OM0017-Unit-01-Production Planning and Control Concepts

Unit-01-Production Planning and Control Concepts Structure: 1.1 Introduction Objectives 1.2 Functions/Tasks of Production Planning 1.3 Levels of Production Planning 1.4 Systems/Aids for Production Control 1.5 PPC Coordination with Other Functions and Role of Production 1.6 PPC Coordination & Interfacing with Marketing 1.7 PPC as an Integrated Function 1.8 PPC for Different Systems of Manufacturing PPC for mass or continuous production PPC for batch or intermittent production PPC for job shop production 1.9 Functions of PPC in Plant / Facilities Planning 1.10 Summary 1.11 Glossary 1.12 Terminal Questions 1.13 Answers 1.14 Case Study 1.1 Introduction It is very well known that an industry can achieve the highest efficiency in production by manufacturing the required quantities of products. In order to coordinate all manufacturing activities across all processes, the management deploys the production planning and control department. This department is responsible for organising the production process. Production is a transformation process. Here, all the material inputs are processed to get the desired product. The production planning and control section, hereafter referred to as PPC, controls and monitors the whole production process. It follows two processes. First is the transformation by disintegration, which involves converting the raw materials to different sizes, states and geometric shapes, and second is the transformation through integration, which involves but the assembly of components to form the main product. In this unit, you will study about the functions of production planning along with its levels. Later, you will be studying about production planning and control (PPC) coordination with other functions and as an integrated function. At the end, we will discuss about the PPC for different systems of manufacturing and PPC functions in plant facility. Objectives

After studying this unit, you should be able to: Analyse the integrated systems in PPC and System/Aids used. Devise production planning for mass, batch & job type productions through Aggregate and Master Production Systems. Define the functions, different levels and procedures adopted in PPC Assess how PPC works as an integrated system and the positioning policy. Distinguish between planning and control functions. 1.2 Functions/Tasks of Production Planning Before we discuss about the functions/tasks of production planning, let us first understand the meaning of production planning. Production planning is a process that covers the performance of some critical functions like planning, routing, scheduling, and loading. Manufacture planning and control involves the procurement and allocation of limited resources over a specified time horizon to carry out production activities so as to satisfy the demands of the customer. Planning and control problems are characteristically optimisation problems. Here, the objective is to come up with a plan that meets demand at a minimum cost or that fulfills the demand which maximises profit. The manufacturing planning and control deals with the decisions of utilisation, acquisition, and resources allocation because it is important to satisfy the customer requirements in a cost effective and efficient way. Usually, decisions taken include the level of work force, production lot sizes, assignment of overtime, and sequencing of production runs. Following are the essential functions/tasks of production planning. Planning Production planning is defined as the technique of anticipating every step in a long series of separate operations. It helps the entrepreneur to calculate the quantity of material, manpower, machinery, and capital required for producing a planned level of output in a specified time period. Routing The main purpose of routing is to find out the best and cheapest sequence of operations and to make sure that this order is exactly followed. Routing involves the following different activities. Evaluating the document to determine what components to make and what components to buy. Ascertaining the quality and type of material. Establishing the sequence of manufacturing operations. Determining lot sizes. Finding out the scrap factors. Analysing the cost of the article. Organising the different production control forms. Scheduling

This means evaluating the time that would be required to carry out each function and also the time needed to perform the entire series. It is primarily concerned with the time element and priorities of a job. The model of scheduling differs from one job to another which is explained as below: Production schedule: The main purpose of production schedule is to schedule the amount of work, which can be easily handled by the plant and equipment without any hindrance. It is not an independent decision, as it takes the following factors into account. Physical plant facilities required to process the material being scheduled. Employees who possess the skills and experience to perform the type of work involved and operate the equipment. Required materials and purchased parts. Master Schedule: Scheduling typically begins with the preparation of the master schedule, which is weekly or monthly categorisation of the requirement of production for each product for a specified time period. This helps the entrepreneur to shift the production from one product to another according to the changed production needs. An operator schedule follows a master schedule. It fixes the total time required to do a specific task on a given machine or it shows the time needed to do each detailed activity of a given job with a particular machine or process. Manufacturing schedule: It is organised on the basis of the type of manufacturing process involved. It is very useful when manufacturing a single or few products continually at regular time period. Thus, it would give an idea about the required quantity of each product and the order in which the same is to be operated. Scheduling of job order manufacturing: A job order is an order for a product received from a customer or a client or from an internal section of an organisation. Scheduling is a process followed to ensure the speedy execution of job order manufacturing. Scheduling attains greater importance in job order manufacturing. For a small scale industry, scheduling is of prime importance, as it brings out efficiency in the operation and reduces cost. The small entrepreneur should maintain four types of schedules namely an enquiry schedule, a production schedule, a shop schedule, and an arrears schedule. Out of the above four, a shop schedule is the most important and most suited to the needs of a small scale industry, as it enables a foreman to see the following at a glance. The section load that is, the load at any given section. The sequence of operation. The phase that a job has touched. Loading It entails the assignment of work to the operators/workers at their work places. Therefore, loading determines who will do the work, as scheduling determines when it shall be done. Routing determines where the loading has to be done. Small industries usually make use of Gantt charts to find out the present load on the system and also to evaluate how fast a job can be done. The advantage of using this technique is that it gives a picture of what has been done and what is to be done. Then you can make a comparison between the two. Many small scale enterprises fail due to non-adherence to delivery schedules. Therefore, to be successful, they should have the ability to make the delivery of goods on time, without compromising on product quality. It is important for the entrepreneur to judge ahead of time as to what should be done, where and when. Self Assessment Questions 1. The objective of routing is to determine the best and cheapest sequence of operations. (True/False)? 2. Scheduling normally starts with preparation of _______________. 3. For a small scale industry scheduling is not important. (True/False)?

4. The___________ is used in small industries to determine the existing load and also to evaluate out how fast a job can be done. 5. Many small scale enterprises fail due to adherence to delivery schedules. (True/False)? 1.3 Levels of Production Planning In the previous section, you studied about the functions of production planning. Now, let us discuss about the levels of production planning. Before that, let us know that production planning is the process of setting up an overall range of output called as the production plan. The process also consists of other activities that are required to achieve the current planned levels of sales. This is done while meeting the enterprises general goals regarding profit, lead times, productivity, and customer satisfaction, as fixed in the overall plan. The production-planning process requires comparing production capabilities, sales requirements, and inclusion of budgets, financial statements, essential plans for workforce and materials requirements, plus the production plan itself. The main purpose of the production plan is to establish production rates that will achieve the enterprises objective of satisfying the customer demand. Demand/customer satisfaction can be achieved through maintaining, increasing, or lowering of inventories or backlogs, while keeping the workforce reasonably stable. There are three levels of production planning. The level of planning is selected depending on the organisation, and it is selected for optimising the process. The following diagram 1.1 depicts the different levels of production planning:

Figure 1.1: Levels of Production Planning Strategic Planning In this level, the top management contemplates its current mission and environment, and further sets forth guidelines for future directions, decisions, and results. Tactical Planning This planning is done on an intermediate term by the middle level management. The focus is on aggregates rather than individual specific products. Operational Planning This planning is carried out by the junior level management at a short-range time span and is concerned with utilisation of existing resources rather than procuring new resources or material. 1.4 Systems/Aids for Production Control Production comprises several activities. Planning activities are scheduled and carried out within the time and cost frames. This is done in order to achieve maximum efficiency. Despite planning, there may be slippages in certain areas thus affecting the rate of production. Reasons for slippages can be categorised as those due to internal as well as external factors. Such delays can be avoided by the timely intervention of management and planning.

A system should be maintained to receive feedback from the production units to those involved in production including the planners. The feedback helps to attend to the defects or issues immediately so as to maintain further control over production. Thus, production control is a corrective mechanism, which can be applied in many forms, namely: Provisioning of additional workforce, materials, and machines with the intention of balancing the line. Guaranteeing the smooth flow of materials in the shop floor. Arranging additional labour to cope with the production rate or to balance the production quality. Rearranging production without affecting the delivery schedule. Allocating priority to jobs for best utilisation of resources. A range of control aids are used by production control sections. The objective of these aids is to bring up a system, so that the production control activities are taken care of irrespective of the presence or interference of individuals. There may be a variety of aids, but the following are widely used. Dispatching. Follow up. Inspection. Corrective measures. Dispatching Dispatching ensures the appropriate movement of partially manufactured items from equipment to equipment within a specified time. Eventually, the set target at production planning stage is achieved with the aid of dispatching. Follow up All production programmes involve the follow up process in order to check the progress of work. Follow up is important in eliminating bottlenecks in the flow of work and ensuring that production is taking place as planned. It helps to identify delays or deviations in the production plan. It aids in finding defects in routing, scheduling, misunderstanding of instruction, under loading or overloading of work, and so on. All issues or deviations are looked into and remedial actions are carried out to ensure the completion of the task by the planned date. Inspection This is to ensure the quality of the product. It can be employed as an effective agency of production control. The inspection of a product at the time of manufacturing will be more effective compared to the inspection which is performed once the product is complete. Corrective measures Corrective action may comprise any of the activities of changing the workloads, repairs, maintenance of machinery or equipment, control over inventories, rescheduling of work, and so on. Some decisions regarding the workforce like training, demotion, transfer may also have to be considered. To handle peak loads, alternate methods may be recommended. Self Assessment Questions 6. Production control is a corrective mechanism. (True/False)?

7. Dispatching ensures the appropriate movement of _____________ manufactured items from equipment to equipment within a specified time. 8. ____________________ are taken to ensure the quality of the product. Activity 1: Visit the website of a manufacturing concern and find out the planning and control strategies followed by them. (Hint: http://www.marutisuzuki.com/) 1.5 PPC Coordination with Other Functions and Role of Production The principal goal of production is to convert the raw materials into finished goods. A business is able to achieve customer satisfaction when it completes this process of producing products that are ready to be used and fit for purpose. To ensure quality, the production department is in charge. Inspections and suitable quality initiatives are carried out. This is one of the important tasks of this department, because if mistakes are made, then the product is rendered useless and this in turn will affect customer satisfaction. Master data, which may contain reference data, is the information that is important for the functioning of a business. This important business information may contain data about employees, customers, materials, suppliers, products, and so on. Usually this happens to be non-transactional in nature. In Material Requirement Planning (MRP), maintaining master data is crucial. Maintaining master data is necessary for external procurement of material or work. The maintenance of master data forms the basis of MRP. The PPC coordination with MRP is as follows: Planning Tasks It includes functions for implementing the MRP for external production. You can use this to ensure that the stocks are available in right quantities at the right time. You can plan individual materials, for which the requirements or stock situation has changed. The following are the production planning activities performed under planning tasks: Setting and displaying planning file entries manually. Implementing single-item planning. Single-level and single-item planning. Planning using the planning table. Integration Integration is a single role, and it deals with the activity of total planning. It involves planning of all materials in a plant. Evaluations Tasks The evaluation task contains functions to analyse the MRP result for placing external orders. You can use these functions to obtain information about material at your disposal and to recognise possible material shortage situations and exception situations quickly. The following are the production planning activities performed at the time of evaluation tasks. Displaying MRP list and stock list (with individual evaluation layout or standard layout). Displaying missing parts (backlogs). Planned Order Tasks

To process external procurement, planned order task functions are used. You can use these functions to adapt the planned orders to the exact current requirements and to then facilitate the procurement of individual assemblies or components by converting the planned orders. Following are the activities of production planning in planned order tasks. Process planned orders. Convert planned orders into purchase orders. Coordination Tasks Coordination tasks contain important functions in MRP for external procurement that are associated with particular tasks. Using these functions, you can control MRP from a top level. Following are the production planning activities under coordination tasks. Defining MRP controller. Executing the planning process for a plant or an MRP area. Printing and recognising the MRP list. Generating purchase orders automatically. 1.6 PPC Coordination & Interfacing with Marketing In this section, we will study about the PPC coordination interfacing with marketing. The major decisions in the production functions invariably have an impact on the marketing function. If production plans for layoffs, reducing overtime, and drawing down the inventories, then the marketing may find that their customer promises are not met, delivery times are longer or the products available off-the-shelf are wrong in the mix and so on. Therefore, it is important for you to overcome these problems. To provide variety of items, large inventories are required. These inventories are to be addressed and interfaced. Otherwise you may have to face heavy loss. This is true when marketing forecasts are wide off the mark. Manufacturing and marketing are mutually dependent activities in industrial production organisations. This raises a need for coordination. The feature of the dependence relies very much on the way manufacturing and marketing processes are ordered and controlled. Here, we discuss the mutual dependence of manufacturing and marketing, and the resulting coordination requirements. Based on the coordination properties and requirements, a coordination structure can be modelled. If you want to maintain stability in the enterprise, you have to avoid sales dominance or a manufacturing dominance. The overall strategy of the firm should include both the functions and answer all the questions on the strategies to be adopted. Accordingly, PPC needs to address the problems resulting from demand variability, non-inventory type of output, labour intensiveness, and distribution systems. It should also strive hard for cooperation between departments. Self Assessment Questions 9. In __________________________ maintaining master data is crucial. 10. MRP stands for ___________________________________. 11. Maintaining master data is an overhead for the company, (True/ False)? Activity 2: Devise a system to accommodate the expectations of planning and control along with the expectations of marketing department.

(Hint: PPC coordinating and interfacing with marketing) 1.7 PPC as an Integrated Function One of the elementary decisions in the production area deals with integration. The integration decision proposes a scheme on manufacturing activity which the enterprise is ready to engage in. Almost every enterprise buys components and materials which are finished (as per the requirement of an enterprise) products from other industries. The manufacturing enterprise spends a lot of money to buy these materials. We consider the automobile industry as being highly integrated, but the auto companies buy over fifty percent of the components required by them. Most manufacturing companies can manage to manufacture components that go into their products. However, they still buy few products. The PPC should make arrangements to ensure smooth integration of all these products. There are three ways by which PPC facilitates the integration function: Vertical integration. Horizontal integration. Conglomerate integration. Vertical integration: It can be stated as the integration of components that are manufactured by the company. Typically, all the components are produced in the same facility. The components are manufactured over many stages. To put it more comprehensively, vertical integration is driving the ownership into making raw materials. Pushing the other way toward the customer is also vertical integration. Vertical integration gives the enterprise total control over its source of supply. The enterprise can get anything it wants in the way of delivery, quantity, quality, control of research and development and so on. Integrating towards the customer that is making finished goods and selling them through the companys own outlet gives a distinct market value for its own products. It takes money and good management to run all these activities and make the project profitable. Therefore, sometimes vertical integration is a little risky. Often companies that make the raw material do it on a large scale and at a lesser cost. If you are making your own raw material, it can be more expensive. Horizontal integration: The companies that employ horizontal integration produce goods at different facilities all over the country. This provides good protection against stoppage of production everywhere at once due to any unavoidable circumstances. You can incur low operating costs by putting plants closer to customers and in low cost areas. Like vertical integration, horizontal integration requires good managerial skills. Here you do not run a single large factory, but many scattered factories. The advantages of horizontal integration are: Low transportation cost. Better customer service. Often low labour costs. Conglomerate integration: All integration cannot be categorised as either horizontal or vertical. Sometimes a company undertakes different types of products so that their customers can buy all their needs from the same source. In other words, the company opts for diversification of business. Companies take up these businesses based on the inputs provided by their research people. 1.8 PPC for Different Systems of Manufacturing It is understood that the customer driven operations strategy reflects the firms long term goals. It requires a cross functional effort by marketing and operations managers. After considering the cost, quality, time, and the

flexibility, the process is determined. For these customised services, the decision is taken at the corporate level on the make to stock strategy or assemble to order strategy. When mass customisation is required, we find that the manufacturer will go for mass or continuous production strategy. This is because the products served have continuous demand and is almost a standardised production. Based on the nature of the product and the customer demands, decisions are taken whether to adopt the strategy of batch or intermittent production or going for job shop production. As we have discussed, the preplanning and planning stages dictate the future actions on production activities. These three types of production systems along with the functions of PPC are as follows: 1.8.1 PPC for mass or continuous production Mass production refers to a large quantity of production with standardised products having less variety. Therefore, the determining factor is the demand, which makes us choose between continuous or batch type production. Mass production is preferable when demand is greater than the rate of production. When the demand is less than the rate of production, batch production is preferred. The economic needs of the assembly line must also be addressed. 1.8.2 PPC for batch or intermittent production The technique of batch production is resorted to when the variety and volume of goods to be manufactured are not large enough to demand a separate production line for each product. We observe that batch production employs a process layout (unlike mass production where there is product layout). Rational approach in the economic terms like lot size, set up cost, carrying costs are considered here.

1.8.3 PPC for job shop production Job shops handle a range of jobs where each job is different. In batch production, though there is a continuous demand for products, the rate of production exceeds that of demand. In job shop, both the jobs and the demand are unpredictable. Job shop handles the unique job each time with a unique set of operations and processing time. Hence, job machines are general-purpose machines and a job exits from a machine to wait on a new machine because of other jobs being carried on in that machine. The reverse is also true where machines may wait for the job. 1.9 Functions of PPC in Plant / Facilities Planning Plant/facility planning is a long-term planning, which begins with the choice of suitable location for the plant and ends with the installation of the complete production system. Manufacturing plants strive to have a right facility that enables them to produce the desired quantity and quality of the products at minimal cost. Plant planning is the task taken to establish the long-term production capacity to produce the products/services. Therefore, it is a critical operational strategy for corporates. It involves procurement of land and production equipment. Appropriate production technologies must be developed and a detailed industrial engineering study for internal arrangement of workers must be developed. You should also organise production processes and departments within the facilities to achieve the desired volume, quality, and cost of products. Plant planning refers to the designing, installing, and physical arrangement of plants, factories, laboratory, R&D centres and so on. It includes facilities planning or planning of processing equipments, plant utilities, services, building, and other auxiliary facilities. Facility planning refers to determining the requirement of long range production capacity, how much is needed, where production facilities are to be located and layout characteristics. Plant planning serves the following: Aims to facilitate the most efficient and cost effective manufacturing process.

 Optimises integration of all factors to have an effect on the layout. Optimises utilisation of labour, machines, and space. Stipulates for future expansion of the facility. Introduces flexibility in the system towards changes in product design and output volume. The scope of plant planning may include the following: Selecting the plant design and production system. Designing the manufacturing process. Selecting machinery, equipment and materials handling system. Designing of communication and control systems. The objective of the plant/facilities planning department is to design, construct, and efficiently operate. It should also be well-maintained and have infrastructure that supports existing and future activities. It should facilitate growth of the company by providing a safe, healthy, comfortable, clean, and attractive environment for the progress of work. Self Assessment Questions 12. The manufacturer will opt for mass or continuous production when the demand is low. (True/False)? 13. Plant/facility planning is a _____________planning activity. Activity 3: List the tasks you would do as an entrepreneur to ensure quality and on time delivery of products. (Hint: functions of PPC) 1.10 Summary To achieve production efficiency and higher productivity at the most economic cost; is always the main objective of any manufacturing unit. To manufacture the required quantity of product, of the required quality, at the specified time by the cheapest and best method, the management employs the PPC department and assigns total responsibility of coordinating all manufacturing activities across all processes in the organisation. As you have observed from the above discussion production incorporates the transformation process wherein all the material inputs are processed. The processing could be of two types disintegration i.e. converting the raw materials to give different shapes, sizes, states and next integrating through assembly processes to form main product. A closed planning, monitoring and controlling of all production activities is essential. As you see PPC has to maintain synchronisation between planning, integration, coordination etc. This is because each task provide input has an effect on the pre-planning activity. And categorising the tasks helps in better understanding and implementation of the manufacturing process. While planning starts-off with the analysis of the data through which the system of utilising the resources is charted out, the control process initiates and supervises the operations with an appropriate control mechanism that feeds back information about the progress of the work. The control process can also be successively modified, redefined and adjusted to the targets set and achieve the set/revised targets. A trade-off between the manufacturing department and the marketing department should be ensured. If there is a clash of interest, it overshadows the production/manufacturing activity. The demand dictates what kind of manufacturing process should be employed in order to service the requirement. We discussed three types of manufacturing processes namely mass production, batch production and job shop production. The type of technique employed will reflect in timely delivery of goods.

Finally, we discussed the planning and effort that goes into building a manufacturing plant/facility. In order to setup a plant proper planning should be done because it translates into delivering the desired product. Without the required equipment or facility it is not possible to achieve the planned goal. 1.11 Glossary Description Terms Job Shop Production Technique to allow flexibility in terms of switching between machines, methods, handling problems in production etc It is information which is the key to the operation of business. This key business information may include data about customers, products, employees, materials, suppliers.

Master data 1.12 Terminal Questions

1. State the objectives of production planning and control. 2. What are the three levels of production planning? Elaborate. 3. Explain briefly how the different system/aids are used to ensure smooth working of the production process. 4. To optimise and ensure smooth production, PPC works as an integrated system. Explain briefly how this integrated working will benefit the manufacturing unit? 5. Discuss the PPC coordination with other tasks. 6. Discuss the factors that determine which production planning procedures to use. 7. Explain briefly the functions of planning in Facility Planning for production activities? 1.13 Answers Self Assessment Questions 1. True. 2. Master schedule. 3. False. 4. Gantt chart. 5. False. 6. True. 7. Partially. 8. Inspection. 9. MRP. 10. Material Requirement Planning. 11. False. 12. False.

13. Long term. Terminal Questions 1. Refer Section 1.1 Functions of production planning 2. Refer Section 1.3 Levels of production planning 3. Refer Section 1.4 System of production control 4. Refer Section 1.4 and 1.5 System of production control and PPC coordination with other functions 5. Refer Section 1.6 PPC coordination and interfacing with marketing 6. Refer Section 1.7 PPC as an integrated function 7. Refer Section 1.8 PPC for different systems of manufacturing 1.14 Case study Importance of Planning Z Company is into manufacturing automobile spares. The products they manufacture are brake seals, clutch plate, and air filters. The company planned to start manufacturing radiators. However, there was not enough space to accommodate new machines and workforce. The proprietor of the company tried to replace the clutch manufacturing machines with radiator manufacturing machines. They proceeded with the plan and new machines were installed. The existing workforce were trained and put to work. As days passed there was a surge in the demand for clutch plates in the market. This surge was anticipated by the marketing team. Now, there was a problem in assigning the workforce towards clutch plate production because the workforce that used to produce clutch plates was deployed to produce radiators. Working overtime also would not help to deliver the goods within the stipulated timeline. The production planning department was finding it difficult to coordinate the workforce involved in producing clutch plates and radiators. There were issues in integrating the resources and routing the resources. The higher management was now looking out for other alternatives like procuring work externally. These issues would have been addressed effectively if the expansions were pre-planned. The marketing department should have notified the production department before hand in order to facilitate integrating batch production. If these issues of planning and controlling would have addressed before hand, Z Company would have met the demand and need of the market. 1. What led to the surge in demand of clutch plates? (Hint: customer demand) 2. What do you suggest should have been done to fulfil the demand? (Hint: proper planning)

OM0017-Unit-02-Advanced Planning and Scheduling

Unit-02-Advanced Planning and Scheduling Structure: 2.1 Introduction

Objectives 2.2 Production Planning and Control Activities 2.3 Advanced PPC for Production Systems PPC for job shop production PPC for batch production PPC for mass production 2.4 Aggregate Planning and Master Production Schedule (MPS) Sales/Order Planning Master Production Schedule (MPS) Rough-Cut Planning System (RCP) Capacity Requirement Planning (CRP) Material Requirement Planning (MRP) 2.5 Production Planning Strategies 2.6 Summary 2.7 Glossary 2.8 Terminal Questions 2.9 Answers 2.10 Case Study 2.1 Introduction By now you must be familiar with the functions and tasks of production planning along with its levels. You are also aware about the aids of production control. You studied the production planning and control (PPC) co-ordinations and about different systems of manufacturing along with the functions of PPC in plant facility. In this unit, we will be discussing advanced production planning through systems of job type, batch type and mass type production. Later, you will learn about the aggregate, sales order planning along with master production schedule, rough-cut planning system, capacity requirement planning, and material requirement planning. Objectives After studying this unit, you should be able to: Assess the advanced production and planning control for production systems. Explain production planning and control activities. Comprehend the aggregate, sales order planning and other planning. Describe production planning strategies. 2.2 Production Planning and Control Activities

You already know that production planning and control (PPC) can be defined as the direction and coordination of the firms materials. It also includes other physical facilities for achieving pre-specified goals in a most efficient manner. Planning begins with the analysis of the given data and developing a scheme for utilisation of the firms resources in order to convert raw materials into desired outputs. A production plan sets targets for various equipments. Operations are performed in accordance with the details that are set in the production plan. Control initiates and supervises the operations with the aid of a control mechanism that feeds information on the work progress. This mechanism is made flexible for adjustments, modifications, and to redefine plans and targets. It directs and checks the progress of the work and maintains records on completion of work. The scope and functions of production control include activity control, inventory controls, production control, quality control, labour controls, and so on. PPC is a very important activity in any company. The control of every aspect of a business is made easier with the help of computers and applicable software. In fact, there are many integrated manufacturing programs, which make the business more efficient and easier to run through all departments. However, the computers, applicable software and the integrated manufacturing programs performance depends on people. The system is of no good if the people controlling the system do not understand how it works. The PPC procedure consists of the activities concerned with the efficient, analysis, planning, administration, and control of the manufacturing orders. This is performed from the time the planning department receives them and the time they are transferred to the finished goods store. PPC puts into action the factorys facilities and provides the feed forward information required by the floor management for proper execution of instructions. These instructions and the necessary feedback needed by the factory management for monitoring the production activities are issued by the planning department. PPC is also defined as the organisation of materials and production activities of a business where the explicit products are produced by specific methods to meet an approved sales program. To attain this purpose, it is necessary to promote effective control within the production department itself. Now let us discuss the description of the measures or procedures which is involved in the PPC activities. Start-up Procedures Issuing of necessary orders and initiating plans in motion at specified times. Control of Materials Keeping a check on the materials in the inventory in order to facilitate the movement of materials within the factory. Control of due Dates Check on machine load to establish planned start and finish dates for each job. Checking the machine load is essential for recognition of under-loading or over-loading. Control of Quality Observing the work in progress at a pre-determined stage to ensure that the right quality has been achieved in accordance with the quality standards. The measures recommended here cover the control of due dates, the start-up activities quantities and the recovery of the budgeted production hours. Self Assessment Questions 1. Control within the production department is not necessary? (True/False) 2. Is control of due dates necessary? (True/False) Activity 1: Assume you are in charge of a production facility and list out the procedures you would follow to achieve the objectives of effective planning and control. (Hint: Procedures involved in the PPC activities).

2.3 Advanced PPC for Production Systems In the previous section we discussed about PPC activities. Now, we will discuss on the advanced features that will facilitate efficient implementation and control. The activities of lead time scheduling, component availability, capacity checks, and standard costing are undertaken to ensure uninterrupted production operations. All established processes for different lines of production such as job shop production, mass production, and batch production can be planned and controlled. This enables us to utilise the planning methodology that is best suited to meet the required delivery schedule. However, it is important to note that the change in demand in the market makes these standard methodologies no longer sufficient for calculation and optimisation of the processing time. The size of PPC and the activities thereof vary from organisation to organisation. They are also based on the type of business, scale of operations, nature of manufacturing activities, and the degree of mechanisation or automation. PPC activities work on the principle of cost benefit analysis. It is a known fact that several methods of production are linked to different volumes of production. Similarly, the production process may use several methods at different stages. Based on the above factors, PPC functions involved in production are categorised into: PPC for Job shop production. PPC for Batch Production system. PPC for Mass production. 2.3.1 PPC for job shop production In Job shop production, products are manufactured to meet specific customer requirements on the basis of specific orders. The quantity involved is usually small. Job shop production handles a variety of components and is used for special projects, models, prototypes, special machinery or equipment, to perform specific tasks, components, assemblies, replacement for parts in existing machinery and so on. For example: Turbo generators parts, engine parts, processing equipments, special electronic devices. Machines used for job shop of work are general purpose machines. These machines require sequencing of the work load of many items. Hence, while scheduling, planners have to bear in mind the wait time, idle time for changes in job and tool setups, total processing time, mean early and lateness of jobs, number of jobs in the system and so on. There are many solutions for job loading and scheduling. Some of the techniques are explained in brief here. However for more details on scheduling, refer to unit-7. Planning jobs on one machine situation: Several jobs are to be carried out on the machine to accomplish the desired output. Prioritisation and assignment of jobs is necessary. Other jobs remain waiting when one type of job/activity is taking place on the machine. Therefore, it is important to calculate and optimise the mean flow time, average work in progress, average lateness, average waiting time, delay, and total processing time when jobs are processed in sequence. Processing with early due date as criteria: As applying the shortest processing time (SPT) rule minimises the mean lateness of jobs, the early due date (EDD) rule states that top priority should be given to waiting jobs whose due date is the earliest. This helps in reducing the maximum job lateness as well as the maximum job delay. Planning jobs on two machines situation: Suppose you need to process n number of jobs on two machines, say M1 and M2, then processing time required for all the jobs on both the machines should be known first. The minimum time to complete jobs requires sequencing and here Johnsons algorithms[1] are useful. 2.3.2 PPC for batch production Batch production is the technique of manufacturing a particular group of components at a work centre before moving the group to the next step in the production process. This production technique is common seen in paint and ink industries, bakeries, in the manufacture of pharmaceutical ingredients, processing of leather and so on. In batch production, there is a continuous demand and hence flow of materials is complex. Batch production is suitable for a variety of products. Here the volumes are not so large to demand highly automated and productive machines. Batch production is distinct from job production.

Batch production employs a process layout and machines are grouped to facilitate smooth flow to produce products in batches. As different jobs follow their route, enough flexibility is built into the system. Economic lot size or batch size: The main factor to opt for batch production is to keep the cost of maintaining inventory and the cost of production low. There are two reasons to maintain a specific batch size. One is to maintain an optimum batch size to facilitate production first and then sale of goods. Second is the simultaneous production and sale of goods. In both types most favourable minimum production runs per year or economic batch quantity is planned to keep the total costs to a minimum. Two major categories of costs are: Setup Cost. Inventory carrying cost. The features of these costs are discussed in Unit-5. Aggregate Sales and Operation planning in batch production: Here the inventory of the finished goods will not build up quickly as the production quantity is converted to sales on a continuous basis. Batch by batch production results in smooth flow of output to meet the continuous demand. In addition, it also results in total ordering and minimal carrying costs. The optimum units per batch can be calculated from the following formula: N = Optimum units/batch = production runs = [2US]/[RC (1-d/p)] (Where U = annual sales in units, S=setup cost per batch, R = factory cost per unit, C = carrying cost as percentage of finished goods, d = sales rate (demand) in units per day, p = production rate in units per day.) Multi-product case on the same machine: When several items are loaded on a single machine with common cycle time, the total cost is the summation of individual costs. Achieving and planning common cycle time for production of all the items on a single machine, will give optimum output. Line of Balance (LOB) for control of batch production: Line of Balance (LOB) is a production planning system that schedules tasks in such a way that they confirm to the delivery date. LOB is useful when batches are split and the progress of jobs is reviewed periodically. LOB shows the requisite number of items which should have been completed at each station. Shortages and non-conformance to schedule are identified and line is balanced. There are three batching methods. Individual batch size fixed for each component. Aggregation of all parts is treated as one batch. Fixed batch quantity for a product rather than of parts. Merits of Batch production are: Fewer machines are needed, since the machines utilisation is better. Specialised supervision is possible. Low investment in machineries is not so capital intensive. Flexibility in personnel and equipment selection. Job satisfaction for operators. Demerits of batch production are: As the flow is longer, material handling is costlier. It is not as detailed as production planning and control..

 Large capital and space is required to carry out the work. Needs highly trained workforce to produce different lines of the same product. 2.3.3 PPC for mass production Henry Ford[2] is considered the pioneer of modern mass production. His Ford motor company started manufacturing of cars on an assembly line. As the name suggests, mass production or assembly line production follows the concept of assembly line. Here the production process is divided into the simplest possible parts. These components are then grouped to follow production procedures. Assembly line consists of arrangement of labour and equipment in a sequence or work stations. A pre-decided task is accomplished at each work station,. This facilitates the production in large volumes. The materials move continuously at a uniform average rate on an assembly line. A portion of work is done at different work stations. Industries that manufacture products such as toys, automobiles, televisions, and computers industries all employ assembly line productions. Mass production applies to a large volume of production with standardised products having more or less the same features. Over a period of time this standard product is manufactured continuously. This system has both merits and demerits: Merits of mass production Smooth flow of material from one work station to the other. Output of one work station becomes the input for the next, so there are inbuilt inventories at each work station. In assembly line productions the production time is shorter. Since work stations are spaced closely together, the material is more efficiently handled. Training cost is less, as there is no special expertise required for the staff. Production planning and control is simpler. Demerits of mass production Maintenance is a challenge since proper functioning of all the machines is required in an assembly line production. Any change in the design layout proves difficult because assembly lines are rigid inflexible setups. The slowest machine determines the pace at which production will continue. Assembly line setups require installation of specific types of machines and are therefore capital intensive. The intent of assembly line balancing is to minimise the idle time of machines. It means the number of operators required to perform a task is reduced. Self Assessment Questions 3. Give two advantages of batch production. 4. LOB is useful when batches are split? (True/False) Activity 2: Illustrate the design of an assembly line for an automobile manufacturing company ABC, and find ways to optimise the tasks carried at individual workstations.

(Hint: Mass production technique.) 2.4 Aggregate Planning and Master Production Schedule (MPS) Aggregate planning is the activity of developing, analysing, and maintaining a preliminary approximate schedule of the overall operations of an organisation. An aggregate plan mostly contains targeted sales forecasts, production levels, inventory levels, and customer backlogs. This plan is intended to meet the forecasted demand at a minimum cost. The primary purpose of the Master Production Schedule is to fulfil the demand for the product. It is basically a schedule which allows you to achieve and cater to the customer demands. The term "aggregate" is used because at this level of planning, all resources are included as aggregates. Aggregate resources may refer to the total number of labourers, hours of machine time, or the quantity of raw materials. Aggregate Planning (AP) Aggregate Planning (AP) translates the annual and quarterly business plans into labour and output plans for the intermediate term such as 3 to 18 months. The objective of the aggregate operations plan is to minimise the cost of resources required to meet the demand over a specific period of time. The purpose of AP is to specify the optimal combination of production rate, workforce level, and the inventory in hand. The production rate refers to, the number of units to be completed. Workforce level is the number of workers needed for production. This process planning determines and defines the necessary technologies and procedures needed to manufacture a product. Managerial Importance of AP: There are many interrelated variable operations to be considered while preparing AP. This consideration is to satisfy the demands of the market. These are: Current available capacity and future creatable capacity. Work force capacities [current and future plans]. Demand forecasts, customer needs and distribution plans. Materials supply capabilities (in house and outsourced) and its storing. Labour market, especially if skilled labour is required, and training. Financial condition of company to support planned production as per the AP. AP Techniques: There are different methods of formulating the AP. Some of the commonly used techniques are: Linear programming method. Graphical. Linear Decision rules. Heuristic models. These techniques are discussed in Unit 13. 2.4.1 Sales/Order Planning A Sales Order is an agreement between a vendor and a customer concerning the sale and delivery of goods. In addition, it also includes the services that are associated with the processes on a specific date, for a specific quantity, and for a specific price. Sales/order planning is a people-oriented business. It is one of the most effective ways to grow your business by learning how to listen to your customers. The sales process does not end once the customer has signed the

agreement. A proactive sales planner understands the value of ongoing customer support, and how that can lead to more business in the future. The benefits of sales/order planning include: Minimise customer and employee stress A well-trained employee can rectify a bad situation if they are properly trained. Enhance productivity leading to competitive advantage - An increase in employee productivity will lead to happier, more satisfied customers and employees, which in turn, leads to a competitive advantage. Proactive vs. reactive For an organisation that is proactive in assessing the needs of its customers, designing and implementing a plan to satisfy the needs of their customers will not only increase its chances of survival but also increase its market share. Retaining vs. recruiting new customers Retaining your current customers will improve your bottom line. Based on statistics given by leading research organisations, it costs five times more to get a new customer. 2.4.2 Master Production Schedule (MPS) The purpose of MPS is to meet the demand of individual products. It is a schedule, which shows how many individual products could be produced according to the customer orders and demand forecasts. A master production schedule (MPS) is a plan for production, staffing, inventory management, and so on. This plan forecasts when and how much of each product will be demanded. This plan measures important parts, processes, and other resources in order to optimise production. It is also used to locate the bottlenecks, to anticipate needs, and complete the task of manufacturing the goods. MPS drives most of the factory activities. Therefore its accuracy and viability significantly affects profitability. An MPS transforms the business plan, including forecast demand, into a production plan. Using MPS can help you to avoid shortages, costly expediting, last minute scheduling, and inefficient allocation of resources. An MPS permits organisations to consolidate planned parts, produce master schedules, and forecasts. The objectives of MPS are: To schedule completion of end products as promised to customers. To avoid overloading or under loading production facility, so that production capacity is utilised efficiently and products are produced at a low cost. Production control inputs the existing or forecast orders into an MPS. Its output shows when the incoming sales orders can be scheduled for production and delivery. It determines whether or not the operations can achieve the production objectives planned in the MPS. 2.4.3 Rough-Cut Planning System (RCP) RCP tests MPS in terms of capacity. MPS does not over load any department, work centre or machine. The MPS generates RPC planning. RPC verifies that production, stores facilities, equipment, labour availability and the key vendors versus their capability to supply the materials are balanced for the scheduled production. The intention of rough-cut planning is to transform high-level plans into resources required to carry out those plans. There are many reasons for adopting rough-cut planning as part of the sales and operations planning (S&OP)[3] process. Few reasons are: To provide foresight for both material and capacity needs, so the long-term plan can be supported. To assist in managing changes to the S&OP. The changes may be in response to changing manufacturing and market conditions. To link the way a business wants to operate in its markets and in manufacturing, with its capital planning processes, particularly in those conditions where long term capacity appears inadequate to meet the plan. Following are the main objectives of RCP.

 Considering the capacity and material implications of S&OP. Managing change to the S&OP. Drive the function of long-term capital planning. There are two major types of rough-cut planning: Rough-cut capacity planning (RCCP). Rough-cut material planning (RCMP). Rough-cut capacity planning: RCCP is an estimated type of capacity planning. It uses stack profiles defined for the product families. This plan is focused on key or critical work centres, lines, departments, cells, suppliers, and support areas. For rough-cut capacity planning, key or critical resources are important, while not necessarily constant bottlenecks. Rough-cut material planning: RCMP is an estimated type of material planning. It uses a simplified bill of material, often called as bill of resources. It can be used to predict the material required, and this information can be forwarded to key suppliers so as to circumvent the need for detailed material planning. 2.4.4 Capacity Requirement Planning (CRP) CRP is the technique that determines how large the future inventory capacity needs to be in order to meet demand. CRP also helps businesses to determine how much space is required to store these materials. It makes sure that you have the adequate capacity available to meet the capacity requirement for the MRP plans (discussed next). It thus assists the planners to make the right decisions on scheduling before the problem develops. The main features of the CRP process are to establish, measure, and adjust the limits or levels of the production capacity. This is based on the process of determining the amount of labour and machine required to accomplish the tasks of production. CRP also provides information to determine the timing of capacity expansion. 2.4.5 Material Requirement Planning (MRP) MRP estimates and maintains an optimised manufacturing plan. This plan is based on sales forecasts, inventory status, master production schedules, open orders, and bills of material. If MRP is well executed then the cash flow can be reduced and profitability increased. MRP will enable you to be pro-active rather than re-active in the management of your inventory levels and material flow. Executing the MRP effectively can bring in the following benefits for your business: Reduced inventory levels and component shortages. Improved customer service. Reduced purchasing cost and manufacturing cost. Reduced lead times and excess inventory. Following are the features, which the MRP uses to plan optimal inventory levels, purchases, and production schedules: Master Production Schedule (MPS). Bill of Materials (BOM). Part Lead Times. Sales Order Quantities/Due Dates. Purchase Order Quantities/Due Dates.

 Safety Stock Requirements. You can implement MRP to plan production so that the right materials are at the right place at the right time. MRP determines the latest possible time to produce goods, buy materials, and add manufacturing value. An appropriate MRP can fulfil all production demands and still keep the money within the company. It is a powerful tool in guiding purchase management, production control, and inventory planning. MRP is easy to work on and increases profits dramatically. Thus, we have discussed about the various types of planning which are followed in the advanced production planning and control. Self Assessment Questions 5. is the purpose of MPS. 6. The major types of rough cut planning are & . 7. Improved customer satisfaction is a benefit of sales/order planning. (True/False) 8. The purpose of AP is to specify minimal combination of production rate, workforce level, and the inventory on hand. (True/False)? Activity 3: Devise a plan for a firm manufacturing processed food, based on the planning and scheduling methods discussed. (Hint: Aggregate planning and MPS) 2.5 Production Planning Strategies Every firm considers reflecting on product planning strategies. Companies need to think about the future and contemplate a design for future products by estimating the market trends. This process is time consuming and depends on the product and industry. For example, usually ship manufacturers take years to build a vessel so they plan their products years in advance. Different production planning strategies are: Chase strategy: This strategy tries to match production to meet demand using temporary help, layoffs, overtime, new hires and so on. This strategy does not bring in changes in the inventory. This strategy helps in reducing investment in inventory. Level strategy: This strategy attempts to use the inventory just as a buffer and maintain an average production level. When there is low demand production will exceed demand, and this balance goes into the inventory. And when demand exceeds production the inventory is used to replace the missing production. Self Assessment Questions 9. Companies need to think about the future and contemplate a design for future products. (True/False)? 10. Production planning is a time consuming process. (True/False)? Activity 4: What are the factors that you will take into account when manufacturing a new product. (Hint: MPS and production planning strategies) 2.6 Summary

You can infer from the above discussion that Production Planning and Control is an important function in any company as it provides the necessary inputs and outputs required to meet the customers specifications and expectations. It furnishes the needed Feed Forward and Feedback information to managers, supervisors and operators to deliver to the customer requirements. PPC looks after all the manufacturing activities. PPC comprises of planning, routing, dispatching and follow up functions, so that the materials, performance of machines and labour are directed and coordinated to achieve required product output of the required quality in the required time. Planning is a pre-production activity whereas control is a post operation function. Both are closely related. Planning sets the objectives, goals and targets on the basis of available resources. Your plan also sets the standards of performance. Controlling is made by comparing the actual performance with the set standards and deviations are determined. PPC has separate techniques for Job, Batch and Mass productions. The main principle of these techniques is to optimise resource utilisation and achieve higher productivity. Capacity and output are balanced with the demand. Scheduling is accordingly made and line balanced to achieve the desired output. AP which is a short term plan takes the capacity planning and output planning to form an integrated input data to MPS. Since MPS is the basis for manufacturing budgets, the financial budgets should be integrated with production planning/MPS activities When MPS is extended over a time horizon, it is a better basis for capital budgeting. Based on the production output specified in the MPS, the day-to-day cash flow can be forecast. The MPS should be realisable and not overstated. We also discussed aggregate planning methods and techniques along with the need of customer service. Customer service can be achieved by employing trained staff to deal with the customers. Ensuring customer satisfaction will reap benefits in the form of customer loyalty therefore, resulting in more orders being placed. 2.7 Glossary Term Description It repeats the assigned work and passes it onto another assembly line until production of a product is complete. It includes the cost incurred from the time the product is manufactured to until it is finally sold. It determines how well, or how poorly, a planned action will turn out. It assigns priority to a job whose due date is the earliest. It is the measure or quantity acceptable or that can be managed by the inventory. A layout in which equipments integral to a task is grouped together. It assigns high priority to a job whose operation time at the work centre is shortest.

Assembly line

Carrying Cost Cost Benefit Analysis EDD rule Lot size Plant layout

SPT rule

2.8 Terminal Questions 1. Bring out the difference between mass and batch production system? 2. Why is Aggregate Planning necessary? 3. Define PPC. How planning and control are related activities?

