production.
Advantages
Following are the advantages of batch production:
1. Better utilisation of plant and machinery.
2. Promotes functional specialisation.
3. Cost per unit is lower as compared to job order production.
4. Lower investment in plant and machinery.
5. Flexibility to accommodate and process number of products.
6. Job satisfaction exists for operators.
Limitations
Following are the limitations of batch production:
1. Material handling is complex because of irregular and longer
flows.
2. Production planning and control is complex.
3. Work in process inventory is higher compared to continuous
production.
4. Higher set up costs due to frequent changes in set up.
JOB SHOP PRODUCTION

Job shop production are characterised by manufacturing of one or
few quantity of products designed and produced as per the
specification of customers within prefixed time and cost. The
distinguishing feature of this is low volume and high variety of
products.
A job shop comprises of general purpose machines arranged into
different departments.
Each job demands unique technological requirements, demands
processing on machines in a certain sequence.
Characteristics
The Job-shop production system is followed when there is:
1. High variety of products and low volume.
2. Use of general purpose machines and facilities.
3. Highly skilled operators who can take up each job as a
challenge because of uniqueness.
4. Large inventory of materials, tools, parts.
5. Detailed planning is essential for sequencing the requirements
of each product, capacities for each work centre and order
priorities.
Advantages
Following are the advantages of job shop production:
1. Because of general purpose machines and facilities variety of
products can be produced.
2. Operators will become more skilled and competent, as each job
gives them learning opportunities.
3. Full potential of operators can be utilised.
4. Opportunity exists for creative methods and innovative ideas.
Limitations
Following are the limitations of job shop production:
1. Higher cost due to frequent set up changes.
2. Higher level of inventory at all levels and hence higher
inventory cost.
3. Production planning is complicated 4. Larger space
requirements.
Forecasting Definition: Forecasting is a statement about
the future. It is estimating future event (variable), by
casting forward past data. Past data are systematically
combined in predetermined way to obtain the estimate.
Forecasting is not guessing or prediction.
Forecasting help managers to:
Plan the system
Plan the use of system
Forecasts affect decisions and activities throughout an

organization
Accounting, finance
Human resources
Marketing
MIS
Operations
Product / service design
Common features of forecasting:
1 Forecasting is rarely perfect (deviation is expected).
2 All forecasting techniques assume that there is some degree of
stability in the system, and what happened in the past will
continue to happen in the future.
3 Forecasting for a group of items is more accurate than the
forecast for individuals.
4 Forecasting accuracy increases as time horizon increases.
Elements of good forecast:
1 Timely: Forecasting horizon must cover the time necessary to
implement possible changes.
2 Reliable: It should work consistently.
3 Accurate: Degree of accuracy should be stated.
4 Meaningful: Should be expressed in meaningful units. Financial
planners should know how many dollars needed, production
should know how many units to be produced, and schedulers
need to know what machines and skills will be required.
5 Written: to guarantee use of the same information and to make
easier comparison to actual results.
6 Easy to use: users should be comfortable working with forecast.
Types of forecast by time:

Short-range (days weeks months): Job scheduling, work
assignments
o Time spans ranging from a few days to a few weeks.
o Cycles, seasonality, and trend may have little effect.
o Random fluctuation is main data component.
Medium term (1-2 years): Sales, production
Long range forecast (> 2years): change location
o Time spans usually greater than one year.
o Necessary to support strategic decisions about planning
products, processes, and facilities.
Forecast accuracy:
Total absolute deviation (TAD)= 14
Mean absolute deviation (MAD)= (Actual-forecast)/n = 14/5 =
2.8
Total Squared Error (TSE) = 44
Mean Square Error (MSE)= 44/5 = 8.8
Steps in forecast development:

1 Determine purpose of forecast.
2 Establish a time horizon: time limit, accuracy decreases with
shorter durations.
3 Select forecasting technique.
4 Gather and analyze data.
5 Prepare the forecast
6 Monitor forecast.
Methods of forecast:
1. Quantitative (based on time series data): Time series data: a
time ordered sequence of observation taken at regular intervals
over time. Patterns resulting from plotting of these data are:
a. Trend: A long-term upward or downward movement in data.
b. Seasonality: Short-term regular variations related to calendar
or time of day.
c. Cycle: Wavelike variation lasting more than one year.
d. Random variations: residual variations after all other
behaviors are accounted for.
e. Irregular variations: caused by irregular circumstances, not
reflective of typical behavior. Nave forecast: The forecast for
any period equals the previous periods actual value.
Simple to use.
Virtually no cost.
Quick and easy to prepare (no data analysis required).
Easily understandable.
Cannot provide high accuracy.
Can be a standard for accuracy and cost. Q: is the increased
accuracy of another method worth the additional cost?
Can be applied in stable demand (moving around average),
seasonal, and trend
Examples:
1 Sales of air conditioning units next July, will be the same as the
sales in last July. (Seasonal)
2 Highway traffic next Tuesday will be the same as last Tuesday
(stable, moving around average).
3 If the last 2 actual values were 50 and 53, the next will be 56
(trend).
2. Qualitative methods: (based on judgment and opinion)