4. What are the merits and demerits of batch production? Briefly explain the salient features of PPC for Job production. 5. List out the techniques that are used for sequencing and job scheduling and how they are important? 6. What are the objectives of MPS and how they are related to MRP, CRP and rough cut planning? 7. Discuss the merits of MRP. 8. Write short note on the different production planning strategies. 2.9 Answers Self Assessment Questions 1. False 2. True 3. Specialised supervision and low investment in machinery. 4. True 5. To meet demand of individual products. 6. Rough cut capacity planning and Rough cut material planning. 7. True. 8. False 9. True 10. True Terminal Questions 1. Refer Section 2.3.1 and 2.3.2 PPC for Job type production and PPC for Batch production. 2. Refer Section 2.4.1 Aggregate Planning. 3. Refer Section 2.2 Production planning and control activities. 4. Refer Section 2.3.1 and 2.3.2 PPC for Job type production and PPC for Batch production. 5. Refer Section 2.3 Advanced PPC for Production Systems. 6. Refer Section 2.4.3 and 2.4.4 MPS and RCP. 7. Refer Section 2.4.6 MRP. 8. Refer Section 2.5 Production planning strategies. 2.10 Case Study Practical Implementation of Advanced Planning and Scheduling A metal-mechanic industry manufactures replacement pieces for all types of machines. Also, this company wishes to use the advanced planning and scheduling (APS) system to perform the planning and scheduling to a specific piece, known in this situation as replacement piece. The first piece of information necessary to be collected is the structure to the production (list of materials) of the said piece. To produce the Replacement Piece it is necessary for you to depend on a unit from the Part

1component, other than the unit from the Part 2 component. Following that, it is necessary to know the necessary and available production resources to produce the piece, and also the work calendar that rules the production shift of this company. CNC machines.This industry organises its productive resources in five groups or types of different resources such as Cutting and sanding operators, welding operators, vise operators, cutting press, All production resources in this company are part of only one of the resource groups presented. The detailed analysis on how these resources work in this industry showed that the cutting press machine does not have a dedicated operator. Therefore, whenever a task is allocated to this machine, a cutting and sanding operator must also be allocated to operate the cutting press machine. The computer numerically controlled (CNC) machine resource has already a dedicated worker, so it is not necessary to allocate any operator. Regarding the productive process, that is, the route followed by the product should be designed. The setup and the unitary execution time for each productive operation composing the route of the product to be manufacture were also informed. It is necessary to further inform which types of resources will be necessary to perform each one of the productive operations. The type of resources necessary in each production operation is specified. These are all the necessary information to start the elaboration of the advanced planning and scheduling in an industry. After obtaining the required information transfer the information to the APS system. Still regarding the production environment, the production resources available in each resource group must now be registered. The next step is to register the productive operations which will be necessary to produce each part of the manufactured products. After the registration of the productive operations to each product, it is necessary to inform the secondary resources, which will be necessary in each registered operation. By doing it, a model of the productive environment is created in the APS system to manufacture the product replacement piece. In addition, a clear idea about what resources are needed is established. Questions: 1. How would you further improve the performance of the manufacturing process? (Hint: Advanced planning and scheduling) Source of case study: http://www.pomsmeetings.org/ConfProceedings/011/FullPapers/0110248.pdf

OM0017-Unit-03-Functions and Tasks of Production Control

Unit-03-Functions and Tasks of Production Control Structure: 3.1 Introduction Objectives 3.2 Functions of Production Control 3.3 Benefits of Production Control

3.4 Scope / Elements of Production Control 3.5 Role of Controls in Operation Cycles 3.6 Functions/Tasks and Control Activities in Production 3.7 Production Control Systems 3.8 Factors Considered in Production Control Procedures 3.9 Operation Planning and Control Systems 3.10 Summary 3.11 Glossary 3.12 Terminal Questions 3.13 Answers 3.14 Case study 3.1 Introduction By now you must have understood the need for advanced planning and production in organisations. You are also familiar with the different planning strategies and the circumstances in which you need to apply them. Production consists of a chain of operations that transform materials into a desired product. The highest efficiency is achieved in production by manufacturing the required quantity of products, of the required quality, at the required time and by the best and cheapest method. These four factors as you have seen, encompass the production system, which is coordinated and effectively controlled by the department of Production Planning and Control called PPC in a production unit. In this unit, we will discuss how to use planning and production control as integrated activities to ensure a smooth flow of production. We will also discuss the functions of production control, benefits of production control, factors influencing production control, different production control systems.

Objectives After studying this unit, you should be able to: Exercise control over production flow. Effectively monitor the production schedules. Devise coordination process for all the production operations. Direct and check the course and progress of the work. Maintain records of the completed work orders. 3.2 Functions of Production Control Production control is the process of managing all aspects of the manufacturing process to gain maximum value from resources.

In the planning stage you have a choice of alternatives available, you should be able to use the best alternative to optimally make use of the resources. The operations stage is where the performance of the facility, that is, to produce the desired product as per the plan is materialised. The control activity is the monitoring of performance through a system of feedbacks. By comparing the results achieved with the planned targets, you can improve upon the performance by effectively taking corrective action. This control mechanism is also responsible for adjusting, modifying and redefining the plans and targets in order to attain the set goals. In brief, production planning and control functions are concerned with decision making regarding, What to produce? How to produce? Where to produce? When to produce? Who will produce? and How much to produce? Some of the important functions of production controls are: To monitor the performance of the production process. To define and set standards to ensure the preferred operation of mission-critical functions. To supervise for properly carrying out the operations and execution according to the schedules. To coordinate the manpower and material to run an efficient production process. To coordinate, monitor and give feedback to the manufacturing department of the results of production activities; to analyse and interpret the significance of taking corrective action. To achieve the objectives at a low cost and ensure reliable customer services. 3.3 Benefits of Production Control A high-quality production control system means greater production for the same investment without burdening the workers excessively. It guarantees an even flow of production. Following are the benefits of production control: Better Service to Customers: Delivery dates are not missed. The production course is as per schedule. This boosts the confidence in the salesmen of the firm to set delivery dates to the customer without any hesitation. Timely delivery wins the confidence of customers, improves the relationship with the customer and encourages profitable repeat orders. Less Overtime Work: As flow of production is evened out with the promised delivery-dates or expected demand periods, the last-minute rush activities and over-time shifts are avoided. Need for Smaller Inventories of Work-in-process and Finished Goods: Businesses employing an effective production control system require lower inventories of material, parts, components and so on for work-in-progress, and less of finished goods in stocks. Thus the investment in inventory is less. The funds saved by this way can be put to other profitable uses. Also, customer orders can be supplied in one batch. This will bring benefit in the form of less transport costs because single large shipment generally costs less than two or more small shipments. More Effective Purchasing: Purchasing is more scientific, economical and timely due to better management of material and it leads to effective inventory control. Less Loss of Time: Due to sequential flow of material, workers need not wait for the material for long. Hence, there will be minimum loss of productive man hours. The executives can only give their personnel attention when there is any serious flaw in the working of the system. Saving in the Cost: A well designed and maintained system of production control frequently results in major cost-savings. These savings are significant in amount than the cost involved in introduction of the control system. Less Work-stoppage: Work-stoppages are avoided or minimised in terms of time-duration. Therefore delays in dispatching of goods to customers are very rare. Industrial Harmony: Effective production control assists in bringing about cordial industrial relations.

Effective and efficient working of production control activities across the organisation will result in multiple benefits. There are also some actions which have direct impact on the profitability, which are: Maintaining balanced inventory of materials, work in progress parts, and finished goods inventory. Balanced and stabilised production. Maximum utilisation of equipment, tools, labour and production space. Minimum investment in inventory. Reduction in indirect inventory, reworks, setup costs and scraps. To gain competitive advantage over rivals an organisation must ensure: Reliable delivery to customers. Shortened delivery schedules. Pricing flexibility which is achieved through low production costs. Orderly planning and marketing of new improved products. 3.4 Scope / Elements of Production Control The supreme objective of production planning and control is to add to the profits of the enterprise. Along with inventory management and control, this is accomplished by keeping the customers satisfied by sticking to delivery schedules. Specific objectives of production planning and control are to establish routes and schedules for work that will ensure the optimum utilisation of materials, workers, and machines and to provide the means for ensuring the operation of the plant in accordance with these plans. Following are the elements or scope of production control: Control on Timing of Production: Observes stoppages, delays, rushes in operation and regulates the flow of production for executing as per delivery dates. Quality Control: Makes all the quality observations in the process and checks whether the right quality of acceptable work has been processed. Replacement Control: Observes rejected materials and work In progress. Replaces the quality standards which do not fulfil the required purpose. Labour Efficiency Control: Observes labour operations, timings and maintains labour efficiency. Control on Machines and Equipments: Strives to attain maximum utilisation of installed capacity and keeps machines in good condition through proper coordination with the maintenance department. Control on Progress of Orders: Controls progress of work orders and its effective adjustments. Control of Material Handling: Releases orders for material movements for work in different work centres and ensures availability of materials at the right place. Control on due dates: After checking actual and planned schedules and delays or stoppages, control section will revise the schedule or adjust so as to ensure delivery to customers within due dates. Control of Information: Ensures the required information is provided to the concerned work centres. If any deviations occur, then it provides the data on production performance for future planning. Self Assessment Questions

1. What are the concerns of production planning and control ? 2. Two advantages of production control are & . 3. Maximum utilisation of equipment, tools, labour and production space results in increased expenditure. (True/False)? Activity 1: Assume that you are managing a production facility. List out and describe the control functions you will employ to keep the production cost low. (Hint: Production control functions) 3.5 Role of Controls in Operation Cycles Production planning and control is the main management system employed to give directions to the manufacturing operations. The control function acts as a nerve centre in implementing, operating, and evaluating the processes as shown in the figure 3.1. Since the control system involves strategic and tactical planning, it should take into account, the main policies of the organisation: namely the inventory control policies, quality control policies and policies connected with productivity and cost control. Operating control policies are considered for evolving review policies. Figure 3.1 explains the production control process.

Figure 3.1: The Production Control process The different parameters in the operation cycle are: Capacity data: Based on the general company calendar, production is assigned to the work centre, with on time capacity and cost profiling. Production work plan/work order: This plan contains work order and it encompasses different activities like production, purchase, rework and refurbishing order, work order status, actual quantity of requirement fulfilment, actual date of requirement fulfilment, purchase deadline for requirement fulfilment, administrator assignment, customer order reference, requirement reference, and so on. This facilitates a smooth flow of operation. Control process/Operation cycle data: Specific data like modification, inclusion, deletion of one or more control processes is stored. A short description of operation cycles like setup time, time per unit, execution time, forward deadline, execution deadline for project development, cost/remaining cost, feedback data, start and end dates are collected and maintained. Registration of performance takes place by the application of integrated performance accounting, which takes inputs from operation cycles data.

 Scheduling: Scheduling happens on the basis of scheduling data of the work plans (control processes). The scheduling types like forward deadline and cycle scheduling are then employed as and when the process demands. Taking priorities of different jobs, a buffer time is maintained. The scheduling type depends on the scheduling data of the control processes. The cycle time is dependent on the normal order capacity available at a work centre. Feedback system: The system supports the document oriented feedback of the production progress. Production feedback can be performed in different stages. Overview of work distribution: Overview of work distribution is conducted per work centre, work group or department. This show the sequence of executing jobs, in the dispatched order with start and end dates and production progress. Overview of efficiency/capacity utilisation: The capacity utilisations of work centres and work groups with operation cycles are maintained and indicated as per the traffic light principle (green, yellow, red). The impact of new dispatches, feedbacks, rescheduling and so on is directly indicated which means, the efficiency overview always displays the actual condition of the production planning and control. Backlogs are easily observed and steps are taken to clear the backlogs by making adjustments to the schedules. Production documents: Production documents are maintained in a standardised form. The production documents contain: feedback, order stock list (Requirement stock list), work order (stock operation plan), work plan, earnings- and material reacquisition. 3.6 Functions/Tasks and Control Activities in Production In each of the production processes, activities can be segregated and grouped into three main distinct stages, namely: Pre-Planning. Planning. Production Control. Figure 3.2 explains the distinctive stages of production control activity.

Figure 3.2: Three Distinctive Stages of Production Control activity The figure 3.2 indicates the total activities of these three distinctive stages and also how each function interacts with the others for smooth functioning. Functions/Tasks at pre-planning stage

Pre-Planning covers the analysis of data and outlines the basic planning policy based on sales reports, market research and product development and design. Pre-planning is a PPC responsibility in which the collection of data on materials, machines, manpower availability, scope of work, capacity and so on are to be created. Functions/Tasks at planning stage In the Planning stage, the function concentrates on: Materials to be used for the product being produced as planned. Methods to be adopted to produce that particular product. Machine/ equipment to be allocated and its capacity to produce. Routing, estimating, loading and scheduling activities. Machine loading as per the capacity and their capability assessment of performance is done in conjunction with routing for smooth workflow. Materials: It is the responsibility of the planners to ensure that the required raw materials/components/semifinished items are available before release of work orders and start of production. Here the duties include tightening up specification of materials, its availability to the quantity required/delivery date of expected incoming materials, standardisation and reduction in variety, procurement processes and coordination with inspection. Methods: Here the planners have to analyse and define the best method that is compatible with facilities available and select the processes for manufacture of parts, assembly and testing. Machine and Equipment: Proper loading of machines along with maintaining the machines for accurate production and planning the required jigs, fixtures and tools constitutes the major functions and tasks of the production planners. Routing: Routing prescribes the flow of work in the plant and is related to considerations in layout, location of storage of raw materials and the material handling systems used. Routing is a fundamental production function on which all subsequent planning action is based and hence the flow of inputs is strictly monitored. First the sequence of operations for item/product is tightened up and the production work orders, which include all operation details, are issued for work to start. Benefits accrued due to proper routing are, a) efficient use of materials b) reduction in manufacturing costs c) provides a base for proper scheduling d) improves quality and quantity of output. Estimating: The estimating function involves the extensive use of operation analysis in conjunction with methods and routing as well as work measurements. As this estimating involves highly sensitive human elements in operation time, motion study and other factors, control personnel should not allow unduly large fluctuations and inconsistency to peep in. Loading: Loading means loading of work centres and deciding which job has to be done by which machine and then allocating such jobs for the next operations. Loading is therefore the process of converting operation schedules. Job allocation depends on the type of machine and the skill required and hence utmost care is taken during loading, so as to impart relative priority and capacity utilisation. Scheduling: Scheduling involves establishing the amount of work to be done and the time from the start to the finish of the work. Scheduling ensures that the right things are planned at the right time to produce the right quantity. Therefore, the function of scheduling determines the utilisation of equipment and manpower and hence the efficiency of the plant. Machines are required to be loaded to their capacity and a smooth flow of materials should be ensured for each machine for maximum utilisation. Hence scheduling determines the utilisation of equipment and manpower. Scheduling will also ensure dovetailing of the operations in such a way that there is no wastage of time in between

processes. A realistic and precise scheduling is a prominent function for production planning and control personnel. Elements that are to be considered while evolving a proper scheduling method are the demand forecast, aggregate scheduling, production plan, master production schedule, capacity planning, facility loading and evaluation of work contents and sequencing of operations. Tasks and control activities of production control The Control stage functions/tasks are: Dispatching. Expediting. Inspecting. Evaluating. Controlling inventories, controlling scrap and analysis of work progress and controlling transportation used for production activities. Dispatching: Dispatching involves setting production activities in motion by releasing work orders. These work orders are invariably accompanied by process/instruction sheets. In other words, the process of dispatching authorises the start of the production operations. Dispatching also involves collecting and moving the materials from stores, collecting and issuing tools, fixtures, drawings and specification sheets. It also includes route cards, inspection schedules, and internal material handling to machines. In addition, it includes the returning jigs, fixtures, moving special tools back to stores, and then moving the accepted materials to the next stage of operation or to stores. It is found that in large production units, centralised dispatching has more advantages as compared to decentralised dispatching. Expediting or Progressing: Expediting is a tool, which works as an executive arm that checks the progress of the work. Expediting is also a logical step after the dispatching function. Expediting maintains and ensures the successful completion of the job. This function has to keep a close liaison with scheduling, in order to provide efficient feedback and prompt review of targets and schedules. The Need for expediting arises because of the following reasons: Delay in supply of raw materials. Higher absenteeism of labour. Frequent changes in specifications and route cards. Changes required in delivery schedule. Breakdown of machines. Improper coordination and communications between the departments and so on. Inspecting: Inspection is a major control function. Its findings and criticisms are of great significance in the execution of current plans and in the future planning stages especially when the limitation of processes, methods, and manpower is known. This is also essential to improve production methods and cost implications of quality at the design stage. The need for inspection arises due to the following reasons: Delay in supply of materials.

 Excessive absenteeism in any section. Changes in design specifications. Changes in delivery schedules. Machines under breakdown/periodical maintenance. Errors in design drawings and hence rejections/reworks. Evaluating: Evaluating is the assessment of the performance effectiveness with the help of a link between control and future planning process. A feedback mechanism here will help in the long run, as the evaluated past experience will help to improve methods and utilisation of facilities. Controlling Inventories and Scrap, Analysing Work Progress: Other additional responsibilities for the dependent functions like control of inventories, control of scrap, control of transportation and so on are integrated with the Control section of the PPC. This is because many organisations feel that this type of integrated control department is an essential link and will help achieve maximum results. Self Assessment Questions 4. are the tasks of production control ? 5. Pre-Planning covers the analysis of data and outlines basic planning policy. (True/False)? Activity 2: For a manufacturing process where each machine handles three tasks, devise a scheduling strategy according to a hypothetical situation. (Hint: Control stage functions.) 3.7 Production Control Systems Generally, systems are a group of procedural elements that operate to fulfil certain functions or give rise to an output. Similarly, in production control systems, the procedural elements are evolved and used to fulfil the required functions along with the controls to achieve the desired results. The production control system are categorised as follows: Setting up a system for processes such as work order release. Determining the lead time required for production and establishing a standardised system for such calculations, evaluations. Determining the methods for controlling and monitoring production operations by defining what work should be done and where the work should be done including when the work should be started. Then orders should be issued, followed monitor by and control of operations until the work is completed. Establishing techniques for measuring and recoding data of machine utilisation, scrap developed, direct and indirect labour content for each job, which helps in optimum utilisation of facilities and other resources. Having a proper communication system with the concerned departments of the information, data, and instruction. These can be displayed, recorded, retrieved, and processed for use by the concerned personnel during the operational cycles. The last decade has witnessed a huge increase in the application of automated systems in manufacturing industries. A production system comprises many equipments, structures and tasks. The proper functioning of the control system is important to ensure its reliable and safe operation.

In addition to satisfactory operational features, the design of a control system must also provide the means for a safe shutdown of the equipment in case of failure. Other safety features should be included to automatically prevent dangerous activities. For a control system, a satisfactory response time is an important factor that may have a very intensive effect on reliability and safety. The type of control used depends on the complexity and performance characteristics of the system, and it should be application-specific. The selection of the type of control system is decided mainly by technical factors. To guarantee reliable and safe operation of the control system, the design, operation and testing of a control system is regulated by industry, national, and international standards. Usually the systems are put through rigorous quality review processes like criticality analysis, failure mode analysis, factory acceptance tests, and reliability, maintainability, and availability analysis. 3.8 Factors Considered in Production Control Procedures Production and control procedures shall include all reasonable precautions; to assure that the item produced has the safety, identity, strength, quality, and purity they claim to possess. The production control procedures depend, or are influenced by the following factors: Nature of business: The control procedure in a tannery industry would be different from an iron or steel industry. Scale of operations: The complexities are more in large size manufacturing as compared to the smaller firms. Type of manufacturing: Control procedure in intermittent production is complex than in continuous manufacturing systems. Degree of mechanisation: In automatic systems, materials are provided to machines and they move automatically through the process. Philosophy of the management: Assignment of the control functions and its splitting into various tasks largely depend on the realisation of its importance and are decided by considering the factors that have direct and indirect influence on production. The following three are important factors that are recommended for consideration before evolving a system: Nature of production: The production is classified as intermittent and continuous depending on the length of processing time without set up changes. Another issue to be considered is the type of production such as mass production, batch production or job order production. Complexity of Operations: Complexity of the production control increases with the increase in variety of operations. In a mass production unit, the number of components/parts handled through the production shops are enormous so also is the number of complex operations to be carried out on each one of them. Complexity also increases when the progressive operations on the components depends on the previous operations, as any holdup at any point in the process will affect the next operation. Further, the time required for each of the operations is varying and hence cannot be line balanced. Assembly process and testing of the product is vital, as it dictates the outputs and hence controls the complex activities. Finally, the delivery of products should be as per the customer requirement and its complexity increases when there are backorders to be served. Magnitude of Operations: Production units producing a variety of products will invariably have very high volume of production and the magnitude of controls required will also multiply. Generally, the centralised production control will enforce too many systems and procedures to be followed in production units and requires a very strict compliance. Self Assessment Questions 6. Production and control procedures shall include all reasonable precautions. (True/False)? 7. State two categories of production control system.

Activity 3: We have discussed a number of factors that influence production control procedures. Depending on these factors find out the different industries where these controls can be exercised. (Hint: Automobile manufacturing, chemical industries, pharmaceutical industries) 3.9 Operation Planning and Control Systems The operation and production system of an industry, starting from the forecast stage to the final production processes until producing the desired output, follow operation planning. As you can understand, the production control activities detailed in this unit are the inputs to the production process and hence the control on these activities is emphasised. The operation planning and control (OPC) task is organised as follows: Facilitate the development of scientific knowledge pertaining to the design and control of operational business processes like purchasing, manufacturing, distribution, sales, service and design. The knowledge gained should help the management particularly in the area of Operations Planning and Control to come up as leaders in the industry. The main focus of OPC is the design, analysis and control of individual production units and networks of such production units. A production unit is defined as an organisational entity. Each production unit is charged with the duty for achieving its own set of objectives with regard to cost, quality and time by utilising the materials and resources that are allocated. A production unit can be a department within a manufacturing plant, or a department within a transportation company. When there is multiple production units involved in the manufacturing process, there is a need to coordinate the different units to make sure no conflict of interest or opinion arises. The coordination can be achieved by: An individual at a higher level in the organisation who owns all the production units involved. An individual who has been charged with the authority to coordinate all the production units involved. An agreement of bilateral or multilateral issues by the owners of the production units involved. Self Assessment Questions 8. OPC stands for . Activity 4: How would you solve the conflicts arising between the transportation department and inventory management department? (Hint: Coordinating) 3.10 Summary Control signifies monitoring of performance through a feedback system. By comparing the results achieved with the planned targets, we can know the performance of the business and if any deviations from the set objectives are found then proper corrective actions can be taken to improve the results. Hence, the responsibility of the

production planning and control is primarily planning, directing and coordinating the firms material and physical facilities towards achieving the predetermined production objectives in the most economical manner. The main objectives of control functions as we have discussed are to implement the production plans by issuing necessary work orders to the persons who are supposed to implement them by ensuring resources like men, machines, materials, methods and so on to the required quantity, quality, at proper time and proper place. Further they monitor the operations being executed to the schedules through proper coordination and give necessary feedback to the system for intermediate adjustments/corrective actions. While in the planning stage, this function concentrates on the materials to be used for the product being produced as planned, methods to be adopted for production to produce that particular product, machine and equipment to be allocated and its capacity to produce by taking actions of routing, estimating, loading, scheduling, the production control will take further action on the functions / tasks of dispatching, inspection, expediting and evaluating. Production Control Systems are instituted with procedural elements that are evolved to operate and fulfil certain functions that give rise to an output. The factors that determine the production control procedures are the nature of business, operation systems, type of manufacturing, technology being used, and philosophy of the management and so on. Operation planning and control system is the essence and combination of all the stages of the pre-planning and planning process. This function improves the knowledge base of the company. 3.11 Glossary Term Description It is the strategy for managing a companys interactions with customers, clients and sales prospects. The raw materials, work-in-process goods and completely finished goods that are considered to be the part of a businesss assets that are ready or will be ready for sale Also called operations management, it involves planning and control of industrial processes to ensure smooth flow of work. Supply chain management is defined as a network of facilities that acquire raw materials, convert them into intermediate goods and then final products, and deliver the products to customers through a distribution system.

Customer-relation

Inventories

Production Management

Supply chain management

3.12 Terminal Questions 1. What is production control and what are the objectives of production control? 2. What are the chief elements to be considered while implementing the production control functions/tasks in an organisation? 3. Explain briefly the principal functions of planning materials, methods, routing, estimating, loading and scheduling. 4. Explain briefly the main tasks of dispatching, inspecting, expediting, evaluating and controlling inventory and so on by production controls department. 5. What is meant by a production control system and how are the elements of control systems categorised? 6. What are the main factors that determine the production control procedures? Explain briefly.

7. Explain briefly how the operation planning and control system interacts to give the desired output. 3.13 Answers Self Assessment Questions 1. What to produce? How to produce? Where to produce? When to produce? Who will produce? and How much to produce? 2. Better Service to Customers and Less Overtime Work. 3. False 4. Dispatching, Inspection, Expediting, Evaluating and Control of inventories. 5. True 6. True 7. Setting up system for processes such as work order release and Determining the lead time required for production and institute a standardised system for such calculations, evaluations and so on. 8. Operation Planning and Control.

Terminal Questions 1. Refer Section 3.2 and 3.3 Functions and benefits of production control. 2. Refer Section 3.4 Elements of production control. 3. Refer Section 3.6 Functions and control activities in production. 4. Refer Section 3.6 Functions and control activities in production. 5. Refer Section 3.7 Production control systems. 6. Refer Section 3.8 Production control procedures. 7. Refer section 3.9 Operations planning and control systems. 3.14 Case Study Effective production control to minimise the size of inventory A company DC Corp. manufactures automobiles. The carburetors for the automobiles are supplied by the TT Company. The DC Corp. follows a production control system, which employs a form of order card as a working device. This system connects the supplier (TT Company) as a production process with each of DC Corp. plans and assists to minimise the task of maintaining inventories that every process in a shop used to stock in considerable volume. Production order is given by the production control system or order cards, which is fed by the preceding process. The demand of the subsequent process is furnished by the preceding process. The preceding process could be, for example, dispatch of carburetors of the company TT which is begun by the order card from the engine assembly division of DC Corp. Then an order is given to the assembly process of TT Company for the types of carburetors that were removed from stock shelf and dispatched.

This process of issuing orders to the preceding process continues like a chain reaction. To control this production function, following conditions were met by both the parties, The setup time for a production line must be in order to react to production orders given every few hours or every hour for different kinds or specifications of products. The production of defective articles should be minimised and whenever a defective article is produced, it is necessary to reproduce the article. But this takes time as the cost is high. A thorough preventive maintenance is followed to minimise the production of defective parts. In brief, regular preventive and reformative maintenance is essential to check break-down of machines. As the articles being produced change frequently, the workers must be informed about the specifications and standards of the article being produced. By implementing this system, DC Corp. controls and guides the suppliers control process. The production processes in both companies proceed simultaneously. This control system also strengthens the management system. Questions 1. Which innovative method of production control is implemented here? (Hint: Circulating order cards.) Case study source: http://elsmar.com/pdf_files/Toyota%20Kanban%20System.pdf

OM0017-Unit-04-Forecast Methods and Techniques

Unit-04-Forecast Methods and Techniques Structure: 4.1 Introduction Objectives 4.2 Importance of Forecasting (FC) 4.3 Advantages of using Forecasting Systems 4.4 Limitations of Forecasting 4.5 Forecasting in Operations 4.6 Time Horizon of Forecasting Objectives 4.7 Forecasting and Prediction 4.8 Need for Demand Forecasting 4.9 Factors affecting Demand Forecast

4.10 Place of Forecasting in PPC 4.11 Classification of Forecasting Methods 4.12 Application of Different Methods of Forecasting 4.13 Worked Examples on the above Methods of Forecasting 4.14 Summary 4.15 Glossary 4.16 Terminal Questions 4.17 Answers 4.18 Case Study 4.1 Introduction By now you must be familiar about the functions and tasks of production control. This unit discusses the methods and techniques involved in forecasting. Organisations need to forecast the demand for their products and services to develop their production plans. Demand is the quantity that buyers are able to purchase during a particular time period in a specific market condition. You will see that these market environments dictate the price of a product apart from many other factors. The first step of planning is to forecast or estimate the future demand for products and the resources that are necessary to produce the outputs, which satisfy the market requirements. You should be careful when forecasting, because overestimation or under estimation of the demand will have an adverse/negative impact on the overall performance of the organisation. Hence the survival of the organisation depends on the effective anticipation of future events. Further, the forecast can never be 100% accurate, and hence you should track the results of forecasts and determine their accuracies periodically. This tracking will also help to improve the future forecasts. Objectives After studying this unit, you should be able to: Define the importance of forecasting. Comprehend the limitations of forecasting and advantages of using forecasting systems. Explain the classification of forecasting methods. Describe forecasting and prediction. Explain the need for demand forecasting. 4.2 Importance of Forecasting (FC) Before discussing the importance of forecasting, it is important for us to know what forecasting exactly means. Forecasting (FC) is the method of making assertions about events whose actual outcomes have not yet been observed. The manufacturing organisations need FC for: Effective planning of market demand and sales adopting the required technologies, following fiscal policies of government.

 Planning materials for production. Knowing customer preferences. FC is one of the most useful and important database for Operations Management. FC is required for planning production and work force levels, for inventory replenishments, for material control systems, for scheduling machines and workers, and for predicting the financial requirement. Financial forecasting enables the management to alter the plans and operations at the right time, so that the organisation gains an advantage. It takes proper steps based on relevant information in order to save any losses, which might be incurred by the organisation. Organisations that are capable of making accurate forecasts are able to take measures to achieve their set goals and targets. Forecasting plays an important role when developing new products or services. Forecasting provides insights into the future of the product that is planned to be launched and prevents the company from spending time and money developing, manufacturing, and marketing a product that is bound to fail in the market. Another reason behind forecasting is stockholder expectations. Investors pressurise public companies and these companies are scrutinised for short-term performance. Investors and investment analysts examine the actual performance, the forecasts expectations, and any deviations which might be inappropriate for the company and its stock price. If the predictions exceed or meet the actual performance, the confidence of investors is shaken. In business, forecasts are classified into Demand FC, Technology FC, Economic FC. Demand FC is the estimation of likely sales demand for a particular future period for the product/products. It also involves estimation of the quantity of future sales, its quality, timing, and location/place of availability of the product. Technology FC is planning for incorporating new technological practices into the existing system or anticipating the likely development in manufacturing technologies. As you can guess, economic forecasting is predicting the budget for the proposed project of the profit/loss experienced by the firm. 4.3 Advantages of using Forecasting Systems There are many advantages of using forecasting systems. Accurate forecast will earn many benefits and advantages for the organisation and some of them are listed below. Following are the benefits of implementing a good forecasting system: Plan future activity levels: It helps in effective planning by providing a scientific and reliable basis for anticipated future operations such as sales, production, inventory, investments and so on. Maintain good labour relation: It helps in controlling all activities connected with labour, for better relations. In better coordination of resources: It helps in better coordination and utilisation of resources leading to reduced waste/scrap and inefficiencies. Helps Customers: Good forecasting and optimum use of resources helps in control on pricing of products, which eventually helps customers. In production planning and control: It can minimise fluctuations in production and balance workloads. In effective collective responsibility: It helps in uniting the work force through collective responsibility. In material management and use of capital: It helps to have appropriate levels of materials available when required and to make better use of infrastructure and improved services. Self Assessment Questions 1. FC is one of the most useful and important data-base for _______________________. 2. Forecasting helps to achieve the targets set by the organisation. (True/False)?

Activity 1: Imagine that you are the proprietor of a manufacturing firm and prepare a forecast report for a product that is going to be launched. (Hint: example, feasibility, market competition, pricing and so on) 4.4 Limitations of Forecasting We have discussed about many advantages of having a good forecast system for a planned production. However, there are some limitations too, which the planners and operation managers should identify and take precautions. Forecasting is constrained by many factors. Inadequate information, sudden changes in the system leads and failing to consider important information limit the predictive power of forecasting. In addition, time is a limiter as well. That is, the farther the future we attempt to predict, the predictions are likely to be less precise. Some limitations are: Forecast is usually based on past data, but the future may not always be an imitation of the past. Forecast is estimated and hence may not be accurate. Assumptions and guesswork leads to possible errors. New products in the market, technological breakthrough, economic slumps, and war-like situations make forecasts go haywire. Inexperienced or inefficient sales force may mess up the situation. Forecast for a new product is difficult in the absence of previous data. Bad forecast can make or break the organisation. If the forecast is imprecise, then the business will land up buying surplus stock, which results in wastage of capital, or the business will lose customers. The markets are continually changing, and some changes affect directly than others. 4.5 Forecasting in Operations High-quality forecasting is the base of good operations management. There are many future events that may influence the overall performance of the organisation, which are required to be looked into by the planners and operations managers. In this direction, consideration of the facts on the time horizons, forecast Vs prediction, factors that affects the organisational performance because of forecasts, accuracy level with which the forecast must be made for decision making, and statistical data to prove each point of observations are to be made clear. Forecasting is the process by which organisations analyse related data and graphs to decide and take the best decisions for the future. Suppose that you need to make forecasts for time-series, such as the prices of natural resources, then should you use statistical or judgment technique? Judgment is useful when domain experts have knowledge of recent events whose effects have not yet been observed in a time series. Statistical methods make efficient use of prior data and are less prone to biases. Statistical methods are reliable because they will produce the same forecast given the same data. However, statistical procedures lack foresight, knowing only about the data that are presented to them. It is possible to integrate the relative advantages of judgment and statistical forecasts. Integration of judgment and statistical methods can lead to significant gains in accuracy under certain conditions. However, when incorrectly applied, integration can affect accuracy. Self Assessment Questions

3. give two major limitations of forecasting. 4. Forecasting is the foundation of operations management. (True/False)? Activity 2: Suppose you have data of the price of iron for the previous ten years. Which method would you apply in order to predict the price of iron for the next year? (Hint: Judgement method/Statistical method). 4.6 Time Horizon of Forecasting Objectives In the previous section, we discussed about forecasting in operations. Now, we will discuss about the time horizon of forecasting objectives. Forecasting decisions in operations depend on the time horizons and this time horizon is decided based on the product requirements of the customers. Forecasting objectives can be classified as: Long term objectives. Medium term objectives. Short term objectives. Long term objectives: Long-term objectives are those, which do not change in the immediate future. Here, forecast looks ahead into several years. This reflects the companys expectation of magnitude of business for many years of operations. In this direction, the organisation initiates its plan of actions in the following areas to meet the long term objectives. Man-power planning. Long-run production planning. Financial requirements for long term planning. Budgetary control over expenditure. Medium term objectives: Here the plan is to look ahead of a few months or up to, say, two years. It could be the time needed to replace an old product with a new one, or to organise less demanding resources. For example, the expansion of a hospitals capacity. Short term objectives: The forecast covers the next few weeks, catering for the continuing demand for a product with short term planning of resources. For example, number of patients requiring X-ray services. Following are the tasks involved in the above mentioned types of forecasts. Formulation of production schedule. Regulating the supply of raw materials. Better utilisation of plant capacity. Regulating supply of labour. Forecasting for short term financial requirements. Keeping all the above factors in mind, you will be able to come out with a good and reliable forecast. 4.7 Forecasting and Prediction While forecasting is a systematic and scientific projection of the future events, prediction is a subjective estimation of the future event. Prediction will have the effect of the crystal ball. While prediction is purely based on a managers skill, experience, and judgement, forecast is based on historical data requiring statistical and management science. When we predict, we integrate a great deal of subjective and objective information to

estimate the future. In forecasting, error analysis is possible, whereas prediction supports limited error analysis. Following table 4.1 depicts the differences between forecasting and prediction. Table 4.1: Difference between Forecasting and Prediction

4.8 Need for Demand Forecasting As the majority of activities of industries depend on future sales, demand forecasting is needed to take decisions with respect to investment in labourers, machinery, materials, and so on. Further, it is needed to schedule production activities in order to ensure maximum utilisation of plant capacity. Planning of right materials at the right time is possible through the study and analysis of forecasts and to take decisions based on the economic scale of production. Adjusting to changing and uncertain technical, economical, and market scenario is also possible. Generally, forecasting demand is confused with forecasting sales. Historical demand is the basis on which demand planning is done. The literature on demand forecasting is entangled in a lot of debate on how to measure and represent historical demand, since historical demand forms the basis of forecasting. The main point of issue is whether we should use the history of outbound shipments or customer orders or a combination of both as proxy for the demand. There are two important phenomena to be addressed. They are: Stock effects: It is the effect of inventory levels on sales. In cases where there are stock-outs, the incoming demand is not converted into sales, as there is no stock available. Market response effect: It is the effect of market events that are within and beyond the control of the forecaster. If a competitor increases the price of an item, then demand will increase. This results in an increase in sales and it reflects a change in demand. These factors need to be addressed while planning and should be managed within the demand forecast. In the section, we will be discussing about the factors affecting demand forecast. 4.9 Factors affecting Demand Forecast There are many factors which affect the demand forecast. Planners have to analyse these factors and make a proper assessment before taking decisions. In economics, much emphasis is laid on the relationship between the cost of a product and the quantity that consumers are willing and able to buy. It is necessary to study all the factors that affect the demand for a service or good.

Some of them are listed below: Price of the product: The price of a product is inversely related to the quantity of that product consumers are able and willing to buy. Typically, consumers buy more of a product at low cost and less quantities of a product at a high cost. This inverse relationship between price and quantity is usually termed as The Law of Demand. The consumers income: The effect that the income of the consumers has on the amount of a product that they are able and willing to buy also depends on the type of product. For most goods, the consumers income and the quantity of the goods that one is able and willing to buy is directly related. In other words, for these goods when income raises, the demand for the product will increase; when income falls, the demand for the product will decrease. We call these types of goods as normal goods. The price of related goods: As with income, the type of good also has an effect on the amount that one is able and willing to buy. Think about two goods that are usually consumed together. For example, bread and jam. We call these types as complements. If the price of bread goes up, the Law of Demand tells us that we will be willing to buy less bread. But if we want less bread, we will also want to use less jam. Therefore, an increase in the price of bread means we want to purchase less jam. We can summarise this by saying that there is an inverse relationship between two goods that are complements and the price of one good and the demand for the other good. Conversely, some goods are considered to be substitutes for one another. You do not consume both of them together, but instead choose to consume one or the other. If a company increases the price of its item then you would buy the same goods available for a cheaper price. Therefore, it results in the demand for those goods. This can be summarised as when two goods are substitutes, there is a positive relationship between the price of one good and the demand for the other goods. The tastes and preferences of consumers: This is a subjective factor, but can still have a big impact on demand. There are many things that can change ones tastes or preferences that cause you to want to buy more or less of a product. For example, a person may have a higher demand for an umbrella on a rainy day than on a sunny day. The number of consumers in the market: This has a direct effect on the amount of a product that consumers are willing and able to buy. For example, a coffee joint located near a college will have more customers visiting and thus higher sales during the fall and spring semesters. In the summers, when fewer students are taking classes, the demand will decrease, because the number of consumers in the area has significantly decreased. The consumers expectations: The expectations of the consumers for the future can also affect how much of a product one is willing and able to buy. These are the factors that you have to bear in mind when implementing forecasting. 4.10 Place of Forecasting in PPC Production planning is a part of operations management and it needs decisions at strategic as well as at operational levels. Operations managers like to organise the process in such a way that the work progresses smoothly including few alterations and possible adjustments. The planners have to find the best compromise between variable demand and steady production. This means they have to: Make accurate FC of expected demand for products over time. Design the best process to meet the long-term demand. Organise resources to keep the process working efficiently. Allow flexibility to cater for variables in demand. Consider constraints in capacity, timing, cost, and quality. Self Assessment Questions 5. & are the two phenomena effecting forecasting.

6. Consumers tastes and preferences do not have an effect on demand. (True/False)? Activity 3: Assume that you are a manufacturer of ice-cream and you have historic data of sale of ice-cream. Now how would you manage your inventory with winter approaching? (Hint: Factors affecting forecasts) 4.11 Classification of Forecasting Methods A large number of forecasting methods are available. Forecasting methods can be broadly divided into two categories namely: a) Opinion and judgemental methods. b) Time series methods. a) Opinion and judgemental (Predictive) methods The qualitative or judgment method is a method that translates the opinions of managers, experts in the field, consumer surveys, and sales force estimates into quantitative estimates. These methods range from a scientifically conducted opinion survey to the nominal group technique. These are commonly used techniques in business and industries, where they rely heavily on the past experiences and skills of people. There are four methods adopted under this category, namely: Opinion Survey Method. Market Trial methods. Delphi Technique. Nominal Group Technique. Opinion survey method: This is a simple and practical method used for FC for new products, where the opinions are collected from prospective buyers regarding why they buy and what they expect out of those products. Market research/trial method: When a product is new to the customer or market, it is difficult to anticipate its acceptability. In such a case, a trial run of the new product in the market as a controlled experiment in a carefully selected place is practised. Market research is a systematic approach used to determine the consumer interest in a product and decisions taken based on the testing hypotheses. (This type is recommended in consumer goods like cosmetics, software, and other fast selling consumer goods). Delphi technique: Delphi technique is an interactive learning process through the group of experts in the field responding to a set of questionnaire and hence is a subjective method of relying on the opinion of a few experts. As many experts are involved in the consensus developing process, it minimises the bias and error of judgement compared to other opinion methods. Nominal group technique: Here, the panel of experts work together to arrive at a consensus through discussions. Success of the nominal group process lies in identifying questions, allowing creativity, encouraging discussions and ultimately arriving at a consensus. b) Time series methods or quantitative methods In this method, it is assumed that the past data is a good indicator of the future, and hence a lot of assumptions are made here while making a quantitative forecast. With the experience of the operation managers, they can master the prediction from the historic data of the product. For this, the operations managers use the time series model to forecast the demand for their goods or services. Time series method addresses the horizontal trend and seasonal patterns of demand. The following are the time series methods that are normally used Simple average.

 Simple moving average. Weighted moving average. Exponential smoothing. Exponential smoothing with trend adjustment. In time series analysis, the sales demand is considered to be a function of time and refers to all the previous demands arranged in a chronological order as a dependent variable and time as an independent variable. Increase or decrease over a period under consideration is taken as a factor that influences the demand and all such factors are grouped together. The types of demand, namely linear demand, constant demand, seasonal demand, and irregular demand that happen for each of the product over time series are schematically shown in figure 4.1:

Figure 4.1: Types of Demand Therefore the forecasted value (Y) = TCSR. Where, T = Trend (tendency of demand to increase or decrease). C = Cyclic variation (demand fluctuates >/< a trend line) S = Seasonal variations (when similar demand pattern occur during month/s of successive years. R = Irregular variations (when demand fluctuations are wayward and occur for no reason. For example: aviation industry, stock market index, tourist inflow). Simple Average: A simple average is the average demand occurring in all previous periods, which are weighed equally. This method uses the average demand time series and thereby removes the negative effect of random fluctuations. Specifically, the forecast for the period say [t+1], can be calculated as SA = Sum of demands for all periods] / Number of periods Simple Moving Average: This is an average of demands occurring in a fixed number of recent periods and the forecast as the future demand. MSA= [(Sum of demands for periods)/ [(chosen number of periods)]

Weighted Moving Average: In both simple and simple moving average, equal weights are given to all the previous periods. However, in practice, the planner wants to give more importance to the recent demands than the old ones that are served. The weighted moving average is obtained by assigning different weights to different periods, but the sum is equal to one. WMA= [Sum of demands for the chosen number of periods each multiplied by its respective Weights]. Simple Exponential Smoothing: SES is a weighted moving average, which weighs the past data in the exponential manner. Here, the most recent data carries more weight than the older ones. The weights given to the older ones decreases progressively. Exponential Smoothing With Trend Adjustment: While the exponential smoothing takes into account the seasonal effects along with regular trend forecasts, exponential smoothing with trend or adjusted exponential smoothing model projects into the future to the time period i.e. t=1, by adding a trend correction increment Tt to the current smoothed average Ft Trend Forecast = New forecast + Possible Trend correction FTA = Ft +Tt Now you must be able to analyse when to use the appropriate method of forecasting and the degree of accuracy of each method discussed above. Self Assessment Questions 7. Two commonly used time series methods are & . 8. The formula of Simple Moving Average is . 4.12 Application of Different Methods of Forecasting The above discussed methods of forecasting have different applications and are listed in table 4.2 with the risk factor involved. Table 4.2: Application of Different Forecasting Methods Methods General Description Applications

I. Time Series Forecasting a) Moving Average (LR)

FC is based on the projection from time Short range forecast of series data, smoothed by a moving inventory, scheduling, average, taking trends and seasonal controls, pricing, timing variations. Requires previous years data promotion programs

Similar to MA, but averages weighted exponentially to give more recent data a heavier weight. Well adapted to b) Exponential moving average computer application and large no. of items. (Low risk) Same as above Fits a finite series equation to empirical data, projects trend and seasonal values. c) Fourier series least square fit Requires previous years data and computers. Same as above (low/ medium risk) Short and medium range forecasting of existing products, marketing strategies, production, facility planning Same as above Based on system of interdependent

II. Casual Forecasting

Forecast of demand related to economic and competitive factors that control or a) Regression method (medium cause demand, through the least squares risk) regression equation. b) Economic models (High)

regression equations. An expert panel answers a series of questionnaires where the answers are summarised and made available to the panel to aid in answering the next questionnaire. Market strategies, pricing and facility planning, long range predictions, new products and product development.