1 Jury of executives: opinions of high level executives
2 Sales force composite: estimates from sales individuals are
reviewed for reasonableness (may tend to make under
estimates), then aggregated.
3 Consumer market survey: Asking the customers may give
best forecasts but it is higher in cost, difficult to apply.
4. Delphi method:
(a) Panel of experts queried.
(b) Chosen experts to participate should be of a variety of
knowledgeable people in different areas (finance, marketing,
production etc). They are unknown to any one, except for the
coordinator.
(c) Through questionnaire the coordinator obtains estimates from
all participants.
(d) Coordinator summarizes results and redistributes them to
participants along with appropriate new questions.
(e) Summarize again and refine forecasts and develop new
question.
Differences between qualitative and quantitative
Linear regression analysis:
Establishes a relationship between a dependent variable and one
or more independent variables.
In simple linear regression analysis there is only one independent
variable.
If the data is a time series, the independent variable is the time
period.
The dependent variable is whatever we wish to forecast. (e.g.
sales)
4. Delphi method:
coordinator.
all participants.
question.
variable.
period.
sales)
4. Delphi method:
coordinator.
all participants.
question.
variable.
period.
sales)
Seasonalized Time Series Regression Analysis
Select a representative historical data set.
Develop a seasonal index for each season.
Use the seasonal indexes to deseasonalize the data.
Perform linear regression analysis on the deseasonalized data.
Use the regression equation to compute the forecasts.
Use the seasonal indexes to reapply the seasonal patterns to the
forecasts.
Seasonalized Times Series Regression Analysis An analyst at
CPC wants to develop next years quarterly forecasts of sales
revenue for CPCs line of Epsilon Computers. She believes that the
most recent 3 quarters of sales (shown on the next slide) are
representative of next years sales.
Representative Historical Data Set
Capacity Decision
Major considerations in capacity decisions are:
a)What size of plant? How much capacity to install?
b)When capacity is needed ? When to phase-in capacity or
phase-out capacity?
c)At what cost? How to budget for the cost?
Determination of capacity
Capacity decisions are important because:
a)They have a long-term impact
b)Capacity determines the selection of appropriate
technology, type of labour and equipments, etc.
c)Right capacity ensures commercial viability of the
business venture.
d)Capacity influences the competitiveness of a firm.
Factors affecting Capacity decision
1.Market demand for a product/service
2.The amount of capital that can be invested
3.Degree of automation desired
4.Level of integration (i.e., vertical integration)
5.Type of technology selected
6.Dynamic nature of all factors affecting determination of
plant capacity, viz., changes in the product design, process
technology, market conditions' and product life cycle, etc.
7.Difficulty in forecasting future demand and future
technology.
8.Obsolescence of product and technology over a period of
time.
9.Present demand and future demand both over short-range,
intermediate-range and long-range time horizons.
10.Flexibility for capacity additions.
Capacity Decision
Major considerations in capacity decisions are:
a)What size of plant? How much capacity to install?
b)When capacity is needed ? When to phase-in capacity or
phase-out capacity?
c)At what cost? How to budget for the cost?
Determination of capacity
Capacity decisions are important because:
a)They have a long-term impact
b)Capacity determines the selection of appropriate
technology, type of labour and equipments, etc.
c)Right capacity ensures commercial viability of the
business venture.
d)Capacity influences the competitiveness of a firm.
Factors affecting Capacity decision
1.Market demand for a product/service
2.The amount of capital that can be invested
3.Degree of automation desired
4.Level of integration (i.e., vertical integration)
5.Type of technology selected
6.Dynamic nature of all factors affecting determination of
plant capacity, viz., changes in the product design, process
technology, market conditions' and product life cycle, etc.
7.Difficulty in forecasting future demand and future
technology.
8.Obsolescence of product and technology over a period of
time.
9.Present demand and future demand both over short-range,
intermediate-range and long-range time horizons.
10.Flexibility for capacity additions.
Steps in Aggregate capacity Planning
1.Prepare the sales forecast for each product that indicates the
quantities to be sold in each time period (usually weeks,
months or quarters) over the planning horizon (6 to 18
months)
2.Sum up the individual product or service forecast into one
aggregate demand for the factory.
3.Transform the aggregate demand for each time period into
labour, materials, machines and other elements of
production capacity required to satisfy aggregate demand.
4.Develop alternative resource schemes for supplying the
necessary production capacity to support the cumulative
aggregate demand.
5.Select the capacity plan from among the alternatives
considered that satisfy aggregate demand and best meets
the objectives of the organization
Approaches to Aggregate Planning
Two types of approaches
a.Top- down approach
b.Bottom up approach.
c.
Top down approach:
1.Working at highest level of consolidation of product
2.Plan disaggregated to the product families.
3.Relay on proper amount of total capacity is available
Bottom Up Approach:
Also called as Resource Requirement Planning(RRP) or
Rough cut capacity planning.
1.They are done with Master Production Schedule
2.Ensures no over load occurs for any department.
3.Quick and in-expensive way to find and correct the raw
materials available and required for MPS.
MRP at Plant Level
The system adds together stocks from all of the individual
storage locations, with the exception of individual customer stock,
to determine total plant stock.
Individual storage locations can be planned separately or be
excluded from planning.
MRP at Area Level