III. Predictive methods a) Delphi method

b) Market survey (high risk)

Testing markets through questionnaire, panels, surveys, tests of trial products, Same as above analysis of time series. Prediction based on analysis and comparison with growth and development of similar products. [Forecasting new product growth based on the Life cycle-curve of introduction, growth, and market saturation.] Same as above.

c) Historical analogy and life cycle analysis (medium risk)

4.13 Worked Examples on the above Methods of Forecasting Example 1: Previous sales statistics of a branded refrigerator in an area is given below. Table 4.3: sales statistics of a branded refrigerator No. 1 2 3 4 5 6 Month Jan Feb Mar Apr May June Sales-Quantity 600 610 700 750 800 950

Forecast the demand for the month of July using Simple Average for all the previous months. A Three months moving average. A three months moving average where the weights are 0.5 for the last month, 0.3 and 0.2 for the months previous to that, respectively. Solution: Simple Average = SA= [sum of demands for all periods]/[number of periods] = [600+610+700+750+800+950] / (6) = 735 units 3 month moving average SMA = [Sum of demands for periods] / [Chosen number of period] = [750+ 800+ 950] / 3 = 833 units

3 months weighted moving average where weights are for June=0.5, May=0.3 and for April=0.2, WMA= [0.5x950 + 0.3x 800 + 0.2 x 750] = 865 units. Example 2: By using Simple exponential smoothing method, determine the forecast for the product for period two onwards through 12 months with the actual demand figures in the following table. Assume that for the start period forecast is equal to actual demand and = 0.2. Table 4.4: Example for Simple Exponential Smoothing Method Month 1 2 3 4 5 6 7 8 9 10 11 12

Demand 210 221 200 208 220 240 205 210 225 208 210 222 As the actual demand and the forecast for the first month is the same, we have to calculate the forecast from second month onwards. The new forecast for the different months is worked out in the following table: Old forecast F t1 210 210 Calculated Forecast 3 4 5 6 7 8 9 10 11 12 212.20 209.76 209.41 211.51 217.20 214.76 213.80 216.03 214.42 213.53 225 F10 = 213.80 + 0.2 ( 225 - 213.8) = 216.03 208 F11 = 216.03 + 0.2 (216.03 208) = 214.42 210 F12 = 214.42 + 0.2 (214.42 210) = 213.53. Answer 222 200 F4 = 212.2 + 0.2 (200 212.2) = 209.76 208 F5 = 209.76 + 0.2 (208 209.76) = 209.41 220 F6 = 209.41 + 0.2 (220 209.41) = 211.51 240 F7 = 211.51 + 0.2 (240 211.51) = 217.2 205 F8 = 217.20 + 0.2 (205 217.2) = 214.76 210 F9 = 214.76 + 0.2 (210 214.76) = 213.8 Actual Demand New-Forecast D t1 F t = F t 1 + (Dt 1 F t 1) 210 F2 = 210 + 0.2 (210-210) = 210 221 F3 = 210 + 0.2 ( 221-210) = 212.2

Period (t1) 1 2

As per the above calculations, the forecast is 213 units when the demand is 222 numbers. If the forecast is too much and the demand is less, then the production planning based on the forecast will result in excess finished goods inventory. It is always advantageous, if the forecasted figures are nearer to demand figures, for proper production scheduling. 4.14 Summary Forecasting is predicting the future event. It is an art and also a science as it is what we think will happen in future. This thinking of future is the job of the planners, who not only forecast, but also alter the future of the

organisation. Forecast is not a guess alone, as we have discussed, it is also a calculated guess. It may not be exact, but is more valuable rather than certain predictions. Forecast is required for deterministic future, and hence we use statistical methods to forecast to a reasonable degree of accuracy. Hence the objective of forecast is to predict and to establish a cause and effect relationship between the projected sales for the product and the variables that are expected. Forecasts are classified based on the time horizons as long range, medium range and short range. Long range is used for establishing a sound process, design, capacity planning, layouts, building new plants and so on. Medium range is used in aggregate planning. Short range is very useful in scheduling and inventory management. We came across different methods of forecasting namely, qualitative or judgmental method, time series analysis and casual effect methods and so on, which were discussed above along with their applications. As many as four techniques under qualitative method, five in time series method and one in casual methods were discussed. Organisations are adopting the most suitable among these methods for forecasting their products as accurately as possible. Many of these techniques and methods are used universally across all sectors of manufacture, which provides many benefits to the organisation. Besides the various advantages and methods of forecasting, we also discussed the limitations of forecasting. Forecasting is possible when there is some sort of historic data about the event that you are going to make a forecast. The market trend and consumer tastes and preferences also affect forecasting results. 4.15 Glossary Term Hypotheses Description A statement that is assumed to be true. Just-in-time (JIT) is an inventory strategy that strives to improve a businesss return on investment by reducing in-process inventory and associated carrying costs. It sequence of data gathered at uniformly spaced intervals of time

JIT Time series

4.16 Terminal Questions 1. Explain briefly different forecasting methods. 2. Bring out the differences between forecasting and prediction 3. Discuss the limitations of forecasting. 4. What are the factors affecting demand forecasting? 5. How do you classify forecasts? 6. Explain Time Series Methods. 4.17 Answers Self Assessment Questions 1. Operations Management 2. True 3. Forecast is estimated and hence may not be accurate and Assumptions and guesswork leads to possible errors. 4. True

5. Market response effect and Stock effects 6. False 7. Simple average and Simple moving average 8. MSA = [(Sum of demands for periods)/ [(chosen number of periods)] Terminal Questions 1. Refer Section 4.11 Classification of forecasting methods. 2. Refer Section 4.7 Forecasting vs. Prediction. 3. Refer Section 4.4 Limitations of forecasting. 4. Refer Section 4.9 Need for demand forecasting. 5. Refer Section 4.6 Time horizon of forecasting 6. Refer Section 4.11 Classification of forecasting methods 4.18 Case Study ABC Corporation is a diversified energy company. Generation, transmission and distribution of electricity, as well as energy management and other energy-related services are what the company and its subsidiaries and affiliates are involved in. Electricity is an unusual product compared to other commodities and services that may be a combination of both intangible and tangible characteristics. Electricity essentially has no storage or inventory mechanism similar to other industries. Electricity producers have to meet an instantaneous supply and demand that may vary drastically and, at times, quite unexpectedly. When a customer flips a switch, the power has to be there and remain until the switch is turned off. The customer demand, typically measured in Mega Watts (MW), is instantaneous and can vary in costs of delivery, although customers prefer that charge rates are fairly constant over fiscal periods. ABC corporation must have enough generation capacity online at the instant in time when the residential customer turns on a light or when an industrial customer inserts probes into the vessel to melt steel. Since Alternating Current (AC) cannot be stored for future use, schedulers must forecast the customer demand to schedule enough capacity to meet the ever changing and increasing demand. Probably, the single largest factor affecting a demand forecast is the local weather and other factors that influence the weather. These factors include the temperature, wind speed, clouds, and the time of day. The demand also depends on the seasons of the year. A change in the local weather pattern that is different from the forecasted pattern can cause the actual demand to increase or decrease by significant amounts. A change of plus or minus 600 MW for the short term can result from a major change in the weather and thus, greatly alter the selected forecasting models accuracy. Basic inputs into these forecasts, besides the short-term weather forecasts, are included as inputs in the forecasting model. The forecasting group typically generates profiles and matrices. A matrix is generally maintained to determine which model is producing the most accurate forecast. Some models may produce accurate short-term forecasts and unreliable long-range forecasts. Upon acceptance of a valid weather forecast, the following tools are usually applied to correlate the hourly weather inputs (temperature, wind speed, relative humidity, clouds, precipitation, solar radiation, wind chill or heat indices) with a historical customer demand. Once the demand forecast has been reviewed and approved by an experienced scheduler, the demand

forecast is fed into an optimisation program, which economically determines the projection hourly output of the generation portfolio that is eventually approved by middle to upper management. Questions: 1. What challenge did the ABC Corp. face in order to provide intermittent customers? (Hint: the weather conditions) This case study is based on the idea found http://inderscience.metapress.com/app/home/contribution.asp? referrer = parent&backto=issue,4,6;journal,20,38;linkingpublication results,1:110 877,1 electric supply to its

in:

OM0017-Unit-05-Inventory Control with Known Demand

Unit-05-Inventory Control with Known Demand Structure: 5.1 Introduction Objectives 5.2 Benefits of Inventory Control 5.3 Inventory Management and Control 5.4 Types of Inventory 5.5 Inventory Controls 5.6 Inventory Costs 5.7 Terminology used in Inventory Controls 5.8 Inventory Reduction Options and Tactics 5.9 Inventory Management Process and Control 5.10 Classification of Inventory Items and Control Techniques 5.11 Summary 5.12 Glossary 5.13 Terminal Questions 5.14 Answers 5.15 Case Study 5.1 Introduction By now you must be familiar with the various forecasting methods and techniques followed in a production process. You have also learnt about the need for demand forecasting and the factors that affect demand forecasting.

In this unit we will study about inventory management and the benefits of inventory control. The various types of inventory and inventory control and inventory control cost are discussed in this unit. Objectives After studying this unit, you should be able to: Describe the benefits of inventory control. Explain the inventory management and control process. Define the types of inventory and inventory controls. Analyse the inventory reduction options and tactics. Explain various inventory management processes and controls. 5.2 Benefits of Inventory Control Before studying the benefits of inventory control, let us first understand what inventory control is? Well, inventory control can be defined as the management of inventories, including: decisions about which items to stock at each location; how much stock to keep on hand at various levels of operation; when to buy; how much to buy; controlling pilferage and damage; and managing shortages and back orders.[1] Inventory control is a critical aspect of successful management as it ensures a smooth flow of materials in the production unit. The various benefits of inventory control are as listed below: Adequate supply of materials is ensured by inventory control and costly interruption in operations due to shortage or stock-out is avoided. It keeps down the investment in inventory, inventory carrying costs and obsolescence to the minimum. It facilitates discounts and savings on purchasing on the basis of recorded experience. It eliminates duplication in ordering or replenishing stocks by centralising the source. It permits better utilisation of existing stocks by facilitating inter departmental transfers within the company. It provides a check on the loss of materials through carelessness or pilferage. It facilitates cost accounting by allocating material cost to products and operating accounts. It enables the management to compare cost and consumption between operation and no-operation periods. It serves to locate and dispose of inactive and obsolete items from stores. Perpetual inventory values become reliable basis for preparing financial statements. Thus, inventory control plays a very important role in production management. Self Assessment Questions: 1. Inventory policies are important enough that _________, marketing and __________ managers work together to reach agreement on these policies. 2. Inventory control ensures adequate supply of materials and stores minimises stock-outs and shortages and avoids costly interruptions in operations. (True/False)? Activity 1: Imagine you are the manager of a production plant and list out the reasons for implementing

inventory control. (Hint: Minimises stock-outs) 5.3 Inventory Management and Control Due to high costs involved in inventories, proper management and control is considerably vital and the action is always synonymous with material management. Due to the high costs involved in stocking of inventory, a proper management and control is vital and inventory management is in fact, synonymous with material management. Inventory management (IM) involves the development and administration of policies, systems, and procedures for minimising the total costs. IM also helps in decision making on all related issues such as customer service requirements, production schedule and purchasing. IM stresses on decision making and the need for integrated information flow. Following are the factors which influence inventory management and control. Type of product. Type of manufacture. The volume of production. Maintaining an optimum level of investment is the most important objective of inventory control. Based on the requirements, organisations use from simple to highly specialised mathematical models of inventory control. A simple approach to inventory control typically involves reviewing of stock by the purchaser in order to check what inventory items are in short supply. Once the check is done, the purchaser places the order when he/she thinks a minimum level has been reached or when the inventory of a particular item is exhausted. Excessive purchasing costs, carrying costs, and the probability of stock out are the disadvantages. The disadvantages of the simple method can be overcome by drawing a re-order line in the storage area. This clearly indicates when an order needs to be placed. The line needs to be high enough to cover normal usage till the stock arrives. You could also have a two bin system, such that an order is placed when the contents of the working bin are finished. Perpetual inventory system can also be used as an inventory control approach. Following are the techniques of inventory control: Economic purchase order quantity (How much to order). Reorder level (when to order). Minimum inventory or safety stock. Economic purchase order quantities: The optimum quantity of materials to be purchased is determined on the decision model developed for the control of inventory. The optimum working stock level to be maintained is obtained by this model. The cost of placing purchase orders can be minimised by placing a single order to meet the companys needs for the entire year. Thus, the cost on purchase order is reduced, but results in large working stock and increased carrying stock. Reorder level: The time interval between placing an order and receiving a delivery is known as lead time. The reorder line level is decided based on the lead time and quantity of demand during the lead time. Minimum inventory or safety stock: Demand for items can never be forecasted accurately. The demand for an item could increase from the normal demand. In this case, the company could be out of stock. Thus, there arises the need for safety stock or buffer to cushion against such stock outs. The reorder line is set, such that it accommodates the safety stock. Self Assessment Questions: 3. IM stresses on the decision making and need for integrated information flow. (True/False)? 4. The reorder line level is decided based on the ______ time and quantity of _____ during the lead time.

5. Demand for items can never be forecasted accurately. (True/False)? 5.4 Types of Inventory In a manufacturing industry, the normal types of inventory, for which planning and control actions are to be initiated are listed below. Raw Material Inventory: Raw materials are those basic unprocessed materials, which are yet to undergo operations before becoming a part of the finished product. Components, subassemblies, or finished products are produced by manufacturing processes that use inventory known as raw material. The raw materials used could be either commodities or extracted material that the company or its subsidiary has produced. The raw material could also be purchased from market or other industries. Some of the examples of raw materials are ore, grain, minerals, petroleum, chemicals, paper, wood, paint, steel, and so on. The following items can also be considered as raw materials, if they are purchased from outside the firm, such as ball bearings, nuts, bolts, casters, wheels and so on. Work in process inventory: Semi/partially finished materials at various stages of manufacture. Raw Material becomes Work In Process inventory at the end of first operation and remains so until it becomes finished goods. The materials, parts, assemblies and sub assemblies that are being processed are known to be part of work-inprocess. All materials, including raw materials that are a part of any processing stage belongs to work in process inventory. Finished goods Inventory: Completed products ready for dispatch are known as finished goods inventory. A product that is ready for customer is known as finished good. The goods that have been inspected and have passed the inspection can be transferred from work in progress to finished goods inventory. Purchased parts Inventory: Purchased from outside suppliers instead of manufacturing them in the factory. Maintenance, Operating and repair inventory: These items do not form a part of the final product, but consumed in the production process. For example, lubricating oil, grease, and waste. Tools Inventory: It includes various tools used for processing such as milling cutters, reamers, taps, and so on. Miscellaneous Inventory: They include all office stationary such as paper, pens, invoices, bills, ledgers, and so on. Inventories can also be classified based on their function. They are: Buffer inventory. Anticipation inventory. Decoupling inventory. Cycle inventory. MRO goods inventory. Buffer Inventory: Uncertainties in demand and supply, unpredictable events such as poor delivery reliability or poor quality of suppliers products can be overcome by the use of inventory. This inventory is known as safety stock. The excess amount of stock present over and above the current need is known as buffer stock. Customer service can be improved by higher levels of buffer inventory. The presence of buffer stock ensures the absence of stock outs. Anticipation Inventory: The anticipation of a future event often leads a company to purchase and hold inventory in excess of their current need. Increase in price, seasonal increase in demand, or labour strike could be a few examples of such events. With respect to production, anticipatory inventory allows them to build inventory when the demand is low, such that the increased inventory is put into use when the demand increases and the production need not be increased to meet the demand.

Decoupling Inventory: In a production facility, it is very rare to see that all machines produce at the same rate. In reality, machines may be faster or slower than the ones before and after it in the production chain. In spite of these differences, we see that all machines are running smoothly at the same time. Machines could also be under repair or preventive maintenance yet; the production process is not affected. The existence of inventory in parts between machines, called decoupling inventory, serves as a shock absorber against production irregularities. Thus, the plants dependence on sequential requirement is decoupled or disengaged. Cycle Inventory: Cycle inventories are held to achieve some payoff from setting up the equipment. Cycle inventories are held for the reason that purchases are usually made in lots rather than for exact amounts, which may be needed at a point of time. Cycle inventory would not exist if the purchase of all items required are made just when it is needed. However, practically the cost involved in obtaining the items would be large. As cycle inventories are related to the purchase in lots, they are also called lot size inventories. It is important to know that the larger the lot size, the greater would be the level of cycle inventories. We can understand this concept clearly by considering the following example visiting a bank to cash a cheque involves travel time and down time from other activities. For this reason, most of us carry enough money (lot size or cycle stock) in our wallet to avoid going to the bank every time we are in need of cash. MRO Goods Inventory: Items that are used to support and maintain the production process is known as maintenance repair and operating supplies (MRO goods). These goods are not a part of the finished product but are consumed in the production process. Oils, lubricants, coolants, janitorial supply, uniforms, gloves, packing material, tools, and nuts are some of the examples of MRO goods. Thus in this section, we have studied about the various types of inventory and how they are classified based on their function. Self Assessment Questions: 6. Components, subassemblies, or finished products are produced by manufacturing processes that use inventory known as _____ _______. 7. Items that are used to support and maintain the production process is known as __________ repair and _______ supplies (MRO goods). 8. The materials, parts assemblies and sub assemblies that are being processed are known to be part of ____________.

Activity 2: Visit a production plant and make a list of the various inventories. (Hint: MRO Goods Inventory) 5.5 Inventory Controls Inventory control can be defined as the process of ensuring adequate inventory. The procurement, care, and disposition of materials are part of inventory control. Managers are generally concerned with three types of inventory controls. They are Raw materials. In process or semi-finished goods. Finished goods. Effective control of these inventory results in releasing capital that may be tied up with unnecessary inventory. Production control can also be improved and obsolescence, deterioration and theft can be prevented. Inventory control helps to balance stock according to value, style, and colour in proportion to demand. The products with high demand and slow sellers can be identified by inventory control. Inventory control helps in bringing down expenses and markdowns.

The three major approaches used for inventory control are: The Eyeball system. The Reserve Stock System. The Perpetual Inventory System. The Eyeball System: The eyeball system is a standard inventory system used in many small manufacturing industries. In this system, the manager with the help of a visual approach looks for stock that needs to be reordered. The disadvantage of this system is that certain out of stock items may go unnoticed for a long period and this could cause loss to the business. The Reserve Stock (or Brown Bag) System: The reserve stock approach is a more systematic approach when compared to the eyeball system. According to this system, reserve stock is placed in the storage area often in a brown bag. The brown bag of reserve inventory is opened when the last unit of open inventory is used up. At this point of time, a reorder is immediately placed. The reserve stock quantity should be such that the new shipment should arrive when the last reserve stock is being used. The Perpetual Inventory Systems: The perpetual inventory systems could be manual, card-oriented, and computer operated systems. When the supplies fall below the prescribed level, a trigger (programmed instruction) automatically places an order with the appropriate vendor, in computer operated systems. All the three types of perpetual inventory control measures are used to determine the usage of different items. This information will serve to help avoid stock-outs and to maintain a constant evaluation of the sales of different product lines to see where the emphasis should be placed for both selling and buying. It will be useful for us to discuss about controlling the inventory in this section. Controlling inventory can be a simple process and not necessarily a complex one. There is no hard and fast rule about inventory control. Following are the five steps involved in controlling inventory: Step 1: Plan the inventory Step 2: Establish order cycles Step 3: Balance Inventory Levels Step 4: Review Stocks Step 5: Follow-up and Control LIFO and FIFO We shall now understand about the concept of LIFO and FIFO. FIFO stands for first in first out and LIFO stands for last in first out. In inventory control, LIFO and FIFO refer to the order of consumption of raw materials and products. When the inventory control approach is LIFO, then the items stocked last are moved first. When FIFO is applied the items that are stocked first are moved first. The decision for LIFO or FIFO is made depending on what the merchandise is and what is the necessity to move it. Self Assessment Questions: 9. Inventory control can be defined as the process of ensuring adequate inventory. (True/False)? 10. The ________ inventory systems could be manual, card-oriented, and computer operated systems. 11. The _________ system is a standard inventory system used in many small manufacturing industries. Activity 3: Imagine that you are the manager of a production plant. What are the inventory control methods that

you would implement? (Hint: Perpetual inventory system). 5.6 Inventory Costs Inventory cost can be defined as the cost of holding goods in stock. Expressed usually as a percentage of the inventory value, it includes capital, warehousing, depreciation, insurance, taxation, obsolescence, and shrinkage costs. Therefore the job of inventory manager is to balance the conflicting costs and pressures that argue for both low and high level inventories i.e. the appropriate inventory levels. Inventory cost includes ordering cost, carrying cost, out of stock or shortage cost and capacity cost, where the pressures act and require stringent controls. These comprise several elements: Ordering costs Every order placed by the manufacturers on the suppliers cost money. It is the cost of preparing a purchase order for a supplier or a production order for the individual shops inside the production plant. Cost of placing an order with the vendor of materials includes cost of a) Preparing a Purchase order. b) Processing Payments. c) Receiving and inspecting the materials. It may be noted here that for the same item, the ordering cost is the same, regardless of the order size. Carrying costs / Holding cost Holding costs are the variable costs of keeping items on hand including interest charges, storage, handling, taxes, insurance and shrinkage. These costs are associated with holding a given level of inventory and are directly proportional to the quantity held and the period of holding and expressed as annual % of the unit purchase cost. They are Storage cost like rent, heating, lighting. Handling cost related to cost of labour. Equipment for moving and handling. Costs of record keeping. Product deterioration and obsolescence. Spoilage, breakage, pilferage and loss due to perishables. Setup cost or Capital cost The cost involved in changing over a machine to produce a different component or item is called the setup cost. It includes the related labour and time to make the changeover, cleaning the machine and changing or adjusting the tools and fixtures for the next component. It is also the amount of money invested in such items which help in ordering, processing and carrying inventory such as telephones, fax, computers, storage racks, taxes on inventory, interest on money invested in inventory, cost of equipment maintenance and so on. Setup costs are independent of the order size. Shortage Cost or Stock Out costs The costs that are incurred as a result of running out of stock are known as shortage/stock out cost. These include Back order costs. Loss of future sales. Loss of goodwill. Risk of losing the customer permanently or its cost.

Thus we can conclude that cost function is a critical element in inventory control. Self Assessment Questions: 12. The cost involved in changing over a machine to produce a different component or item is called the __________. 13. The costs that are incurred as a result of running out of stock are known as __________ out cost. 14. Holding costs are the variable costs of keeping items on hand including ________charges, storage, handling, taxes, _______ and shrinkage. 5.7 Terminology used in Inventory Controls In this section, we will study the terms used in inventory control. Given below is a list of the terms and their explanation. Demand: Demand is the number of items required per unit of time [either deterministic or probabilistic in nature] Ordering cycle: Time period between two successive orders is called ordering cycle. Economic Order Quantity [EOQ] / Optimum LOT Size: The lot size that minimises total annual inventory holding and ordering cost is called the Economic order Quantity popularly known as EOQ. The conflicting issues of keeping low or high inventory are best determined through EOQ, the best cycle inventory level for an item. The right quantity (referred to as EOQ) to be ordered is the one that strikes a balance between the two opposite costs. ABC analysis: It is also called Pareto analysis or the rule of 80/20. It helps in categorising inventory items into different types depending on their value and use. Aggregate plans: It shows the overall production planned for families of products, typically by month. Fixed order quantity method: This method approaches to inventory control that place orders of fixed size at variable intervals of time. Inventory management information system: It is the part of a management information system that deals with the information needed for stock control. Lead time: It is the total time between ordering materials and having them delivered and available for use. Safety stock: It is a reserve of materials that is not normally needed, but is held to cover unexpected circumstances. Vendor-managed inventory: It has the suppliers managing both their own stocks and those held further down the supply chain. By now you must have had a clear understanding of the terms used in inventory control. Self Assessment Questions: 15. ABC analysis It is also called ________ analysis or the rule of 80/20, is a way of categorising inventory items into different types depending on value and use 16. ____________ inventory It has the suppliers managing both their own stocks and those held further down the supply chain. 17. ___________ is the total time between ordering materials and having them delivered and available for use. 5.8 Inventory Reduction Options and Tactics

Inventory reduction involves eliminating excess inventory, improving inventory turn rates, increasing inventory turnover, and meeting the delivery timelines. Inventory reduction has become quite important with the changes in the economic environment. Reduced customer demand, resources, and dwindling budgets are the reasons for a challenging environment. Managing inventory levels can be a delicate balancing act. Inventory should be maintained at such a level that it can satisfy customer needs. Reducing inventory without hindering customer service is the real challenge faced by companies. Fundamental requirement is following certain tactics namely, Safety stock inventory. Pipeline inventory. Safety stock inventory: Safety stock is an organisation stock designed to buffer against uncertainty. Uncertainties in demand, supply, and unpredictable events such as poor delivery reliability or poor quality of suppliers products can be overcome by the use of this inventory, known as safety stock. The excess amount of stock present above the current need is known as buffer stock. Customer service can be improved by higher levels of buffer inventory. The presence of buffer stock ensures the absence of stock outs. Pipeline inventory: Also known as movement inventories, pipeline inventories are inventories in transit or transport from one place to the other. For example, when coal is transported from the coal fields to an industrial town by trains, then the coal, while in transit, cannot provide service to the customers for power generation or for burning in furnaces. Pipeline inventories cannot be reduced, because they support the sales rate directly. Self Assessment Questions: 18. Inventory reduction has become quite important with the changes in the economic environment. (True/ False)? 19. Safety stock is an organisation stock designed to buffer against uncertainty. (True/False)? 20. Pipeline inventories are inventories in ________. 5.9 Inventory Management Process and Control Inventory management process and control must be aligned to meet the demands of the marketplace and support the companys strategic plan. The inventory management approach and the process of inventory control need to be varied according to changes in the economic environment. Changes in market demand, global sourcing of material, and new manufacturing technologies are the various reasons for change in the inventory management process. The basic principles of inventory management process and control remain the same in spite of various changes. New terminology is being used by the new approaches, but the underlying principle remains the same. The efficient flow of materials, utilisation of people and equipment, coordination of internal activities, and communication with customers are the basic functions performed by an inventory management process. Inventory managers are also involved in the operation management decision making. The inventory control activities only provide information for these decisions. The inventory management process and control activities consist of the following building blocks: Sales Forecasting or Demand Management. Sales and Operations Planning. Production Planning. Material Requirements Planning. Inventory Reduction.

Depending on the market demands, requirements and operations, the importance given to the various areas differ. Successful inventory management and control can be achieved by addressing the needs in each area. 5.10 Classification of Inventory Items and Control Techniques In general, equal attention need not be given to all items in the inventory. Knowledge of inventories and a clear understanding helps in establishing an effective inventory control. The extent and nature of control for various items are laid down by the management, based on the priorities laid down by the marketing department. Items are classified on several bases; here we shall consider the following. Always Better Control (ABC) Classification. High, Medium and Low (HML) Classification. Vital, Essential and Desirable (VED) Classification. SDE Classification. (Scarce, Difficult, Easy) Fast moving, Slow moving and Non-moving (FSN). Maximum Minimum System. Two-Bin System. Economic Order Quantity (EOQ). Always Better Control (ABC): The classification in this system is based on the usage in terms of monetary value. ABC classification is based on the idea that only a small percentage of materials represent the majority of inventory value. The three categories are as follows: A: high consumption value items. B: moderate consumption value items. C: low consumption value items. HML analysis: In HML analysis, the items are classified according to their unit cost rather than usage value. The classification is based on their cost per-unit as H-high, M-medium and L-low. Material consumption at the departmental level can be monitored by this analysis. VED analysis: In VED analysis, items are classified according to their importance to the production process. In this system, V stands for vital, consisting of those items without which, production would stop. E denotes essential items whose absence could affect the efficiency of the production process. D stands for desirable items. these items are required but do not cause immediate loss to production. SDE classification: In SDE analysis, items are classified based on availability. Here, S stands for scarce items, D for difficult items and E for easily available items. FSN analysis: FSN classification is based on the consumption pattern of items. In the FSN classification, F stands for fast moving, S for slow moving, and N for non moving items. This helps in the arrangement of stocks and determination of distribution patterns. Minimum maximum technique: Manual inventory controls are used for this system. The reordering level indicates the minimum quantity. The effectiveness depends on the precision on how the minimum and maximum parameters are established. Hence if the minimum and maximum decided are based on an objective and rational basis, the system will be effective. Two Bin technique: Here the stock of each item is separated into two bins. One bin contains stock just enough to last from the date a new order is placed until it is received in inventory, and the other bin contains a quantity of

stock enough to satisfy probable demand during the period of replenishment. To start with, stock is issued from bin-1. When the first bin is empty, an order for replenishment is placed and the stock in the second bin is utilised until the ordered material is received. This system is ideal if the rate of consumption is constant and the leadtime for items are well established, short and regular. Economic Order Quantity: The lot size ordering of materials that minimises the total annual inventory holding and ordering cost is called the Economic Order Quantity, popularly known as EOQ. Keeping and managing the determined EOQ and ordering the right quantity to strike a balance between the two opposite costs has been emphasised. The inventory models can be classified broadly as 1) Deterministic models (Known demand) and 2) Probabilistic or stochastic models (Unknown demand). Deterministic models are further classified as: Elementary models: which comprises of EOQ models with shortages and Reorder level models with shortages. EOQ models with restrictions (multi item models). EOQ models with lead time. EOQ models with price discounts. Self Assessment Questions: 21. In SDE analysis items are classified based on availability. (True/False)? 22. FSN classification is based on the ___________ pattern of items. 23. In ________ analysis the items are classified according to their unit cost rather than usage value.

Activity 4: As the manager of a production plant, based on what would you classify the inventory? (Hint: SDE) 5.11 Summary Inventory refers to materials that are stored for future use of the organisation. The production process and sales are hampered by inadequate inventory. Operating efficiency is maintained by maintaining adequate levels of inventory. The exact inventory requirements need to be ascertained to prevent the working capital from being locked. Inventory control offers several benefits such as ensuring adequate supply and minimising stock outs. Because of high costs involved in inventories, their proper management and control assumes considerable importance and the action is always synonymous with material management. The various types of inventory are raw material, cycle, work in progress, finished goods, anticipatory and buffer inventory. Inventory costs can be reduced by efficient inventory control methods such as eyeball, reserve stock and perpetual inventory system. Classification of inventory can be based on several factors such as monetary value, importance availability and so on. Thus we can conclude that inventory control and management is vital for any organisation. 5.12 Glossary Term Anticipation Stringent Description Considering something beforehand, or before the proper time in natural order. Demanding strict attention to rules and procedures.

Buffer Obsolescence Dwindling

One that protects by intercepting or moderating adverse pressures or influences.(here, it refers to keeping some extra inventory to cope in case of uncertain raise in demand) Being in the process of passing out of use or usefulness; becoming obsolete. To become gradually less until little remains

5.13 Terminal Questions 1. Explain inventory Management and Control. List the benefits of inventory control. 2. Briefly explain the types of inventory control. 3. Describe the various inventory control methods and costs. 4. Explain the inventory reduction options and tactics. 5. Explain the classification of inventory items and control techniques. 5.14 Answers Self Assessment Questions 1. Production, financial 2. True 3. True 4. Lead, demand 5. True 6. Raw material 7. Maintenance, operating 8. Work in process inventory 9. True 10. Perpetual 11. Eyeball 12. Setup cost 13. Shortage/ stock 14. Interest, insurance 15. Pareto 16. Vendor management 17. Lead time 18. True 19. True

20. Transit 21. True 22. Consumption 23. HML Terminal Questions 1. Refer Section 5.3, 5.2 Inventory Management and Control, Benefits of Inventory Control 2. Refer Section 5.4 Types of Inventory 3. Refer Section 5.5 Inventory Controls 4. Refer Section 5.8 Inventory Reduction Options and Tactics 5. Refer Section 5.10 Classification of Inventory Items and Control Techniques 5.15 Case Study Inventory Control using Technology in Trix Trix is a multinational shoe manufacturing company with a number of retail outlets and distribution centres. The distribution centres are present in five different locations around the world. A large number of items moved through the supply chain and the sales show continued increase. Any distribution centre would receive the shipment in a span of three days. The items are verified and redistributed to the various retail stores. Trix needed to improve their distribution centre productivity so that products were available to customers when they needed them. Trix initially considered enlarging the distribution centre, but was looking for ways to improve the productivity without increasing space, equipment or staff. Innovation is highly appreciated by the company and they thought of implementing Radio Frequency Identification (RFID) technology. The CEO studied the operations and chose TAGS as the company to implement RFID technology in Trix. Each item passing through the distribution centre could be identified and managed by the use of the RFID tags. TAGS also recommended special Ultra High Frequency (UHF) tags and worked to attach the tags at the point of manufacture. An unattended tunnel reader was developed by TAGS to keep track of the incoming shipment. Handheld RFID readers were also provided to identify items at key areas in the distribution centre. The software developed by TAGS collects and manages all RFID data and interfaces it with the ERP system showing the real time status of inventory and orders. At the point of manufacture the RFID tags are attached to the items and a message is sent when the order is sent. When the shipment comes the carton passes through the RFID tunnel reader, which identifies the items in the carton and compares the information with the order sent. The shipment is always accurate and is set for distribution. The result of implementing RFID was that the time needed to prepare store orders was reduced from three days to 24 hours. The company now not only works faster but has not had a single shipment error. The system can also be credited for improved sales and inventory levels in stores. Questions: 1. Do you think the implementation of RFID tags by Trix helped in controlling the inventory of the company? Give reasons to support your answer. (Hint: the time needed to prepare store orders was reduced from three days to 24 hours) 2. Suggest other methods that could be used for inventory management and control. (Hint: perpetual

inventory system)

OM0017-Unit-06-Economic Order Quantity Inventory Management

Unit-06-Economic Order Quantity Inventory Management Structure: 6.1 Introduction Objectives 6.2 Inventory Costs and its Relationships 6.3 Classification of Inventory Models 6.4 Deterministic Models in Inventory Control 6.5 Calculating EOQ through Different Models 6.6 Model 1: EOQ with Uniform Rate of Demand and Instantaneous Replenishment 6.7 Model 2: Economic Lot Size with Uniform Rate of Demand and Finite Rate of Replenishment 6.8 Model 3: Finite Rate of Replenishment with Shortages 6.9 Model 4: Quantity Discount Model 6.10 Summary 6.11 Glossary 6.12 Terminal Questions 6.13 Answers 6.14 Case Study 6.1 Introduction By now you must be familiar with inventory management and control. In the previous unit we discussed about the types of inventory and inventory control methods. The inventory reduction tactics have also been discussed in the previous unit. Now that we have had an overview of inventory management and control, let us study about the determination of economic order quantity for various assumptions. By studying this unit, you will be able to choose the best economic order quantity calculation model, based on the situation. This unit highlights the four different models for calculation of economic order quantity. Objectives After studying this unit, you should be able to: Define inventory costs and its relationships.

 Explain classification of inventory models. Describe the deterministic models in inventory control. Calculate EOQ through different models. 6.2 Inventory Costs and its Relationships The most critical factor in the determination of an optimum inventory policy is the cost function. The inventory should be purchased and stocked at such a level that production is not interrupted and the cost remains optimal. The two basic questions that a company should answer are: Quantity to be ordered. Frequency of order. The different types of inventory costs are mentioned below: Holding (or carrying) costs: Costs for storage, handling and insurance. Examples of holding cost are invested capital cost, storage cost, handling cost, depreciation, deterioration and obsolescence cost. Setup (or production change) costs: This is the cost involved with placing an order, purchasing or manufacturing or setting up of machinery before starting production, costs of arranging specific equipment setups, and so on. Ordering costs: Costs of placing an order, and so on. Shortage costs: This is the cost incurred due to stock out, costs of cancelling an order, and so on. The two basic costs involved in inventory costs are carrying cost and ordering cost. The nature of these costs is opposite to each other. The cost of ordering is directly related to the order quantity, whereas the inventory carrying cost is indirectly related to the order quantity. The total inventory cost is calculated by considering the set up costs, back ordering costs, quantity discounts, and so on. For every model, the aim is to determine the economic order quantity, which keeps carrying cost, ordering costs, and total cost to the minimum. The total cost curve is determined by the addition of both holding and ordering cost. This in turn determines the Economic Order Quantity (EOQ) the order point that minimises total costs. Figure 6.1 explains the determination of EOQ.

Figure 6.1: Determination of EOQ Self Assessment Questions 1. The two basic costs involved in inventory costs are ________ cost and _______ cost. 2. The ______ ______ ____ is determined by the addition of both holding and ordering cost.

3. EOQ the order point that minimises total costs. (True/False)? Activity 1: Use the internet to write an article about inventory costs and relationships (Hint: The cost of ordering is directly related to the order quantity.) 6.3 Classification of Inventory Models An appropriate inventory model can be selected through the new classification system. The classification of inventory models is based on the salient features of inventory. This system of classification enables practitioners to understand inventory models and choose the best model for a given set of inventory conditions. Various inventory models can be compared by using this classification. Classification of inventory models can also be used as an effective teaching tool. The inventory models are broadly classified as follows: Deterministic models [Known Demand]. Probabilistic models [Unknown Demand]. The known economic and engineering data form a collection of the approximate stock reserve quantities that can be used by the probabilistic method. Each inventory reserve categorisation gives a signal of the prospect of revival. The probabilistic model has more advantages when compared to the deterministic model. [Probabilistic models are not discussed in this unit as they are meant for unknown demands] Deterministic models are further classified as follows: Elementary models Economic Order Quantity [EOQ] models without shortages Instantaneous production. Finite production. Reorder level models [ROL] with shortages. Instantaneous production. Finite production. EOQ models with restrictions (multi items models). EOQ models with lead time. EOQ models with price breaks (quantity discounts). The concept of economic order quantity was first developed by F Harris. Economic order quantity is the order size that minimises the total annual inventory and ordering cost based on a set of assumptions. Self Assessment Questions 4. The classification of inventory models is based on the salient features of inventory. (True/False)? 5. The types of inventory models are ______ and ______.

6. The known _______, and engineering data form a collection of the approximate stock reserve quantities that can be used by probabilistic method. Activity 2: Being an inventory analyst, how would you classify the inventory models. (Hint: Known Demand) 6.4 Deterministic Models in Inventory Control Inventory managers face contradicting issues, as they need to maintain inventories at a low level to avoid excess holding costs and at the same time need to maintain it high enough to reduce frequency of orders. Thus, inventory control aims at finding the right order size, which is economical with respect to operations. The quantity of raw materials procured in a single order is known as order quantity or lot size. This is the quantity ordered every time the stock exhausts. Inventory related costs are kept to a minimum by this quantity and is known as economic order quantity. The total inventory holding costs and ordering costs are kept to a minimum by economic order quantity. This EOQ will be optimal when the following assumptions are satisfied: The rate of demand rate is constant. The lot size is not constrained. Inventory holding cost and fixed ordering cost are highly important. Order decisions for items are independent. The lead time is fixed. If the system parameters are known accurately, then a deterministic situation exists. This system is based on certainty of events. The inventory reserves estimation is based on recognised engineering, geological, and economic information for the deterministic model. The optimal inventory of a single item with obscure demand is determined by the deterministic model. The inventory is built at a constant rate to meet a determined demand. Self Assessment Questions 7. Thus, inventory control aims at finding the right _____ size, which is ______ with respect to operations. 8. The total inventory holding costs and ordering costs are kept to a minimum by economic order quantity. (True/False)? 9. The optimal inventory of a single item with obscure demand is determined by deterministic model. (True/ False)? Activity 3: Use the internet to find out the advantages of deterministic model. (Hint: The optimal inventory of a single item with obscure demand is determined by deterministic model) 6.5 Calculating EOQ through Different Models The best level of inventory for production and the most effective for holding and ordering are determined by economic quantity order calculation. The determination of EOQ identifies the spot for minimum inventory holding and ordering costs. The amount of stock can be identified clearly and overstocking can be avoided. Every business and industry does not calculate EOQ. Companies associated with manufacturing regularly calculate EOQ. EOQ is primarily used for purchase of stocks. Business involved with maintenance, repair, and operating inventory also use EOQ. EOQ application is suited mostly for businesses that have a steady demand for stock.

Economic Order Quantity can be calculated by using a mathematical equation.

The terms used in the above equation can be defined as follows: Annual usage: This is the total number of units required annually. Order cost: This is the cost associated with every order placed. This cost is not associated with the quantity ordered, but is related to the purchase cost or set up cost. Carrying cost: The cost involved in carrying and storing inventory is known as carrying costs. This is also known as holding cost. The above method is good for calculating EOQ, as long as the data used for calculation is accurate. In general, inventory management systems consist of a lot of inaccurate data and miscalculations are a common mistake. When data from purchasing and receiving, or product storage and handling are used for calculation, then the calculation yields high numbers. The EOQ formula can be modified slightly from its original form. The production level and duration between orders can be determined with the help of the EOQ formula. Self Assessment Questions 10. The quantity of raw materials procured in a single order is known as order quantity or ______. 11. The best level of inventory for production and the most effective for holding and ordering are determined by economic _____ order calculation. 12. The cost involved in carrying and storing inventory is known as _____ costs. Activity 4: Make a list of companies that use different EOQ models for inventory management. (Hint: Companies associated with manufacturing regularly calculate EOQ). 6.6 Model 1: EOQ with Uniform Rate of Demand and Instantaneous Replenishment This model is analytical. Initially a cost model is developed and inventory model is developed from it. In this model the assumptions made are: The demand is certain and constant over time. Stock replenishment is instantaneous (lead time is zero) i.e. the quantity of items will be realised instantly, as soon as the consumption reaches a point. Price of materials is fixed (no quantity discount is assumed). Inventory carrying cost per unit is constant. The lead time is fixed and constant. The following figure 6.2 is the graphical representation of the varying inventory level with time.

Figure 6.2: Inventory profile for Model 1 The figure 6.2 is explained as follows let the stock at time 0 be Q. This stock is consumed at a rate of d units/day. If the lead time is 0, then stock is replenished immediately at time T1. Point A is the reorder point. It clearly indicates the point at which an order should be placed, so as to avoid stock out. The average inventory level is Q/2 when the maximum inventory is Q. Total annual inventory cost where T (Q): total annual inventory cost H (Q): annual holding cost O (Q): annual ordering cost Total annual ordering cost where O (Q): total annual ordering cost N: frequency of order A: cost per order

We can write D: annual demand Total Annual Holding Cost:

since

where

Where h: unit holding cost Determination of EOQ for Model 1: The total cost equation for this model is

(1) To determine EOQ we need to differentiate equation (1) with reference to Q

To verify that the point is the minimum point, we need to check for the 2nd derivative

Since A, D, and Q are positive and the second derivative is positive, the point is the minimum point. Worked example on model 1: Ryan stores his inventory in special containers. The space occupied by each container is about 20sq ft. The total storage space available is only 6500 sq ft. The price of the container is Rs 10 per container and the annual demand is 8500 containers. The ordering cost is estimated at Rs 50 per order, and the annual carrying costs amount to 25% of the inventory value. Calculate the economic order quantity. Solution: Given: D = 8500 A = Rs50/order h = 25% of Rs 10 = Rs 2.50/unit/year

We have

Therefore, Self Assessment Questions

13. Stock __________ is instantaneous (lead time is zero) i.e. the quantity of items will be realised instantly as soon as the consumption reaches a point. 14. Total annual inventory cost = annual holding cost+ annual ordering cost. (True/False)? 15. The product of the frequency of order and cost per order is the total annual ordering cost. (True/False)? 6.7 Model 2: Economic Lot Size with Uniform Rate of Demand and Finite Rate of Replenishment In model 1, it is assumed that the entire quantity ordered is received in a single lot. In model 2, we consider the case, where inventory is received at a constant rate and consumed at a constant rate. Model 2 is applicable to situations where the item is produced internally rather than being procured from outside. In this model the following assumptions are made: Demand is known and is consumed at a uniform rate. Stock replenishment is not instantaneous, but it is gradual at uniform rate. Setup cost is fixed and it does not change with lot size. Inventory carrying cost per unit is constant. Shortages (stock outs) are not permitted. Uniform demand indicates that the stocked material goes on decreasing at a uniform rate as shown by the sloping line downwards. Finite rate of replenishment indicates that when the order is placed, the inventory builds up gradually at a certain rate as by the sloping line upwards. This cycle repeats at an interval. Since stock out is not permitted, the rate of replenishment should be greater than or equal to the rate of decrease in inventory. The following figure 6.3 indicates the uniform demand and finite rate of replenishment.

Figure 6.3: Inventory Profile for Model 2 This model is suitable for manufacturing organisations where there is a simultaneous production and consumption. Since, this type of production is very much in practice, this model can be considered as the production model.

It is important to note that there is no ordering cost here, as there are no outside vendors or suppliers considered. Instead of ordering cost O (Q), there is cost associated with the setup of machinery and tooling. Hence, the set up cost is fixed per run and no change with the lot size of production. In view of all these changes, the EOQ mentioned in the previous model is referred to here as Economic Production Quantity (EPQ) or Economic Batch Quantity (EBQ), i.e. the economic batch size in production in this model. We can calculate the total annual inventory, EBQ, and annual inventory cost from the following derivations: Here Q represents the total quantity produced over a period tp at a production rate of p. Since, in this model there is finite replenishment of inventory and consumption simultaneously, the average inventory level is not dependent on lot size Q only, but depends on production rate p and depletion rate d. To determine the average inventory

where Q: order quantity p: rate of production tp: production time The inventory is built up at a rate of (p-d) per unit time, and then the maximum inventory will be tp (p-d).

Since

we have

Total Cost Function:

, where h is the holding cost/unit/year.

Therefore total cost is,

Thus economic order quantity is given as

Worked example on model - 2

A transmission manufacturer supplying to a car manufacturer at the rate of 25 per day has a holding cost of the complete unit at Rs. 20/month and produces in batches with a set up cost of Rs. 10000 each time when the set up is changed. Its production capacity is 40 transmissions per day and works for 300 days in a year. Cost of material inputs per transmission is Rs. 3000. Calculate: 1. Most economical numbers that can be produced in one batch 2. How frequently should the batches be started in a day 3. What will be the minimum average inventory cost and production time ? 4. What is the production time ? Solution:

1) EBQ = Economic Batch Quantity = EPQ

2) Number of set ups in a year 3) 4) 5) Total inventory cost.

Thus, ends the discussion on model 2. Self Assessment Questions 16. This model is suitable for the manufacturing organisation where there is a simultaneous _________ and ________. 17. Model 2 is applicable to situations where the item is produced internally rather than being procured from outside. (True/False)? 18. Finite rate of replenishment means, when the order is placed, the inventory builds up ________ at a certain rate. Activity 5: A company that manufactures ball bearings purchases 8000 ball bearings for the company for its annual requirements, ordering one month usage at a time. Each part costs Rs 30, the ordering cost per order is 20% of average inventory/ year and carrying charge is Rs. 25. Suggest a more economical purchasing policy for the company. Also determine the savings per year by using the above policy. (Hint: follow worked examples 1 and 2) 6.8 Model 3: Finite Rate of Replenishment with Shortages In inventory management, shortages are undesirable and avoided as far as possible. The reason for this is that there will be loss of customer goodwill, reduction in future orders and market share. This inventory model is based on back ordering. The assumptions made in this model are as follows:

 Demand is known and is consumed at a uniform rate. Stock replenishment is not instantaneous but it is at a finite rate. Setup cost is as per production runs. No quantity discount is given for the supplies. Shortages are allowed. No loss of sales due to the above said shortages. Finite replenishment is a gradual and uniform increase in inventory due to continuous production just as in model 2. Here, the shortages are allowed which means that demand is more than supply for certain duration. There is no consumption during this shortage until fresh stocks arrive for production and the immediate supply is given first to production before building up the inventory. Following figure 6.4 represents the model, which shows the finite replenishment with shortages.

Figure 6.4: Inventory profile for Model 3 In figure 6.4, the inventory builds first as shown by the sloping line AB, and then the consumption is shown as the drooping line BC. At the point B is the maximum inventory level at any point of time. Line CD represents the shortages and the stocks are replenished at point D, which build back to E, the point at which the demand of earlier period is satisfied and the backlog becomes zero. Formulae to be used in Model-3 are given below:

Economic Production Quantity EPQ = EOQ=

Maximum Shortage = Q-Inventory i.e. EPQ-Inv S =

Total Optimum inventory cost =

Production period =

Worked example for model-3 The demand for a companys product is 24000 units per year and the company can produce at the rate of 3000 per month. The cost of one set up is Rs. 500 and the holding cost of one unit per month is 25 paisa. The shortage cost is Rs.20 per unit per year. Determine the optimum quantity to be produced and the number of shortages that the company faces. Also determine the manufacturing time and the time between each set ups. Solution: The optimum production quantity i.e.

EOQ= 5256 units Number of shortages S= Maximum Shortage =Q-Inventory i.e. EPQ-Inv

Shortage = 5256-4570= 686 units

Production period = Time between set ups = 5256/24000 = 0.219 = 2.628 months. 6.9 Model 4: Quantity Discount Model In this model, the quantity discount in price of the supplies is considered while calculating the EOQ and then orders are placed depending on the economics of placing orders with or without discount and the quantity being ordered. However, buying huge quantities may result in heavy build up of inventory and hence the inventory carrying cost, which has to be borne by the inventory managers. A decision has to be taken by the purchaser on whether to stick to the EOQ or raise the order quantity to take advantage of price discount. The following procedure is adopted in this decision making process: Step 1: Calculate EOQ at different price levels Step 2: Determine the Economic quantity to be purchased at each price level

Step 3: Calculate the annual total cost including those of materials for each of the quantities determined by step 2 Step 4: Select an optimal quantity to be purchased, which involves the least annual total cost Formulae to be used in this model:

.(1) Where Cu: unit cost of material Co: Ordering cost I: inventory carrying cost as percentage of total material cost Total annual cost including materials = Material cost + Annual ordering costs + annual carrying cost TAC = CuD + Co (D/Q) + Cu x (i) (Q/2). (2) where D: Annual demand, Cu: unit cost of material Co: Ordering cost, i: Inventory carrying cost in percentage terms Q = Quantity at which the price changes TC = annual total cost including materials Worked example on model - 4 A Transmission manufacturer is purchasing 4800 forgings per year. The requirement is known and the demand is mostly fixed. The supplier offers quantity discount as detailed below: For less than 500 units Cu = Rs. 150 per unit <750500, Cu = Rs 140 per unit 750 Cu= Rs 130 per unit Monthly carrying/holding cost per unit is 0.02. The ordering cost is Rs.750 per order. Calculate 1) EOQ at different unit prices 2) Total annual cost including those of materials Solution: Step 1: Calculating EOQ at different unit prices

From the above three price values and the EOQs, it is observed that the price of Rs.150 for purchase of 500 forgings has resulted in an EOQ of 447, the least units of purchase. Next come EOQ at a price of 140/unit with a quantity of 462 units and the next being 480 numbers when the unit cost is Rs.130. Step 2: From the above figures in step-1, it can be concluded that the choice in the descending order for the manager to order are: best EOQ of 447 units at Rs.150, or the quantity of 500 forgings ordered at Rs.140 or 750 forgings at Rs.130 and this decision depend on the actual demand requirements over a particular period of time. Step 3: To calculate the annual total cost including materials for all selected quantities in step-2, we use the formula: TAQ 1: Cu D + Co (D/Q) + Cu x (i) (Q/2) = [{(150x4800)} + {(4800/447) x 750} + {150 x (447x0.02x12)/2}] = Rs. 736099 Similarly TAQ 2 = [(140x4800) + (4800/500) x750 + {140x (500x0.02x12)/2)}] = Rs. 687600 TAQ 3 = [{(130x4800)} + {(4800/750) x750} + {130 x (750x0.02x12)/2}] = Rs. 640500 While we observed that the EOQ is best at purchase of 447 numbers, the total cost, consisting of materials and the annual ordering cost plus the inventory carrying cost, out of the above three quantities considered, is the least when the order is placed for 750 numbers in one go. Therefore the price discount could be used for the economy when the buying quantity is warranted up to 750 numbers at any point of time in the production cycle. Self Assessment Questions 19. In inventory management ________ are undesirable and avoided as far as possible. 20. A decision has to be taken by the purchaser on whether to stick to the EOQ or raise the order quantity to take advantage of price discount. (True/False)? 21. The quantity discount in price of the supplies is considered while calculating the EOQ in model 4.(True/False)?

6.10 Summary Inventories are held by companies for various reasons. It is the responsibility of inventory managers to manage the level of inventory. The inventory should be maintained at an optimal level so as to avoid excess inventory holding high costs and reduced frequency of orders resulting in losses. An Inventory Manager needs to determine the

economic order quantity. There are several methods for the determination of economic order quantity. The model for determination of economic order quantity needs to be chosen based on the business environment. The inventory cost is a critical factor in inventory management. The carrying and ordering cost need to be maintained at a minimum. The total cost curve can be used for the estimation of economic order quantity. Inventory is basically classified based on the features of inventory. The basic two types of inventory models are deterministic and probabilistic. In this unit we have discussed only about deterministic models. Determination of the economic order quantity helps in keeping the inventory holding costs to a minimum. There are four basic models for the calculation of economic order quantity. Each method is based on a set of assumptions. The models can be used depending on the business environment. Model 1 is implemented for manufacturing scenario with uniform rate of demand and instantaneous replenishment. Production scenario with uniform demand and finite rate of replenishment implements model 2. Model 3 is implemented in cases where the rate of replenishment is finite but with shortages and model 4 is the quantity discount model. In conclusion, we can say that economic order quantity models facilitate in the close and continuous monitoring of inventory. Thus the status of inventory can be known and remedial action can be taken. Hence the EOQ models help manufacturers to maintain optimum inventory level and prevent stock out. 6.11 Glossary Term Gradually

Description Advancing or progressing by regular or continuous degrees Having an outcome that can be predicted because all of its causes are either known or the same as those of a previous event Based on, or affected by probability, randomness, or chance A pronounced feature or part; a highlight. To restore to use, currency, activity, or notice, to restore the validity or effectiveness of. To assert or express the opposite of (a statement); to deny the statement of. To get by special effort; obtain or acquire Most desirable possible under a restriction expressed or implied Of or relating to analysis or analytics; Dividing into elemental parts or basic principles. The number of complete cycles of a periodic process occurring per unit time. To fill up something againhere it refers to replacing the inventory as when they get used up in manufacturing.

Deterministic Probabilistic Salient

Revival Contradicting Procured Optimal

Analytical Frequency

Replenishment

6.12 Terminal Questions 1. Explain inventory costs and relationships. 2. Briefly explain the classification of inventory models. 3. Define deterministic model of inventory control. 4. Explain how economic order quantity can be calculated by model 1. 5. Explain how economic order quantity can be calculated by model 2.

6. Explain how economic order quantity can be calculated by model 2. 7. Explain how economic order quantity can be calculated by model 4. 6.13 Answers Self Assessment Questions 1. Carrying, ordering 2. Total cost curve 3. True 4. True 5. Deterministic, probabilistic 6. Economic 7. order, economical 8. True 9. True 10. Lot size 11. Quantity 12. Carrying 13. Replenishment 14. True 15. True 16. Production, consumption 17. True 18. Gradually 19. Shortages 20. True 21. True Terminal Questions 1. Refer Section 6.2 Inventory cost and relationships. 2. Refer Section 6.3 Classification of inventory models. 3. Refer Section 6.4 Deterministic model in inventory control.

4. Refer Section 6.6 Model 1. 5. Refer Section 6.7 Model 2. 6. Refer Section 6.8 Model 3. 7. Refer Section 6.9 Model 4. 6.14 Case Study The Fix it electrical services company stocks thousands of electrical items sold to regional electricians, contractors and retailers. Mr Sam, the firms general manager, wonders how much money could be saved annually if EOQ were used instead of the firms present rule of the thumb. He instructs Susan, an inventory analyst, to conduct analysis of one material only (material#1234, a switch) to see if significant savings result from using the EOQ. Susan develops the following estimates from accounting information: D=20,000 switches per year, Q= 500 switches per order, h=Rs 0.50 per switch per year and S=Rs 6.00 per order(S: the average cost of completing an order for a material) Questions: 1) Calculate the annual stocking cost, when rule of the thumb is applied.

(Hint: ) 2) Calculate EOQ and then the annual stocking cost.

(Hint:

OM0017-Unit-07-Operation Scheduling
Unit-07-Operation Scheduling Structure: 7.1 Introduction Objectives 7.2 Purpose of Operations Scheduling 7.3 Production Schedules Make Production Control Possible 7.4 Production Planning and Scheduling 7.5 Production Scheduling Benefits 7.6 Scheduling Constraints 7.7 Scheduling Guidelines 7.8 Typical Scheduling and Control Functions 7.9 Scheduling Action Plan 7.10 Type of Manufacturing Processes and Scheduling Methods

7.11 Scheduling Methodology Forward scheduling Backward scheduling 7.12 Autonomation 7.13 Scheduling Service Operations 7.14 Summary 7.15 Glossary 7.16 Terminal Questions 7.17 Answers 7.18 Case Study 7.1 Introduction By now you must be familiar with the various inventory control models and techniques. In the previous unit, we discussed about the calculation of economic order quantity. We have also understood how to calculate economic order quantity with the help of the four models. In this unit, we will study about the various production planning and scheduling methods. Objectives After studying this unit, you should be able to: Explain the purpose of operation scheduling. Define production planning and scheduling. Outline scheduling guidelines and constraints. Explain scheduling methodology. Define autonomation. 7.2 Purpose of Operations Scheduling What might be the purpose of operations scheduling? Well, scheduling is the method of setting of operation start dates so that the job orders will be completed by their due dates. It establishes the timing of production activities that use the organisations human and equipment resources to serve its customers. Scheduling is associated with establishing timings and using resources within the organisation. The use of equipment facilities, human activities, and receipt of materials forms a part of scheduling. Operations scheduling is short term, where as aggregate planning is the intermediate term. Scheduling is usually the final step in the transformation process for the output produced by the manufacturing unit. Hence, the scheduling objectives deal with the tradeoffs among conflicting goals for efficient utilisation of labour, equipment, lead time, inventory levels, and processing times. Production schedules consist of machine loading charts, workforce rosters and materials requisition sheets and specify the items to be produced with quantities. Shop floor managers should have a complete picture of what targets and resources are available.

Scheduling is a day-to-day planning which answers: Which work centre will do what job? When should the operation/job be started and ended? On which equipment should it be done and by whom? What sequence of job operations needs to be handled in a set of work centers? Scheduling involves: Assigning different jobs to different facilities (called shop loading). Sequencing the jobs and operations. Monitoring and revising the schedules, known as controlling. Scheduling is governed by external and internal factors. The following table 7.1 depicts the external and internal factors of scheduling. Table 7.1: Factors Affecting Scheduling External Factors Internal Factors Availability of equipment Availability of materials Finished goods inventory Customer demand Customer delivery dates Dealer and retailer inventories. Process intervals Manufacturing facilities Economic production runs

Continuous or mass production systems do not need much scheduling as compared to job shop production, which requires scheduling of a variety of jobs through a variety of operations. It is necessary to plan the sequences of work, so that the production can be systematically arranged to complete the products by due date. Self Assessment Questions 1. Scheduling is the method of setting of _________ start dates so that jobs will be completed by their due date. 2. Operations scheduling is short term where as aggregate planning is __________ term. 3. Production schedules consist of machine ________ charts, workforce ________ and materials requisition sheets and specify the items to be produced with quantities. Activity 1: Write an article about the purpose of operation scheduling with the help of internet. (Hint: Scheduling is associated with establishing timings and using resources within the organisation.). 7.3 Production Schedules Make Production Control Possible In the previous unit, we discussed about the purpose of operations scheduling. Now, we will discuss how the production schedules make production control possible.

Operations scheduling can be considered as the heart of a manufacturing excellence system (MES). An MES is a system that schedules, dispatches, tracks, monitors, and controls production in the labour pool. It provides real time linkages to MRP systems, product, and process planning and effectively leads to supply chain management, ERP, sales, and service management. The productive resources are organised and work is carried out in the work center. This may comprise a single or a group of machines, where a given category of work is done. The machines are organised to a job shop configuration by products in a flow, assembly line or by using group technology cells. The factors contributing to performance are: Machine productivity. Labour productivity. Materials usage. Managers continuously monitor machine availability, worker absenteeism and availability of materials, in order to identify factors that affect productivity. For example, unscheduled machine downtimes may be due to inadequate maintenance, high absenteeism due to employee grievances and materials unavailability due to poor purchasing management. All these information makes effective production control possible in meeting delivery commitments, restricting costs and improving capacity utilisation. Self Assessment Questions 4. Operations scheduling can be considered as the heart of a manufacturing excellence system (MES). (True/False)? 5. An MES is a system that schedules ________, tracks _______ and controls production in the labour pool. 6. Managers continuously monitor machine availability, worker _________ and availability of _________, in order to identify factors that affect productivity. 7.4 Production Planning and Scheduling Sales estimates and master production schedules are the basis for production planning. Master production schedules are followed by capacity and materials requirement planning [CRP and MRP]. If the planned production levels cannot be achieved, then the capacity is enhanced or production targets are lowered. A detailed schedule is available for each individual machine. The production plan must consist of the operation portion. The strategic goals of the organisation must be linked to the operations. Sales and production capabilities need to be compared for the production planning process. Satisfying customer demand is the primary objective of the production plan. Maintaining inventories and keeping the workforce stable can help in satisfying demand. Satisfying customer demand while keeping inventories at a low level can be achieved by implementing the just in time and chase strategy. Production planning is not intended for operations function only. It plays a critical role in other functions such as manufacturing, engineering, finance, materials and so on. Sales and operations planning is a new term linked with coordinating the critical functions of the firm. The work to be performed by each major function is established by production planning. A production plan must be made by considering the following factors. Weighing sales and marketing objectives. Manufacturing cost.

 Scheduling and inventory objectives. Firms financial objectives. All the above points must be integrated together for the success of the company. The first step in production planning is updating a sales forecast for the next 6 to 18 months. A production plan is not a forecast of demand, but it is a plan for production based on forecast. The operation function and upper management can have direct communication by the use of production plan. The production plan should be stated in a manner that is understandable to all the concerned people within the firm. Production Scheduling A derivative of the production plan is the production schedule. The production schedule authorises the operation function to produce a certain quantity of an item within a specified time. The production schedule is developed by the production planning department in large firms. A production scheduler or a line supervisor can develop the production schedule in small firms. There are three primary goals or objectives of production scheduling. The first objective is to avoid late completion of jobs. The second objective involves throughput times, and the time required to complete a job should be minimised. The third objective concerns the utilisation of work centres. The Production Planning and production Scheduling Interface There exist fundamental differences in production planning and production scheduling. Aggregate data is used in production scheduling. Highly detailed information is necessary for scheduling. Though planning and scheduling have their differences, they are often incorporated in the same framework. Self Assessment Questions 7. Sales ________ and master production ________ are the basis for production planning. 8. Production planning is not intended for operations function only; it plays a critical role in other functions such as manufacturing, engineering, finance materials and so on. (True/False)? 9. A ________ of the production plan is the production schedule. Activity 2: Research on the web for the production scheduling application used by Dell (Hint: http://interfaces.journal.informs.org/cgi/content/abstract/37/3/209) 7.5 Production Scheduling Benefits Production Scheduling systems are used to streamline the scheduling process. The benefits of production scheduling are as listed below: Optimises the supply chain. Connects to MRP. Ensures that the materials ordered arrive on time. Reduces labour spikes and favours labour load levelling. Information is real time. Identifies and reduces bottlenecks.

 Reduces process change-over. Reduces the holding costs of inventory. Reduces scheduling effort. Increases production efficiency. Provides accurate delivery date quotes. Enables minimal impact on production activities by maintenance of schedules. Provides specific enabling instructions to start the work straightaway. Provides specific targets to check whether the performance is up to the standard. Reduces locked up funds due to interruptions in production. Enhances throughputs and utilisation of machine and man hours. 7.6 Scheduling Constraints It is important to know that even scheduling has some constraints. Scheduling production can be a slow and cumbersome process when done manually. Scheduling can be improved by using computer-based tools and software. Following are some of the scheduling constraints. Precise information needed for proper scheduling is often not available. Random changes in the plans and schedules. The necessity for human input in scheduling. Schedule preparation can be affected by system problems. Efficient scheduling is disturbed by organisational problems. Self Assessment Questions 10. Identification and reduction of bottlenecks is the benefit of production scheduling (True/False)? 11. Scheduling can be improved by using _______ based tools and _______. 12. Production Scheduling systems are used to streamline their scheduling process. (True/False)? 7.7 Scheduling Guidelines If a system were to be credible, realistic scheduling is a must. For a firm to be successful, the following guidelines for job scheduling and loading work centres are essential. Following are the scheduling guidelines: Provide a realistic schedule considering practical possibilities. Allow adequate time for operations/production. Allow adequate time before, between, and after each operation so that provision is made for transit or queue time of work in progress or finished goods. Do not release all available jobs to the workshop, which may overload the capacity, hence increasing lead time and work in progress inventory. Do not schedule all available capacity and retain some capacities for exigencies.

 Load only selected work centres, which are fit to be selected for operations. Allow for necessary changes and open to necessary alterations in the products. Gear up the entire shop to stick to the schedule with the cooperation of the workforce. Activity 3: Being the manager of a car manufacturing company, list out the scheduling guidelines that you would follow (Hint: Provide a realistic schedule considering practical possibilities.) 7.8 Typical Scheduling and Control Functions Scheduling is associated with establishing timelines and using resources within the organisation. The use of equipment facilities, human activities and receipt of materials forms a part of scheduling. The following are the functions in scheduling and controlling an operation: Release orders to the system in accordance with priority plan. Assign jobs to specific work centres as well as machine loading or shop loading. Provide sequencing priorities to specify the order in which the jobs are to be processed. Control the manufacturing lead time by tracking and expecting jobs if necessary. Monitor the significance status of the jobs by using summary, scrap and rework. Use the input/output reports of workload versus capacity to monitor capacity status. Self Assessment Questions 13. Scheduling is associated with establishing timings and using resources within the organisation. (True/False)? 14. Provide sequencing _________ to specify the order in which the jobs are to be processed. 15. Load only selected work centres, which are fit to be selected for operations are a scheduling guideline. (True/False)? 7.9 Scheduling Action Plan In the previous section, we discussed about the typical scheduling and control function. Now, we will discuss about the elements of scheduling action plan. Following are the elements of the scheduling action plan. Loading: Loading involves assigning jobs to work centres. There is no difficulty if a job can be processed on only one machine, but if loaded on multiple machines, then there are multiple options for jobs to be assessed, assigned, and processed. The scheduler should assign jobs to work centres in such a way that processing and setups are minimised for lesser idle time and throughput time. The two loading approaches which are used here are: Infinite loading. Finite loading. Routing: Routing is the planning process that determines the best route for manufacturing the products. Following are some of the other aspects of routing. It shows the flow of work in the plant. It determines what work is to be done, where and how.

 It decides the path from Raw material stage to finished product. It establishes optimum sequence of operations. Routing is related to layout, storage space for inventory, and material handling. Routing in product layout does not pose problems as equipments are in sequence. In process/job layout, it is complex as every time it is a new job. Route sheets are developed for each job to do lot of work. Scheduling: It is the process of setting operation start dates for jobs so that they can be completed within their due dates. In forward scheduling, the scheduling is done starting with a known start date and the job completion time is determined by considering the time required from first operation to last operation. In backward scheduling, the required start date is determined starting with the given due date and working in the backward direction. Dispatching: It is the process of selecting and sequencing jobs to be done at individual work centres and subsequently assigning the work to be done. Scheduling is implemented using the dispatch list. Ranking for the dispatch list can be decided either by due date or by critical ratio. Critical ratio of scheduling is used when a firm uses a dispatch list with due dates, but also allows overloading of work centres. In this case, each job is given a relative priority with a provision for continuous updating. Follow up: Follow up is essential once the finished goods are delivered. It is necessary to evaluate the quality of the component or product. It can be performed after each step in the operation process or after the delivery of goods. It is a measure to understand customer satisfaction for the delivered goods. Activity 4: Imagine that you are the operations manager at a firm. Explain the scheduling action plan that you would follow. (Hint: Loading involves assigning jobs to work centres.) 7.10 Type of Manufacturing Processes and Scheduling Methods Table 7.2 describes the types of manufacturing processes and scheduling methods. Table 7.2: Types of Processes and Scheduling Methods Nature of Resource Production Type Scheduling Method Infinite forward scheduling and limited labour process Infinite loading, priority control and JIT or MRP systems Finite forward and parts are pulled for JIT system Finite forward

Machining centres Cellular layout (group technology)

Low volume, more variety

Mid-volume production

Fully automatic machines with High volume process auto handling of parts Full automation and low labour Continuous process

7.11 Scheduling Methodology In the previous section, we discussed about the type of manufacturing processes and scheduling methods. Now, we will discuss about the scheduling methodologies. Following are the two scheduling methodologies. Forward Scheduling. Backward Scheduling.

7.11.1 Forward scheduling Forward scheduling can be associated with the scheduler selecting a planned order release date and schedules all activities from this point forward in time. This is the approach in which customer orders are processed immediately, even if the order dates are far away. For example, if a part is required to be delivered in two weeks and if it needs a total of nine days to process it, the first nine days are used to make it. Forward scheduling can be associated with taking up jobs with a number of tasks and assigning resources as early as possible. The task should utilise the resource as soon as it is allotted. Forward scheduling also has its own advantages and disadvantages. Jobs can be completed ahead of their due date by forward scheduling. 7.11.2 Backward scheduling In backward scheduling, the scheduler begins with the delivery date, and plans backward to calculate the date for order release. The start date is determined by counting the number of days required for processing in backwards. Backward scheduling can be associated with taking up jobs with a number of tasks and assigning resources in reverse order. This system requires a delivery date from the customer, since scheduling is done backwards from the date of delivery. Backward scheduling is the method, which uses the same lead time offset logic as MRP. Here the customer orders for a job as late as possible but expects it to be delivered in time or on due date. The components are delivered when they are required rather than as soon as possible. Self Assessment Questions 16. In backward scheduling the scheduler begins with the delivery date, and he plans backward to calculate the date for order release. (True/False)? 17. Forward scheduling can be associated with the scheduler selecting a planned order release date and schedules all activities from this point _________ in time. 18. Loading involves assigning jobs to work centres. (True/False)? Activity 5: Use the internet to list the various operations that follow forward and backward scheduling respectively. (Hint : http://en.wikipedia.org/wiki/Scheduling_(production_processes)) 7.12 Autonomation Automation means to make a process in a factory or office to be operated completely by machines, in order to reduce the amount of work done by humans and the time taken to do the work. The term autonomy means the right or power of somebody or something to make its own decisions. Autonomation can be considered as the combination of the two words autonomy and automation. Autonomation is the technological innovation that enables machines and workers to operate in harmony. The process of autonomation is also known as jidoka. This reduces the physical and mental pressure on the workers. If autonomation is implemented, when a cycle or production process is completed or when a defective part is produced, the system automatically stops the production and alerts the employees. Autonomation can be defined as automation with a human touch or intelligent automation. A level of human intelligence transferred to automated machinery is known as autonomation. Autonomation is concerned with supervision rather than production. The production process is stopped whenever an abnormal situation arises. The machine stops production and asks for help whenever a defect is detected. The production of defective products is prevented when autonomation is implemented. Autonomation focuses on getting to the root of the problem and ensuring that it never recurs again. Overproduction is eliminated by autonomation. Autonomation is a quality control process that performs the following functions: Detect the abnormality. Stop.

 Fix or correct the immediate condition. Investigate the root cause and install a countermeasure. Purpose and implementation Mechanisms that detect production abnormalities also separate the worker from the machine. There are 23 stages between purely manual and fully automated work. When a machine is able to detect and correct its own operating problems, then it can be called as fully automatic. Fully automatic machines are not cost effective. Autonomation can guarantee about 90 percent of the benefits of full automation, and is also cost effective. The errors that occur in a process are immediately identified, addressed and corrected by the implementation of autonomation. The continuous monitoring of the machine by a worker can be avoided. The worker needs to pay attention to the machine only when the machine alerts the worker about a glitch. Autonomation maybe implemented in the initial steps of the process to prevent unnecessary wastage of work due to production of defective products. When production is stopped due to glitches detected, a supervisor examines the defect and corrects it. The machine is modified to avoid the occurrence of the same defects again. The advantages of autonomation are Production of defective parts is prevented. Defective parts are prevented from being passed on to the next process in the production line. Problems and glitches in the machines and processes identified. Continuous monitoring of machines can be avoided. Activity 6: Research on the Web to find out more about the autonomation techniques used by different companies. (Hint: http://www.epa.gov/lean/thinking/cellular.htm) 7.13 Scheduling Service Operations The problems encountered by manufacturing are not the same as those encountered by scheduling of services. The problems encountered in scheduling of services are because of the nature of service. Service is intangible and the demand for service is random, this is the cause of difficulty in scheduling services. Service is associated with close customer contact and short lead times. Scheduling of service becomes extremely difficult due to the random nature of service. Queuing theory or wait in line theory is used. Optimum staffing plan can be obtained by estimating arrival rates and service rates. The service operation can be made flexible by the use of casual labour, on call employees, and cross training. The importance of scheduling of services comes into play when more than one resource should be scheduled. For example, hospitals scheduling surgery (scheduling of surgeons, operating room, facilities, support staff, and special equipment). Imbalance in scheduling occurs because of service cancellation by customers. Operation strategies for services The strategies for service operation are of two types: Type of service design: The service design has three dimensions. The three dimensions are amount of customer contact, standard or custom mix of goods and intangible services.

 Type of production process: The different types of production process are customer as participant, customer as product, and quasi manufacturing. The type of service design is determined by the business strategy and the type of production process is based on type of service design. Types of service operations The three types of service operations are customer as participant, customer as product and quasi manufacturing. Customer as participant: This service operation involves a high degree of customer involvement. The service may be either custom or standard and physical goods may or may not be significant. Customer as product: The degree of customer involvement is so high that the service is performed on the customer. These services are usually custom made to suit the individual preferences. Quasi manufacturing: This operation stresses on production costs, technology, physical material, and products. Physical goods are more prominent than intangible services. The products could be standard or customised. Scheduling challenges in services The two critical reasons that make the day to day planning and scheduling challenging in services are: The production and delivery of services is by people. Non uniform pattern of demand for services. Since, the demand for services varies by the hour, day, and so on, it is necessary to vary the production capacity to satisfy customer demand. Production capacity can be rapidly changed by varying the workforce size. The size of the workforce employed needs to be optimum. The workforce should be large enough to meet the customer demands. Self Assessment Questions 19. Autonomation can be defined as automation with a human touch or intelligent automation. (True/False)? 20. Service is ________ and the demand for service is random. This is the cause of difficulty in scheduling services. 21. The process of autonomation is also known as jidoka. (True/False)? 7.14 Summary Scheduling is the allocation of resources over a time period to complete a specified set of tasks. The two basic types of scheduling are Workforce/labour scheduling. Operation scheduling. Operation scheduling is associated with determining the job to be performed and allocating resources and operators with the required skill. The staffing plan is translated to a specific workforce schedule for each employee by the workforce schedule. Thus we have understood the need and importance of operation scheduling. Scheduling is the method of setting of operation start dates so that jobs will be completed by their due date. The time of production is set by scheduling, which allots human and equipment resources to serve its customers. The resources within the organisation are used by scheduling. The use of equipment facilities, human activities and receipt of materials form a part of scheduling. Average job flow time, make spans, jobs past due, average time past due for job, work in progress inventory, and utilisation of machines and workforce are the performance measures used to evaluate operations in operations scheduling. Gantt chart, Schedule boards, graphic charts, Johnsons Job sequencing, priority rules for scheduling work centres, critical ratio method, index method, Queuing system, mathematical programming and so on are the

various methods used for operations scheduling, which all help in maximising resource utilisation and enabling despatches as per the requirements by customers. Manufacturing excellence system (MES) consists of operations scheduling as a critical part. The scheduling, dispatching, tracking, monitoring and controlling are done by MES. Production planning is based on sales estimates. We have studied in this unit the advantages of production scheduling. Autonomation is the technological innovation that enables machines and workers to operate in harmony. It stands in-between manual labour and automation. The process of autonomation is also known as jidoka. This reduces the physical and mental pressure on the workers. When autonomation is implemented, the system automatically stops production whenever there is a defect and alerts the employees. Scheduling service operations is a different ball-game altogether this is because of the unique nature of services as a business. 7.15 Glossary Term Cumbersome Description Difficult because of extent or complexity; Troublesome or onerous. Anger, bitterness, or ill will; Indignation or ill will felt as a result of a real or imagined grievance. To relegate to a specific destination or send on specific business. Occurring after; succeeding. A following of one thing after another; succession; An order of succession; an arrangement. Capable of being believed; plausible. resulting from or employing derivation; Copied or adapted from others: A list, especially of names. Made to order; Specialising in the making or selling of made-to-order goods. The state or quality of requiring much effort or immediate action

Resentment Dispatch Subsequent

Sequencing Credible Derivative: Rosters Custom Exigencies

7.16 Terminal Questions 1. Explain the purpose of operations scheduling? 2. Briefly explain production planning and scheduling? 3. List the benefits of production scheduling. 4. Outline the scheduling guidelines 5. Explain the scheduling action plan 6. Differentiate between forward and backward scheduling 7. Explain automation and the drawbacks associated with automation 8. Explain service operation scheduling.

7.17 Answers Self Assessment Questions 1. Operation 2. Intermediate 3. Loading, rosters 4. True 5. Dispatches, monitors 6. Absenteeism, materials 7. Estimates, schedules 8. True 9. Derivative 10. True 11. Computer, software 12. True 13. True 14. Priorities 15. True 16. True 17. Forward 18. True 19. True 20. Intangible 21. True Terminal Questions 1. Refer Section 7.2 Purpose of Operation Scheduling. 2. Refer Section 7.4 Production Planning and Scheduling. 3. Refer Section 7.5 Production Scheduling Benefits. 4. Refer Section 7.7 Scheduling Guidelines. 5. Refer Section 7.9 Scheduling Action Plan.

6. Refer Section 7.11 Scheduling Methodology. 7. Refer Section 7.12 Autorotation. 8. Refer Section 7.13 Scheduling Service Operation. 7.18 Case Study Operation Scheduling at ABC The ABC plumbing services company provides repair services. When a customer calls ABC for service, a plumber travels to the customers house, observes the fault and repairs it. Plumbing services is highly essential in day to day life. Quick and dependable service has been the cornerstone of ABCs growth and success. ABC has had a few complaints about the time required for plumbers to respond to customers calls. At a recent staff meeting, the plumbers said that they were working very hard, but that on some days of the week the number of calls for service was so great that it could take a few days to get to some of these requests. All plumbers now work 5 days a week, 8 hours per day, Monday through Friday. A different scheduling arrangement was considered for the plumbers so that they would be able to respond to calls six days per week. Each plumber would work for 4 days per week and ten hours per day, and have two consecutive days off per week not including Sunday (Sunday is not a working day). Such an arrangement would allow the number of plumbers available to answer requests to better match the daily pattern of the volume of requests. Each request is expected to require an average of about two hours of a plumbers time. ABC wants to work shifts for plumbers to approximately match the request for service, but is concerned how this will affect the utilisation of plumbers, group morale, and the time required to perform customer service. Questions: 1) What factors should be considered in changes in work-shift schedules such as the one under consideration at ABC? Which of the factors is most important? (Hint: Group morale and the time required to perform customer service.) 2) Can you suggest how ABC should go about making the schedule changes being considered? (Hint: 4 days per week and ten hours per day.)

OM0017-Unit-08-Product Mix Problems and Scheduling

Unit-08-Product Mix Problems and Scheduling Structure: 8.1 Introduction Objectives 8.2 Product Mix 8.3 Scheduling Methods/Techniques Forward scheduling and backward scheduling Schedule boards

Computer graphics Performance measures Priority rules for scheduling 8.4 Solved Problems on the Above Methods of Scheduling 8.5 Summary 8.6 Glossary 8.7 Terminal Questions 8.8 Answers 8.9 Case study 8.1 Introduction By now you must be familiar with operation scheduling, scheduling constraints, and the benefits of productive scheduling. You also studied about the action of scheduling, guidelines of scheduling, typical activities of scheduling, and scheduling methods associated with the types of manufacturing processes. In this unit, we will discuss about the different methods of scheduling and how these methods are used to solve scheduling problems using product mix. You will also learn about forward and backward scheduling with the help of Gantt charts and Gantt schedule with progress charts. In addition to it, you will also learn about the schedule boards, computer graphics, performance measures and priority rules for scheduling. Finally, we will end this unit, by solving some problems on the discussed methods of scheduling. Objectives After studying this unit, you should be able to: Analyse different scheduling methods/technology. Describe forward and backward scheduling. Comprehend Gantt charts, schedule boards and computer graphics. Elucidate performance measures and priority rules for scheduling. 8.2 Product Mix The multiple products offered by a company generally form the product mix of the company. It comprises the product lines as well as individual products. A product line consists of a group of products that either have similar functionality or are interrelated or might need to be sold to the same group of customers. Each product in the product line varies according to their size, price or other attributes. For example, courses offered by a university can form a product mix. The courses in Information Technology department form a product line. A course on Introduction to Computer Network forms a product item. Product mix management and responsibilities Organisations must have well-managed product mix. The product mix is basically managed by the top management of the organisation. The top management has the responsibility of making the product mix decisions which include: Evaluating the present product lines. Adding new product lines in the product mix. Deleting the existing product lines from the product mix.

 Comparing the new product lines against the existing ones. Estimating the possible effects of adding or deleting the product lines in the product mix. Estimating any possible changes in the companys product mix. The top management also has the responsibility of managing the product-line decisions. The product-line manager handles several product managers, who create individual products in the product line. They take up the responsibilities such as: Expanding the given product lines. Deleting the products from the product lines. Evaluating the effect after adding or deleting the products in the product line. Allocating resources to create a product as advised by the product managers. Product mix analysis As the top management manages the product mix, they usually perform the product mix analysis. The first step of analysis involves finding the area of opportunity in the market. The second step of analysis involves determining the ability of the company to utilise the opportunity. The companys position in the market is measured based on certain factors like the companys market share or resources. The examination of these factors typically provides four options for the company, which are: High opportunity and ability to utilise the opportunity, which enables a company to produce new products. Low opportunity, but a strong position in the market, where the company makes sure that the position in the market is sustained for profitability. High opportunity, but lack of ability to utilise the opportunity, where the company decides either to allot necessary resources or not to attempt to achieve that opportunity. Low opportunity and weak position in the market, where the company avoids these markets. The above four options form the base for a company to evaluate new as well as existing products to achieve business growth. This type of analysis enables the product mix to change, which depends on top management decisions. Self Assessment Questions 1. Organisations must have well-managed ________. 2. The product-line manager handles several ________, who create individual products in the product line. 3. As the top management manages the product mix, they usually perform the product mix analysis. (True/False)? Activity 1: Research on the Web to find out what forms the product mix, product line and product items in the pharmaceutical industry. (Hint: www.thepharmaletter.com) 8.3 Scheduling Methods/Techniques Before we start discussing about the scheduling methods or techniques, let us understand the meaning of scheduling. Scheduling is important for manufacturing and engineering industries, where it has a major impact on productivity of a process. Scheduling in manufacturing aims to minimise the production time and costs. The production scheduling aims to maximise the efficiency of operation and reduction of costs. These are applicable to different varieties of scheduling and hence, popularly used by industries as facilitator for higher production.

Following are some of the scheduling methods/techniques: Forward Scheduling and Backward Scheduling. Gantt Charts. Gantt Schedule with Progress charts. Schedule Boards. Computer Graphics. Performance Measures. Priority rules for Scheduling. Let us now discuss about the different scheduling methods/techniques. 8.3.1 Forward scheduling and backward scheduling Generally, scheduling has two approaches, which are forward and backward scheduling. Forward scheduling: Forward scheduling is an approach, where the customer orders are processed as soon as they come in, even if their due dates are far away. With forward scheduling, the scheduler will select a planned order release date and will schedule all the activities from this point forward in time. Backward scheduling: The calculation of dead line dates is known as backward scheduling. With backward scheduling, the scheduler selects a planned receipt date or due date and moves backward in time till the point where the order will be released on the due date. A typical calculation of a backward scheduling is as follows: Goods issue date = Requested delivery date-transit time. Loading date = Goods issue date-loading time. Transportation scheduling date = Loading date minus transportation lead time. Material availability date = Loading date minus pick/pack time. Example: Suppose all the processes required in a component that is to be supplied to the customer takes 18 days, then the forward and backward scheduling can be planned and executed as follows: Table 8.1: Forward Scheduling

Gantt charts A Gantt chart illustrates a project schedule in the form of a bar chart. It is a graph, which shows total estimated workload ahead of each work centre on a time scale and the summary elements of a project. The chart is constructed with the horizontal axis representing the total time span of the project, which is broken down into increments. For example: days, weeks, or months. The vertical axis represents the tasks that make up the project. The following are the uses of a Gantt chart: Total workload for each work centre is shown graphically. It is simple, clear, and easy to understand. It indicates the need for more resources or for reassigning resources when the load at one work centre becomes too large. In case work centres are overloaded, employees from a low-load work center could be temporarily shifted to high load centers. Now, we will understand the limitations of a Gantt chart: The chart must be repeatedly updated to keep it current. The Chart does not directly reveal the costs of alternate loadings, as the processing times may vary among work centers. A Gantt load chart does not account for delays and disruptions at the work centers. It does not give information of the due date requirements of each job. In the below example, each task is shown to begin when the task above it is completed. Sometimes bars overlap when the next task begins before the completion of the current task. This results in parallel execution of several tasks. However, the bars may overlap in cases where a task can begin before the completion of another, and there may be several tasks performed in parallel. For such cases, the Gantt chart is quite useful for communicating the time of various tasks. For larger projects, tasks can be broken down into various subtasks having their own Gantt charts to maintain readability.

Table 8.3: Execution of tasks in a Gantt Chart Self Assessment Questions 4. Is it necessary to use scheduling methods in an organisation? 5. What does horizontal and vertical axis in Gantt chart represent? 6. Gantt chart shows the total estimated workload of an organisation. (True /False)? Activity 2: Imagine that you are the project manager of an organisation and you need to schedule the work. With the help of Gantt chart, prepare a work schedule. (Hint: Refer to the explanation and chart mentioned in section 8.3.1.1) Gantt schedule with progress charts Gantt schedule indicates the start and completion dates for each job and the current status of each job. The chart also shows the comparison between the schedule and reality with respect to each job and work centre. The following symbols are used while drawing GSPC (Gantt Schedule with Progress Charts)

8.3.2 Schedule boards Many organisations require a facility that displays the scheduled activities for multiple users at one time, while clearly identifying which user is associated with each activity. This way, schedule boards like big Gantt charts in departments have a motivating effect on workers. Schedule board offers the ability to show a "grid", with each column representing a user (or resource), and each row representing a time-slot. This way, we can get to know if a person is busy or not. Complete control over the display can be obtained for: Type of activities (Calls, Meetings, To-Dos). Priorities of activities (High, Medium, Low). Contacts based activities. Time intervals (15-min, 30-min, hour, half-day or full-day). Resources (all users, selected users, or users belonging to selected "teams"). 8.3.3 Computer graphics Computer graphics are created using computers for representation and manipulation of image data. Computer graphics are used in organisations to represent complex data in a simpler way. Computer graphics and reports have vastly replaced the mechanical boards and charts. With the help of computers, a scheduler can keep track of

thousands of items and revise the schedules at intervals. Developments in computer graphics have had major impact on many types of media and have revolutionised animation, movies, video game industry, and so on. 8.3.4 Performance measures Performance measurement is a process where an organisation establishes the parameters within which programs, investments, and acquisitions reach the desired results. The purpose behind performance measures are: Evaluation on how well the public agency is performing, Controlling where the managers ensure that their subordinates are doing the right task. Budgeting the crude tools in improving performances. Sometimes increase in the budget might increase the performance. Setting the performance targets that encourage creativity in developing better ways of achieving the goal. Promoting employees, where the managers decide based on the performance measurement and to convince the political superiors, legislators, stakeholders, journalists, and citizens that their agency is doing a good job. Improving the performance of a project in case project performance is dipping or very low. The performance measures that are used while scheduling are: Job Flow Time (through put time): the amount of job time spent for the job. Job flow time = [Time of completion time job available for first processing operation]. Make Span: The amount of time required to complete a group of jobs. Make span time: [Time of completion of last job starting time of first job] Total Inventory: Sum of scheduled receipts plus on hand inventory of all items. Utilisation: The percent of work time productivity spent by a machine or worker. Utilisation = [productive work time/ total work time available. Self Assessment Questions 7. Gantt chart indicates the ________ and ______ dates for each job and the current status of each job. 8. Performance measures are not used to determine the time taken. (True/False)? Activity 3: Prepare a performance measure checklist consisting of job flow time, time required, utilisation and total inventory of the workers of any organisation. Hint: Refer to the definitions, mentioned in section 8.3.4. 8.3.5 Priority rules for scheduling The priority rule is a systematic procedure for assigning priorities for awaiting jobs. The common problem faced in most of the companies is assigning priority with respect to the job on hand for production. When there is a set of orders to be executed, the question of prioritising arises. Priority rules give the solution to the priority problems faced by companies. Dispatching procedures determine the job to be processed with the help of priority sequencing rules. Following are the major criteria for selecting priority rules:

 Set up costs. Idle time of machine and labour. In-process inventory. Percentage of jobs those are late. Average number of jobs waiting in the queue. Average time to complete a job. Standard deviation of time to complete a job. The priority rules can be classified as: Single criteria rules. Combined criteria rules. Critical ratio scheduling. Index method of scheduling. Critical path method. Now, we will define the major criteria rules: First Come First Served (FCFS): In this method the job that comes first is served by scheduling first. Shortest Processing Time (SPT): In this method, the job that requires the least of shortest time is processed first. Longest Processing Time (LPT): In this method, the job that requires the longest time is processed first. Least slack: In this method, the top priority is given to the waiting job whose slack time is the least. Slack time is calculated as the difference of the length of time remaining until the job is due and the length of its operation time. For example, if the job requires 6 days and the time left is 8 days, then the slack for that job is only 2 days. Random Selection (RS): This is a rule that selects jobs randomly. There is no basis and it is done with pure chance. Next Queue (NQ): Next queue is based on machine utilisation. The idea is to consider queues at each of the succeeding work centres at which the job goes. The worker then selects the job that is going to the smallest queue, measured either in hours or jobs. Mathematical Programming Methods: It is applied to situations where there are n number of supply sources and n number of demand uses (Example: five jobs on five machines) and the objective is to minimise or maximise the effectiveness. Least Stup (LSU): This rule maximises utilisation. The process calls for scheduling the job first that minimises the changeover time on a given machine. DS/RO (Dynamic Slack per Remaining Operation): In this method, for each job waiting, DS/RO computes value as the amount of dynamic slack remaining divided by the number of operations remaining. The rule then selects the job with the least DR/RO value. Now, we will define the priority criteria rules:

 Single criterion rule: This rule is to assign jobs on the basis of single criterion-say supply to most preferred customer by following any of the above criteria rules. Critical ratio: It is calculated by dividing the time remaining to the jobs due date by the total shop time remaining for the job. It also includes all set ups, waiting time and so on. Critical Ratio= [(Due date-Todays date) / (Total shop time remaining) It is also important to know that the job with the earliest due date (EDD) is processed. Index method: This assigns the job to the best machine until its capacity is exhausted, and then the remaining jobs are assigned to the next best machines. If processing time is the criterion, and if the jobs can be processed in different work centres, indices are calculated for the different likely process time that a job takes in each work center with a lowest index time of 1.0. Critical path method: It is used for scheduling large and unique projects in which relationship between the activities are quite intricate. This method overcomes the deficiencies of Gantt chart. Here a network of work center and processing routes of each job is drawn graphically and PERT (Program Evaluation and Review Technique) or CPM (Critical Path Method) charts are made to identify the critical path. Self Assessment Questions 9. Priority rules give the solution to the priority problems faced by the companies. (True or False)? 10. Why are PERT and CPM charts used in Critical Path Method? 11. How is critical ratio calculated? 12. Priority rules are not taken into consideration to waiting jobs. (True/False)? Activity 4 Imagine you are the manager of an organisation and the organisation has received plenty of orders. Will you give priority to any customer? And on what basis is the priority given? (Hint: priority rules for scheduling) 8.4 Solved Problems on the Above Methods of Scheduling We will now solve some problems on the above discussed methods of scheduling. Problem No 1: Scheduling and jobs on one machine rule Five jobs are to be processed at a work station. The processing time and the due date in days are given below. Determine: a) The sequence of job according to the shortest processing time. b) The total completion time. c) The mean flow time or average completion time. d) The average number of jobs in the system each day, e) The average lateness. Job A B C D E

Processing time in days Due date in days Answers:

6 8

19 22

16 20

11 14

13 14

The sequence ADECB is based on the shortest processing time first. Job Sequence A D E C B Total Therefore, a) Total completion time = Total process days=65 days b) Average/Mean Flow time = Total cumulative flow time in days/number of sequences = 164/5 = 32.8 days. c) Average number of jobs running at a time = Total cumulative flow time in sequence at a time / total process days required. Here when the first job is processed other four jobs are waiting. Similarly when first job is delivered, the second job is processed, other three jobs are waiting. This type of elimination goes ahead until all the five jobs are completed. d) Average number of jobs in the system each day= [(5x6) + (4x11) + (3x13) + (2x16) + (1x19)] / 65 = 2.52 jobs in the system/day e) Average Lateness= cumulative late in days / no of sequences = [99/5] = 19.8 days. Problem No: 2: By using the least dynamic rule and critical ratio-priority rule A manufacturer has the following shop orders due to be dispatched in the next 5 working days. Sequence the job according to priority as established by: a) Least slack and b) Critical ratio. Shop order number Number of work days remaining 11 2 12 4 13 7 14 6 15 5 16 3 Processing Time in days 6 11 13 16 19 65 Total Flow time days Due days 6 17 (6+11) 30 (17+13) 46 (30+16) 65 (46+19) 164 8 22 20 14 14 Late (days) 0 6 17 30 46 99

Answers: a) No of working days left = 5, hence slack order for shop order number 11 is 5-2=3 days. Similarly, the slack of order for shop order number 12 is 1, for 13 is (-2), for 14 is (-1), for 15 is (0), and for 16 is 2.