Only the stocks from the storage locations or subcontractor
assigned to the respective MRP area are taken into account.
This enables you to plan material requirements specifically for
certain areas.
MRP Planning
MRP Outputs
Planned orders - schedule indicating the amount and timing of
future orders.
Order releases - Authorization for the execution of planned
orders.
Changes - revisions of due dates or order quantities, or
cancellations of orders.
Performance-control reports
Planning reports
Exception reports
The Benefits of MRP
Inventory reduction,
Reduction in production & delivery time
Increased efficiency.
Faster response to market changes
Improved labor & equipment utilization
Better inventory planning & scheduling
Reduced inventory levels without reduced customer service
SALES & OPERATIONS PLANNING OBJECTIVES
SUPPORT THE PROFIT PLAN
SUPPORT THE CUSTOMER
INSURE REALISTIC PLANS
LEAD CHANGE
MANAGE INVENTORY
MAKE DECISIONS -RESOLVE ISSUES
MEASURE PERFORMANCE
BUILD TEAM WORK!
Manufacturing Resource Planning (MRP II)

Expanded MRP with and emphasis placed on integration
Financial planning
Marketing
Engineering
Purchasing
Software Extensions
Rough Cut Capacity Planning (RCCP), an initial attempt to match
the order load to the capacity available,
Sales Order Processing
Cost accounting
Data Accuracy
Enterprise Resource Planning (ERP)
Enterprise resource planning (ERP):
An expanded effort to integrate standardized record keeping that
will permit information sharing throughout the organization
Strategic considerations
High initial cost
High cost to maintain
Future upgrades
Training
WORK MEASUREMENT
Application of a set of techniques intended to establish amount
of work to be done by an operator in a given time under specified
conditions at the defined level of performance.
This helps in identifying correct manpower and machine
requirement.
This helps in fixing number of machines to be operated by each
worker.
Helps in proper planning of delivery schedules.
Helps in estimating production cost.
Helps in cost control and reduction in labour cost and idle costs.
Helps in improvement of method by identifying deviations from
standard.
Helps to fix incentives.
Identifying sub-standard workers, their progress and training
needs.
TECHNIQUES OF WORK MEASUREMENT

TIME STUDY - Suitable for short cycle repetitive jobs
PRODUCTION STUDY -
WORK SAMPLING - long cycle jobs, heterogeneous
operations / team work jobs.

ANALYTICAL ESTIMATING - short cycle non repetitive.
SYNTHETIC DATA - Short cycle repetitive jobs
PRE-DETERMINED MOTION AND TIME STUDY (PMTS)
MTM - manual operations
TIME STUDY
Establish time for a worker to carry out a specific job under
specified conditions at the defined level of performance.
Time study steps

Select the task to be timed - bottleneck jobs, repetitive jobs,
Labourious jobs, jobs with longer cycle time, sections having
higher over-time.
Standardise the method using method study.
Select the operator having necessary physical attributes,
possesses required intelligence and education, has acquired
necessary skill and knowledge to carry out the work to
satisfactory standard of safety, quantity and quality.
Record details including Item name , part number, machine ,
speed, material , operator and supervisor.
Record type of material, shape of job, tolerances.
Environment & Working Conditions surrounding the job
Break the task into parts / or elements.
Measure the duration of each element and assess the pace of
performance to obtain rating which is a ratio of observed time and
the normal time.
Time taken for the job may vary due to variation in material, tool
conditions, tool locations and workmen performance hence
enough cycles should be timed and average is determined.
Convert the observed time into normal time using performance
rating.
Assess relaxation and other allowances for:
Personal needs ( Relaxation Allowance )
Stoppage of alternate machine ( multiple machines attended by
same operator ) ( Interference allowance )
Unavoidable delays and interruptions.( contingency allowance )
opportunity to workers to increase the earnings (Policy
allowance )
Calculate Standard Time
WORK SAMPLING
Statistically competent number of instantaneous observations
are taken, over a period of time, of a group of machines,
processes or workers. Each observation records what is seen to
happen and percentage of observations recorded for a particular
activity or delay is a measure of percentage of time absorbed by
the occurrence.
Large number of observations are made as to state of each
member of the group working or idle. The data is amplified for the
reasons for being idle.
Used for cost reduction and cost control, Assessment of
allowances for output standards, fixation of output standards,
Testing the accuracy of the output standards.
Compared to time study, the observer need not be extensively
trained.
More than one task can be studied simultaneously
The workers would have less objection as the study is not
specifically measuring the skill timing of each job.
STEPS FOR WORK SAMPLING STUDY

Decide on the objective of the study
Explain the purpose to the supervisors and the workers.
Fix up work and delay elements:
Machine under set up
Machine working
Want of tools ( idle time for replacement, non availability,
sharing, repairing )
Want of work ( No work, Hold up for inspection, machine waiting
for previous activity to get over, Machine set up for job not yet
received, Movement of material.
Want of Inspection ( waiting for the result )
Want of transport
Want of instructions
Away from work place ( personal needs, official work, collection
of pay/incentives, Union / society activities )
Interference ( machine maintenance, cleaning, simultaneous
stoppage, testing of jobs, tools , material )
Manufacturing difficulties ( defects, supervisor not available )
Absenteeism
Machine break down
Power failure
Early close and late start
Decide on the duration of study based on number of observers,
accuracy desired, frequency of occurrence of the activity, cyclical
work patterns
Fix the desired accuracy (2-5 %) and confidence level ( 95 % )
Make a preliminary estimate of percentage occurrence ( Activity
percentage - p ) of the activity or delay to be measured based on
past experience or pilot study.
p = observations of idle activity / Number of observations.
Design the study :
Number of observations - N = C ( 1 - p ) / A p
C = Confidence level , A = limits of accuracy
Total number of rounds - R = N / m (number of subjects)
Rounds per day - r = R / S ( Number of study days )
Computation of average time between the rounds T = Total time
available per shift / r
Fixation of time require to make ( complete ) a round - Tr
depends on distance, number of stations to be covered

Comparison of T and Tr. T should be at least 2-3 times Tr
Preparation of the schedule for the rounds ensuring
randomisation
Design of observation data sheet to facilitate easy recording and
understanding
Make observations ensuring that all the members are clearly
visible, Observe what is happening and not what has happened or
what will happen.
Summarise results in the form of each activity number ( code )
description , number of observations and %ge of observations.
Prepare report with conclusions / recommendations
SETTING PERFORMANCE STANDARDS
The observations are made at random interval whether the
subject is working or idle and reasons for delays and interruptions
are noted.
Production activity ( working ) is split into machine working and
hand working.
Operators performance rating is recorded for hand working.
Individual ratings are averaged to get rating index
Production quantity is noted.
Overall time per unit ( To ) is calculated by dividing production
time ( study time ) by production quantity.
Effective time per unit ( Te ) = To X Np ( Production activity ) / N (
Total number of observations )
Np = Nm ( machine observations ) + Nh ( hand Observations)
Breakdown of effective time
Te = Tm( machine ) + Th ( Hand )
Tm = Te X Nm / ( Nm + Nh )
Th = Te X Nh / ( Nm + Nh )
Normal time per piece = ( Th X R ) / 100 + Tm
Standard time per piece = Normal time per piece + allowance.
WORK SAMPLING Vs TIME STUDY