Therefore, least slack scheduling sequence is (ascending order): 11, 16,12,15,14 and 13. b) Critical ratio = [number of days remaining for the entire work] / [number of days remaining for the individual shop order]. Therefore, critical ratio of shop order 11 = 5/2 = 2.5, similarly for 12 = 5/4 =1.25, for 13 = 5/7 = 0.71, for 14 = 5/6 = 0.83, for 15 = 5/5 =1, and for 16 = 5/3=1.67. Therefore the sequence established by critical ratio is 13, 14, 15, 12, 16, and 11. Note that when the time remaining is constant across all jobs, the least slack and critical ratios result in the same priority, which is one of the priority rules. Problem No 3: By using FCFS, SPT and S/RO Using priority rules of a) FCFS, b) SPT and assuming that there is only one operation remaining in each job, and the start time of repair as 10:00 A.M., determine the sequence for the repair jobs shown below: Estimated time for repairs Completion time promised to (hrs) customer 2.0 1.5 0.5 1.5 2.5 11.00 16.00 16.00 18.00 13.00

Job (in order of arrivals) A B C D E Answers: For FCFS

Job A B C D E

Arrival time 10.00 10.00 10.00 10.00 10.00 Total

Repair Processing hours completion 2.0 1.5 0.5 1.5 2.5 12.00 13.30 14.00 15.30 18.00

Due time required 11.00 16.00 16.00 18.00 13.00

Late (hours) 1

5 6 Hrs

By serving FCFS, there will be late delivery for all repaired jobs by 6 hours. By SPT: [here B and D have same processing time. As per the above FCFS, the sequence can be the same as there is no late delivery in both].

Here, sequence based on shortest processing time for completion is CBDAE, but all jobs are completed with a delay of 9.5 hours. Problem no 4: Sequencing with the CR and S/RO rules In the following table, four jobs are shown with their operation time, due dates, number of operations remaining and shop remaining time. Calculate the CR and S/Ro and sequence the schedule. Time remaining due days 12 9 18 6 Number of operations remaining 8 2 10 6

Job 1 2 3 4 Answer:

Operating time (hrs) 5 10 8 14

Shop time remaining 7 8 15 9

Answer Answer CR S/RO 1.71 1.125 1.2 0.66 0.625 0.5 0.3 -(0.5)

(a) Using CR to schedule, CR = [time remaining to due date]/ shop time remaining CR for first reading = 12/7= 1.71. Similar calculation and readings are filled in the CR column. Arranging sequence with the lowest CR first and then ascending order and hence sequence of job loading will be 4,2,3,1. (b) Using S/RO = [Remaining time to due date- shop time remaining]/ number of operations remaining that is S/RO= [15-6.1]/ [10] = 0.89. Same calculations for other jobs are recorded in the last column above. Arranging the jobs from the lowest S/RO value onwards, the sequence of loading is 4,3,2,1. Problem No 5: Johnsons rule of sequencing operations of jobs Johnsons rule is used to determine the sequence of order for a series of jobs to be processed on a fixed number of machines. The basis for sequencing is that the total time required to complete all jobs should be minimum by reducing the idle times of all machines. Johnsons rule is a procedure that minimises the total time cycle in scheduling group of jobs on two workstations and the sequence of jobs at two work stations should be identical and therefore priority assigned to a job should be same as both.

This type of production sequence for a group of jobs to minimise the time has two advantages: 1) The group of jobs is completed in minimum time. 2) Utilisation of two station flow shop is maximised, hence Johnsons rule of algorithm is used for sequencing n number of jobs through two work centers/machines. The list of steps in Johnsons rule is stated below: Step 1: List the processing/operation times for n jobs on the two work centers/machines. Step 2: Scan all the processing/operation times for the n jobs on both machines and select the shortest processing/operation time in either work center. Step 3: If the shortest processing/operation time happens to be for a job on the first work center/machine, place that job first in the sequence. If it is at the second work center/machine, then place the job last in the sequence. Step 4: Remove the job assigned to the sequence in step-3 from further consideration (i.e. cross off both times for the assigned job) Step 5: Repeat steps 2, 3, and 4 until all the jobs are assigned into the sequence. Note that in the case of a tie (i.e. a job having the same operation time on both the machines or two jobs having the same operation time on either of the machines), choose the job with smallest subscript first for assigning into sequence (i.e. when job A and job B has the same time on either machine M1 and M2, choose job A first as compared to job B). On the other hand if any job has the same processing/operation time on machines M1 and M2, then give preference to the processing time/operation time on M1 to be considered first for assigning that job into the sequence. The above rules are known as Thumb Rule to be followed in case of tie between two jobs or between two machines. Example: Two machines working for six jobs to be produced in a machine shop whose time for two operations is given in the table below. Sequence them for scheduling by adopting Johnsons rule and find the minimum elapsed time and idle time on each machine. Machine A Job 1 2 3 4 5 6 Time in hours 5 14 7 4 11 13 Machine B Time in hrs 10 12 11 8 5 3

Application of Johnsons rule: Among all the processing time, irrespective of the machine, the shortest processing time is selected. In the given table the shortest time is for job 6 on machine B, and hence place this job as late as possible. 6 The next shortest time is for job 4 on machine A. so place the job as early as possible

The next shortest time is a tie between 1 and 5 (both 5 hours). Select any one. Place job 1 as early as possible among the remaining jobs. 4 1 6

The next shortest time from the tie above is 5; therefore place it as late as possible among the remaining slots. 4 1 5 6

The next shortest time for job 3 on machine a (7 hours), place it as early as possible among the remaining slots. 4 1 3 5 6

The last remaining job is 2 goes to the vacant slot. 4 Answer: Hence the best sequence for scheduling jobs is 4, 1, 3, 2, 5, and 6. Problem no 6: To find the total minimum elapsed time Rearrange the above table in problem-5 as per the sequence decided above with its values of time in hours and fix the minimum elapsed time between the operations: 1 3 2 5 6

Duration of processing time in machine A = [4+5+7+14+11+13] = 54 Duration of processing time in Machine B = [8+10+11+12+5+3] = 49 Minimum elapsed time by the time all the six components are processed after Machine B is 53 Hours. Idle time for machine A i= (54-49) = 5 Hours Idle time for machine B = (53-49) = 4 hours. Problem No 7:

Scheduling by index method Solve the following shop loading problem by using the index method: job A WC-1 10 WC-2 9 WC-3 8 WC-4 12

OM0017-Unit-09-Development in Manufacturing Technologies

Unit-09-Development in Manufacturing Technologies Structure: 9.1 Introduction Objectives 9.2 Types of Manufacturing Techniques 9.3 Group Technology 9.4 Just In Time Technique 9.5 Lean Manufacturing 9.6 Agile Manufacturing 9.7 Computer Integrated Manufacturing 9.8 Summary 9.9 Glossary 9.10 Terminal Questions 9.11 Answers 9.12 Case Study 9.1 Introduction By now you must be familiar with the problem mix concept and scheduling methods along with the techniques, which included forward and backward scheduling, Gantt charts, schedule boards, computer graphics, performance measures, and priority rules for scheduling. In this unit, you will learn about the different types of manufacturing techniques like group technology, just in time manufacturing, lean manufacturing, agile manufacturing and computer integrated manufacturing. It will be useful for you to know the meaning of manufacturing before getting into the development in manufacturing technologies. In simple language, manufacturing can be explained as the making of goods or merchandise by physical labour or by machinery. There are numerous types of manufacturing, but it will not be discussed in this unit, as the main focus of this unit is to concentrate on the different types of manufacturing techniques. Therefore, initially you will be provided with an overview on the types of manufacturing techniques and then it is followed by explanation on some of the manufacturing techniques such as group technology, Just in Time technology, lean manufacturing, agile manufacturing and computer integrated manufacturing. Objectives After studying this unit, you should be able to:

 Discuss the different types of manufacturing techniques. Explain group technology and just in time technology. Describe lean and agile manufacturing. Illustrate computer integrated manufacturing. 9.2 Types of Manufacturing Techniques The manufacturing techniques emerged in the late 18th century as an area of influential practice and philosophies. It obtained its height of prominence in the early 1980s. To be more precise, many years after the end of World War II, many version or editions of Japanese methods and manufacturing techniques made their way into the US and many other major business center countries. You may ask why the Japanese methods or manufacturing techniques were adapted by other countries, or why the techniques made their way into other countrys markets. Well, to be clearer, it will be motivating to know that the various methods related with or to the Japanese manufacturing included significance on development and designing practices to optimise efficiency and a rigid commitment to quality. The most widely used standard collection of manufacturing techniques is the Toyota Production System (TPS). The core of TPS is Just-In-Time (JIT) and lean manufacturing. The other important techniques followed in TPS are group technology, agile, and computer integrated manufacturing. Great industrialists such as Taiichi Ohno and Shigeo Shingo have suggested some basic features, which a manufacturing technique should consist of. According to them, a manufacturing system should: Achieve the cost reductions by eliminating waste such as staff time, materials, or other resources. Reduce the possibility of overproduction by maintaining a low and minimal inventory and keeps the labour costs low by having only the required manpower. Decrease production cycle time significantly with innovations, which reduces downtime and facilitates small-lot production. Stress on the product order, so that it guides the production processes and decisions. You have had an overview on the types of manufacturing techniques. We will now discuss these techniques in the following sections of this unit. Self Assessment Questions 1. The core technology followed by _____________ is the Just-In-Time (JIT) and lean manufacturing. 2. Great industrialists such as __________________ and __________________ have suggested some basic principles which a manufacturing technique should consist of. 3. TPS stands for ____________________________________. Activity 1: Research on the web for the significance of Toyota Production System (TPS) (Hint: http://en.wikipedia.org/wiki/Toyota_Production_System) 9.3 Group Technology In this section, you will be introduced to the group technology, followed by its features, types, views from different people, and finally its application in the manufacturing leads. Let us first try to understand what group technology is. Well, group technology was first introduced by Frederick Taylor in the year 1919, in order to improve the productivity. Group technology is a manufacturing idea that looks

to improve productivity by grouping parts and products with related features into families and structuring production cells with a group of different machines and processes. The features of group technology can be summed up to the following points, where: It has applications in several areas associated with manufacturing such as process planning, assembling, production control, fabricating, product design, and so on. It does not seek out to decrease the variety in the types of products supplied to the customers. It seeks to decrease the variety in the types of products manufactured. Now, let us discuss about the three types of group layouts in the group technology of manufacturing. Figure 9.1 depicts those three types.

Figure 9.1: Types of Group Layouts Under group technologys flow line, all of the parts allocated to the group pursue the same machine sequence and need relatively comparative time on each machine. The cell layout permits the parts to be moved from any machine to the other machine. The centre layout will be in a logical arrangement. Here, there is a possibility of machines being arranged in a process design by using functional departments. However, it is important to know that each machine will be dedicated to manufacture only certain types of parts. There are different views from different people on the group technology. The manufacturing engineer of a manufacturing organisation views the group technology as: An effort to obtain the benefits or the advantages of flow line system. Designing of a new part, which can be compatible with the current process and tooling of an existing family part. A chance to have a standard process plan and tooling, as it speeds up the part changes, just-in-time production, and short time cycles. A design engineer views the group technology as: An attempt to standardise the process and products plan. A chance to initiate the design by recovering the design of an existing part and modifying it as desired for the new part. A possibility of a quick new development plan for a new product by referring the previous documents and depending on earlier decisions on similar products.

 An opportunity to match the existing manufacturing measures with the future resulting plan. Therefore, we have discussed about the various views of different people on group technology. Now, we will discuss about the group technologys application in manufacturing. The group technologys application in manufacturing guides focused factories and cellular manufacturing, where the focused factory Strives for a narrow range of processes, customers, and products, which results in a smaller, simpler factory focused on a few manufacturing tasks. Is a plant within a plant, which manufactures numerous groups of similar products. The cellular manufacturing system. Focuses on a group of parts. Relates to the organisation of the manufacturing facility on the basis of dedicated cells of different machines, which process similar parts, called part families. Follows a configuration that is most suitable for medium volume and medium variety atmosphere. It will be easy for you to understand the application of group technology with an example. Without the application of group technology, Amco produced 150 similar parts on 51 machines with 87 routings. After the application of group technology, the same parts were produced by 8 dedicated machines. Thus, we have discussed group technology as one of the types of manufacturing techniques. Self Assessment Questions 4. Group technology was first introduced by Frederick Taylor in the year 1919 in order to improve the productivity. (True/False)? 5. Group technology looks out to decrease the variety in the types of products supplied to the customers. (True/False)? 6. Under group technologys flow line, all of the parts allocated to the group pursue the same machine sequence and needs relatively comparative time on each machine. (True/False)? 7. A manufacturing engineer views the group technology as an attempt to standardise the process and products plan. (True/False)? 8. The cellular manufacturing system focuses on a group of parts. (True/False)? Activity 2: Research on the web for the JIT firms who are using the group technology (Hint: http://www.thefreelibrary.com/Using+group+technology+in+JIT+firms%3A+comparing+small+and+largea016340642) 9.4 Just In Time Technique In this section, you will be introduced to the Just-in-Time manufacturing technique. Just-in-Time (JIT) is a manufacturing technique, intended to remove the manufacturing wastes by manufacturing the required right quantity and combination of parts at the right place at the right time. The above explanation is due to the fact that waste is generated from any activity, which adds cost without adding much value to the product such as storing of inventories or moving the inventories from one place to the other.

Therefore, the ultimate goal of JIT is to dramatically reduce the existence of non-value-adding operations and non-moving inventories into the manufacturing line. This will help a manufacturing sector to improve time delivery performance, shorter output time, higher equipment utilisation, lesser storage area and costs, and high profits. JIT was introduced in 1970s by Taiichi Ohno[1], who is now referred to as the father of JIT. The JIT philosophy was developed by Taiichi Ohno to fulfil customer demands with the least amount of delays. Therefore, JIT was earlier used to minimise the wastes while manufacturing goods, so that orders of customers were delivered when it was mainly required by the customer. JIT is also known as stockless production, as the secret behind the successful implementation of JIT is the reduction of inventory levels at different manufacturing sectors. This creates a synchronisation between different manufacturing sectors, where each sector manufacturers only the required amount of goods, which is required for the next sectors requirements. On the other hand, a sector only pulls in the required amount of goods which is required from the former sector. Another significant aspect of JIT is the usage of a pull system to move inventories through the manufacturing line. In this type of system, the needs of the next sector are what revise the production of the current sector. Therefore, it is very important under JIT to identify a procedure, where the pulling of goods from one sector to the other sector is made easy. One more important aspect of JIT is that it is relevant to manufacturing flows or a process which does not change, which means the processes or the production flows are repeated again and again. For example, you may take the automobile assembly line. Here, every bike or a car undergoes the same manufacturing process as the one before it. There are certain guidelines, which need to be followed for the successful implementation of JIT. The guidelines are outlined below. Construct the factory loadings in uniform, linear, and stable conditions as differences in manufacturing lots will result in blockage or in other words, bottlenecks. Minimise the manufacturing set up times and transfer times. Minimise the loads size, which, in turn, eases the transfer of inventories from one station to another station. Lessen the lead times by getting all the working sectors closer and equipment downtimes with the help of good preventive preservation. Cross train the employees to attain a flexible work force. You might be wondering whether there are any advantages or disadvantages of JIT manufacturing technique. Well, similar to many techniques even JIT has its own advantages and disadvantages. The following table 9.1 depicts the advantages and disadvantages of JIT manufacturing technique.

Table 9.1: Advantages and Disadvantages of JIT Advantages Lower stock holdings resulting in saving storage space and rent incurred towards it. Working capital is attached with stock as stock is obtained only when it is required. Disadvantages There may be room for mistakes, as minimum stock is kept for re-working defective product.

Production is very dependent on suppliers.

The entire manufacturing schedule can be Lesser chance of stock perishing, or getting obsolete. delayed if the stock is not delivered to time. Prevents the possibility of unsold products which might lose demand because of changed demand

Absence of spare finished product which can be

observed in the market.

used to meet un-expected orders.

Less time spent on checking and reworks, as the The manufactured products are produced to products are manu-factured correctly at the first time. meet the actual orders only. Therefore, we have discussed about JIT as a type of manufacturing technique. In the next section, we will discuss about the lean manufacturing technique. Self Assessment Questions 9. JIT stands for _______________________. 10. JIT is also known as ________________ production. 11. JIT was introduced in ___________ by Taiichi Ohno. 12. ___________________________ was earlier used to minimise the wastes while manufacturing goods, so that orders of customers were delivered when it was mainly required by the customer. Activity 3: Research on the web for the use of Just-In-Time manufacturing at Toyota (Hint: http://www.japan101.com/business/just_in_time.htm) 9.5 Lean Manufacturing Lean manufacturing is an organised approach in identifying and eliminating waste through continuous development of manufacturing the product at the demand of the customer. In other words, lean manufacturing is a scheme that looks to produce a high level of output with a minimum of inventory. From the time when Henry Ford invented the assembly line, industrial trendsetters have continuously focused on enhancement through a variety of different manufacturing techniques and this is where the lean manufacturing was successful. In the earlier days, lean manufacturing centres focused on placing small stocks of inventory in planned locations around the assembly line, instead of a centralised warehouse. These small stocks are known as kanban[2]. The usage of the kanban considerably minimises waste and improves productivity on the factory floor. In addition to removal of waste, lean manufacturing looks to provide the finest and optimum quality with the help of a method where every part is tested and examined soon after its manufacturing is done. In the process of testing, if there is any defect, the manufacturing line stops the production in order to detect the problem or defect at the earliest stage. There are a lot of similarities between lean manufacturing and the Total Quality Management techniques. Both of these techniques provide authorisation to the workers at the assembly line with the confidence that those close to the manufacturing have superior knowledge on how the manufacturing or the production system should work. Under the lean manufacturing technique, suppliers deliver small amounts of materials on a daily basis. In addition, the machines may not respond to their full capacity. As you already know, the main objective of lean manufacturing is to eliminate waste, which means anything which does not add value to the end product is eliminated. With reference to this, large inventories are seen as a type of waste, which carry a huge cost. Another major focus under lean manufacturing is the process of allowing the workers to make the manufacturing decisions at the lowest level possible. One more aspect, which is important to know, is that the supply chain managements partnership with suppliers matters a lot in lean manufacturing. This facilitates a swift flow of parts and products to the retail shop floor. Let us discuss about the implementation of lean manufacturing technique. Well, in order to implement the lean manufacturing process, it is important that each employee or worker is provided with significant training or has a required competency. After this training, implementing the following steps will help in implementation of successful lean manufacturing.

 Deciding which characteristics of lean manufacturing apply to your organisation and prioritising according to your requirements and capabilities. Classifying your workers into groups according to similar training requirements. Recognising your production programs and making a matrix, or a chart. Making a decision, whether you will hire an external consultant or take the suggestions of internal employees. Planning a time frame or listing according to work area or personnel. Setting up an immediate schedule and beginning the task according to the schedule. Thus, it ends the discussion on lean manufacturing techniques. Self Assessment Questions 13. Henry Ford invented the assembly line. (Truer/False)? 14. Under lean manufacturing technique, the suppliers deliver small amount of materials on a daily basis. (Truer/False)? 15. Supply chain management factors a lot into lean manufacturing with a tight partnership with suppliers. (Truer/False)? 9.6 Agile Manufacturing In the previous section, we explained about lean manufacturing. Now, you will be introduced to the agile manufacturing techniques, but first let us understand the term Agility. Agility is defined as the capacity of changing quickly or adapting to change quickly. The production technology used by the manufacturing units decides the capability of designers, marketers and production personnel to share the common database of parts and products. This is a major and one of the vital contributing factors, which a manufacturer must posses in order to be an agile manufacturer. Therefore, the agile manufacturing technique can be explained as the ability of surviving and flourishing in a competitive atmosphere of constant and unpredictable change by reacting swiftly and effectively to changing markets, driven by customer-designed products, demands, and services. The organisations or the companies, which have implemented agile manufacturing techniques, always have a very strong bonding or network with the vendors, suppliers, and other related companies. In addition, the companies also have a strong network with many other supportive teams that work together with the same organisation with reference to the manufacturing of a quality product. The organisation can retool facilities swiftly, discuss upon new agreements with suppliers and other partners with reference to the changing market, and take other initiative steps to fulfil customer demands. This means that the organisation can increase manufacturing of products with a high consumer demand as well as redesign products to respond to issues that have emerged in the open market. As you all know, markets can change very swiftly, especially in the global economy. An organisation, which cannot adapt swiftly to change, will find itself left behind, and once an organisation starts to lose its market share, it can succumb to a complete loss rapidly. The primary goal of agile manufacturing is to keep the company always ahead of the competition, so that consumers think of that company first, which continues innovating and introducing new products. The main reason behind this is the strong financial stability and a strong customer support base. In the case, where an organisation or a company plans to shift to agile manufacturing technique, the companies can always take advantage of specialists, who provide solutions to companies and who help in improving or converting the existing manufacturing techniques into agile manufacturing. These specialists can offer a tailored solution with reference to the type of sector that a company is involved in. The specialists make a company to be competitive as quickly as possible with their tested agile manufacturing techniques. It will also be useful for you to know that there are some key issues in agile manufacturing. The key issues in agile manufacturing are:

 The "I am a Horse" Syndrome. The Existing Culture of Manufacturing. The I am a Horse syndrome: You must be aware of an old saying where it states that hanging a sign on a cow which states "I am a horse" does not really make a cow, a horse. Similarly, there is an absolute danger that agile manufacturing can be a victim to the unlucky tendency in manufacturing circles to follow the trend and to re-label everything with a new fashionable name. The danger is divided into two fold. First, it will offer agile manufacturing a bad reputation and second, the management will only get a superficial understanding, which leaves them helpless to those competitors that take agile manufacturing seriously. The existing culture of manufacturing: The most vital thing which will hold an organisation or a company back from making a quantum leap forward to explore agile manufacturing, is the traditions and the accepted beliefs and values of the organisations. Without any doubt, the key success factor is the skill to dominate both the hard and soft issues in change management. Nevertheless, if an organisation wants to achieve agility in the manufacturing enterprises, then it should first try to completely understand the nature of its existing values, traditions, and cultures. An organisation needs to realise this understanding as there is a need to come to terms with the fact that much of what everyone in an organisation have taken for granted probably no longer applies in the world of agile manufacturing. Accomplishing this understanding is the first step in facing the pain with the existing culture to the historically redundant ideas. Self Assessment Questions 16. ________________ is nothing but the capacity of changing quickly or adapting to the change quickly. 17. An organisation which cannot adapt __________ to change will find itself left behind. Activity 4: Research on the web for agile manufacturing solution providers (Hint: http://www.logisticsit.com/absolutenm/templates/article-manufacturing.aspx?articleid=5385&zoneid=34) 9.7 Computer Integrated Manufacturing In this section, we will discuss about Computer Integrated Manufacturing (CIM). Computer Integrated Manufacturing can be defined as the utilisation of computers in management and control of manufacturing processes, such as cutting and forming machines, automatically coordinating the operations of conveyor systems and riveting and welding machines. In other words, it can be defined as a manufacturing approach that uses computers to control the entire manufacturing process. The CIM was promoted in the 1980s by the machine tool manufacturers and the Society for Manufacturing Industries (SME). Some of the procedures involved in the CIM are: Computer Aided Design (CAD). Computer Aided Manufacturing (CAM). Computer Aided Process Planning (CAPP). Computer Numerical Control Machine Tools (CNC). Flexible Machining Systems (FMS). It is very important to know that the heart of Computer Integrated Manufacturing is the Computer Aided Design (CAD) and Computer Aided Manufacturing (CAM). Computer Aided Manufacturing (CAM) and Computer Aided Design (CAD) systems are very important to an organisation, as they reduce the production or the manufacturing durations. Computer Aided Manufacturing and Computer Aided Design is a high end integrating technology tool between manufacturing and design. Computer Aided Design techniques make use of group expertise to produce similar techniques for swift recovery, where the

drawing boards are replaced by electronic files. Computer Aided Design and Computer Aided Manufacturing incorporated systems offer design, drafting, scheduling, and production capabilities. Computer Aided Manufacturing offers the provision for instrument path cutters to take on the raw material and Computer Aided Design offers electronic part images. The images or the computer graphics offered by the Computer Aided Design permits the designers to produce electronic images. These images can be depicted in two dimensions, or as a three dimensional (3D) solid component or assembly, which can be rotated as it is viewed. The superior software programs can test and analyse designs before the production of a prototype. Finite element analysis programs permits engineers to forecast the effects of loading and stress points on a part. When the designing of a part is complete, the created graphics can be used to program the instrument path with the machine part. When incorporated with an NC postprocessor[3], the NC program that can be used in a Computer Numerical Control Machine Tools (CNC) machine is created. The designed graphics can also be used to produce or design fixtures and tools. In addition, it can also be used for inspection by coordinate measuring machines. It is observed that the more downstream use is made of Computer Aided Design, the more time is saved in the overall process. Process planning translates design information into the process steps and instructions to efficiently and effectively manufacture product. As the design process is supported by many computer-aided tools, computer-aided process planning (CAPP) has evolved to simplify and improve process planning and achieve more effective use of manufacturing resources. The other important system is the Flexible Machining Systems (FMS). It is the additional concept of cellular manufacturing and group technology concepts. Using incorporated Computer Aided Design and Computer Aided Manufacturing many parts can be programmed and designed in half the time it would normally take at the time of actual engineering task. The elements of a program can be downloaded to a Computer Numerical Control Machine centre under the control of a Flexible Machining Systems host computer. The Flexible Machining Systems host can program the Computer Numerical Control Machine Tools and the parts necessary to execute the task. Therefore, it is understood that computer integrated manufacturing can include different combinations of the tools listed above. Self Assessment Questions 18. The images or the computer graphics offered by the Computer Aided Design permits the designers to produce electronic images. (True/False)? 19. Computer Aided Manufacturing offers the electronic part images. (True/False)? 20. CNC stands for Computer Numerical Control Machine Tools. (True/False)? Activity 5: Research on the web for other types of Computer Integrated Manufacturing types (Hint: http://en.wikipedia.org/wiki/Computer-integrated_manufacturing) 9.8 Summary In this unit you have learnt that the manufacturing techniques emerged in the late 18th century as an area of influential practice and philosophies and obtained its height of prominence in the earl 1980s. You also understood that a typical manufacturing technique should have the following basic features. Achieve the cost reductions by eliminating waste. Reduce the possibility of overproduction by maintaining a low and minimal inventory. Decrease production cycle time significantly with innovations. Stress on the product order so that it guides the production processes and decisions.

 Later, you were introduced to the group technology which was introduced by Frederick Taylor in the year 1919 in order to improve the productivity. You also understood that the group technology is a manufacturing idea that looks to improve productivity by grouping parts and products with related features into families and structuring production cells with a group of different machines and processes. After group technology, you learnt about Just-In-Time which is nothing but a manufacturing technique intended to remove the manufacturing wastes by manufacturing the required right quantity and combination of parts at the right place and at the right time. Later, you studied about lean manufacturing, where it is an approach that looks to produce a high level of output with a minimum of inventory. You also learnt about its implementation with the help of some important points such as: Classifying your workers into groups according to similar training requirements Recognising your production programs and make a matrix, or chart. Planning a time frame or list according to work area or personnel. After lean manufacturing, you were introduced to agile manufacturing, which was defined as the ability of surviving and flourishing in a competitive atmosphere of constant and unpredictable change by reacting swiftly and effectively to changing markets, driven by customer-designed products, demands, and services. You also learnt about some key issues in agile manufacturing. Finally, the unit was ended with the discussion on the Computer Integrated Manufacturing (CIM) where computer integrated manufacturing can be defined as the utilisation of computers in management and control of manufacturing processes, such as cutting and forming machines, automatically coordinated operations of conveyor systems, and riveting and welding machines. 9.9 Glossary Term Fabricating Stockless Description Manufacturing of a product. A supply of accumulated products for future use. It represents any visual method used to show the need for parts or products to be moved or produced.

Kanban

9.10 Terminal Questions 1. Discuss the different types of manufacturing techniques. 2. Explain the group technology 3. Explain Just in Time 4. Describe lean manufacturing 5. Explain agile manufacturing 6. Describe the computer integrated manufacturing 9.11 Answers Self Assessment Questions 1. TPS

2. Taiichi Ohno and Shigeo Shingo 3. Toyota Production System 4. True 5. False 6. True 7. False 8. True 9. Just-in-Time 10. Stockless 11. 1970s 12. JIT 13. True 14. True 15. True 16. Agility 17. Swiftly 18. True 19. False 20. True Self Assessment Questions 1. Refer to section 9.2 Types of Manufacturing Techniques. 2. Refer to section 9.3 Group Technology 3. Refer to section 9.4 Just In Time 4. Refer to section 9.5 Lean Manufacturing 5. Refer to section 9.6 Agile Manufacturing 6. Refer to section 9.7 Computer Integrated Manufacturing 9.12 Case Study Adaptation of Lean Manufacturing Manchao When Manchao was started ten or fifteen years ago, it was extremely successful and acquired huge

amount of orders with limited variety or range. Over a period of many years, markets began to change and the product mix became more and more diverse and with very smaller orders. The increasing variety demanded greater than ever overhead in terms of material handlers, engineering, production control, salespeople, and a host of other tasks. The established accounting allocations leaned to assigned low cost to low volume and too much overhead cost to high volume products. This, in turn, led to fewer high-volume orders and more lowvolume orders. However, these effects were so slow in developing as they were overlooked. Now, Manchao was in danger as the market share was declining and profit margins were low. Delivery and quality was not competitive. Many consultants from different internal sectors spent the most part of the four months at the firm. They learnt, taught, and experimented. It is very well understood that the paradigm shift or the changes are frustrating and difficult. This was not an exception for Manchao. After some time, ten work cells were in the firm and a large-scale layout showed the locations of remaining cells. An effective training was held. With this training all the workers and employees were developing. It also helped the supervisors to learn and deal with the cell environment. Manchao carried on this work for many years without diverting a bit. These tactics helped the organisation to get internalised the lessons and spirit of Lean Manufacturing. Questions: 1. How did Manchao adapted it self to the lean manufacturing technique. (Hint: Training and spending time in the firm) The idea for this case study is taken from the following website: http://www.strategosinc.com/lean_case_study.htm

OM0017-Unit-10-Flexible Manufacturing System

Unit-10-Flexible Manufacturing System Structure: 10.1 Introduction Objectives 10.2 Flexibility 10.3 Productivity vs. Flexibility 10.4 Requirement of Characteristic Features for Production 10.5 FMS as a Best Solution and its Generics 10.6 Development of FMS as a Philosophy of Production 10.7 Fundamental Building Blocks/Elements of FMS 10.8 Global Sequential Scenario of Manufacturing 10.9 Benefits of FMS 10.10 FMS vs Stand Alone Machine

10.11 A Few Applications of FMS in Industries for Exclusive Parts 10.12 Summary 10.13 Glossary 10.14 Terminal Questions 10.15 Answers 10.16 Case study 10.1 Introduction By now you should be familiar with the various techniques employed in manufacturing. You also have an understanding of how these techniques are implemented and the advantages of using different techniques. In this unit, we will discuss the need for flexibility in the manufacturing process. We will start this unit by understanding the term flexibility along with the concept of productivity versus flexibility. Later we will discuss about the characteristic features required for production and flexible manufacturing system (FMS) as a best solution. We will also discuss about the development of FMS as a philosophy of production, fundamental building blocks or the elements of FMS along with the global sequencing scenario of manufacturing. Later, this unit continues with the discussion on benefits of FMS and information on FMS versus stand alone machine. Finally, we will end this unit, with the discussion on a few applications of FMS in industries. Objectives After studying this unit, you should be able to: Explain productivity versus flexibility. Describe the requirement of characteristic features for production. Define the benefits of FMS. Analyse the global sequential scenario of manufacturing. Review the fundamental building blocks of a flexible system 10.2 Flexibility When we mention flexibility, the first thing that comes to our mind is the ability to adapt to a new or emergent situation. In the past two decades technology has made significant advancements specifically in the area of automation and computerisation. The manufacturing industries have incorporated these advancements to build flexible manufacturing systems. A Flexible Manufacturing System (FMS) is a manufacturing system comprising a set of similar and/or corresponding numerically controlled machines, which are connected through an automated transportation system. A dedicated computer controls each process in the FMS. Flexible manufacturing is possible in automatic and automated factories. Automatic factories are suitable for low variety high volume production; where as automated factories are suitable for large variety of production. After sourcing all the material, a computer can be used for designing the production operations. A computer can control the flow of parts and control the machine tools in, say, a batch type production situation. This method/system of manufacturing is termed as Computer Aided Manufacturing (CAM). The availability of a suitable material handling system is very important to make an efficient and flexible manufacturing system exist. An FMS has the following three components:

 Computer Numerically Controlled (CNC) machine tools. Computer controlled material handling system. Supervisory computer controlled network. When you want to manufacture an intermediate range of variety and an intermediate amount of volume then the FMS systems are best suitable. Such automation brings in the benefit of flexibility in producing variety, volume, low setup times, high output rates, and low process induced variability in the output. In addition to this, there is an improvement in the quality of the product. It is critical that the FMS delivers the required quantitative and qualitative benefits to the production facility. A well designed FMS would be a valuable advantage to the company. The characteristic differences between productivity and flexibility are resolved by applying the concept of a mid volume and mid variety manufacturing system. Flexibility has three levels: Machine technology. Process specialisation. Machine specialisation. The flexibilities include related operation in: Machines. Material handling. Operations. Volume of production. Routing. Product and production system. Programming. Expansions. Adapting to market flexibilities. In the next section, we will discuss the differences between flexibility and productivity. 10.3 Productivity vs. Flexibility In order to know the concept of flexibility versus productivity, we need to address questions like, what is the nature of relationship between the two? And does it mean that greater flexibility implies lesser or higher productivity? A general proposition is flexibility hampers productivity by reduced output and requirement of more input. As flexibility facilitates more options, it would be hampering productivity. This is due to the freedom of choice and change mechanisms. Flexibility raises the need for more inputs for more options and reduced output. This opinion can be observed from two viewpoints: one from the input and the other from the output point of view.

Let us match the output of a mass manufacturing system and a flexible manufacturing system. Less flexibility may cause productivity of undesired output, whereas more flexibility will result in more real productivity of the desired output. In order to bring out the difference between productivity and flexibility, let us consider two manufacturing systems such as A mass manufacturing dedicated assembly line. A flexible system able to handle many products. Now, which manufacturing system is expected to have a higher rate of products manufactured per day? You may tell that a dedicated system would have higher output rate as there are no changeover time in-between. However, in reality, a manufacturer requires to produce many models as per customer requirements. If a dedicated assembly line is used, then you would incur loss of setup time as every new model requires a new setup to be created. Whereas, in case of an FMS many models can be handled simultaneously, and in that way, you will have more satisfactory output and thus more productivity in real sense. Thus, with less flexibility, the productivity seems to be high, but with more of undesired output whereas more flexibility enables more real productivity of desired output. A common assumption is that a dedicated system requires less input and is more efficient. However, a flexible system manages uncertainty of demand effectively, leading to less input per unit of output. Let us examine the condition of input required in a less flexible and more flexible system for the same issue being discussed above. Normally, it is assumed that a dedicated mass manufacturing system would be more efficient and would require less input of manpower and machines per unit product. A dedicated system requires balanced production stages and well skilled workers. On the contrary a flexible manufacturing system, producing different products at a time will require higher inputs of technology and multi-skilled workers. It is observed that a less flexible system has higher productivity level on account of lower inputs. However, this is not true always as a dedicated system may be idle, when there is no demand for that product resulting in higher input costs per unit of output produced. Whereas, in such a case, a flexible system will be able to better cope with uncertainty of demand as it deals with a variety of products. Thus, having higher capacity utilisation in real terms leads to higher productivity by way of less input per unit of output. Thus, from the above discussion, we can conclude that though the productivity of a less flexible system may appear to be higher than that of a more flexible system in a stable environment, in real terms, the situation would be reverse in an uncertain and dynamic environment. Flexibility built into FMS and its productivity with respect to machining technology is shown in the following figure. Here, lesser the volume of production, lot more is the flexibility. The following figure 10.1 gives a view of productivity and flexibility of a standalone machine, a CNC machine and an FMS system.

Figure 10.1: Flexibility vs. Productivity In the next section, we will discuss the characteristics and features exhibited by FMS. Self Assessment Questions 1. Flexible manufacturing is possible in automatic and automated factories. (True/False)? 2. Flexibility hampers productivity by reduced output and requirement of more input. (True/False)? Activity 1: For a textile manufacturing industry, find out how flexibility improves productivity. (Hint: www.indiantextilejournal.com/articles) 10.4 Requirement of Characteristic Features for Production A characteristic FMS consists of programmable machines and devices, which can communicate with each other. All materials like the parts, pallets, and tools are moved automatically within the FMS. A unified control is provided by computer-based system and thus, it allows a partial or complete automatic operation. FMS is a section of a computer-based technology, termed as computer-integrated manufacturing (CIM), which is involved in the movement and processing of parts on the factory floor. The programmable machines, equipments, and devices are numerically controlled robots, materials-handling equipment, machine tools, and measuring machines. Each programmable machine or device usually has a dedicated computer, which acts as its own controller. Special purpose programs are written for these controllers, usually in a sophisticated language, which is designed to handle the geometry and machining. The communication between the programmable machines and devices is made possible through an electronic connection between their controllers. The orders and commands issued to the FMS are handled by a computer based unified control. The computer based unified control consecutively issues orders for transporting various materials, scheduling activities, the starting and stopping of programs, and other functions. The degree of flexibility of an FMS is to the extent of the control applied by the computers. In addition, the device controllers can be reprogrammed to make new parts or old parts in different ways. However, this type of flexibility is limited to a particular family of parts. 10.5 FMS as a Best Solution and its Generics Flexible manufacturing systems are usually a combination of mechanical and micro-electronics engineering, and bring-in the benefit of economics of scale to batch work. An FMS is a manufacturing system in a manufacturing cell

made up of one or more CNC machines. These are connected by an automatic material handling system. These operate under the control of a central computer with other ancillary subsystems like component loading or unloading station, wash system, tool pre-setter, automatic tool handling system, component measuring equipment and so on. An FMS incorporates a system view of manufacturing with a buzz word of agility. An agile manufacturer delivers the products to the market quickly, operates with minimum total cost, and has the ability to satisfy the customers. FMS is the way for achieving high agility in manufacturing. A set of work stations/machine tools that require the least time to change over jobs or least set-up time performs operations like drilling, milling, tapping, reaming, turning, grooving, and boring all at one work station. A material handling system is automated and flexible to move the jobs between machines and follows job routing. The supervisory computer in the network performs the following tasks: Directs the routing of jobs through the system. Tracks the status of all jobs in progress and the next station to go. Assists the processing of each operation to each station and ensures that the right tools are available for the job. Monitors the correct performance of operations and indicates problems if any, in order to take immediate action. Stores material either at work stations, and/or at a central location. The principle objectives of FMS are: To improve operational control by: Reducing the number of uncontrolled functions. Providing tools to react quickly to deviations in the manufacturing plan. Minimising the dependence of human communication. To reduce direct labour by: Removing operators from their responsibility from the machining site. Eliminating dependence on highly skilled workers. To improve short run responsiveness consisting of: Engineering changes. Processing changes. Machining downtime or unavailability. Cutting tool failure. Late material delivery. To improve long-run accommodations by: Changing product volumes. Adding new product and introductions.

 Differentiating part mixes. Increasing machine utilisation by: Eliminating machine setup. Employing automated features to replace manual intervention. Reduce inventors by: Reducing lot sizes. Improving inventors turn-over. Providing the planning tools for JIT manufacturing. FMS guarantees that the cost incurred in production is low and the material utilisation is efficient. Hence, economics of scale (cost advantage) in operation is ensured. Therefore, FMS is one of the best solutions. Self Assessment Questions 3. The computer-based unified control handles the commands and orders issued to the FMS. (True/False)? 4. FMS is a way of manufacturing to achieve high agility. (True/False)? 5. Directs the routing of jobs through the system is one of the tasks of ______________ computer. 10.6 Development of FMS as a Philosophy of Production The idea of an FMS system was proposed to facilitate a flexible machining system that could operate without human intervention for 24 hours a day under computer control. Much emphasis was laid on automation rather than the "reorganisation of workflow". Earlier, FMS was very complicated and large, consisting of many Computer Numerical Controlled (CNC) machines and advanced material handling systems. These systems were expensive, highly automated, and were controlled by very complex software. Only a few industries could meet the expense of investing in a traditional FMS. Now the industry has come up with an innovative approach of incorporating small increments of the traditional FMS, called flexible manufacturing cells (FMC). These flexible cells may contain two or more CNC machines or the FMS may be considered to have two or more cells. From the above description, we can say that an FMS consists of many machines and tool handling devices like robots, and these are arranged in such a way that they can handle any category of parts. The different FMS levels are: Flexible Manufacturing Module (FMM). Flexible Manufacturing (Assembly) Cell (F (M/A) C). Flexible Manufacturing Group (FMG). Flexible Production Systems (FPS). Flexible Manufacturing Line (FML). Flexibility in the operation of a machine is because of CNC control. Flow of product from one machine to another is through the flexible transport system. Emphasis has shifted to the combination of mechanical hardware, electronics, and software, which accounts for 50% of the value of modern manufacturing systems.

With rapid developments in electronics, the machine tool technology has graduated from the concept of standalone to the introduction of system oriented FM cells, FMS, and computer integrated manufacturing (CIM). This development in manufacturing technology is shown in the following figure 10.2.

Figure 10.2: Development in manufacturing technology This development of manufacturing was due to the requirement of flexibility, shift in market demand, customer preferences, the product variety, and change from mass production to batch production by the use of FMC and FMS. The FMS station contains a 5-axis robot and 3-axis CNC milling machine, which together execute automated manufacturing processes. Loading and unloading of parts to and from the CIM conveyor are done by the robot. To provide mobility and increase its work area, the robot is mounted on a linear slide base. Self Assessment Questions 6. Incorporating small increments to the FMS is beneficial. (True/False)? 7. Flexible cells may contain two or more CNC machines. (True/False)? Activity 2: Research on web for the two FMS applications used in manufacturing industries. (Hint: www.setpointusa.com) 10.7 Fundamental Building Blocks/Elements of FMS Before discussing the fundamental building blocks of FMS, let us discuss about the number of machines which an FMS consists. FMS consists of more than one machine. Many of these machines, which are of CNC type, operate under integrated computer control. The various equipments and their functions required for FMS are: Primary equipment: It adds value to the parts being produced. It consists of work centers and process centers that have machines, which assemble and check or wash the parts.

 Secondary equipment: It supports the primary equipment and helps to achieve its goal. It comprises support stations like tool commissioning/ setting area and pallet/fixture load or unload stations. It also has support equipments like pallet/fixture stores, robots, pallet buffer stations, transport system for tooling, raw material stores, and piece parts. The fundamental building blocks of FMS are: Workstations. Automated Material Handling and Storage system. Computer Control System. Workstations: Nowadays, workstations are typically computer numerical control (CNC) machine tools that perform machining operation on families of parts. An FMS is being incorporated with other type of processing machines like, assembly works, inspection stations, and sheet metal presses. The various workstations are: Machining centers. Load and unload stations. Assembly work stations. Inspection stations. Forging stations. Sheet metal processing. Automated material handling and storage system: There are different automated material handling systems that are used to transport sub-assembly parts and other work parts between the workstations. Sometimes storage is incorporated as a function also. The functions of automated material handling and storage system are: Movement of work parts between workstations randomly and independently. Handling of various configuration of work part. Temporary storage. Convenient access for loading and unloading of work parts. Compatible with computer control. Computer control system: The functions of the processing stations and the material handling system in the FMS are coordinated by the computer control system. The various functions of a computer control system are: Control of each work station. Distribution of control instruction to work station. Production control. Traffic control. Shuttle control. Work handling system and monitoring. System performance monitoring and reporting.

FMS is suitable for the production of mid value, mid variety range. Self Assessment Questions 8. _______________________ adds value to the parts being produced. 9. ___________________ are typically computer numerical control (CNC) machine tools that perform machining operation on families of parts. 10. Movement of work parts between workstations randomly and independently is the function of automated material handling and storage system. (True/False)? 11. The functions of the processing stations and the material handling system in the FMS are coordinated by the computer control system. (True/False)? Activity 3 Assume that you are using traditional lathe machines in order to manufacture some engineering parts. Discuss how you would incorporate flexibility and cut labour cost. (Hint: Using CNC lathe machines) 10.8 Global Sequential Scenario of Manufacturing The unpredictable and complex global manufacturing scenario underlines the importance of the two management problems that most large companies confront. These problems are the configuration as well as the coordination of the network of global facilities. Large companies have been implementing different management practices to remain competitive in todays global economy. Lean manufacturing is an emerging technique that improves performance considerably in terms of delivery, cost, quality and flexibility. Even though small and medium enterprises (SMEs) play a very important function in the global manufacturing supply network, it is not known about the extent to which lean manufacturing is present in these enterprises. Normally, lean manufacturing methods are not implemented as a formal management initiative in SMEs. This is because there are constraints, which are applied by the way they operate. You need to address these issues and devise strategy to incorporate lean manufacturing procedures. Information and communication technologies like pervasive computing play an important role in implementing this successfully. No organisation can risk ignoring this aspect in the present business environment. SMEs can reap maximum benefits if they implement this formally into their system. This brings in advantages in the area of logistics (that is, supply, distribution and manufacturing phases). The following figure 10.3 shows the dependence of FMS on different manufacturing processes and technologies.

Figure 10.3: Manufacturing technologies and processes In the following sections, we will discuss the advantages of using an FMS and the application of FMS in different industries. 10.9 Benefits of FMS An important advantage of FMS is that it can change as and when the market fluctuates. The FMS can also be changed to produce more or less of a product depending on the requirement. This feature of FMS is what many manufacturers seek out when developing a product. The FMS can also expand when a manufacturer is looking to expand. The FMS can adapt to changes and new technologies as and when they are developed. Potential benefits (tangible and intangible) of establishing FMS are: Quick, low-cost changes from one item to another, thus improving capital utilisation. Reduction in number of workers, therefore less labour cost. Better quality accompanied with consistency due to automated control. Less waste generated. Fewer workstations, reduced set up time, quick changes of tools, dies, and stamping machinery. Reduced downtime. Better control over quality, less rejection, high product quality. Reduced labour, minimally manned operation. Increased capacity and hence more efficient use of machinery. Increased production flexibility (to change part variety). Higher machine utilisation and hence higher productivity. Better control over production and balanced output.

 Reduced work-in-process and inventory. Just in time manufacturing possible. Reduced plant size. Unmanned operation is possible. Quicker response to market changes with shorter delivery time. A route to Computer Integrated Manufacturing. If the manufacturer has to avail the above mentioned benefits, then the FMS should have these two characteristics: Technological consistency of the hardware. Flexibility of management and technology. 10.10 FMS vs. Stand Alone Machine The main advantage of FMS seems to be their flexibility. In traditional processes/technologies any change to machines need to be carried out on the hardware itself. However, new manufacturing technologies like, FMS hold the commands in the form of software, which can be easily changed. FMS may seem to be more flexible than the previous technology it is replacing. However, they are not as flexible as the system they intend to replace. The environment, where FMS seems to be appropriate is when there is a demand for high variety or low volume manufacturing. However, earlier this process would have used stand-alone machine tools. Such a manufacturing system is more flexible in terms of the variety of products it can process and is more flexible than FMS. Therefore, FMS systems are not used when the range of products which are to be produced is wide. FMS pose no problems for human workers. For automated systems, some sort of product identification is needed. Quick changeover of operating instructions and physical setup is possible. Flexible manufacturing systems can be implemented in situations where grouping of parts manufactured in a plant is possible. This is because it allows parts to be processed on the machine in the flexible system. The differences between installing a manually operated machine cell and an FMS are: The FMS needs more capital investment because new equipment is being installed rather than existing equipment being rearranged. The FMS is technologically more sophisticated and skilled workers are needed to make it work. A manufacturing system cannot be completely flexible. The FMS has limitations on the range of parts or goods that it can produce. An FMS is capable to produce parts only within a defined range of styles, sizes, and processes. FMS is also classified by the level of flexibility: It is designed to manufacture a limited variety of part styles, and the parts to be made on the system are known in advance. Part family is mostly based on product commonality rather than geometric similarity. A few disadvantages of FMS system are: The ability to adapt to changes in product or product mix is limited (example, machines are of limited capacity and the tooling necessary for products, even of the same family, is not always feasible in a given FMS) No substantial pre-planning activity

 Expensive, costing millions of dollars There can be technological problems like positioning the component exactly and requires precise timing to process a component Sophisticated manufacturing systems 10.11 A Few Applications of FMS in Industries for Exclusive Parts Here we will discuss the industries where FMS systems are widely used. Figure 10.4 shows the application of FMS in an industry. Pharmaceutical industry: The expenditure on manufacturing biopharmaceuticals and vaccines is very high and small companies find it difficult to obtain financing it in the current times. In order to cut costs, small firms and contract manufacturers have adopted flexible manufacturing systems and abandoned fixed equipments. These flag bearers of FMS have also found that it is easy to follow regulations using flexible systems. In addition to this, we can now find the proliferation of FMS systems in the industry. Textile industry: The single largest event in the last 20 years that has a positive impact on garment manufacturing is the introduction of flexible manufacturing cells/systems. Flexible systems are very valuable tools for manufacturing products in either large or small volumes and with high or low variety. The actual benefit of FMS is achieved by matching the cells to the companies strategies with adequate planning and design of team characteristics.

Figure 10.4: Application of FMS in an industry Automobile industry: The Toyota Production System (TPS) is an integrated system, developed by Toyota Motor Corporation, which includes its philosophy of management and practices. The manufacturer can organise manufacturing and logistics for the automobile manufacturing company and enable interaction with suppliers and customers. The main aim of the TPS is to design a way to eliminate overburden and inconsistency, and to minimise wastage. The most sought after feature is the capability to deliver the required results smoothly. It is also of prime importance to ensure that the process is flexible as required without overburdening the equipment since this generates waste.

Aircraft manufacturing: Every aeroplane is customised for a specific customer. Major components are desirable to follow the FMS concept of manufacturing in a customised manufacturing environment. Self Assessment Questions 12. No substantial pre-planning activity is the advantage of FMS. (True/False)? 13. Lean manufacturing improves performance. (True/False) 14. FMS can easily adapt to changes in product-type and product-mix. (True/False) 15. FMS can easily change as the market fluctuates. (True/False) Activity 4: List out any two FMS systems being used today by manufacturers (Hint: SAP system) 10.12 Summary Flexibility is nothing but adapting to changes and delivering as the situation demands. Flexibility in manufacturing also goes by the definition of flexibility. An FMS is a system that provides the facility to the manufacturer to cater to changing markets, fluctuating demand, changes in consumer preferences and other socio-political factors. FMS, if effectively implemented, will reap benefits for the company in the form of reduced downtime, less wastage, low change over and set-up cost, matching demand and customer taste, less workforce requirement and so on. Flexible manufacturing systems are day by day increasing their presence in various industries. These systems rely on and are controlled by centrally handled computers, which are programmed using sophisticated programming languages. Automation is a major part of flexible manufacturing systems. CNC machines were the first form of flexible manufacturing systems. Now there are many companies offering customised and generic FMS applications (softwares), applying across many industries. We also discussed the different building blocks of FMS. FMS has many advantages over standalone machines. Standalone machines cannot adapt to changes in the product type, that is, they can only be applied to the respective part family and if change is forced, then it is expensive. Whereas, FMS can adapt to any kind of product, only that they have to be reprogrammed to handle the geometry and machining. 10.13 Glossary Term Description Supporting systems which operate under the control of a central computer. Machines that are highly automated and are controlled by computers. A production technique which eliminates wastage of material. Present widely and being used throughout the system.

Ancillary CNC Lean manufacturing Pervasive

10.14 Terminal Questions 1. What do you mean by flexibility? And what is flexibility in manufacturing? 2. Bring out the differences between productivity and flexibility. And is productivity compromised by introducing flexibility in the manufacturing process? 3. What are the characteristics of FMS?

4. What are the benefits of using FMS? 5. What are the fundamental building blocks of FMS? 6. Differentiate between FMS and standalone machine. 7. Discuss about the development of FMS as a philosophy of production. 10.15 Answers Self Assessment Questions 1. True 2. False 3. True 4. True 5. Supervisory. 6. True 7. True 8. Primary Equipment. 9. Workstations 10. True 11. True 12. False 13. True 14. False 15. False Terminal Questions 1. Refer Section 10.2 Flexibility 2. Refer Section 10.3 Productivity vs. Flexibility 3. Refer Section 10.4 Requirement of characteristic features for FMS 4. Refer Section 10.9 Benefits of FMS 5. Refer Section 10.7 Fundamental building blocks of FMS 6. Refer Section 10.10 FMS vs. Standalone machine 7. Refer Section 10.6 Development of FMS as a philosophy of production 10.16 Case study Implementing FMS in the Apparel industry

An apparel manufacturing company ABC Ltd. was running a facility, which was old and the machines were not fully automated. It used to incur losses in the form of wastage of material due to the mistakes made by workers. The company hired a consultant and estimated the cost of installing new FMS systems and the savings that would be made by installing the system. The consultants came up with numbers that suggested about 52% of the material could be saved by installing new advanced machines. However, the investment was high as this also required procuring skilled labour to operate the new machines. The consultants argued that the investment could be recovered within two years. The management of the company went ahead and installed new machines. In the first two months of operation the management found that the material wastage had significantly reduced as the cutting operation was done by the machines. The cutting process included programming the computer that is controlling the machine with the design, size and shape of the part. Design for more than two parts could be programmed into the computer. This computer could control more than one machine. This automation totally cut the parameter of human error. The companys return on investment was high for the first year and it recovered its investment within a span of 30 months. This way, ABC Ltd. could minimise the wastage of material and effectively utilise its manpower. Questions: 1. What made ABC Ltd. to install FMS? (Hint: Wastage of material)

OM0017-Unit-11-Synchronous Manufacturing
Unit-11-Synchronous Manufacturing Structure: 11.1 Introduction Objectives 11.2 Origin of Synchronous Manufacturing Process 11.3 Goals 11.4 The Characteristics 11.5 Symptoms of Poor Synchronisation (Typical) 11.6 Need for Synchronous Manufacturing 11.7 Principles of SM 11.8 Features of SM and Methodology 11.9 Step By Step Approach in SM 11.10 Start Up Process 11.11 Performance Measurements 11.12 Performance Measurement : Examples

11.13 Capacity Unbalanced capacity Dependent events 11.14 Bottlenecks and Non-Bottlenecks 11.15 Time Components 11.16 Capacity Constrained Resources (CCR) 11.17 Goldratts Theory of Constraints (TOC) 11.18 Steps of TOC to Solve Problems/Constraints 11.19 Understanding Drum-Buffer-Rope Drum Buffer Drum buffer Shipping buffer Assembly buffer Rope Concepts of DBR Buffer management 11.20 SM Process: Pull and Repetitive Pull System 11.21 Managing Demand 11.22 Interfacing with Other Systems 11.23 Material Requisition Planning (MRP) System, JIT & SM 11.24 Comparison of Three Systems JIT, MRP and SM 11.25 Benefits of Being in SM 11.26 Summary 11.27 Glossary 11.28 Terminal Questions 11.29 Answers 11.30 Case Study 11.1 Introduction By now you must be familiar with flexible manufacturing along with its benefits, limitations, and applications. In this unit, we will be discussing Synchronous Manufacturing (SM).

In this unit, we will discuss the origin and goal of synchronous manufacturing (SM) along with its characteristics. Then we will look into the need for SM and the principles surrounding SM. Then we will see how poor synchronisation will affect the manufacturing process. In the rest of the unit, we will see what is capacity and what are bottleneck and non-bottleneck resources. You will also learn the Goldratts theory of constraints and will develop an understanding of drum-buffer-rope. At the end, we will discuss the benefits of using SM, techniques of managing demand and the differences between MRP, JIT and SM. Objectives: After studying this unit, you should be able to: Analyse the symptoms of poor synchronisation. Explain the goals and principles of Synchronous Manufacturing. Describe Capacity Constrained Resources (CCR) Define Goldratts Theory of Constraints (TOC) Explain the Drum-Buffer-Rope technique in scheduling 11.2 Origin of the Synchronous Manufacturing Process The philosophy of the Synchronous Manufacturing (SM) process is ensuring continuous optimal growth and optimal production. The characteristics and methodology of SM will help managers to develop and implement efficient processes for production, by eliminating all constraints. The phrase synchronous manufacturing was framed in the 1980s after the success observed in the Toyota Production System (TPS). SM is the reverse of traditional manufacturing approach characterised by use of high capacity utilisation, economic order quantities, and high inventory. Dr. Eli Goldratt in his book The Goal contended that manufacturers are not good at scheduling and controlling their resources and inventories. Therefore, his team developed a software that schedules jobs through manufacturing processes by considering the limited facilities, machines, personnel, tools, materials, and other constraints that would affect the ability to meet the firmed up schedule. This is known as Optimised Production Technology (OPT). The schedules must be achievable and accurate. It should be able to run on a computer in a fraction of time as compared to other systems like MRP (Material Requisition Planning). This scheduling logic is centred on the separation of bottleneck and non-bottleneck operations. 11.3 Goals According to Dr. Goldratt, SM refers to the entire production process working together in harmony (or "synchronised"), to achieve the goals on the total system performance. Goldratt has inferred that the principal aim of the firm is to make money (profit). The three measures of money are: Net profit. Return on investment. Cash flow. Financial measurements are used along with other measures like inventory, throughput, and operating expenses. Goldratt argues that an organisation has many purposes such as providing jobs, consuming raw materials, increasing sales, developing technology or producing high quality product. However, what guarantees for long term survival and prosperity is money. While others are means to achieve this goal, money will make them grow and

meet other objectives. Similarly the goal from an operations standpoint is to increase throughput while reducing inventory and operating expenses. Productivity is the set of actions that brings a firm closer to its goals. 11.4 The Characteristics The characteristics that are to be analysed by planners of synchronous manufacturing, to achieve the set goals are: Make to order. Synchronised production. Pull /Just-In-Time materials scheduling in early stages. Synchronised scheduling in later stages. Short cycle times. Highly flexible and responsive processes. Highly flexible machines and equipment. Quick changeover. Continuous work flow. Space requirement. Multi-skilled employees. Empowering of employees. High yield with major reductions in defects. These characteristics should be exhibited by the synchronous manufacturing process. In the next section, we will discuss about the signs of poor synchronisation. 11.5 Symptoms of Poor Synchronisation (Typical) The management may be dissatisfied due to poor performance and also because of contradictions or constraints to produce. Some of the symptoms may be impediments for the operational processes for which planners have to find solutions. The symptoms are: Inventories are too high. Lead times are too long. Poor customer service in terms of service-from-stock or on-time delivery. Poor productivity. Too much overtime booking. Too much expediting. Constantly shifting priorities. Frequent shortages of materials and parts. Inability to respond to immediate customer requirements.

On encountering these symptoms or warning signals, the management should take corrective measures and schedule the resources effectively. 11.6 Need for Synchronous Manufacturing SM embodies various concepts related to focussing and synchronising production control around bottleneck resources. These concepts are commonly known as the goal system, bottleneck management or the Theory of Constraints (TOC). The main focus of SM is efficient utilisation of those resources that pose as constraints. SM is the latest approach, which applies forward scheduling to manage the manufacturing system. Just-in-time (JIT) based system of TPS or Kanban approach and Drum-buffer-rope (DBR) based system of TOC approach are the two common types of forward scheduling approaches. On the other hand, Material Requisition Plan (MRP) is a backward scheduling approach. Companies allocate plant and machinery resources, plan production processes, purchase materials, and plan human resources by using either forward or backward scheduling technique. Forward scheduling is used to determine the due-date or the shipping date and plan the tasks from the date resources become available. However, backward scheduling is determining the start date and/or any changes in the capacity required and planning the tasks from the due date or required by date. Synchronous manufacturing improves performance of the system and it uses the concept of TOC in order to incorporate forward scheduling. Self Assessment Questions 1. SM method is derived from ______________________. 2. According to Dr. Goldratt money is required for prosperity and long term survival. (True/False)? 3. _____________ is a characteristic of SM. 4. ______________ is a sign of poor synchronisation. Activity 1: Name a few industries that use SM method as their manufacturing system. (Hint: Pharmaceuticals) 11.7 Principles of SM To make SM clear, Dr. Goldratt described nine production rules, namely: Focus on synchronising the flow and not on balancing the capacities. Many different constraints in the system determine the level of utilisation of a bottleneck resource and are not determined by their own potential. As utilisation and activation of a resource are not the same, resources must be utilised and not simply activated. The entire system loses time at a bottleneck. An hour saved at a bottleneck is a paradox. The throughput rate of the products is equal to the value of time spent at a bottleneck resource. Inventory and throughput in the system are governed by bottlenecks. The transfer batch should not be equal to the process batch. A process batch must vary both along its route and in time.

 Only by examining the systems constraints, priorities can be set. Lead time is derived from the schedule. An SM process should adhere to these nine principles. If not, the performance of the system will be poor and the use of TOC concept will not benefit. 11.8 Features of SM and Methodology The SM approach is based on the companys understanding of the key strategic business issues, management policies, and the major constraints to improve profitability. In order to carry out the next process in the production cycle, the preceding task should be completed. If the utilisation of resources is not scheduled properly then this causes the bottlenecks. Unbalanced capacity is desirable to match capacity with market demand. Instead of balancing capacity, flow of product through the system should be balanced. Any resource whose capacity is less than the demand and limits throughput is called as a bottleneck. Resources that have capacity greater than demand are non-bottleneck resources. A resource whose utilisation must be scheduled in such a way that it does not become a bottleneck operation is called a Capacity-Constrained Resource (CCR). The determination of batch size is important in SM. Larger batch sizes are preferable for bottleneck resources and smaller batch sizes for non-bottleneck resources. JIT and MRP are often compared with SM. MRP makes use of backward scheduling, while SM uses forward scheduling because it focuses on critical resources. JIT, like SM, does significantly reduce lead times and work in process by repetitive and stable manufacturing. The production process must work closely with other functional areas to achieve the best operating results. To be competitive, the company should operate as a synchronised system with all parts in concert. Companies that are good at SM will achieve their fundamental goal that is profitability. 11.9 Step By Step Approach in SM It is important to develop a time phased plan to assign work to the team. The following points should be addressed when introducing SM on the floor: Educating and training for both the management and implementation teams. Identifying the explicit items, that will be scheduled by the pull system. Implementing a procedure for driving the pull system. Strategically locating inventory buffers of the specified items. Adjusting each inventory buffer to protect the material flow. Interfacing the pull system and managing information system. These steps are a set of standard procedures to help gauge the scope of implementation and potential for the application of a successful system in a company. Once the system is modelled the performance measures should be agreed and the components are required to be structured before any start up. 11.10 Start Up Process The management has to undertake the following tasks before starting the process. This is required as the implementation of a new system changes the working methodology.

 Training of personnel and stating their role in the system. Establishing point of use storage areas and performance charts trigger boards. Detaching the items on pull from the current push scheduling system. Moving inventory to the point of use in standard containers. Taking note of the start up inventory level of each item. Installing of pull signals with the inventory. Triggering of replacement is done if the actual inventory is greater than estimated by the pull system. Triggering of production is done if the actual inventory is less than estimated by the pull system. The points discussed above should be used when confronted with start up process issues. 11.11 Performance Measurements In order to quantify performance, the company should establish parameters within which all the activities of the company function. In order to measure a companys performance, two sets of measurements are used: Performance from financial point of view. Performance from operations point of view. Financial Performance: We have three measures of the companys ability to make money such as Net profit: An absolute measurement in terms of say, Rupees. Return on Investment (ROI): A relative measure based on the profit to investment. Cash flow: As survival measurement. The above three measurements should be used together. For example, the company may be making a good profit and an ROI, but may be suffering from cash flow, since the profit is tied up with inventory or costly equipment. Operational Measurements: We have four types of measures under this. Throughput: It is the point at which money is generated by the system through sales and it is defined as goods sold. An inventory of finished goods is inventory only as the finished goods are not sold. The inventory is valued at the cost of the material content. Inventory: It is the money that the company has invested in buying material and that it intends to sell. Work in progress also comes under inventory, as it is still in the operational processes and is not converted to products. Operating expenses: It is the money that the company spends to turn inventory into throughputs. Operating expenses take into account production costs such as direct labour cost, indirect costs, inventory carrying cost, depreciations, and so on. From the operational viewpoint, the aim of money in the company is to increase throughput while simultaneously trimming inventory and decreasing operating expenses. Productivity: It is measured in terms of output per labour hour. However, this measure does not make money. An increase in productivity decreases the inventory. The productivity function brings the company closer to its goals. Self Assessment Questions 5. _________________ is a measurement of performance. 6. Training of personnel is necessary when starting a new process. (True/False)?

7. Throughput is defined as output per labour hours. (True/False)? 8. Any resource whose capacity is less than the demand and limits throughput is a ____________________. Activity 2: Research on web and find out the ROI of any manufacturing firm? (Hint: http://www.jmorganmarketing.com/two-examples-of-companies- measuring-social-mediaroi/) 11.12 Performance Measurement : Examples Examples of performance measurement of improved material flow may include: Throughput times Stock-outs or fill rates Output per square foot Total lead time vs. hands-on time Output per person Days of inventory Output linearity This is one example of measuring performance. 11.13 Capacity Capacity can be defined as the available time for production. This does not include maintenance and other downtimes. Now, we will discuss about the unbalanced capacity and dependent events. 11.13.1 Unbalanced capacity: Generally, manufacturers try to balance capacity at every stage of the processes to match it with the market demand. This approach is wrong as unbalanced capacity is better. In synchronous manufacturing, considering all capacities, this practice of balancing the capacities at every stage of the process is viewed as a bad decision. This would be possible only if the output times of all stations were constant. ` A variation in output times causes downstream stations to have idle time when upstream stations are taking longer time to process. The rule of SM is that capacities within the process sequence should not be balanced to the same levels. The flow of product should be balanced throughout the system. Therefore, when the flow is balanced, capacities are unbalanced. 11.13.2 Dependent events The term dependent events relates to a process sequence. If a process flows from a machine A to B to C to D, then the processes at B, C and D are dependent events. 11.14 Bottlenecks & Non-Bottlenecks A resource is defined as a bottleneck if its capacity is less than the demand placed upon it. A bottleneck constrains the throughput within the system. It is that point in manufacturing process where the flow becomes as thin as a narrow band. A bottleneck may be a machine, scarce material, high skilled labour or a specialised tool. If there are no bottle necks, then there exists excess capacity and the system be changed to create a bottleneck.

If the demand placed on any resource is less than its capacity, it is a non-bottleneck. A non-bottleneck that is working constantly produces more than needed. 11.15 Time Components Every manufacturing process consumes time. The areas where time is consumed more are discussed below. The following kinds of time components make up the production cycle time: Set up time: The time that is spent by a part that is waiting for a resource to be set up. Processing time: The time taken to process the part. Queue time: The time that a part has to wait for a resource as that resource is busy. Wait time: The time that a part has to wait for another part, but not for a resource, so that they can be assembled together. Idle time: The inactive time, that is, the cycle time less than the sum of the processing time, setup time, wait time, and queue time. For a part that is waiting to go through a bottleneck, the queue time is more. Whereas, for a non-bottleneck the wait time is more this binds the components and dictates the capacity constraints. A resource whose capacity is less than the demand that is put on it is called a bottleneck resource. Thus, an extra hour is added to the entire production system by saving an hour on the bottleneck. 11.16 Capacity Constrained Resources (CCR) CCR is one whose utilisation is close to capacity and could become a bottleneck if it is not scheduled accurately. A CCR becomes a bottleneck when a demand for material follows at a later date from different sources. This happens when the batch size is changed or if one main upstream operation is not up for some reason and does not feed. Self Assessment Questions 9. A bottleneck is a constraint within the system that limits throughput. (True/False) 10. _________________ is a time component that makes up a production cycle. Activity 3: For an engineering firm, find out the performance measurement parameters used by the firm. (Hint: total man-hours, lead-time, wait-time) 11.17 Goldratts Theory of Constraints (TOC) Any element or factor that prevents a system from reaching a higher level of performance with respect to its goal is termed as a constraint. Constraints may be physical, such as equipment, or lack of material, which can be managed with certain pre-planning. Constraint Management is the practice of managing the resources and the organisation in accordance with TOC principles. The theory of Constraints can be defined as A management philosophy developed by Dr. Eliyahu M. Goldratt and has to be viewed under three separate disciplines. Logistics: It includes Drum Buffer Rope (DBR) scheduling, buffer management, and VAT analysis. Performance measurement: It includes throughput, inventory, and operating expense and the five focusing steps.

 Logical thinking: Delving on process tools for identifying the root problem, and to find optimum solutions and develop implementation plans. The TOC fundamentals are based on the cost accounting system, as it focuses too much on reduction of direct labour. The result is a highly non-synchronised flow of products through the plant that affects the companys ability to compete. 11.18 Steps of TOC to Solve Problems/Constraints Goldratt has recommended the following Five Focussed steps of TOC for alleviating constraints related to production, distribution, project management, and so on. 1. Identify the system constraints. 2. Determine how to exploit system constraints, that is making constraints effective. 3. Synchronise every part of the system to support constraints, even if it lowers efficiency of non constraint resources. 4. Improve the system constraints. If still the output is inadequate, procure more of this resource so it is no longer a constraint. 5. If, in the previous steps, the constraints have been simplified, go back to step one, but ensure that inactivity does not become the system constraint. This is a continuous process of improvement of identifying the constraints, simplifying them, and then identifying the new ones that occur. Based on the above said work of Goldratt is the notion of SM. It refers to the entire production process working in harmony to achieve the set goal of the company. The emphasis of TOC is on total system performance, not on localised measures such as labour or machine. Further, Goldratt introduces the following three tools of measurement: Throughput (T): The rate at which the money is generated by the system through sales [Sales Raw Material]. Inventory (I): Investment in purchasing the materials where the system intends to sell. Operating Expense (OE): The total amount the system spends in turning inventory into throughput. From the above description, it can be inferred that the objective of TOC is to increase T while decreasing I and OE. For this reason, we should try to decrease I and OE, even to zero if possible. The limit of T may be infinity, the goal and hence focus on it. Some other tools of measurements used by TOC include: Net Profit = T OE ROI (Return on Investment) = (T I)/OE Productivity = T/OE Inventory Turns = T/I TOC advocates the need for a global approach to solve scheduling problems. Industrial Engineers usually try to plan work on all their machines, all the time to achieve higher productivity, thinking that the ideal plant is the one that should run at full capacity. However, TOC advocates the other way. 11.19 Understanding Drum-Buffer-Rope

Drum-Buffer-Rope (DBR) is a production planning technique, which is based on the Theory of Constraints, which comes under business management. The main aim of DBR is to assist the company to maximise the use of a capacity constrained resource by using time buffers to create schedules that help to deliver products on time. 11.19.1 Drum TOC views a constraint as a drum and non-constraints like soldiers in an army who march to the drumbeat in unison. Similarly, the resources in a plant should function in unison with the drumbeat set by the constraint. 11.19.2 Buffer In TOC, buffers can be material, support, time, throughput, due date performance, and so on. Buffers of constrained parts can be kept at the constraint, convergent points, diverging points, and shipping points. 11.19.3 Drum buffer It is a time offset that helps achieve the goal of the drum running at all times. Using this time offset, it helps to reduce the impact of uncertainty on the production through all the constraint. Breakdown of machines, scheduled maintenance, labour absenteeism, and so on are the forms of uncertainty. 11.19.4 Shipping buffer This is also a time offset that helps us to meet the customer due date by getting products to the shipping area at or earlier than the delivery date. 11.19.5 Assembly buffer It is a time offset placed at the levels of the main converging points of production, that is, assembly/sub-assembly and helps synchronise production. The synchronisation between the different production sub-lines feeding the subassembly work centre is a common challenge faced in assembly. By placing assembly buffers on the assembly line ensures better synchronisation and reduces unnecessary work in process inventory. 11.19.6 Rope The rope is the material release schedule tied to the drum that is, it ensures that no material is distributed in the shop floor without the prior approval of the drum. The shop floor is connected virtually to the drum and the gating operations. Whenever the drum finishes a process, it will pull this rope to request for more material to be released. 11.19.7 Concepts of DBR The bottleneck is a drum. It is referred to as the drum because the system functions as per the beat of the drum. The buffer is used to maintain throughput, and it is the inventory provided to make sure that the drum always has something to do. The rope consists of the minimum instructions to ensure that the material is released into the system and flows to the buffers to support the system throughput and non constraint resources are used. To ensure that work is always assigned to the bottleneck, a buffer of Work-In-Process (WIP) inventory is maintained just alongside it. The rate of production at the bottleneck depends on the materials released to the shop. 11.19.8 Buffer management The scheduling of buffers expedites all the processes in TOC and this is called buffer management. Idle time at the constraint can be avoided by expediting this material into the buffers. This also helps to meet the customer due dates. The causes of items missing from the buffers are identified and its occurrence is analysed. In the SM environment, buffer management acts as the backbone of shop floor control. In buffer management the buffer is usually split into 3 zones (Green, Yellow, and Red). The purpose of using these colours is to use them as signals to convey different messages. 11.20 SM Process: Pull and Repetitive Pull System Pull system provides necessary information required to control and to expedite the flow of materials throughout the supply chain. The buffers are first filled using the pull systems.

Rather than using a forecast based push system, using a consumption based pull system type scheduling will result in considerable reduction in inventories and operating costs, and also improves customer services. The basic aim of the pull systems is to: Absorb the TOC into your organisation. Provide a foundation for additional productivity improvement efforts. Improve cash flow, on-time delivery and material flow. Reduce inventories and lead times. Synchronise all the steps in your supply chain directly with its supplier and customer. Reduce the dependence on forecasts by driving production based on actual act not anticipated demand. A successful pull system employs a throughput oriented strategy rather than cost-oriented. It becomes the foundation and helps in productivity improvement efforts. 11.21 Managing Demand You should carefully manage repetitive pull systems. Supply constraints include parameters like batching requirements, current lead times, product structures, information systems, vendor performance, and labour environment. In order to identify the repetitive items in production, you should answer these constraints: Is the throughput time greater than lead time of the demanded item in the chain? Which end items are consuming 80% of your capacity? In order to adjust to variability in demand, is the supply chain capacity flexible enough? Does the system have common parts, whose total demands are repetitive, but whose preceding processes are non-repetitive? Based on actual customer demand the production is rescheduled by the pull system. There are two methods available to pull mechanism to drive the supply chain such as direct consumption pull mixed model schedules. A direct consumption pull approach reloads the stock closest to the actual quantities consumed. The benefits that come along with this are: less excess capacity required in the supply chain, more predictable replenishment lead times and, most importantly, the consumption of each lower level item is at a steady rate. Make to Order (MTO) Kanban system adds on to the existing shop scheduling system. New orders can be released when the number of orders on the floor is less. As orders are released only when need arises, and only if they can be worked to completion, then the priorities set by the scheduling system for individual work centres are now seldom overridden. Through the application of this system, significant improvement in control process is seen. From the above discussion, it is clear that in every manufacturing process, whether repetitive production or maketo-order, or in-between, companies can reap benefit from the control of work flow through the application of the pull signals methodology. Self Assessment Questions 11. The shop floor is connected directly to the drum and the gating operations. (True/False)? 12. Forecast based push system is a better scheduling method. (True/False)?

Activity 4: Assume, you are given a scheduling task. Then, how would you manage varying demand for different goods produced on the shop-floor. (Hint: Identifying repeating items) 11.22 Interfacing with Other Systems Pull systems are information systems. The interfacing with other systems is required to answer the scheduling questions of what to do next, when, and how many. The MRP, shop floor reporting, inventory management, and performance measurement is absolutely essential for interfacing with other systems. 11.23 Material Requisition Planning (MRP) System, JIT & SM MRP system can accommodate economic order quantities, buffer stocks, and safety stocks through the productive processes. In the Just-in-time (JIT) method, inventories are considered as wasteful, especially unnecessary inventories, where as SM treats inventory as a loan given to the manufacturing unit. SM also discourages maintaining inventory, as in JIT, if it does not serve the purpose. Earlier, MRP was widely used as a production and inventory planning tool. In a pull system, MRP balances material management with production control and minimises inventories. Another drawback of MRP is that it ignores capacity constraints. To overcome this drawback, many companies started using Capacity Requirements Planning (CRP) along with MRP to manage their resources. SM is a form of lean manufacturing and shares similar features with JIT. SM is a competitive strategy based on time. It reduces manufacturing lead time and inventory while accelerating the flow of materials and control operating expenses. 11.24 Comparison of Three Systems JIT, MRP and SM The three systems have both advantages and disadvantages. They are selected depending on the environment of the production system, the degree of flexibility, capacity and so on. The table below describes where and when these systems are used. Table 11.1: Comparison of JIT, MRP and SM JIT Continuous flow, make-to-stock Very short Very low MRP SM

Where used? Production Cycle WIP

Job shop Long Very high

Job shop Short low

Schedule flexibility

MRP frozen for X no of Level production days, but variable at Flexible-change possible on centres almost fixed daily basis High.[Balancing possible] Multi-skilled Start-OK, some-times inaccurate Specialised System is based on capacity limitations Same as MRP

Capacity limitations Labour skills

11.25 Benefits of Being in SM SM typically generates following benefits:

 Major improvements can be realised quickly, without significant changes in projects, capital, or floor layout. SM can tolerate poor, inaccurate, and missing data. In SM, simple measurement connects to every decision and action in all departments and penetrates to the levels below. Finished Goods and WIP inventories are reduced by as much as 40%. Short cycle times and therefore short promised lead times. High due-date performance or service levels could be achieved. Schedule provides stability by keeping priorities stable. Ensures continuity of process with quality improvement. Caters to urgent customer demands. SM implementation is a very attractive strategy both from operational and financial performance viewpoints as it provides with a combination of increased output from the same resources along with greatly improved competitive performance with the potential for higher sales. 11.26 Summary SM is an operational strategy that provides new scope to competing through quick introduction of new and customised high quality products, delivering them with lesser lead time, taking swift decisions, and manufacture products with high velocity. The key for you to gain competitive advantage is to operate as a synchronised system and work in concert to achieve the fundamental goal of the company (that is profitability). This is achieved by using resources efficiently and effectively and increasing the throughput time. The JIT process is the backbone of SM. The JIT process helps in keeping low inventory and focuses on customer satisfaction. This is possible when you have controls on inventory and throughput and operating expenses in the manufacturing system are managed after removing the bottlenecks and capacity constraints. The baseline philosophy of concentrating on system limitations imposed by capacity constrained resources and use of the five step: Theory of constraints developed by Goldratt to eliminate those constraints, were all this subject of Synchronous Manufacturing. We also discussed the various benefits of SM. When SM is interfaced with JIT and MRP we can expect an optimum outcome in terms of profits, customer service and can manage demand effectively and efficiently. 11.27 Glossary Term Return on Investment VAT 11.28 Terminal Questions 1. Write a note on the origin and characteristics of SM. 2. What are the tasks that should be taken when starting-up a new process? 3. Explain in brief two sets of measurements practiced in SM. 4. What is capacity? Explain in brief. Description It is a performance measure and used to evaluate profits. It is a scheduling framework provided by TOC

5. Explain in brief the Goldratts Theory of constraint and the five focussed steps of TOC recommended for solving the constraints/ problems. 6. Write a note on CCR. 11.29 Answers Self Assessment Questions 1. Toyota Production System 2. True 3. Quick changeover 4. Lead times are too long 5. Performance from financial point of view 6. True 7. False 8. Bottleneck 9. True 10. Idle time and 11. False 12. False Terminal Questions 1. Refer to section 10.2 and 10.4 (Hint: Origin of SM and Characteristics) 2. Refer to section 10.10 (Hint: Starting-up a new process) 3. Refer to section 10.11 (Hint: Performance Measurements) 4. Refer to section 10.13 (Hint: Capacity) 5. Refer to section 10.17 (Hint: Goldratts theory of constraints) 6. Refer to section 10.16 (Hint: Capacity Constrained Resources) 11.30 Case Study Adopting the principles of TOC A company OPQ Ltd. produces components of Gear Box and supplies them to automobile industries. It is faced with many customer complaints. They found that the problem was in the scheduling of certain identified parts, which had too many bottlenecks in between the sub-assembly and assembly processes. The company then came up with a resolution to implement TOC and adopted the principles of SM to improve their overall performance and to satisfy its customers with prompt delivery of the targeted quantities along with maximising profits. Faulty areas were identified and appropriate action was taken to solve the problem by adopting

principles of TOC and SM as detailed below: 60% of set-up time was spent by each workers by waiting for materials and tools, which were available in the plant, but not at the work place. By introducing effective scheduling for materials and tools for each set up has solved the problem. The throughput time and quick set-ups to achieve that batch of production were reworked. The company introduced a Visual signalling system by installing red, yellow and green lights on every machine. Whenever a workstation was starved of resources, operators turned on the red lights. Similarly, whenever a risk of starving the workstation was seen, the yellow lights were turned on. Green lights implied smooth functioning of various operations. After implementing TOC revealed that on-time deliveries improved from say 60% to 92%, wastage was cut by 15% and lead time reduced by 45%. This continued to reap other benefits of rearranging the machine tools, providing tools for each machine next to it, saving on floor and so on, when once they found that TOC and SM is working effectively. Questions: 1. How did the company do away with its error prone manufacturing system? (Hint: By adopting TOC) The idea for this case study is taken from: http://train-srv.manipalu.com/wpress/?p=106167

OM0017-Unit-12-Other Aspects of Planning

Unit-12-Other Aspects of Planning Structure: 12.1 Introduction Objectives 12.2 Human Resource Planning 12.3 Quality Planning 12.4 Maintenance Planning 12.5 Capacity Planning 12.6 Summary 12.7 Glossary 12.8 Terminal Questions 12.9 Answers 12.10 Case Study

12.1 Introduction By now you must be familiar with the concept of synchronous manufacturing along with its origin, principles, features, characteristics, and goals. You are also aware about the methodology, step by step approach and start up processes involved in synchronous manufacturing. Till now with the help of other units, you have studied about the planning function involved at every step of production such as material requisition planning, functions and tasks of production planning, plant/facility planning, and aggregate planning. You have also studied about the sales /order planning, master production schedule, rough-cut planning system, capacity requirement planning, material requirement planning, operation planning, and so on. In this unit, you will be introduced to many other aspects of planning such as human resource planning, quality planning, maintenance planning and capacity planning. Objectives After studying this unit, you should be able to: Explain human resource planning. Define quality planning. Elucidate maintenance planning. Describe capacity planning. 12.2 Human Resource Planning Most of you know the meaning of human resource. Our aim in this section is to know about the human resource planning. Well, a human resource planning is a traditional human resource administrative method, an assessment, and an identification process with reference to human resource needs in order to achieve the organisational goals. Human resource planning also needs an evaluation on the standard quality, which is required for the organisation. Every organisation must have the human resource planning as their vital component when it comes to its strategic business planning. To keep up with the pace of the competitive market, organisations must focus on implementing many pioneering tactics. These tactics should be designed in such a way that it should improve the current employee retention percentage and employ new talented and competent people to the organisation. An effective human resource planning tactic is the one which includes: A sufficient staff. The right mix of competent and talented people. The people who perform consistently and more when it is required the most. A typical tactic goes beyond the classical role of human resource primarily as an administrative control function. In the present corporate world, human resource planning is observed as a priceless component which adds more value to an organisation. Both the organisation and the employees will realise the importance and benefit of human resource planning in the long run. In some organisations, the importance of a tactical human resource planning can become very clear quickly. An organisation that cuts down its employees by reacting to a certain situation, for example recession, can create some unwanted or very hard outcomes. The plan of cutting down the employees might seem to be a good idea at the time of need and to maintain the economy of the organisation. However, it might end up hitting back the organisation in the long run. The resources, which are required for the recruitment, hiring, and training new employees may well go beyond any short-term cost savings. The forward looking human resource planning helps organisations to completely avoid the costing errors. Forward looking human resource also helps in the anticipation of future recruitment needs. The main significance of a

typical tactic is not only the anticipation of the needs over time, but it is to have an optimum or a permanent solution in the long run and under other challenging economic conditions. This sort of tactic minimises the chance of temporary solutions or the reactive decisions being taken by the decision makers. Organisations with a dedicated human resource planning in hand, which is aligned to its long term objectives, can easily decide to manoeuvre the economic storm. In addition to this, the organisation can also keep the talented, dedicated, and competent employees in place for the inevitable business uptrend. It would be good for an organisation, if it decides to link the human resource policies, processes, and systems with its own overall strategic practices and plans. It would also act as an instantaneous advantage. Effective human resource planning always keeps its eyes on talented, skilful people. Effective human resource planning also documents the performance, achievements, and contributions of those people. It also provides a clear and appropriate road map of forecasting with reference to the future staffing demand. In addition, it also analyses the required and present capabilities, skill sets to meet the needs of the future, and any other new abilities and talents the organisation may require to recruit and hire in the future. Till now, we have discussed how effective human resource planning helps the organisations survival and success. Now, we will discuss how human resource planning can be applied. The organisation always looks for some important aspects to be present in an effective human resource plan. Following are some of the important aspects of effective human resource planning. It should recognise organisational levels around skills. It should allow and include the flexibility in supply. It should not be too time consuming. It should be responsive for change. It should be simple to understand and use. It should be such that it can be easily modified Well, you have been introduced to the aspects, now it is also important to know what all is required for an organisation to operate the above mentioned aspects. Following are the requirements. Robust corrective and monitoring action processes. Complete and inclusive data on the external market and current employees. An understanding of how all the resources work in an organisation. An appropriate demand model. Even if a human resource planning technique is ignored in an organisation, the decisions will still be carried on in the organisation. However, it will be without the benefit of understanding the implications of planning. This will cause either the management succession problems to be unnoticed or the graduate employment numbers to be set in ignorance of demand. There are many challenges observed in human resource planning. Some of them are as follows. Impatience is one of the major challenges, as a desperate need to see the results makes the planning to seem like a waste of time. A very detailed and careful scrutinised assessment may turn up with more human resource plans than the actual required ones. Lack of flexibility in the plans, as most of the plans fail to adapt to the changing circumstances. Let us now discuss the benefits of human resource planning. The benefits of human resource planning are:

 Stressing on opportunities for tactical partnerships, which allows other partners and communities to share risks, benefits, and training costs. Achieving small successes, which motivate the community and showing the community members about the progress of the plan. Making the evaluation process of an organisation much easier. Therefore, in this section, you have been introduced to human resource planning. Self Assessment Questions 1. Every organisation must have human resource planning as their vital component when it comes to its strategic business planning. (True/False)? 2. Human resource planning also needs a ______________ on the standard quality which is required for the organisation. 3. Impatience is one of the major challenges as a desperate need to see the results makes the planning to seem like a waste of time. (True/False)? 4. Even if a human resource planning technique is __________, the decisions will still be carried on. Activity 1: Research on the web to know the human resource planning followed in Dell. (Hint: http://www.oppapers.com/subjects/dell-human-resources-page1.html) 12.3 Quality Planning In this section, we will be discussing about another aspect of planning, called as Quality Planning. Quality Planning[1] is defined as a Systematic process that translates the quality policy into measurable objectives and requirements, and lays down a sequence of steps for realising them within a specified timeframe. Any quality plan will have the following elements associated with it. What needs to be checked? What is the most suitable way to check? When should the check be carried out? Who should be involved in the checking? What quality materials should be used? These elements are discussed below. What needs to be checked? The deliverables are the most vital things, which need to be checked. It is mandatory to have a standardised quality check to be carried to any of the significant deliverables. It will be good, if a timely document is maintained. This is because; a weekly report or a memo will not be that effective. For example, in a project, it will be suitable to have the project managements practices to review the quality after the initiation of an established project. This will help the organisation to provide a level of confidence for the sponsors and steering committee. What is the most suitable way to check?