Work sampling is more economical as Time study engineer not
require at the site for long time and more than one operator can
be studied at a time.
Team work activities can be studied by work sampling.
Less trained personnel can also conduct work sampling study.
Work sampling study can be stopped at any time.
It gives unbiased results since workmen are not under close
observation.
Work sampling is not economical for short cycle jobs and for
single workman.
Work sampling does not permit finer breakdown of activities and
delays.
Work sampling does not record method being used by operator.
Workmen may change their normal pattern of working on seeing
the observer making the study fruitless.
Insufficient observations and lack of randomisation may produce
inaccurate results.
It does not normally account for the speed of working of the
workman.
MEANING AND NATURE OF INVENTORY
The dictionary meaning of inventory is stock of goods, or a list
of goods. The work Inventory is understood differently by
various authors, in accounting language it may mean stock of
finished goods only. In a manufacturing concerns, it may include
raw materials, work in process and stores, etc.
a. Raw Material: The quantity of raw materials required will be
determined by the rate of consumption and the time required for
replenishing the supplies. The factors like the availability of raw
materials and government regulations, etc. too affect the stock of
raw materials.
b. Work-in-Progress: The work-in-progress is that stage of
stocks which are in between raw materials and finished goods.
The greater the time taken in manufacturing, the more will be the
amount of work in progress.
c. Consumables: These materials do not directly enter
production but they act as catalyst, etc. There can be instances
where these materials may account for much value than the raw
materials. The fuel oil may form a substantial part of cost.
d. Finished Goods: These are the goods which are ready for the
consumers. The stock of finished goods provides a buffer between
production and market. The purpose of maintaining inventory is to
ensure proper supply of goods to consumers. In some concerns
the production is undertaken on order basis, in these concerns
there will not be a need for finished goods. The need for finished
goods inventory will be more when production is undertaken in
general without waiting for specific orders.
e. Spares: Spares also form a part of inventory. Some industries
like transport will require more spares than the other concerns.
The costly spare parts like engines, maintenance spares etc. are
not discarded after use, rather they are kept in ready position for
further use. All decision about spares are based on the financial
cost of inventory on such spares and the costs that may arise due
to their non-availability.
PURPOSE / BENEFITS OF HOLDING INVENTORIES
Although holding inventories involves blocking of a firms funds
and the cost of storage and handling, every business enterprise
has to maintain a certain level of inventories to facilitate
uninterrupted production and smooth running of business. There
are three main purpose or motives of holding inventories.
i. The Transaction Motive which facilitates continuous
production and timely execution of sales orders.
ii. The Precaution Motive which necessitates the holding of
inventories for meeting the unpredictable changes in demand and
supplies of materials.
iii. The Speculative Motive which induces to keep inventories
for taking advantage of price fluctuations, saving in re-ordering
cost and quantity discount, etc.
RISK AND COSTS OF HOLDING INVENTORIES

The various costs and risks involved in holding inventories are
as below:
i. Capital Costs: Maintaining of inventories results in blocking of
the firms financial resources. The funds may be arranged from
own resources or from outsides. In the former case, there is an
opportunity cost of investment while in the later case, the firm
has to pay interest to the outsides.
ii. Storage and Handling costs: The storage costs include the
rental of the godown, insurance charges, etc.
iii. Risk of Price Decline: This may be due to increased market
supplies, competition or general depression in the market.
iv. Risk of Obsolescence: The inventories may become obsolete
due to improved technology, changes in requirements, change in
customers tastes, etc.
v. Risk Deterioration in Quality: The quality of the materials
may also deteriorate while the inventories are kept in store.
TOOLS AND TECHNIQUES OF INVENTORY MANAGEMENT
AND CONTROL
The following are the important tools and technique of
inventory management and control.
1. Determination of stock levels.
2. Determination of safety stocks.
3. Selecting a proper system of ordering for inventory.
4. Determination of economic order quantity.
5. A.B.C. Analysis.
6. V.E.D. Analysis.
7. Inventory turnover ratios.
8. Aging schedule of inventories
9. Classification and codification of inventories
10. Preparation of inventory reports.
1. Determination of stock levels: Carrying of too much and too
little of inventories is detrimental to the firm. If the inventory level
is too little, the firm will face frequent stock-outs involving heavy
ordering cost and if the inventory level is too high it will be
unnecessary tie-up of capital. Therefore, an affective inventory
management requires that a firm should maintain an optimum
level of inventory where inventory costs are the minimum and at
the same time there is no stock-out which may result in lost of
sale or stoppage of production. Various stock levels are discussed
as such.
a. Minimum Level: This represents the quality which must be
maintained in hand at all times. If stocks are less than the
minimum level then the work will stop due to shortage of
materials. Following factors are taken into account while fixing
minimum stock level:
Lead Time: The time taken in processing the order and then
executing it is known as lead time. It is essential to maintain some
inventory during the period.
Rate of Consumption: It is the average consumption of
material in the factory.
Nature of Material: If a material is required only against
special orders of the customer than minimum stock will not be
required for such materials. Minimum stock level can be
calculated with the help of following formula:
Minimum stock level = Re-ordering level (Normal