 In order to answer this question, we need to think backwards. When the end result of any product is to meet a particular standard, then one of the parts of quality check should be focused on fulfilment of that standard. This indicates that a standard audit is the best approach and the most suitable way to check. It is also very important to differentiate between correct and well engineered aspects. A test plan may be easy and clear to follow, but may not check everything. On the other hand, a test plan may check everything, but it may not be easy to be followed. Therefore, quality checking can be made for both correct and engineered aspects or for any one of the aspects. When should the check be carried out? It is a common practice in all organisations that most of the quality events are conducted just before the manufacturing completion of the deliverable. However, it is reasonable to hold early quality events for any long progress lead times of a deliverable. For example, if developing a part for a car takes 5 weeks, it may be worth holding a part inspection after two weeks to check and identify any issues and minimise the rework. Who should be involved in the checking? It is, by default, understood that the people who are involved in the production should be involved in the checking process. Involving other people from different sectors depends upon the sort of quality event. What quality materials should be used? The materials used should be with minimum glitch or none at all. Usually, quality materials, which are used, will be self evident. It will be useful if the standards are transformed into checklists to track the materials used. For example, if a reviewer is aware of the specifications of a product called as AAA, produced under a standard LKB, then the reviewer can check only the AAA specifications. There is no need to go through the entire LKB standard as a whole quality material, as it can just be used as a reference. You are now familiar with the different elements, which are present in quality planning. In the next sub section, we will discuss about the different phases involved in a typical quality planning process. Phases of Quality Planning A typical quality planning process consists of four phases. Figure 12.1 depicts the four phases involved in the process of quality planning.

Figure 12.1: Phases of Quality Planning All the four phases of quality planning is responsible for examining the process outputs. Following paragraphs depict the process outputs of each phase. Plan and Define Program: Under this phase, the following process outputs are examined. Quality and reliability of the designed goals. Initial bills of materials. Initial process flow. Listing of special products and special characteristics of processes. Products assurance plan. Product Design and Development verification: Under this phase, the following process outputs are examined. Verification, reviews designs. Engineering specifications and drawings. Material specifications and drawings. New tools, facility, and testing equipments requirements. Special process and product characteristics. Prototype control plan. Process Design and Development verification: Under this phase, the following process outputs are examined. Packaging principles.

 Quality system review. Process flow chart. Floor plan layout. Matrix characteristics. Pre-launch control plan and process capability plan. Process instructions and packaging specifications. Process capability study plan. Product and process validation: Under this phase, the following process outputs are examined. Production examinations run. Evaluation of measurement systems. Process capability study. Product approval. Product validation testing. Production control plan. Quality planning sign off. Thus, you have understood the process outputs, which are examined under each phase of a typical quality planning. Self Assessment Questions 5. The _______________ are the most vital things which need to be ______________. 6. A typical quality plan consists of _______________ phases. 7. It is by default understood that the people who are involved in the production should be involved in the checking process. (True/False)? 8. It is not a common practise in all organisations that most of the quality events are conducted just before the manufacturing completion of the deliverable. (True/False)? Activity 2: Briefly explain as why the verification and review designs are done in phase two (Hint: Product Design and Development verification) 12.4 Maintenance Planning In the previous section, you studied about quality planning. In this section, you will be introduced to another aspect of planning called as maintenance planning. There are many definitions for maintenance planning but first, we will discuss what all are involved in maintenance planning and what does not constitute maintenance planning. Maintenance planning is a planning process, which

 Provides documented information to the employees so that the employees will learn from the past mistakes and not repeat it. Ensures the likely available tools and parts. Provides the supervisors or the managers with the estimated working hours and calculated labour availability, so that they can schedule the daily tasks appropriately. Increases the total amount of time, which the workers spend on direct work without any sort of delays. Maintenance does not include: Setting up and organising the maintenance department. Providing a descriptive detail of how a maintenance task should be performed. Identifying the special tools and parts before the start of a job. Therefore, we can define maintenance planning as the process of developing the predictable maintenance needs for the tools and proposing who will do the necessity maintenance tasks and where they will be done. When a company or an organisation fails to perform effective maintenance planning, then the organisaton faces a large amount of time, money, and production waste. It is the responsibility of the maintenance planners to prevent any unnecessary waste with the help of suitable methods. Maintenance planners should also have well documented files and complete service orders. It is observed over a period of time that effective maintenance planning has some great effects on an organisations financial plan. Many industrial experts have observed that even after employing maintenance planners, the financial plans are often affected negatively. This is mainly because in many organisations, maintenance planners are occupied with the work for which they are not responsible for. Therefore, it is important that maintenance planning is performed by a person who is always committed and focused on his/her responsibilities. Reducing the waste is not a simple task, but not difficult to achieve, if planned well. The person who does maintenance planning is required to perform a great deal of evaluation, assessment, calculation, and especially research. The other main aspect of this responsibility includes communication coordination with others. This job can also become disastrous when non work related responsibilities such as maintenance scheduling is assumed. Maintenance planning is not done when there are major collapses or malfunctions. Maintenance planning must be planned well in advancebefore the entire process of production begins. Planning at the malfunction stage may prove to be costly for the organisation. Therefore, it is better to set a plan, which is appropriate for a year or more than that. When the maintenance planner initiates to setup a plan then he/she should include an efficient shutdown plan, service order, and documented history files. A service order must contain everything like documentation, which needs to be informed to all who will be a part of the future maintenance job. This documentation can be referred to and viewed by accountants, technicians, senior managers, and all other employees directly or indirectly involved in the process of production. Thus, the expected work will be is clearly outlined, by including all the equipments that are required to complete the job such as instructions, blue prints, images, problem logs and so on. When there is need for shutting down a facility or essential machinery for a certain period of time, then the importance of a shutdown schedule arises. It is the responsibility of the maintenance planner to chart out a shutdown schedule, wherein he or she has to take calculated risks on the period of time with reference to the shutting down a facility or essential machinery. In addition to this, the maintenance planner also has to outline all other maintenance projects, which can be carried out in the period of time. The planning of the maintenance planner should also comprise the usage of labour. Thus, you have learnt about maintenance planning. In the next unit, you will be introduced to another aspect of planning called as capacity planning.

Self Assessment Questions 9. Maintenance planning sets up and organises the maintenance department. (True/False)? 10. Maintenance planning ensures the likely available tools and parts (True/False)? 11. Maintenance planning should not be not done when there are major collapses or malfunctions (True/False)? 12. A service order must contain everything like documentation (True/False)? Activity 3: According to you, how does an effective maintenance planning affect an organisations financial plan? (Hint: Period of time) 12.5 Capacity Planning What is Capacity Planning? Well, Capacity planning is the method of determining the production capacity required by an organisation to meet the constantly changing demands for its products. It is a very common concern within all the organisations, to know whether the equipments or the resources will be ready to handle the increasing demand from the customer or constant change in the market. The person responsible for capacity planning is also called as a capacity planner. A capacity planner should aim to plan so well that a new capacity is added at the right time to be ready to handle the requirement. However, this plan should not be implemented very early, so that the equipments or the resources will be unused for a longer period of time. A successful capacity planner is the one who makes the plans comparing the present and the future situations to attain a most cost-efficient tradeoff. The capacity planner using the business plans and forecasts tries to predict the future requirements. Systematic modelling tools can resolve the problems faced at the What if scenarios in order to explore other range of possibilities. It is very important that a capacity planner revisits the plans as there will be a constant emergence of new technology, business strategies, and forecast changes. There are generally three basic steps in capacity planning. They are: Determining service level requirements: Here, categorising the completed work by machines is done along with calculating employees expectations for how that work got completed. Analysing current capacity: Here, the present capacity of the machine is analysed to conclude how it is meeting the requirements of the customers. Planning for the future: Here, with the help of future business activity forecasts, the future machine requirements are concluded. Applying the required changes in machine configuration will ensure that adequate capacity will be available to maintain service levels, even as the conditions change in the future. It is important to know that inadequate capacity planning quickly leads to unnecessary increased work, frustrated sales representatives, and deteriorating delivery performance. However, excess capacity can also be unnecessary and costly. If the organisaton does not manage the capacity planning carefully, then it will be a barrier for the organisations desired achievements. In addition, capacity planning is an important factor in the organisations choice of machineries. You can also understand capacity planning as the process, which is used to decide how much capacity is required in order to produce an enhanced product or begin the manufacturing of a new product. Following are the aspects, which can affect a capacity planning. Number of workers and their ability. Number of machines. Waste. Scrap.

 Defects. Errors. Productivity. Suppliers. Government regulations. Preventive maintenance. It is important to know that capacity planning is applicable in both long term and short term. Nevertheless, there are different issues for each one. Long Term Capacity Planning In the long run, capacity planning relates mainly to tactical issues, which involve the organisations major manufacturing facilities. When short term changes in capacity planning are inadequate then long term capacity planning can evolve. For example, if the organisations introduction of third shift to its already existing two-shift plan fails to produce the required output, then it is better to make subcontracting arrangements. Even after introduction of subcontracting arrangements, if the desired output is not met, one possible substitute is to include capital equipment and alter the layout of the plant, which will be the long-term actions. It would be more useful if the organisation decides to include an additional plant space or build a new facility, which will be the long term alternatives. Short Term Capacity Planning Here, the capacity planning is concerned only with the issues of labour shifts, scheduling and balancing resource capabilities. The main objective of short term capacity planning is to take care of unpredicted shifts in demand in a most effective and economic manner. The time frame of short term capacity planning ranges from a minimum of few days to a maximum of six months. There are numerous alternatives to make the short term changes in the capacity planning. A simple and most commonly used technique to increase capacity in the short term is working after the normal stipulated working hours. This is a reasonably simple and inexpensive option. Even though the organisation has to pay one and half times the normal pay, it is advantageous to the organisation, where it can save the cost on recruiting, training, and paying supplementary benefits. When it is not forced upon, workers appreciate the opportunities of earning extra money. Do you think overtime will resolve or help the organisation to achieve the short time capacity? Well, if that does not workout, there are other resource increasing alternatives. The other alternatives are: Adding shifts. Employing casual or part-time workers. Use of floating workers. Leasing workers. Facilities subcontracting. Therefore, you have understood the application of capacity planning in both the long term and short term planning. By increasing the present resources in an organisation, the organisation may increase the capacity also. The most general options in this category are cross training the workers or staggering or overlapping shifts. Most of the manufacturing sectors manufacture the products ahead of demand, so that any change in the capacity plans is absorbed by the inventory buffer. From a technical perception, organisations may start a process design intended to increase the manufacturing at work stations. Manufacturers can also change the demand to keep away from the

capacity requirement variation by queuing demand, backlogging, or lengthening the firms lead times. Service organisations achieve the same results through setting up appointments and reservations. The more innovative way is to modify the output. For example, standardising the output or providing complimentary services. In services, the organisations might allow the customers to do the process work themselves. For example, fast food restaurants or petrol bunks. Ultimately, the organisation may attempt to change the demand. It is a common practice where an organisation changes the price to promote the product. Another option is to divide the demand by starting a yield or revenue management system. There are four procedures for capacity planning. They are: Capacity Planning using Overall Factors (CPOF). Capacity Bills. Resource Profiles. Capacity Requirements Planning (CRP). The first three procedures of capacity planning mentioned above are rough-cut approaches, which involve the analysis to identifying potential bottlenecks that can be used with or without manufacturing resource planning (MRP) systems. You may be wondering what about the capacity requirement planning (CRP)? Well, the manufacturing resource planning (MRP) systems are used in combination with the capacity requirements planning (CRP). Self Assessment Questions 13. A successful capacity planner is the one who makes the plans comparing the _________ and the _________ situations to attain a most cost-efficient trade-off. 14. Numerous _______________ are there to make the short term changes in the capacity planning. 15. Capacity planning has __________ procedures. 16. The first three procedures of the capacity planning are ___________________. 17. CPOF stands for ____________ Activity 4: Assume you are the manager of an industry and you are responsible to make a short term plan to cover up the demand. Which alternatives will you follow? (Hint: Other alternatives) 12.6 Summary In this unit, you learnt about the different aspects or the other aspects of planning which are followed and practised in manufacturing and other related sectors or organisations. We started with human resource planning where it is nothing but a traditional human resource administrative method, an assessment, and identification process. The human resource planning is with reference to human resource needs in order to achieve the organisational goals. You learnt that an effective human resource planning tactic is the one which includes: A sufficient staff. The right mix of competent and talented people. The people who perform consistently and more when it is needed the most.

 Later you learnt about aspects, which are required for an effective human resource planning along with the challenges observed in human resource planning. After human resource planning you learnt the quality planning. Quality planning is defined as a systematic process that translates quality policy into measurable objectives and requirements, and lays down a sequence of steps for realising them within a specified timeframe. Under this, you learnt about the required elements and different phases observed in quality planning. You also learnt the process outputs which will be examined under these phases. Later, you were introduced to the maintenance planning where you learnt what exactly a maintenance planning does and does not. To sum up the meaning of maintenance planning, you were provided the definition of maintenance planning as a process of developing the predictable maintenance needs for the tools and proposing who will do the necessity maintenance tasks and where they will be done. Finally, you learnt about the capacity planning where is the method of determining the production capacity required by an organisation to meet the constantly changing demands for its products. Under this, you learnt three basic steps in capacity planning which are: Determining service level requirements. Analysing current capacity. Planning for the future. Later, you learnt about short term capacity planning and long term capacity planning along with four procedures of capacity planning. 12.7 Glossary Term Definition A small problem or fault that prevents something from being successful or working as it should. Scrambling of machinery and transferring of the process to other products.

Glitch Tangled

12.8 Terminal Questions 1. Explain human resource planning. 2. Define quality planning. 3. Elucidate maintenance planning. 4. Describe capacity planning. 12.9 Answers Self Assessment Questions 1. True. 2. Evaluation. 3. True. 4. Ignored. 5. Deliverables, checked.

6. Four. 7. True. 8. False. 9. False. 10. True. 11. True. 12. True. 13. Present, future. 14. Alternatives. 15. Four. 16. Rough-cut approaches 17. Capacity Planning using Overall Factors. Terminal Questions 1. Refer the initial paragraphs of section 12.2 2. Refer the first paragraph of section 12.3. 3. Refer the middle paragraphs of section 12.4. 4. Refer the initial paragraphs of section 12.5. 12.10 Case Study Capacity Planning scenario at James Tech In 2007, a company by name James Tech was very much interested in increasing its capacity in order to fulfil the undelivered medical requirements. The only solution at that time for James Tech was to increase the output by enhancing the present procedures or processes and reduce the revalidation period with Food and Drug Association (FDA). This main intention to increase the capacity planning was due to the introduction of a new product by name Defentine. The current production procedures or the processes were enhanced with the help of three steps. The first step was to reduce the contamination by carefully checking the raw materials, eliminating human involvement as far as possible in production process, and making sure that the connections between pieces of tools were tightly sealed. Once this was done, the capacity increased by 30%. This in turn not only increased the sales but also decreased the costs. The second step was cutting down product conversion and preservation time from 8 weeks to 4 weeks. This in turn increased the amount of batch wise products manufactured on each vessel. The third step was to increase the capacity of the manufacturing vessel. This increase helped in doubling the output without any major higher expenses. This in turn increased the profit. In brief, improving the current process gave James Tech more time waiting for the clinical trial results

of Defentine from FDA and to increase the productivity. Question: 1. Which of the above three steps was the effective one according to you? (Hint: Benefits of the three steps) The idea for this case study has been taken from http://lizzyhu.spaces.live.com/blog/cns!A32EB4F807A00BAF!1283.entry

OM0017-Unit-13-Production Distribution System Design

Unit-13-Production Distribution System Design Structure: 13.1 Introduction Objectives 13.2 Plant Location and Capacity Scheduling 13.3 Multiple Plant Production Facility Design 13.4 Aggregation Techniques 13.5 Aggregate Capacity Scheduling 13.6 Disaggregation of Aggregate Plan 13.7 Summary 13.8 Glossary 13.9 Terminal Questions 13.10 Answers 13.11 Case Study 13.1 Introduction By now you must be familiar with the aspects of planning such as human resource planning, quality planning, maintenance planning, and capacity planning. In this unit, you will be introduced to the plant location and capacity scheduling concepts. You will also learn about the multiple plant production facility design along with aggregation techniques, aggregate capacity scheduling, and disaggregation of aggregate plans. Objectives After studying this unit, you should be able to: Define plant location. Describe multiple plant production facility design.

 Explain aggregation techniques. Elucidate capacity scheduling and aggregate capacity scheduling. Explain disaggregating of aggregate plan. 13.2 Plant Location and Capacity Scheduling You must be wondering how important can plant location be for any organisation or an industry. Well, to be precise, the plant location can have a crucial effect on the performance and production capability of an industry along with its future expansions. Plant location and relocation are vital options for any manufacturing industry. This is because plant location plays a crucial role in improving the customer service and the cost structure of any industry. The plant location is not only very vital for a new industry or a company who is entering into the market, but it is also crucial for an old industry that plans to introduce a new process or product. There are many factors, which are considered while selecting the location for a manufacturing plant. In this unit, you will be introduced to the principle factors, which are considered while selecting a plant location. These factors are: Marketing area. Raw materials. Transport facilities. Availability of labour. Utilities. Environmental impact and effluent disposal. Local community considerations. Climate. Political and strategic considerations. Marketing area: Materials such as cement, fertilisers, mineral acids, and so on are manufactured in bulk quantities. For these products, the cost of the product per load is moderately low, while the transportation cost is a significant fraction of the sales price. Hence the location of the plant should be close to the market area. However, these considerations will be less important for low quantity production and high cost products such as pharmaceuticals. If we consider the international market, then there will be an advantage gained by locating the plant within an area with superior tariff. Raw materials: The site location is generally determined by the availability and the cost of appropriate raw materials. The plants, which manufacture bulk quantities of products, are always located close to the source of raw materials as well as to the marketing area. For example, a soda ash plant should be located near Mangalore or near any sea coastal area as sodium chloride is abundantly available. Transport: The transportation of materials as well as the finished products will be a principal consideration in the plant location selection. If possible, the plants location should be close to atleast two major types of transport modes like roadways, railways, airways, waterways or a seaport. Out of all these transport modes, roadways are used increasingly, as it is more appropriate for local distribution from the central warehouse. The railways are a very cheap mode of transportation for long distance transport of bulk products. Airways are more suitable and proficient for transportation of personal equipments and essential materials. Airways also help to save a lot of time. If the industry uses the airways more frequently, then it is important to consider the nearness of the airport to the plant location.

Availability of labour: Labour is required for the construction of the plant and to maintain the operation of the plant. The skilful labourers are brought from different locations. However, it is important to have a pool of local labourers even though their skill levels are not up to the outside labourers. These local labourers should be suitable to operate the plant also. In addition to the labourers, it is also important to have the skilled tradesmen for the maintenance of plant. It is mandatory to consider the local trade union customs and restrictive practises, when assessing the availability and suitability of the labour for recruitment and training purposes. Utilities: Utilities is generally used for the subsidiary services, which are required in the operation of any production process. These subsidiary services will be generally supplied from a central facility and it includes: Electricity: It is required for electrochemical processes, machines, motors, lightings, and other general use. Steam for process heating: The steam, which is required for production, is generated in the tube boilers with the help of most economic fuels. Cooling water: The natural and cooling towers are generally used to provide the cooling water required on site. Water for general use: The required water will be taken from the natural water bodies such as rivers, lakes, and seas. This is the reason why most of the plants are located on the banks of the rivers. Dematerialised water: It is a type of water, which will not have any sort of minerals. The minerals are removed with the help of ion-exchange method. This type of water is the purest form of water and it is required for the process use and as boiler feed water. Refrigeration: Refrigeration is required for the processes, where it is mandatory to maintain a low temperature, which is obtained by the cooling water. Compressed air: In an ethylene oxide plant, compressed air is one of the raw materials. It is also required for pneumatic controllers. Effluent disposal facilities: The plant should have an effective disposal facility for the effluents. This disposal facility should not create trouble for the general public. Environmental impact and effluent disposal: It is well known that all industries produce waste materials, and full thought must be given to their disposal. The disposal of toxic and harmful effluent will be supervised by local regulations. The appropriate authorities must be consulted during the initial survey to verify the standards and regulations to be followed. Local community considerations: The proposed plant must agree with and accept the local community. It is the responsibility of the industry to give complete concern on the safe location of the plant from the community. This is very important in order to avoid any risk to the community from the plant. Appropriate land should be available for the proposed plant and its future expansions. The land must be ideally flat, well scattered and have freight bearing characteristics. It is important to carry out a complete site evaluation to determine the necessity for pilling or other foundations. Climate: It is well known that a plant under adverse climatic conditions will increase costs. For example, low temperature forces the plant to have additional insulation and extraordinary heating for equipment and piping. In areas prone to high wind and earthquakes, care should be taken to build the plant with a strong foundation. Political and strategic considerations: Tax concession, capital allowance, and other enticements are often given by governments to direct new investment to preferred locations. For example, we can consider the areas of high unemployment. The availability of such allowances can be the overriding consideration in site selection. Thus, you have been introduced to the idea and the principle factors to be considered while selecting plant location. Now, we will discuss about the capacity scheduling. Capacity scheduling is nothing but a scheduling method that matches resource needs to a fixed supply of available resources in order to develop a realistic production plan. In the future, if you are given the responsibility to do capacity scheduling, then you should be in the position to ask some of the following questions to yourself:

 What is the reason behind production scheduling? What does capacity mean? What kinds of resources, if unavailable, could put a stop to the manufacturing operation from proceeding as scheduled? What else can hinder orders? What type of scheduling problems can be encountered? The plant capacity is taken into account from the very beginning by the capacity scheduling. The schedule depends on the available capacity. Some of the various existing approaches are proprietary secrets. However, the following approaches are some of the approaches, which can be discussed. Electronic scheduling board. Order Based Scheduling. Constraint based schedulers. Discrete Event Simulation. Genetic algorithms. Electronic scheduling board: It is the simplest scheduler. It is similar to the card based filling boards, which were used earlier. However, the system calculates the time involuntarily and will warn of any attempt of two jobs being loaded on the same machine. In this type of schedule, there is no involvement of scheduling algorithm. Order based scheduling: In order based scheduling, the activities are scheduled based upon the order priority. It is a unique improvement on capacity schedulers. However, its biggest disadvantage is that it permits gaps to emerge on resources. Some of the schedulers permit the process to be iterated to try and minimise gaps. Therefore, minimise the time through the system. This iteration consumes lot of time. Constraint based schedulers: The main idea behind constraint based schedules is to identify the bottleneck in the line and make sure that it is always full. This is done because the non-bottlenecks will be able to take all that is thrown at them and this permits them to be synchronised to the bottleneck through the Master Production Schedule (MPS). The MPS is generated by stacking the orders onto the bottleneck and thus, deciding as when they will be ready. This system is prone to produce gaps and also very sensitive to small changes. For example, the changes could be a customer who is willing to reschedule an order. Discrete event simulation: Under this the simulation loads all resources at the same point of time. When all blockages and queues are resolved, it carries on to the next set of events. As the simulation moves from one set of events to the next set, there are very less gaps in schedules and they are far more stable. The inconvenience with simulations is that it is difficult to be included into other systems such as data feedback from the shop floor. Genetic algorithms: The general algorithm is usually highly mathematical and unfriendly. Therefore, a new approach has emerged, known as genetic algorithms. The process always starts with a schedule or group of schedules. The main objective is to try and improve them using a selection mechanism similar to natural selection. An example would be to reduce the total time of jobs, which stays in production. Therefore, we have come to the end of plant location and capacity scheduling. In the next section, you will study about the multiple plant production facility design. Self Assessment Questions 1. Plant location and relocation are ________ options for any manufacturing industries. 2. The site location is generally determined by the availability and the cost of appropriate _________________.

3. The railways are very __________ mode of transportation for long distance transport of _______ products. 4. Plant under adverse climatic conditions will ____________ costs. 5. ___________________ is the simplest scheduler. Activity 1: Research on web for the Toyota Kirloskar Motor Private Limited plant location (Hint: http://toyotabharat.com/inen/news/toyota_etios.asp) 13.3 Multiple Plant Production Facility Design In the previous section, you studied about the capacity scheduling and plant location. Now, we will discuss about the multiple plant production facility design. Managing multiple plant production facility across geographic boundaries or multiple companies at the same location is not an easy job to do. Organisations must include a facility design system to maintain multiple plant productions, which has the ability to centralise data from distant sites to a single location. This enables the employers and users to manage multiple companies or manufacturing facilities with the help of one database. The design system should be able to support multiple locations, inventories, general ledgers, and financial reporting. In addition to these, the design system should also permit the centralisation of major corporate tasks such as order entry, purchasing, and invoicing. With the help of security, each entity can supervise their information without affecting data at other locations. With the help of this design system, an organisation can merge data management, minimise the number of servers, and minimise client complaints. Organisations can achieve consolidated information and reduce rework or redundant tasks across multiple sites. Information can be accessed instantly without bulky batch downloads. The organisaton can reap the following benefits if it implements an effective design system to maintain the multiple plant production facility. Offers true multiple facility planning and manufacturing potential. Optimises utilisation of resources and capital assets. Multiple facilities or companies utilise a single, centralised database reducing IT maintenance. Security controlled admission permits viewing of company wide or location specific data. Decreases repeated activity across sites. Increases organisation visibility and performance by making remote information available to all. Maintains separate tools, inventories, schedules, and production planning by entity. Simplifies data sharing at daily, weekly, monthly, quarterly, and yearly reporting periods. Restructures inter-company/inter-plant transfers. Along with the benefits, there are certain key features of a design system, which is responsible for multiple plant production facility design. They are: Centralised data storage: With the help of coding data as per the site ownership, the design system supports a single point of data storage and management for multiple sites. The production planning requirements are generated on the local level and activities such as order entry, purchasing, and accounting are centralised at corporate level. Distributed manufacturing, inventory and capacity planning: The design system supports the distributed manufacturing capability. For example, a single Bill of Materials (BOM) structure may contain parts made in

another facility. With the help of a distinct order, demand for all levels of associated product is involuntarily generated across locations. The design support for inter company transmits reduces transactions between sites. Facility to view production information across locations: With the help of suitable security, the employees can view or access scheduling and manufacturing information across multiple sites. In addition to this, they can also increase the production visibility. For example, the information generated from the production system is available across the wide-area network (WAN) in real time. Therefore, we have understood how important it is to have an effective design system in order to maintain the multiple plant production facility design. In the next section, you will be introduced to the aggregation techniques. Self Assessment Questions 6. Organisation must include a facility design system to maintain multiple plant productions. (True/False)? 7. Organisations cannot achieve consolidated information and reduce rework or redundant tasks across multiple sites. (True/False)? 8. With the help of coding data as per to the site ownership, the design system supports a single point of data storage and management for multiple sites. (True/False)? 9. The design system does not always support the distributed manufacturing capability. (True/False)? 10. With the help of suitable security, the employees can view or access scheduling and manufacturing information across multiple sites. (True/False)? Activity 2: Research on web for the different plant location of Nike company (Hint: http://en.wikipedia.org/wiki/Nike, _Inc. #Manufacturing) 13.4 Aggregation Techniques It is important for us to know what aggregate planning is, before understanding aggregation techniques. Aggregate planning is nothing but an equipped activity that does an aggregate plan for the manufacturing process before 2 to 18 months. The techniques, which are used to assist the organisation with the work of aggregate planning, are called as Aggregation techniques. The techniques may range from simple graphical methods to highly complicated linear decision rule and parametric development methods. Following are some of the commonly used aggregation techniques. Informal techniques. Linear programming and extensions. Linear decision rule. Heuristic and simulation techniques. Informal techniques: The informal technique consists of simple graphs or tables. These graphs and tables help the planners to compare probable demand needs with existing capacity. In addition, it also provides the planners with a basis for increasing other plans for achieving transitional range goals. The other plans are usually assessed in terms of their overall costs. The main disadvantage of this technique is that it does not necessarily result in a most advantageous aggregate plan. Linear programming and extensions: It is important to know that under typical assumptions, the employees numbers and setting of manufacturing rates are viewed as linear programming issues. A linear programming issue consists of choosing the standards for several non-negative variables so as to minimise a linear function, since, linear functions of these variables are subject to several linear checks. One of the basic drawbacks of linear programming is the guess of determinism. In most applications there is a substantial indecision in the forecasts of

demand. Another inadequacy is the need of linear cost functions. An important advantage of a linear programming model is the prospective use of the dual solution to obtain the implicit costs of limitations such as the maximum allowable inventory level. It is also important to know that there are several extensions, which have been prepared to the basic linear programming model. They are. Removal of convexity and inclusion of a set-up type cost. Inclusion of many commodities. Manufacturing at several locations. Worker productivity and wages. Enclosure of effects of the detailed arrangement that will follow in the short run. Linear decision rule: If different costs are estimated by quadratic and linear functions then the conclusion rules for production rates and setting the workforce sizes will be in plain linear form. The main aim of this technique is to derive decision rules, which can be used to identify the most favorable production rate and workforce level over some approved production planning prospects. The linear decision rule has that the costs are considerably lower than those that come across the present management process. The action of the rule is quite tactless to errors in estimating the cost coefficients. Nevertheless, one possible disadvantage of the linear decision rule is that the costs may not be really quadratic. Another disadvantage is that the model does not permit for changing manufacture costs and the workforce level depends on the point of exit. Finally, there is no simple way of incorporating restrictions on the production levels or inventory. Heuristic and simulation techniques: A corporate definition of heuristic and simulation techniques would be the technique that helps the organisation to learn from its own practices. In addition, it also assists the development of measures by which sophisticated problems can be adequately solved. Thus, you have understood the commonly used aggregation techniques. In the next section, you will understand the aggregate capacity scheduling. Self Assessment Questions 11. Aggregate planning is nothing but an equipped activity that does an ____________ plan for the manufacturing process before 2 to __________ months. 12. The informal technique consists of simple ___________ or _________. 13. A linear programming issue consists of choosing the ______________ for several __________________ variables so as to minimise a linear function. 14. A corporate definition of heuristic and simulation techniques would be the ___________ that helps the organisation to learn from its own ____________. Activity 3: Assume you are the manager of a shirt manufacturing industry. You are responsible to perform the aggregate planning with the help of aggregation techniques. Which of the above techniques will be your preferred ones and why? (Hint: Commonly used aggregate techniques) 13.5 Aggregate Capacity Scheduling Aggregate capacity scheduling is nothing but the manufacture quantity and timing of production for intermediate future. It combines the production to make an average product, which is expressed in common units such as hours, dollars and so on. Following are the main objectives of aggregate capacity scheduling. Meet the demand. Use capacity efficiently.

 Meet the inventory policy. Minimise the cost of labour, inventory, plant and equipment, and subcontract. There are many components in the aggregate capacity scheduling. They are: Aggregator. Scheduler. Maintainer. The Aggregator aggregates the requests into types. It updates the data structure and it informs the maintainer about the new event. The scheduler calculates the request types with the maximum value. It also calculates the aggregate request for all request types and schedules the request types to the application. The maintainer uses an optimisation purpose for the request types. It maintains the alternative property for new events. The aggregate capacity scheduling also has two main options. They are capability and demand. The capability of an aggregate capacity planning determines the overtime, subcontract, part-time workers, outsourcing, and inventories. The demand determines the promotion, price, back ordering, and counters seasonal product mixing. There are three types of strategies in aggregate capacity scheduling. They are: Level scheduling strategy: This strategy makes sure that the production of the same quantity is carried out every day. It keeps the work force level constant. It varies non-work force capacity or demand. This strategy results in lowest production costs. Chase strategy: This strategy is used to recruit or terminate employees to make the production capacity meet the necessary production. Mixed strategy: This strategy combines two or more aggregate scheduling options. Thus, we have discussed about the aggregate capacity schedule. 13.6 Disaggregation of Aggregate Plan It is important to know that the aggregate plans use an aggregate view of facilities, products, and time. There is no guarantee that a reasonable aggregate plan will allow construction of a reasonable detailed schedule. Disaggregation is a key area in hierarchical production planning. Actually, desegregation is probably a mistaken belief. The main challenge is how to aggregate in such a way that the resulting plans can be disaggregated to produce good schedules. Both theoretical and practical methods of disaggregating the production plan and aggregating the products depends on the formation of demands, constraints, and costs. For the manufacturing plan to be converted into meaningful terms for manufacture, it is necessary to disaggregate the aggregate plan. This means segregating the aggregate plan into detailed product needs in order to verify labour needs such as skills, size of workforce, materials, and inventory requirements. Therefore, we will discuss about the need for disaggregation and what exactly the term implies. The units of aggregation always facilitate intermediate planning. Nevertheless, to put the production plan into process, one must translate those units of aggregation into units of actual services or products that are to be offered or produced. For example, a lawn mower manufacturer may have an aggregate plan that calls for 300 lawn mowers in January, 400 in February, and 500 in March. Therefore, the company may manufacture self-propelled mowers, riding mowers, and push mowers. Although most of the mowers almost certainly contain same parts and involve some similar or identical processes for assembly and fabrication, there would be some difference in the parts, operations, and materials that each type requires. Therefore, the 300, 400, and 500 aggregate lawn mowers, which are to be produced during those three months, must be converted into specific numbers of mowers

of each type. This should be done prior to actually purchasing the appropriate materials and parts, scheduling operations and planning inventory requirements. The consequence of disaggregating the aggregate plan is a master schedule. This master schedule shows the timing and quantity of specific end items for a scheduled prospect, which often covers about six to eight weeks ahead. A master schedule shows the planned production for individual products rather than an entire product group, in addition with the timing of production. The master schedule contains vital information for marketing as well as for manufacture. It reveals when the orders are scheduled for production and when the completed orders are to be shipped. It is a misconception that the totals of the aggregated and the disaggregated units are always equal. However, in reality, that is not always true. Therefore, disaggregating the aggregate plan requires considerable effort. Self Assessment Questions 15. Disaggregation is a key area in hierarchical production planning. (True/False)? 16. For the manufacturing plan to be converted into meaningful terms for manufacture, it is not that important to disaggregate the aggregate plan. (True/False)? 17. It is a well known fact that when you work with units of aggregate then it facilitates the intermediate planning. (True/False)? 18. The consequence of disaggregating the aggregate plan is a master schedule. (True/False)? 19. The master schedule does not contain vital information for marketing as well as for manufacture. (True/False)? 20. It is a misconception that the totals of the aggregate and the disaggregated units are always equal. (True/False)? Activity 4: Research on web for more information on master schedule importance with disaggregating of Aggregate Plan (Hint: http://www.oppapers.com/subjects/what-is-the-importance-of-the-master-production-schedule-in-an-mrppage1.html) 13.7 Summary In this unit, we started with the plant location. You comprehended that the plant location can have crucial affect on the performance and production capability of an industry along with its future expansions. You came to know that the plant location and relocation are vital options for any manufacturing industries. The main reason behind this is that the plant location helps the industry to evaluate and improve the customer service and their cost structure. You also studied that the principle factors, which are considered while setting up a plant location are: Marketing area. Raw materials. Transport facilities. Availability of labour. Utilities. Environmental impact and effluent disposal.

 Local community considerations. Climate. Political and strategic considerations. After plant location you were introduced to capacity scheduling where you got to know that it is a scheduling method that matches resource needs to a fixed supply of available resources in order to develop a realistic production plan. Later, you came to know that how a design system helps in managing multiple plant production facility. Managing multiple plant production facility across geographic boundaries or multiple companies at the same location is not an easy job to do. Organisations must include a facility design system to maintain multiple plant productions, which has the ability to centralise data from distant sites to a single location. You also learnt that organisations can reap benefits if it implements an effective design system to maintain the multiple plant production facility. Some of the benefits are: Offers true multiple facility planning and manufacturing potential. Optimises utilisation of resources and capital assets. Decreases repeated activity across sites. Later, you learnt about the aggregation techniques. Aggregation techniques are nothing but the techniques which are used to assist the organisation in the work of aggregate planning. The techniques may range from simple graphical methods to highly complicated linear decision rules and parametric development methods. You also learnt about some of the commonly used aggregate techniques such as: Informal techniques. Linear programming and extensions. Linear decision rule. Heuristic and simulation techniques. Then you were introduced to the aggregate capacity scheduling, which is nothing but scheduling the manufacture quantity and timing of production for intermediate future. It combines the production to make an average product, which is expressed in common units such as hours, dollars and so on. Finally we finished the unit with the topic dis-aggregation of aggregate plans where the dis-aggregation is a key area in hierarchical production planning. Actually, desegregation is probably a mistaken belief. The main challenge is how to aggregate in such a way that the resulting plans can be disaggregated to produce good schedules. 13.8 Glossary Term Effluents Enticements Hindrance Description The waste materials which are produced by the industries. Attracting the quality considerations. The obstructions which are possible orders while capacity scheduling. It is a polynomial function, which is used to estimate the different costs under the linear decision rule.

Quadratic

13.9 Terminal Questions

1. Define plant location. 2. Describe multiple plant production facility design. 3. Explain aggregation techniques. 4. Elucidate capacity scheduling and aggregate capacity scheduling. 5. Explain disaggregating of aggregate plan. 13.10 Answers Self Assessment Questions 1. Vital. 2. Raw materials. 3. Cheap, bulk. 4. Increase. 5. Electronic scheduling board. 6. True. 7. False. 8. True. 9. False. 10. True. 11. Aggregate, 18. 12. Graphs, tables. 13. Standards, non-negative. 14. Technique, practices. 15. True. 16. False. 17. True. 18. True. 19. False. 20. True. Terminal Questions 1. Refer to section 13.2 Plant Location and Capacity Scheduling

2. Refer to section 13.3 Multiple Plant Production Facility Design 3. Refer to section 13.4 Aggregation Techniques 4. Refer to section 13.2 and 13.5 Plant Location and Capacity Scheduling and Aggregate Capacity Scheduling 5. Refer to section 13.6 Disaggregating of Aggregate Plan 13.11 Case Study Sutan bio-diesel plant location study In this case study, we will discuss about the Sutan bio-diesel production plant location considerations. Shammi Singh had been using bio-diesel in his own construction operation for more than two years. With the dawn of petroleum oil prices breaking 60 rupees per litre, he saw an opportunity to start producing bio-diesel on a commercial scale. Shammi knew that the success of his planned venture would depend in part on location. This is mainly because each location would have different start up cost of living, cost of doing business, local laws, availability, cost of inputs, and cost of shipping raw materials, and finished product. Differences in these costs could quickly wear away the slim contribution boundaries that commodity items generate. We will end this case with Shammi deciding on the bio-diesel production facility location. With petroleum based diesel continuing to wear away profits, Shammi Singh, president of Jai Ho Petroleum, started using bio-diesel in 2005 to help fuel the companys diesel engines. These engines provided power to 95 trucks and an assortment of compressors, welders, and earth moving equipment. Based on the booming use of bio-diesel and the rising cost of petroleum diesel, he decided that producing bio-diesel on a commercial scale was a viable business. Shammi decided to start a commercial bio-diesel operation named Jai Ho Bio-Fuels. Once Shammi made the decision to construct a bio-diesel production facility, the first thing which he had to decide was where to locate that facility. He constructed the plant just near to the market and which was near to the banks of a river. With the help of the appropriate location, he was successful in his new venture. Questions 1. According to you, how did Shammi Singh go on with the plan of new bio-diesel plant location and how was he successful? (Hint: Jai Ho Bio-Fuels). The idea for this case study is taken from the following website: http://www.highbeam.com/doc/1G1-182273902.html

OM0017-Unit-14-Role of Production Planning in Supply Chain and Logistics

Unit-14-Role of Production Planning in Supply Chain and Logistics Structure: 14.1 Introduction Objectives 14.2 Supply Chain Management Problems addressed by supply chain management Activities/functions

Importance of supply chain management Supply chain business process integration The management components of SCM Supply chain systems and value Global supply chain management 14.3 Make or Buy Decision 14.4 JIT Purchasing 14.5 Summary 14.6 Glossary 14.7 Terminal Questions 14.8 Answers 14.9 Case Study 14.1 Introduction By now, use must be familiar with the design of multiple plant production facility and plant location along with scheduling capacity. In the previous unit we have discussed about aggregate capacity scheduling and disaggregating of aggregate plan. In this unit, we will study about Supply Change Management. We will also study about the problems addressed by Supply Chain Management (SCM) along with its activities such as activities at the strategic, tactical and operational level. After that, you will be introduced to the importance of supply chain management and supply chain integrated business processes. Later, you will study about the management components of SCM, supply chain systems and values along with global supply chain management. Finally, we will end this unit by studying the make or buy decision and Just In Time (JIT) purchasing. Objectives After studying this unit, you should be able to: Explain supply chain management. Describe just in time purchasing. Explain make or buy decision. 14.2 Supply Chain Management Most of you must be familiar with the meaning of Supply Chain Management (SCM). The flow of materials from suppliers to customers is viewed as a system that needs to be managed. This is known as supply chain management (SCM). In its broadest sense, a supply chain refers to the way by which materials flow through different organisations, starting with the basic raw materials and ending with the finished products delivered to the ultimate consumer. For example, consider the steel used in an automobile door. A mining company first excavates only the iron ore from the mining field. The iron ore is then sold to a steel mill, where it is processed with other materials to form large steel ingots. Then long thin sheets are produced from the steel ingots that are sold to another steel company. After that, the steel doors are made out of these thin sheets by an automotive supplier who specialises in making doors. The door is made by cutting and stamping the sheet metal. The door is then sold to the automobile manufacturer, where it is assembled with other components to produce an automobile. A car dealer now purchases the automobile and adds some finishing touches to it like pinstripes. At the end of the supply chain is the consumer who purchases the car from the dealer.

A large number of companies and materials are involved in the formation of the complex networks known as supply chain. A raw material can be used in many different finished products produced by numerous companies, and the finished products are usually made from many different raw materials from different suppliers. Coordination of all companies involved in a supply chain, including effective communication, is crucial to providing high quality finished goods in a timely manner at the lowest possible cost. From an operations management perspective for a particular company that is in the middle of the supply chain, only a portion of the supply chain is of particular interest and must be managed carefully by the company. All the management functions involved with the flow of materials from the suppliers to customers are relevant to supply chain management. Functions such as buying, storing, production material handling, shipping and distribution are important to supply chain management. Studying the flow of the acquisition, storage, movement and processing of raw materials, components, assemblies and supplies is a good way to understand manufacturing. The various systems of material flow are retailing, warehousing and transportation companies. The planning and control of material systems affects all organisational functions of the retailing, warehousing and transportation systems. Supply chain management can also be called as materials management or logistics management. Purchasing, logistics, warehousing and expediting are the four important activities in materials management. The nature and scope of materials can be understood by studying the framework formed by these activities. More common and accepted definitions of Supply Chain Management are: Supply Chain Management can be defined as a systematic approach for coordination of tactics and traditional business functions with a company or across businesses within a supply chain, thus aiming at improving the performance of the company and the supply chain. Creating value for customers and stakeholders through the process of integration of key business processes across the supply chain is known as supply chain management. Supply chain management consists of all activities involved with sourcing, buying, production and transport. Channel partners, such as suppliers, intermediaries, third party service providers and customers are important to the business and need to be controlled. Supply and demand are integrated by supply chain management. The loosely coupled network of businesses that assist to provide product and service is called the Extended Enterprise. 14.2.1 Problems addressed by supply chain management Supply chain management addresses many problems. Following are the problems, which are addressed by the Supply Chain Management. Distribution network configuration: It includes distribution centres, location number, network missions of suppliers, cross-docks and warehouses customers, production facilities. Distribution strategy: Questions of operating control (centralised, decentralised or shared); cross docking, e.g., pool point or direct shipping, or closed loop shipping, delivery scheme DSD (direct store delivery), intermodal transport, ocean freight; railroad mode of transportation, e.g., motor carrier, including truckload; including TOFC (trailer on flatcar) and COFC (container on flatcar); transportation control (e.g., owner-operated, private carrier, common carrier, contract carrier, or 3PL),.LTL, parcel airfreight; replenishment strategy (e.g., pull, push or hybrid); Trade-offs in logistical activities: The total logistics cost can be lowered by coordinating all the above mentioned activities. If only one activity is optimised, then trade-offs will increase the total cost. It is more economical to have a full truckload of shipments rather than having less than full truckload. The Inventory holding costs and total logistics costs are increased if a full truckload of product is ordered to reduce transportation cost. Logistic activities need to be planned using the systems approach. The most efficient and effective logistics and SCM strategy is developed by using these tradeoffs. Information: The processes of the supply chain needs to be integrated, so as to share valuable information, which includes demand signals, forecasts, inventory transportation, potential collaboration and so on. Inventory management: This includes the management of finished goods, work in progress and raw materials. The quantity and location of inventory is also managed. Cash-flow: The method for exchange of funds across entities in the supply chain needs to be arranged.