consumption) Normal Re-order period)
b. Re-ordering Level: Re-ordering level or ordering level is fixed
between minimum level and maximum level. Re-ordering level is
fixed with the following formula:
Re-ordering Level = Maximum Consumption Maximum
Re-order period.
c. Maximum Level: It is the quantity of material beyond which a
firm should not exceed its stocks. If the quantity exceeds
maximum level limit then it will be overstocking. A firm should
avoid overstocking because it will result in high material costs.
Overstocking will mean blocking of more working capital, more
space for storing the materials, more wastage of materials and
more chances of losses from obsolescene.
Maximum Stock Level = Re-ordering Level + Re-ordering
Quantity (Minimum Consumption Minimum Re-ordering
period).
d. Danger Level: It is the level beyond which materials should
not fall in any case. If danger level arises then immediate steps
should be taken to replenish the stocks even if more cost is
incurred in arranging the materials. If materials are not arranged
immediately there is a possibility of stoppage of work. Danger
level is determined with the following formula: Danger Level =
Average Consumption Maximum re-order period for
emergency purchases.
e. Average Stocks Level: The average stock level is calculated
as such: Average Stock Level = Minimum Stock Level +
of re-order quantity.
2. Determination of Safety Stocks
Safety stock is a buffer to meet some unanticipated increase in

usage. The usage of inventory cannot be perfectly forecasted. It
fluctuates over a period of time. The demand for materials may
fluctuate and delivery of inventory may also be delayed and in
such a situation the firm can face a problem of stock-out. The
stock-out can prove costly by affecting the smooth working of the
concern. In order to protect against the stock out arising out of
usage fluctuations, firms usually maintain some margin of safety
or safety stocks. The basic problem is to determine the level of
quantity of safety stocks. Two costs are involved in the
determination of this stock i.e. opportunity cost of stock-outs and
the carrying costs. The stock outs of raw materials cause
production distruption resulting into higher cost of production.
Similarly, the stock-out of finished goods result into the failure of
the firm in competition as the firm cannot provide customer
service. If a firm maintain low level of safety frequent stock-outs
will occur resulting into the large opportunity costs. On the other
hand, the larger quantity of safety stocks involve higher carrying
costs.
3. Ordering systems of Inventory
The basic problem of inventory is to decide the re-order point.
This point indicates when an order should be placed. The re-order
point is determined with the help of these things: (a) average
consumption rate, (b) duration of lead time, (c) economic order
quantity, when the inventory is depleted to lead time
consumption, the order should be placed. There are three
prevalent system of ordering and a concern can choose any one
of these:
a. Fixed order quantity system generally known as economic order
quantity (EOQ) system;
b. Fixed period order system or periodic re-ordering system or
periodic review system;
c. Single order and schedule part delivery system.
4. Economic Order Quantity (EOQ)

Economic order quantity is the size of the lot to be purchased
which is economically viable. This is the quantity of materials
which can be purchased at minimum costs. Generally, economic
order quantity is the point at which inventory carrying costs are
equal to order costs. In determining economic order quantity it is
assumed that cost of managing inventory is made up solely of
two parts i.e., ordering costs and carrying costs.
Ordering costs: These are the costs which are associated with
the purchasing or ordering of materials. These costs include:
1. Costs of staff posted for ordering of goods. A purchase order is
processed and then placed with suppliers. The labour spent on
this process is included in ordering costs.
2. Expenses incurred on transportation of goods purchased.
3. Inspection costs of incoming materials.
4. Cost of stationery, typing, postage, telephone charges, etc.
These costs are also known as buying costs and will arise only
when some purchases are made. When materials are
manufactured in the concern then these costs will be known as
set-up costs. These costs will include costs of setting up
machinery for manufacturing materials, time taken up in setting,
cost of tools, etc.
The ordering costs are totalled up for the year and then
divided by the number of orders placed each year.
B. Carrying Costs: These are the costs of holding the

inventories. These costs will not be incurred if inventories are not
carried. These costs include:
1. The cost of capital invested in inventories. An interest will be
paid on the amount of capital locked-up in inventories.
2. Cost of storage which could have been used for other purpose.
3. The lost of materials due to deterioration and obsolescence.
The materials may deteriorate with passage of time. The loss of
absolescence arises when the materials in stock are not usable
because of change in process or product.
4. Insurance cost.
5. Cost of spoilage in handling of materials.
6. The longer the materials kept in stocks, the costlier it becomes
by 20 percent every year. The ordering and carrying costs have a
reverse relationship. The ordering cost goes up with the increase
in number of orders placed. On with the increase in number of
units, purchased and stored. It can be shown in the diagram
shown.
7. The ordering and carrying costs of materials being high, an
effort should be made to minimise these costs. The quantity to be
ordered should be large so that economy may be made in
transport costs and discounts may also be earned. On the other
hand, storing facilities, capital to be locked up, insurance costs
should also be taken into account.
Assumptions of EOQ: While calculating EOQ the following

assumptions are made.
1. The supply of goods is satisfactory. The goods can be
purchased whenever these are needed.
2. The quantity to be purchased by the concern is certain.
3. The prices of goods are stable. It results in stabilising carrying
costs.
4. When above-mentioned conditions are satisfied, economic
order quantity can be calculated with the help of the following
formula:
Where A = Annual consumption in rupees.
S = Cost of placing an order.
I = Inventory carrying costs of one unit.
EOQ and Quality Discount: Customer is offered some
discount for bulk purchase or if the size of a single order is large.
Thus, the price per unit of an item may decrease for buying larger
quantities. The quantity discount affect inventory cost in three
ways:
i. As the price per unit is reduced, the total price for the lot is
reduced.
ii. The lot size is increased, the number of offers is reduced and as
a result the total ordering cost is reduced.
iii. The average inventory holding increase and as a result the
storage cost will increase.
Thus, to decide whether to avail the quantity discount or not,

first of all EOQ is determined and then its total cost without
quantity discount and with quantity discount is determined. In
case, the total cost is less due to quantity discount the offer is
accepted, other wise it is rejected. The following example
illustrates the point.
5. A-B.C Analysis
The materials are divided into a number of categories for

adopting a selective approach for material control. Under A-B-C
analysis, the materials are divided into three categories viz, A, B
and C. Past experience has shown that almost 10 percent of the
items contribute to 70 percent of value of consumption and this
category is called A Category. About 20 percent of the items
contribute about 20 percent of value of consumption and this is
known as category B materials. Category C covers about 70
percent of items of materials which contribute only 10 percent of
value of consumption. There may be some variation in different
organisations and an adjustment can be made in these
percentages.
6. VED Analysis
The VED analysis is used generally for spare parts. Spare parts
are classified as Vital (V), Essential (E) and Desirable (D). The vital
spares are a must for running the concern smoothly and these
must be stored adequately. The non-availability of vital spare will
cause havoc in the concern. The E type of spares are also
necessary but their stocks may be kept at low figures. The
stocking of D type of spares may be avoided at times. If the lead
time of these spares is less, then stocking of these spares can be
avoided. classification of spares under three categories is an
important decision. The classification of spares should be left to
the technical staff because they know the need urgency and use
of these spares.
7. Inventory Turnover Ratios
Inventory turnover ratios are calculated to indicate whether

inventories have been used efficiently or not. The purpose is to
ensure the blocking of only required minimum funds in inventory.
The inventory turnover ratio also known as stock velocity is
normally calculated as sales/average inventory or cost of goods
sold/average inventory cost. Inventory conversion period may
also be calculated to find the average time taken for clearing the
stocks.
Symbolically, Cost at Inventory Average Sold Good of Cost Ratio
Turnover Inventory Inventory ) Average(SalesNet
8. Aging Schedule of Inventories
Classification of inventories according to the period (age) of their

holdings also helps in identifying show moving inventories
thereby helping in effective control and management of
inventories. The following table shown aging of inventories of a
firm.
9. Classification and Codification of Inventories
The inventories of a manufacturing concern may consist of raw