14.2.2 Activities/functions The movement of materials, information and funds is coordinated by supply chain management. The flow is bidirectional. Supply chain management involves the movement of raw materials into the organisation, internal processing of materials to finished goods and movement of finished goods out of the organisation. Organisations try to be more flexible by reducing their ownership of raw material sources and distribution channels. Activities that can be performed more efficiently and cost effectively by outside sources are outsourced. The number of organisations involved in satisfying the customer demand is increased and management control of daily logistics is reduced. The supply chain concept evolved from the presence of supply chain partners. Trust and collaboration is improved among supply chain partners and thus inventory visibility and velocity of inventory movement is improved. The activities required to manage material movement across organisational and functional boundaries can be understood by the proposed models. The supply chain council promotes the supply chain operations reference (SCOR) supply chain management model. The global supply chain promotes the SCM Model. The activities of supply chain management can be grouped into strategic, tactical, and operational levels. Strategic level following are the activities that are managed at the strategic level of supply chain management: Planned network, including the location, number, distribution centres, facilities, and size of warehousing. Suppliers, distributors and customers share strategic partnership for creating communication channels for critical information. The supply chain is integrated with the product life cycle management, Where-to-make and make-buy decisions. Organisational strategy and supply strategy needs to be aligned. Resource commitment is required as it is for long term. Tactical level the following activities are grouped under the tactical level: Purchasing decisions and sourcing contracts. Contracting, scheduling, and planning process definition included in production decisions. Decisions pertaining to inventory location and quality. Strategy involved in transportation such as frequency, routes and contracting. Best practices are implemented throughout the enterprise after benchmarking of all operations against competitors. Customer demand is the prime focus. Operational level the following activities can be considered at the operational level: Day to day planning of production and distribution. The minute by minute production scheduling for every manufacturing service in the supply chain. Sharing of the demand forecast with suppliers, and coordination of demand planning and forecast. Collaboration with all suppliers for source planning, current inventory and forecast demand. Transportation of materials from suppliers. The consumption of raw materials and the flow of finished goods within the organisation included in production operations. Transportation of goods to customers and warehousing.

 Ensuring that all the losses incurred due to transit damage are covered through insurance. 14.2.3 Importance of supply chain management Supply chain management is essential for the success of every company and to satisfy customer demand. Supply chain management plays a critical role in the success of the company. Supply chain management is equipped to deal with anything from flow of products to unexpected natural disasters. Supply chain management diagnoses the problem and innovatively works around the problems. It helps in bringing out an effective solution for various problems in production. Supply chain management has the following impact on business: Reduce operating costs: The operating cost can be reduced by decreasing the purchasing cost, production cost, and total supply chain cost. The purchasing cost can be reduced by depending on supply chains to deliver goods when needed and thereby avoid holding costly inventories. The production costs can be reduced by using reliable sources for delivery of raw materials. Efficient supply chain management reduces costs and enables the firm to be more competitive. Improve financial position: The financial position can be improved by increasing profit leverage and cash inflow and decreasing fixed assets. The supply chain costs can be controlled and reduced hence the profits of a firm can be improved by efficient supply chain management. The investment on fixed assets such as plants, transportation vehicles, and warehouses are eliminated by the use of supply chain management. The cash flow is increased since supply chain management speeds up product flow to customers. Boost customer service: Customer service can be boosted by having the right product assortment and quantity, the right stock location, right delivery time, and right after sale report. Supply chain management ensures that the right product assortment and quantity is delivered to customers. The location of stock and delivery should be appropriate. Customers expect after sale service to be quick and this is done by having an efficient supply chain management. 14.2.4 Supply chain business process integration The individual functions need to be integrated with the key supply chain functions for successful supply chain management. For example, when the requirements are known, the purchasing department places an order. This demand is satisfied by the marketing department that communicates with distributors and retailers. Process integration is the only solution to obtain best results through supply chain management. Collaborating work between buyers and suppliers, joint production development, and shared information are a part of supply chain business process integration. Continuous information flow is required for the operation of integrated supply chain. Product flow cannot be optimised without implementing a process approach to business. The key supply chain processes are: Customer relationship management. Customer service management. Demand management. Order fulfilment. Manufacturing flow management. Supplier relationship management. Product development and commercialisation. Returns management. 14.2.5 The management components of SCM The various management components of supply chain management are:

 Work structure. Planning and control. Organisation structure. Product flow facility structure. Information flow facility structure. Management methods. Power and leadership structure. Risk and reward structure. Culture and attitude. 14.2.6 Supply chain systems and value Organisation of networks is valued in supply chain systems. The key challenge for any supply system is to create value and sharing the benefits so as to encourage participation. Eventually, it is the customer who pays the price for service delivered which confirms the value, and not the producer who simply adds cost until that point. 14.2.7 Global supply chain management It is very important to know that the global supply chains pose challenges with reference to both quantity and value. Supply and value chain trends The current trends in the supply and value chain can be summarised as follows: Globalisation. Increased cross border sourcing. Working together with low cost providers to purchase parts for the value chain. Logistical and administrative functions can be performed from shared service centres. Global planning and coordination to improve global operations. High degree of involvement of mid-sized companies in complex problems. Supply and value chain trend offer several benefits such as larger lot sizes, lower taxes, and better environments for the products. When the supply chain is global, the number of challenges faced by supply chain will also increase. The lead time is much longer, when the scope of supply chain is larger. The other issues are different currencies, different policies, and different laws. The problems associated are: Different tax laws. Different trading protocols. Different currencies. Cost and profits are not transparent. Self Assessment Questions

1. In its broadest sense, a supply chain refers to the way that _______ flow through different organisations, starting with basic raw materials and ending with finished ________ delivered to the ultimate consumer. 2. Supply chain management can also be called as materials management or ___________ management. 3. The activities of supply chain management can be grouped into ________, tactical, and __________ levels. 4. The operating cost can be reduced by decreasing the purchasing cost, production cost and total supply chain cost. (True/False)? 5. Collaborating work between buyers and suppliers, joint _________ development and shared information are a part of _______ chain business process integration. Activity 1: Imagine that you are the manager of a firm and list out the activities and functions to be performed by supply chain management. (Hint: Planned network, including the location, number, distribution centres, and facilities and size of warehousing.) 14.3 Make or Buy Decision The strategic choice between making an item internally and purchasing an item externally is known as make or buy decision. Outsourcing is the other term used for buying. Unreliable suppliers are the main reason for the make-orbuy decisions to arise in a firm. Not all requisitions for raw materials and parts that are received in the purchasing departments are automatically ordered from suppliers. Components or parts can be manufactured in-house, by the production department at a lower cost with better quality and faster delivery. Certain components or parts can be procured from suppliers who specialise in production of those parts. This will ensure supply of low cost, high quality products with improved delivery time. Buyers in purchasing departments, with assistance from production departments, routinely perform make or buy analyses for the raw materials and parts from outside suppliers. A make or buy decision is a business decision that decides whether to buy a component or to manufacture it internally. Manufactures choose to internally manufacture a component, if the purchase price is high or if the manufacturer has the ability to manufacture the component or if suppliers are unreliable. For the manufacture of the component internally, the manufacturer should have the necessary skills and equipments, access to raw materials and so on. The drawbacks associated with making rather than buying is the lack of alternative source, requirement of design flexibility and access to technological innovations. The strategic and operational levels are considered while performing the make-or-buy analysis. Among the two levels, strategic level has a long range. In the strategic level, the variables considered are the future and current environment. The make or buy decision is affected by issues like government regulation, competing firms, and market trends. Lean manufacturing has promoted firms to use outsourcing. Outsourcing activities range from logistics to administrative services. Generally, subassemblies are purchased instead of piece parts by most manufacturers. An item is out sourced if it does not fit into one of the following three categories: If the component or part is important for the success of the product, and if the customer perceives it to be a critical part of product feature. When specialised design, manufacturing skills or equipment are required for the component or item and when there is limited reliable suppliers. If the component is a part of the firms expertise area or it is essential to fulfil future plans. All the items that fall into one of the three categories are highly important for the company and should be manufactured internally. Make-or-buy decisions also occur at the operational level. Given below are the reasons to consider in house production.

 Better quality control. Plans to integrate plant operations. Company wants to have direct control over production and/or quality. Cost considerations (since it is less expensive to make the part in-house). No competent suppliers. Design secrecy is needed to protect proprietary technology. Political, social or environmental reasons (union pressure). Unreliable suppliers. Using existing plant capacity (idle capacity) would bring down the overheads. Control of lead time, transportation, and warehousing costs. Greater assurance of continual supply. Emotion (e.g., pride). Desire to maintain a stable workforce (in periods of declining sales). Small-volume requirements. Desire to maintain a multiple-source policy. Brand preference. Suppliers research and specialised know-how exceeds that of the buyer. Limited production facilities or insufficient capacity. Factors that may influence a firms decision to buy a part externally include: Indirect managerial control considerations. Cost considerations (less expensive to buy the item). Procurement and inventory considerations. Item not essential to the firms strategy. The cost and availability of production capacity are the two important factors to be considered in make or buy decisions. All the relevant costs need to be considered. Elements of the "make" analysis include: Any follow-on costs arising out of quality and related problems Incremental managerial costs. Incremental capital costs. Incremental purchasing costs. Incremental factory overhead costs.

 Purchased material costs. Direct labour costs. Incremental inventory-carrying costs. Cost considerations for the "buy" analysis include: Purchase price of the part. Transportation costs. Receiving and inspection costs. Incremental purchasing costs. Any follow-on costs related to quality or service. Self Assessment Questions 6. Make or buy decision is a business decision that decides whether to buy a component or to manufacture it internally. (True/False)? 7. The ________ choice between making an item internally and purchasing an item externally is known as make or buy decision 8. Lean manufacturing has promoted firms to use outsourcing. (True/False)? 9. Components or parts can be manufactured in house by the production department at a lower cost with better ______ and faster _______ 10. The make or buy decision is affected by issues like government ________, ________ firms, and market trends. Activity 2: Being the manager of an automobile manufacturing company, would you decide to make or buy certain components? Give reasons to support your answer. (Hint: Manufacturers choose to internally manufacture a component if the purchase price is high or if the manufacturer has the ability to manufacture the component or if suppliers are unreliable.) 14.4 JIT Purchasing The trickiest part for most manufacturers in achieving Just In Time (JIT) is the purchasing of raw materials and parts. An internal just in time system can be operated successfully only when the materials being fed are of sufficient quantity and delivered on time. A just in time supplier base needs to be established, for uninterrupted production. The essential elements of just in time purchasing are as follows: Radical changes take place in the development of supplier and supplier relations. The nature of relationships between customers and suppliers shifts from being adversarial to cooperative. Sensitive information, assistance in reducing costs and improved quality, and even financing are shared by customers and suppliers. Long term relationships are developed between the purchase department and supplier. The result is long term supply contracts with few suppliers rather than short term supply contracts with many suppliers. Certain suppliers are repeatedly awarded business and competitive bidding is done only for new components. Supplier selection is based on the delivery schedules, product quality, mutual trust and cooperation. Just in time method is extended not only to suppliers, but also to their own suppliers.

 The location of the supplier and buying firm is usually close by, or if they are located far off, they are clustered together. Thus, the lead time will be shorter and more reliable. The customers production line directly receives the shipments. The company owned hauling equipment is preferred, since the suppliers are expected to produce and supply parts at the rate of usage by the buying firm. Parts are delivered in small, standard size containers, with minimum of paper work and in exact quantities. The quality of the delivered material is near perfect. Because suppliers have long term relationship with the buying firms and because parts are delivered in small lot sizes, the quality of purchased materials tends to be higher. Goals The goals of just in time purchasing are as follows: Steady flow of quality parts should be ensured. Lead time for ordering product is reduced. Amount of inventory in supply and production pipeline is reduced. Cost of purchased material is reduced. Objectives The objectives of just in time purchasing are: Promote purchasing efficiency. Enhance quality and delivery performance of suppliers. Remove factors that influence the cost of material. Eliminate unnecessary cost factors in the materials supply system. Tactics The tactics followed by just in time purchasing are: The suppliers are regarded as a part of the internal manufacturing process. Long term purchasing and supply commitments are established. Communication with suppliers is improved. Supplier is involved in the early stages of new product planning. Design manufacturability is improved and product cost reduced by using supplier expertise. Purchasing requirements Material purchased in a just in time system should meet the following three requirements: Quality of an acceptable level. Delivery schedule that is on time. Availability at reasonable cost.

Self Assessment Questions 11. An internal just in time system can be operated successfully only when the _______ being fed are of sufficient quantity and delivered on time 12. The trickiest part for most manufacturers in achieving Just In Time (JIT) is the purchasing of raw materials and parts. (True/False)? 13. The suppliers are regarded as a part of the _________ manufacturing process. 14. The nature of relationships between _________ and suppliers shifts from being adversarial to cooperative. 15. Certain suppliers are repeatedly awarded business and competitive bidding is done only for new components. (True/False)? Activity 3: Use the internet to list the advantages of just in time purchasing. (Hint: Enhance quality and delivery performance of suppliers.) 14.5 Summary In this unit, we studied about supply chain management. Supply chain management is involved with the control and management of the flow of raw materials in and out of the organisation. Companies have realised that supply chain management is essential for capturing the market share in world markets. The supply chain managers plan and control all the activities related to materials that move from suppliers, through the production processes and to customers. Companies are quickly forming partnerships with suppliers of products of near perfect quality precisely when needed and with little inventory. Providing suppliers with information about when customer orders are needed and training them in quality control and manufacturing techniques are becoming more common. Suppliers are selected and developed with a long term view towards improving product quality, fast deliveries and responsiveness to customer needs. Suppliers who are located close by are preferred to avoid logistics problems. Later, we studied about the make or buy decision. The make or buy decision is a strategic business decision about whether a company wants to manufacture or buy components from outside. There is constant debate over whether internal manufacturing or purchasing is more beneficial. When the company has the manufacturing capability and access to resources, internal manufacturing can be considered, as this will reduce costs and provide good quality components. The last topic that we have discussed is just in time purchasing. Just in time purchasing is used to reduce the cost of holding large inventories. Just in time purchasing is the most critical part in manufacturing. A large and reliable supplier base needs to be maintained to ensure uninterrupted flow of raw materials into the organisation. The suppliers are generally aware of the business demands and companies share a long term relationship with the suppliers. 14.6 Glossary Term Excavates Description To remove by digging or scooping out. An ingot is a material, usually metal, that is cast into a shape suitable for further processing. Ones "point of view", the choice of a context for opinions, beliefs and experiences. Logistics is the management of the flow of goods, information and other resources in a production cycle between the point of origin and the point of consumption in order to meet the requirements of customers.

Ingots

Perspective

Logistics

Strategic Consequence Integration

Refers to a plan of action designed to achieve a particular goal. A consequence is that which results from a given action. An act or instance of combining into an integral whole. Collaboration is a recursive process where two or more people or organisations work together in an intersection of common goals for example, an intellectual endeavour that is creative in nature by sharing knowledge, learning and building consensus Characterised by adroitness, ingenuity, or skill. Kanban is not an inventory control system. Rather, it is a scheduling system that tells you what to produce, when to produce it, and how much to produce.

Collaboration Tactical

Kanban

14.7 Terminal Questions 1. Explain supply chain management 2. Explain the importance of supply chain management 3. Explain make or buy decisions and when it is appropriate to consider each respectively. 4. Explain just in time purchasing 14.8 Answers Self Assessment Questions 1. Material, product 2. Logistics 3. Strategic, operational 4. True 5. Products, supply 6. True 7. Strategic 8. True 9. Quality, deliveries 10. Regulation, competing 11. Materials 12. True 13. Internal 14. Customers 15. true Terminal Questions

1. Refer to section 14.2 supply chain management 2. Refer to section 14.2.3 importance of supply chain management 3. Refer to section 14.3 make or buy decision 4. Refer to section 14.4 Just in time purchasing 14.9 Case Study Implementation of JIT When just in time is successfully implemented in a company, the benefits are usually clear and substantial. However, the rate of improvement decreases as the years go by. To continue improving the operations, companies may adopt other approaches to enhance their just in time manufacturing approach. The evolving operations at ZZZ demonstrate such a strategy. ZZZ industries of Patna manufactures agricultural machinery, including hard hose irrigators and industrial machinery including equipment for processing horticulture mulches and for recycling organic waste products. With about 30 standard product models, agriculture machines are built in batches of 10 to 25 units, and industrial machines are built in batches of 1 to 3 units and are often custom designed. In the 1990s, ZZZ decided to implement just in time. Significant benefits were realised in labour costs and lead time improvements. The components produced by ABC Company are purchased by ZZZ. Both the companies are located next to each other. With around 500 employees and 300 robots, ABCs plant has state of art facility for manufacture of components for agricultural equipment. The plant operates 24 hrs a day. ABC used a just in time approach to production control, including Kanban cards. ZZZ provides ABC with forecasts for six months in future and provides blanket purchase order for components. Production and delivery of components is controlled by Kanban cards. ABC does not produce anything unless there is a kanban card authorising it to do so. If ZZZ increases or decreases its production rate of equipment during a week, then ABC must also increase or decrease its production rate for components. ABC makes frequent deliveries of parts to ZZZ throughout each day to support ZZZs production plan. The parts delivered to ZZZ are not packaged, which would slow down ZZZs use of the parts, but are placed on partitioned trays holding a standard number of parts. After ZZZ uses the parts, the empty trays are returned to ABC for reuse. There are no wasted packaging materials, such as cardboard boxes, with the parts provided to ZZZ. Questions: 1. After studying the case given above, what are the advantages of implementing the just in time purchasing. (Hint: There are no wasted packaging materials, such as cardboard boxes) 2. Explain the use of Kanban cards for just in time purchasing. (Hint: Production and delivery of components is controlled by Kanban cards.)

OM0017-Unit-15-Planning for Global Sourcing

Unit-15-Planning for Global Sourcing Structure: 15.1 Introduction Objectives

15.2 History 15.3 Reasons for Outsourcing 15.4 Types of Outsourcing 15.5 Advantages and Disadvantages of Global Sourcing 15.6 Types of Concerns that Props Up while Outsourcing 15.7 Criticisms of Outsourcing/Problems Faced 15.8 Strategic Decision and Sourcing Techniques 15.9 International Organisations as Facilitators 15.10 Outsourcing Optimisation 15.11 Outsourcing for Strategic and Tactical Objectives 15.12 Low Cost Sourcing Strategy 15.13 Transformational Off Shoring 15.14 Value Chain Dynamics 15.15 Performance Management 15.16 Business Ethics and Corporate Social Responsibility 15.17 Comment of India as the Mother Country of Global Outsourcing 15.18 Benefits of Outsourcing 15.19 Summary 15.20 Glossary 15.21 Terminal Questions 15.22 Answers 15.23 Case Study 15.1 Introduction By now you must be familiar with the concept of role of production planning in supply chain and logistics. You are also aware about the make or buy decisions and JIT purchasing. In this unit, you will be first introduced to the history of outsourcing along with its reasons, types, advantages and disadvantages. Later, you will be introduced to the types of concerns that prop up while outsourcing and criticisms of outsourcing. It is followed by discussions on strategic decision, sourcing techniques, international organisations as facilitators and outsourcing for strategic and tactical objectives. We will later discuss about the low cost sourcing strategy, transformational off shoring, value chain dynamics, performance management, business ethics, corporate social responsibility, the comment of India as the mother country of global outsourcing and finally we will end the unit with the discussions on benefits of outsourcing. Objectives After studying this unit, you should be able to:

 Define outsourcing. Analyse the advantage and disadvantage of global sourcing. Discuss strategic decisions & sourcing techniques. Explain the concept of value chain dynamics. Describe various benefits of outsourcing. 15.2 History In the mid 1960s, some of the developed countries started to off shore their business processes to developing countries. This caused the structural change in the developed countries. The decreased costs of transportation, communication, and some differences in pay rates (availability of cheap labour) have increased off-shoring of jobs from developed countries to developing countries. During the 20th century, the internet and the World Wide Web have brought many countries together. People at remote location can effectively interact with the help of the internet and gain more information with the help of the World Wide Web. Now, many new categories of work such as call centre, computer programming, medical transcription and income tax preparation are on high demand and are largely outsourced by the developed countries. Since 2005, off-shoring of skilled work, referred to as knowledge work, has dramatically increased from the US. However, with the concerns on uneven bargaining powers, risks, and benefits along with the difficult process of negotiations, the free trade areas were not successful. Further, fluctuating market condition increased worries among the people of developing countries about the threat of losing their jobs. 15.3 Reasons for Outsourcing Organisations that outsourced realised the benefits of outsourcing as well as addressed the following issues: Cost savings: Off shoring reduces the overall service cost of the business. This results in re-pricing, re-structuring of cost as well as re-defining the quality levels. This refers to "labour arbitrage", which is produced by the wage gap between developed and developing nations. Focus on core business: Resources such as people and infrastructure help in developing the company core business. For example, an organisations IT support is outsourced to the companies specialising in IT services. Cost restructuring: This measures the operating leverage to compare fixed costs with that of variable costs. Outsourcing alters the balance of this ratio, by making variable costs more predictable. Improved quality: Services are contracted with an agreement to obtain the desired quality work from the company that carries out the business outsourced from the companies in developed countries. Knowledge: Outsourcing helps to access the intellectual property as well as gain knowledge from the companies that outsource their work. Contract: Quality services can be exchanged between two companies by establishing legal contract with financial penalties. Operational expertise: In-house development of operational best technologies and processes are considered as difficult and time consuming processes. Access to talent: Access to the talent and skills in the fields of state of art science and engineering helps to bring quality in an organisation. Capacity management: Suppliers are ready to accept any risk associated with providing the excess capacity to the business in order to improve capacity management of services and technology.

 Catalyst for change: Outsourcing can be considered as the catalyst or the change agent that brings quality change to the company, which cannot be achieved alone. Enhance capacity for innovation: The in-house product innovation can be developed by using the product knowledge service of external companies. Reduce time to market: Additional capability offered by the supplier results in development of many new products, which also reduces the time to market these products. Standardising business processes: IT applications are standardised such that businesses gain the profits at the right time. Risk management: An appropriate risk management and mitigation plans are developed to bring success to the business. Outsourcing has also reduced the problems pertaining to quality, unavailability of key staff, cost overruns as well as improper functionality of new products. 15.4 Types of Outsourcing In the pervious section, we leant the reasons for outsourcing. Now, let us learn about the different types of outsourcing. Outsourcing basically involves a contract between two companies to get some of their work done. There are different types of outsourcing, which include: Off shoring: Off shoring relocates or shares the business processes such as production, manufacturing, or services between two or more countries. Here, the internal business processes are moved to the external company. If the subcontracting companies are located in the same country, then it is considered as outsourcing and not off shoring. However, if a company is moving some of its internal business units to another country, then the company is off shoring its business and not outsourcing. Generally, when the company experiences lower cost of income in its own country, they often relocate their business to gain profit. Off shoring can be classified as production offshoring and services off-shoring. Production off shoring involves transfer of physical manufacturing processes to a low cost foreign location. For example, production of toys in China. The service of off shoring results in authentic and affordable communication infrastructure. Here, you are also allowed to shift the actual delivery location or destination to the low cost locations or destinations. India was selected for services off-shoring as we have a strong and large English speaking, technically proficient workforce. The US based customers off shored several software development projects to India. India is also considered as one of the best off-shoring destinations of American high-tech firms. Here, the economic logic is to reduce costs, through which they achieve comparative and competitive advantage. Multi sourcing: Multi-sourcing provides a framework, where different suppliers are able to source different parts of the client business. The governance model is used to communicate strategies and integrate end-to-end responsibility. Near term shoring: Near term shoring refers to the transfer of some of the business processes to the nearest lower cost foreign location. In-shoring: In-shoring refers to distribution of services or business processes within a country. Best shoring: Best shoring requires selecting the best shore or best country based on certain criteria. Business process outsourcing: Business process outsourcing (BPO) refers to outsourcing the entire responsibilities or certain business processes such as human resources or finance and accounting to some other service provider. Body shopping: This is the practice of using off-shored resources and personnel to do small dis-aggregated tasks within a business environment, without off-shoring the entire business functions. Innovation off shoring: With the intension of cost savings, many high-technical product companies have started depending on countries like India, China, Mexico, Russia and so on to develop innovative products. 15.5 Advantages and Disadvantages of Global Sourcing

We learnt about the definition and types of outsourcing. Now let us discuss the various advantages and disadvantages of global sourcing. Some of the advantages of global outsourcing are: Companies utilise low cost labour of companies in another country. Companies learn to carry out their business in the potential market. Companies gain knowledge and experience from other companies in another country. Companies utilise skills and resources of other companies in another country. Companies develop their total supply capacity. Companies never experience resource shortage and hence increase productivity. Some of the disadvantages of global outsourcing are: Costs incurred due to culture and time zone difference. Financial and political risks of the countries. Risk associated with loss of intellectual property. Monitoring cost associated with domestic supply. Unemployment for local labour workforce. Language barriers resulting in decline in quality service. Self Assessment Questions 1. People at remote location can interactive effectively with the use of _______. 2. The wage gap between developed and developing nations refers to ____________. 3. Off shoring can be classified as ________ and _________. 4. Outsourcing makes companies to face resource shortage. (True/False)? Activity 1: Suppose you are the operational manager of XYZ Software Company andyour company has many suppliers from China. What type of outsourcing is your company in? (Hint: Types of outsourcing) 15.6 Types of Concerns that Props Up while Outsourcing In the previous sections, we learnt about the various advantages and disadvantages of outsourcing. In this section, we will study some of the concerns that prop up while outsourcing. The types of concerns that usually arise while outsourcing are: Transfer of intellectual property: Off shoring is possible by transferring valuable information to the offshore site to train remote workers and to produce the results of comparable value. When such transfers include protected materials, confidential documents, trade secrets and protected intellectual property, the documentation and valuation of such exports is quite difficult to evaluate.

Job loss concerns: Job losses and wage erosion in developed countries due to off-shoring has become a major concern. Highly educated and well-trained people such as software engineers, radiologists, and journalists in the developed countries have been deprived of good jobs due to off shoring jobs to developing countries. This is because the highly skilled people of developed countries have been replaced by lower cost workers of developing countries. Level-of-service concerns: The call centre type of off shoring created several criticisms from Americans regarding very poor customer service. The American public forced the US government to restrict off shoring due to concerns with respect to poor customer service. In spite of much opposition from the American public, many US companies are still off shoring their business units to countries such as India and China. Supply chain concerns: The loss of control and visibility across the supply chain maximises the risks in outsourcing. Quantitative survey on key supply chain management has shown that the risk factors could be altered through outsourced partnership agreements, which is binding on both the parties. Competitive concerns: Outsourcing some of the valuable information to another country results in creating competitors to the company, since it would have outsourced its intellectual property. American automakers were increasingly dependent to China in auto parts for their vehicles. Over a period of time, China, with their product knowledge, began competing with American automakers by making their own auto parts and selling them directly to American companies. Educational concerns: Off shoring proponents say that moving jobs overseas due to shortage of qualified workers in the domestic market creates a de-motivating factor for locals. Retraining concerns: One solution for domestic workers, who are displaced by off shoring, is to retrain them for new jobs. However, the other argument is that retraining people from their current level to the expected level in another field may take too much of time and involves high cost. 15.7 Criticisms of Outsourcing/Problems Faced Till now we have learnt various concerns that arise out of outsourcing. Now, we will discuss various criticisms of outsourcing. Some of the problems or criticisms of outsourcing are: Quality risks: The operational issues result in defective product or service. Quality risk in outsourcing can be due to many factors such as differences in understanding between the buyer and the supplier about exact quality requirement, information asymmetry, high supplier switching costs, poor buyer-seller communication, lack of suppliers capability, buyer-supplier contract enforceability and so on. Public opinion: It is a known concern that outsourcing has severe impact on the in-house labour market. The country outsourcing its businesses affects its own country, in terms of its job, as well as its individuals. Even though outsourcing affects individuals, supporters still believe that outsourcing helps to reduce the labour costs and provide economic benefits to all. Language skill: The linguistic feature, which is generally concerned with accents, use of jargons and phraseology are different in different countries. The outsourcing agents thus find difficulty in grasping these words when compared to face-to-face interaction. Social responsibility: Outsourcing helps the lower-income areas or the developing countries to increase the economic status by providing them jobs. Some criticise that lower paid workers are exploited by outsourcing and some argue that more people are employed by outsourcing. However, it is sure that the outsourcing has displaced many domestic workers, which has resulted in many social issues. As the companies that outsource their job will also look after the benefits of the workers, they are also required to transfer the cost of retirement and medical benefits to countries where the jobs are outsourced. This results in substantial reduction in total cost of the labour faced by the outsourcing countries. However, these companies also face severe impact on their salaries. Quality of service: Service Level Agreement (SLA)[1] helps to measure the quality of services in outsourcing contracts. The customer satisfaction survey is used to evaluate the quality based on end user experience. This is

basically done through questionnaires that help to get an impartial view of quality. This enables you to track the quality of services and take appropriate actions. Staff turnover: The staff turnover of employees both at the outsourcer and outsourced firms is a concern for many companies. Basically, the outsourcers companies call centres face a severe issue of staff turnover. Every year, such companies substitute their entire workforce. This controls the employees knowledge resulting in maintaining the quality at low level. Company knowledge: Employees who are transferred to another country generally face communication problems. Communicating properly across the organisation for information on new products, policies, and procedures may help solve the problems and improve the company knowledge as desired. Qualifications of outsourcers: The outsourcer may replace staff with the employees having less qualification or non-equivalent qualifications. Appropriate qualification for each type of job outsourced must be quantified in the contract itself. 15.8 Strategic Decision and Sourcing Techniques Strategic decision and sourcing techniques evaluate the purchasing activities and continuously improves it. This technique forms a component of supply chain. As business processes include many complexities, the outsourcing requirements are generally obtained from many service providing consultants. The outsourcing requirements may include scoping, decision making, pricing, as well as legal terms, and conditions. There are certain steps followed in strategic sourcing. The steps in a strategic sourcing process include: Assessment of a companys current list (of what is bought in). Assessment of the supply market (who offers what?). Total cost analyses (how much cost to provide goods or services?). Identification of suitable suppliers. Development of a sourcing strategy (where to buy what). Negotiation with suppliers and agreements between buyer and supplier. Implementation of new supply structure. Tracking of results and periodical assessment. Self Assessment Questions 5. Job losses and wage erosion in developed countries is due to ________. 6. The loss of control and visibility across the supply chain maximises the risks in any type of companies. (True/False)? 7. Outsourcing helps the lower-income areas or the developing countries to increase the ________ by providing them jobs. 8. Optimisation focuses on solving business problems by using ____________. Activity 2: Research on the web to find out what criticisms the US has made on outsourcing. (Hint: http://www.roseindia.net/services/outsourcing/criticisms.shtml)

15.9 International Organisations as Facilitators In the previous section, we discussed about strategic decisions and sourcing techniques in outsourcing. Now, let us discuss about some of the international organisations that act as facilitators of outsourcing. IPO is established mainly to focus on country-based sourcing efforts. IPO provides essential information about the suppliers of the countries, which has a wide range of sub-markets to the organisations that look out for outsourcing their business processes to these countries. IPO are growing overtime with fully engaged category experts and quality assurance teams. International procurement organisation (IPO) is considered as a main element that facilitates global sourcing strategy for any company. Organisations looking for cost effective product manufacturers can convey their wish to IPO. The IPO then conveys the information to the product manufacturers to reduce their production costs. Thus International Procurement Organisations take full responsibility of finding and developing the key suppliers across the world to satisfy the requirements of organisation that seek for cost effective suppliers. The International Smart Sourcing (ISS) has also established a fully simplified infrastructure that helps in outsourcing the task of manufacturing products to China. The Interpro Global, headquartered in the United States, is the leading outsourcing service provider that facilitates delivery of transcription services, employer services, and contact centre solutions. 15.10 Outsourcing Optimisation Outsourcing Optimisation focuses on solving business problems by using mathematical algorithms. The outcomes obtained by the algorithms are evaluated and the best solutions are selected to mitigate the business problems. Sourcing optimisation basically evaluates thousands of different procurement inputs simultaneously. The evaluation process considers the global market, supply chain conditions as well as addresses the buyers sourcing goals. Sourcing optimisation is done to make sure that the right product is delivered at the right time, at the right place and at the right price. To solve business problems, solutions are planned and executed considering the factors such as: Sales: Focuses on increasing sales and making sure that products are available. Delivery: Plans the delivery dates based on stock levels and status of orders. Procurement planning and tracking finished products: Includes purchasing the right proposals and order tracking. After tracking, the dates when the products are available are automatically updated. Purchasing: Looks for lower transportation costs with less risk of out-of-stocks. Ensures sure of supply chain optimisation. Production: Involves control of costs, procurement, and minimising the stocks of raw and finished products. Synchronisation flows: Deals with customer orders, defining priorities, subcontracting manufacturing and delivery. 15.11 Outsourcing for Strategic and Tactical Objectives Cost saving is considered as one of the main objectives in global sourcing decisions. Apart from cost saving, you can derive many other benefits through out the outsourcing process. Benefits such as speedy scaling for shortterm, strategies that bring up new customer segments, getting into new geographies, new channels as well as conversion of fixed cost to variable cost are obtained from outsourcing. The global sourcing decision is also taken into consideration for adapting to market force, dealing for skills shortage, advancement of technology, utilising global best practices as well as planning for disaster recovery. These strategies and tactical objectives help to improve the efficiency of business processes that are outsourced and advance the competitive abilities of the user enterprise. Thus cost savings must not be the only objective of

an outsourcing decision. The objectives must also include gaining the strategic value in return for the investment made. This helps to gain strategic value, which sometimes could be higher than the cost of doing it in-house. 15.12 Low Cost Sourcing Strategy Organisations implement low cost sourcing strategy to reduce their cost. Organisations consider Low-cost country sourcing (LCCS)[2] as an effective strategy, where a company sources materials from the country that has low production costs so that they can reduce their operating costs. This means that the company can get a price reduction with procurement executives resulting in cost saving. Thus, LCCS comes under the category of procurement efforts known as global sourcing. The LCCS helps to gain sourcing efficiencies by finding and utilising the cheaper global sources present at different locations. The process of low cost sourcing basically involves two parties. They are: The High Cost Countries (HCC), where the customer and the supplier are from countries like USA, UK, Canada, Australia, and West European nations. The Low Cost Countries (LCC), which include China, India, Brazil, Russia, Mexico, and East European nations. Here, the materials flow is from Low Cost Countries (LCC) to High Cost Countries (HCC), while the technology flow is from High Cost Countries (HCC) to Low Cost Countries (LCC). Some of the examples of globally sourced products or services are: The labour intensive products produced using low-cost Chinese labour. Call centres with low-cost English speaking workers in the Philippines and India. IT work performed by low-cost programmers in India and Europe. 15.13 Transformational Off Shoring The transformational off shoring process comprises change management at organisation level as well as offshore vendor level. Transformational off shoring must be capable of understanding the organisations business processes. The offshore vendor must be capable enough to have a good understanding of all the business processes and methodologies undertaken by the organisation in order to implement the strategies of transformation. Organisations attempt to have transformational off shoring due to the change in business process, which is caused by competitive pressure, and to reach the global business market. The technology change has also resulted in technology migrations and change in enterprise architecture. Organisations also opt for transformational off shoring due to their high dependencies on key resources and to manage the frequently changing skills requirements. Effective methodology involved in defining transformational off shoring strategy with a list of parameters that needs to be evaluated, is driven by: Selecting a suitable offshore model. Recognising transformational candidates in the offshore planning process. Identifying the metrics, which include application value, that is monitored through the process. Handling change management. Developing a transition and transformation roadmap. 15.14 Value Chain Dynamics Value chain dynamics begins with what you do in-house and what you can outsource. Conventional wisdom says do anything that is core to your company and outsource the rest. Getting the right answers for what, why and how is the approach called Value Chain Dynamics. Value chain dynamics is considered as the vital tool used to make the right outsourcing decisions. It enables the organisation to have effective business processes now as well as in the future.

Figure 15.1: 4: Cs of Off Shoring The value chain dynamics depends on 4Cs of off shoring, which include cost, complexity, culture, and compliance. The four Cs interact with each other and relate to the central theme of off shoring as shown in figure 15.1: Cost: Aims at recycling saving, which assumes that the resulting impact can be sustained if the savings are employed into existing off shore operations. Complexity: Aims at determining the way to enhance the operational efficiency and build a business model that enables transition to off shoring. Its main challenge is to determine the complexity of scaling and focus on the business processes. Culture: Aims at establishing operating offshore units to implement ethics and management framework. Compliance: Aims at building global ethics as a long term management program. This also integrates the off shore operations as well as take the responsibility to maintain a balance between short term investor demand and long term strategic development. 15.15 Performance Management Once a company has overcome the risks and related issues, it needs to ensure that it gets the best business results from the outsourcing relationship. Without cooperative effort from the both companies involved in outsourcing, performances do not meet the expectations. Effective outsourcing performance management needs strong governance, well chosen measurements, and clear accountability. Governance: A dedicated governance organisation must involve in active management of outsourcing. The outsourced project fails due to poor project management. The outsourcing governance organisation acts as a database of best practises. It handles the process of budgeting, risk management and communication as well as monitors the performance across multiple delivery options. Measurement: Here, we measure what output is obtained from outsourcing. It basically involves defining the way your company will measure the outcomes or performance and involving other partner accountable for its success. The main aim is to evaluate the overall cost of the performance. This benefit the internal and external delivery option by sending the business processes to appropriate cost effective business units. Accountability: If the desired business objectives are met, then a company is said to be having successful outsourcing business. Both the company as well as its outsourcing partners are held accountable for bringing the

end results of the business processes or performance. To obtain good outcome from outsourcing, the company must provide guidance and support to its outsourcer. With that support, the outsourcer is also held accountable for the business performance or outcome. Business-oriented metrics in service level agreements help to evaluate your partners performance and provide guidance for any improvements at certain periodicity of the agreement. Self Assessment Questions 9. International procurement organisation (IPO) is considered as a main element that facilitates ___________ for any company. 10. Cost savings must be the only objective of an outsourcing decision. (True/False)? 11. Organisation implements _________ strategy to reduce their cost. 12. Organisations attempts to have ______________ due to the change in business process. 13. Getting the right answers for what, why and how is the approach called _____________. 14. The outsourcing governance organisation acts as a database of ________. Activity 3: List all the organisations that are recognised as facilitators of outsourcing. (Hint: International Organisations as Facilitators) 15.16 Business Ethics and Corporate Social Responsibility Business ethics examines the ethical rules and principles within a given commercial context, and the various models. The ethical problems may arise in business setting, even in special duties or obligations to persons who are directly or indirectly involved and engaged in such commerce. Business ethics is applicable to the conduct of individuals as well as organisations. Business ethics can be of normative discipline or of descriptive discipline. The normative discipline comprises a corporate practice and a career specialisation and the descriptive discipline comprises academic approaches. Business ethics deals with determining the basic purposes of a company. Business ethics, also known as Professional ethics, can be classified into: Ethics of finance: It provides the economic growth with high levels of savings, investment and foreign capital inflow through competitive capital market system. Ethics in human resource management: It involves activities such as recruitment selection, performance appraisal, and training as well as handles the ethical issues concerned with employees rights and duties. Ethics of sales and marketing: It deals with political philosophy and focus on transaction based business practices. Ethics of production: It handles the operations of the company to make sure that the products and processes do not cause any adverse effect to the company. Corporate Social Responsibility (CSR) is also necessary in organisations to monitor the ethical standards and international norms. The CSR makes sure that the public interest is considered in the corporate decision-making process. CSR programmes provide an aid to recruitment and retention process. The CSR policy provides the knowledge of the company to its staff. 15.17 Comment of India as the Mother Country of Global Outsourcing

India is one of the prominent offshore outsourcing countries. Statistics has revealed that its share of global offshore outsourcing business is estimated at 70-90% of the world market and is ever increasing. India focuses on application development, which takes the entire IT infrastructure or business support services, call centre services and other engineering related aspects. India has become the main trading partner for many foreign countries. Many companies with CMM Level 5 certification have engaged their business with India. Indias IT exports dates back to mid 1980s when Texas Instruments opened their branch in Bengaluru. Since then, many multinational software houses mainly from America and West European locations opened their development centres in India. India has emerged as an IT discount provider and has also started outsourcing work to lower-priced countries such as China or the Philippines. 15.18 Benefits of Outsourcing Outsourcing has several benefits. It generally provides competitive advantage to your business. Some of the benefits of outsourcing are: Reduction in capital expenditure. Availability of skilled resources. Control operating costs. Reduction of training costs. Reliability of services. Increased customer satisfaction. Accessibility to intellectual and value added services. Reduction in internal commitment of experts. Reduction in the cost of implementing new technology. Competitive edge to business. Self Assessment Questions 15. The descriptive discipline comprises ____________ approaches. 16. Many companies with CMM Level 5 certification have engaged their business with ________. 17. Ethics of sales and marketing deals with ________ and focus on transactional based business practices. Activity 4: Suppose you are the manager of a ship building company in the US and you are outsourcing some of your business processes to China. List out the benefits obtained to your company from outsourcing. (Hint: Criticisms on Global Outsourcing/Problems faced) 15.19 Summary In this unit, we learnt about various concept of global sourcing. Organisations opt for outsourcing to improve quality, save cost as well as enhance capacity for innovation.

We learnt about various types of outsourcing which include Off Shoring, Multi Sourcing, Near Term Shoring, Business Process Outsourcing and In Shoring. We also discussed that global outsourcing helps companies to develop their total supply capacity. However, companies also face risk of associated with loss of intellectual property. This unit also explained various concerns associated with outsourcing which is basically related to Transfer of Intellectual Property, Job Loss Concern, Level-of-Service Concerns, Supply Chain Concerns and many more. Various criticisms faced by outsourcing related to public opinion, language, social responsibility and security are also described in this unit. We now know that optimisation uses mathematical algorithms to solve business issues. International procurement organisations (IPO) provide a cost effective manufactures to the companies. We have also discussed about transformational off shoring that handles change management, and develop transition and transformation guidelines. The value chain dynamics also form the most essential tool that makes an appropriate outsourcing decision. We also learnt about performance management, which is done by strong governance, well chosen measurements, and clear accountability. The concept of global outsourcing has offered several competitive advantages to the company. Thus outsourcing requires good planning, execution, deployment capabilities both from the firm outsourcing as well the firm being considered as service provider and the rigorous governance which all leads to the success of the endeavours. 15.20 Glossary Term Call centre Description It is the centre equipped to handle a large volume of telephone calls It is certain word or specific terminology often used in business communication It Intangible property that is the result of creativity The manner in which something is expressed in words It is the process of owning appropriate goods and services at the best possible costs. It is the decrease in the value of the salary

Jargons Intellectual property Phraseology

Procurement Wage erosion

15.21 Terminal Questions 1. What are the reasons for outsourcing decisions? 2. What are the advantages and disadvantages of global sourcing? 3. What concerns that may have to be looked into before outsourcing process? 4. What are the factors that are considered for criticism against outsourcing? 5. Which are the four Cs of off shoring in the Value chain dynamics, the critical tool to make the right outsourcing decisions. Explain how they interact with each other to the central theme of off shoring? 6. What are the business ethical problems that a firm may face and how they are classified? 15.22 Answers Self Assessment Questions

1. Internet 2. Labour arbitrage 3. Production off-shoring, Services off-shoring 4. False 5. Off-shoring 6. True 7. Economic status 8. Mathematical algorithms 9. Global sourcing strategy 10. False 11. Low cost sourcing 12. Transformational off shoring 13. Value chain dynamics 14. Best practises 15. Academia 16. India 17. Political philosophy Terminal Questions 1. Refer Section 15.3 Reasons for outsourcing. 2. Refer Section 15.5 Advantages and disadvantages of global outsourcing. 3. Refer Section 15.6 Concerns that prop up while outsourcing. 4. Refer Section 15.7 Criticisms of outsourcing. 5. Refer Section 15.13 Value chain dynamics. 6. Refer Section 15.15 Ethical issues. 15.23 Case Study Outsourcing the design services The Global Infotech Limited is the leading outsourcing service provider company of India. It helps the US based manufacturers by supplying the product design to reduce the development costs as well as provide flexibility through an offshore team. The Global Infotech Limited had a client from US, who was the leading global food display product manufacturer. They were searching for a business partner who could supply them with mechanical designs, deal with product customisation and redesign the products for manufacturing.

When the client approached the Global Infotech Limited, they had the challenge of appointing engineers at short notice and provide quality output at relatively short interval of time thereby providing quickest delivery to their customers. There was indeed a high demand on accuracy of work which needed a thorough knowledge on manufacturing processes and products. The Global Infotech Limited then analysed the guidelines for design and manufacturing. Tele-conferences gave a good understanding on processes and functionality of the product. Defect tracking and process quality checks were also implemented to vitalise the delivery process. Thus the design produced gave the accurate results. The result of outsourcing a part of the business process to Global Infotech Limited in India satisfied the customer a lot at the client place. Question 1. What were the problems faced by the Global Infotech Limited? Hint: Explain about the challenges mentioned in this case study [http://www.outsource2india.com/eso/mechanical_design.asp]