materials, work in process, finished goods, spares, consumable
stocks, etc. All these categories may have their sub-divisions. The
raw materials used may be of 3-4 types, finished goods may also
be of more than one type, spares may be of a number of types
and so on. For a proper recording and control of inventory, a
proper classification of various types of items is essential. The
inventories should first be classified and then code numbers
should be assigned for their identification.
The identification of short names are useful for inventory
management not only for large concerns but also for small
concerns. Lack of proper
classification may also lead to reduction in production. Generally,
material are classified according to their nature such as
construction materials, consumable stocks, spares, lubricants,
etc. The coding class of materials is assigned two digits and then
two or three digits are assigned to the category of materials in
that class. The third distinction is needed for the quality of goods
and decimals are used to note this factor.
10.Inventory Reports
From effective control, the management should be kept informed
with the latest stock position of different items. This is usually
done by preparing periodical inventory reports. These reports
should contain all information necessary for managerial action.
On the basis of these reports management takes corrective action
wherever necessary. The more frequently these reports are
prepared the less will be the chances of lapse in the
administration of inventories.
JUST IN TIME (JIT) INVENTORY CONTROL SYSTEM
The term JIT refers to a management tool that helps to produce
only the needed quantities at the needed time. According to the
official terminology of C.I.M.A., JIT is a technique for the
organisation of workflows, to allow rapid, high quality, flexible
production whilst minimizing manufacturing work and stock
level. There are broadly two aspects of JIT (i) just in time
production, and (ii) just in time purchasing.
Just in time inventory control system involves the purchase of
materials in such a way that delivery of purchased material is
assured just before their use or demand. The philospohy of JIT
control system implies that the firm should maintain a minimum
(zero level) of inventory and rely on suppliers to provide materials
just in time to meet the requirements. The traditional inventory
control system, on the other hand, requires maintaining a healthy
level of safety stock to provide protection against uncertainties of
production and supplies.
Objective of JIt
The ultimate goal of JIT is to reduce wastage and enhance
productivity. The important objectives of JIT include:
1. Minimum / zero inventory and its associated costs.
2. Elimination of non-value added activities and all wastes.
3. Minimum batch / lot size.
4. Zero breakdowns and continuous flow of production.
5. Ensure timely delivery schedules both inside and outside the
firm.
6. Manufacturing the right product at right time.
Features of JIT
a. It emphasises that firms following traditions inventory control
system overestimate ordering cost and underestimate carrying
costs associated with holding of inventories.
b. It advocates maintaining good relations with suppliers so as to
enable purchase of right quantity of material at right time.
c. It involves frequent production / order runs because of smaller
batch/lot sizes.
d. It requires reduction in set up time as well as processing time.
e. Purchase of produce in response to need rather than as per the
plans and forecasts.

Production and Operation Management Project

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Project : Production & Operation

The two distinctions not withstanding, the terms production

Scope of Production and Operation Management

Production systems can be classified as Job Shop, Batch, Mass and

Some common characteristics between projects and

Factors Affecting Productivity

1. CAPITAL An existing machine or facility if it is not functioning up

Six lines of attack to improve the productivity ratio of an

Lack of proper planning, keeping workers waiting between jobs

Factors affecting the design of plant or premises

A) Process or functional layout

B) Product or Line Layout:

Typical examples of product layout are:

COMPARISION BETWEEN PRODUCT LAYOUT AND PROCESS

This is because unlike in product layout material flow is discontinuous.

(5) Flexibility: process layout offers a very high flexibility as alteration

Process layout offers flexibility in production schedule since

Layout is comparatively simple and limited.

Under product layout, inspection is performed at some critical point in

The skill production in batch production units (another group of firms

Factors affecting layout decision

1.Overall Manufacturing Planning

Master Production Scheduling (MPS)

MPS must sum up to Production Plan

2.Materials & Capacity Planning

Similar parts are grouped into families

2. Repetitive-Nature Manufacturing Systems

4. Materials Requirements Planning (MRP)

Processing Production System

JOB SHOP PRODUCTION

Forecasts affect decisions and activities throughout an

Types of forecast by time:

Steps in forecast development:

2. Qualitative methods: (based on judgment and opinion)

MRP at Area Level

Manufacturing Resource Planning (MRP II)

TECHNIQUES OF WORK MEASUREMENT

operations / team work jobs.

Time study steps

STEPS FOR WORK SAMPLING STUDY

depends on distance, number of stations to be covered

WORK SAMPLING Vs TIME STUDY

RISK AND COSTS OF HOLDING INVENTORIES

Minimum stock level = Re-ordering level (Normal

2. Determination of Safety Stocks

Safety stock is a buffer to meet some unanticipated increase in

4. Economic Order Quantity (EOQ)

B. Carrying Costs: These are the costs of holding the

Assumptions of EOQ: While calculating EOQ the following

Thus, to decide whether to avail the quantity discount or not,

The materials are divided into a number of categories for

Inventory turnover ratios are calculated to indicate whether

Classification of inventories according to the period (age) of their

The inventories of a manufacturing concern may consist of raw

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