JIMS Vasant Kunj

Production and Operation Management

BBA-305-V-Semester I.P. University

Faculty: Prof. Pradip K. Mukherjee

INTRODUCTION
Effective Management of Production, Operation & Services towards optimum utilization of the Resources. Conversion of Inputs to Outputs with value Addition to achieve desired Product Meeting Customer Expectation at Minimum Cost.
Inputs Men Machines Conversion Process Output Goods Services Comparison

Materials

Adjustment

Actual Demand

Monitor

Output Goods & Services Productivity = --------- = --------------------------------Input Men, Machines & Materials

Historical Evolution
More than 200 years old & Passed through series of development from original concept to the present level. Major breakthroughs are : 1776 Adam Smith in book titled Wealth of Nation advocated division of labour for following major benefits:
1)Repetitions lead to attaining higher speed & skill. 2)Time saving as changing from one activity to other avoided. 3) Engagement in one task acquire specialization leading to improvement of production methods.

(father of scientific management) in book titled Functional Management emphasized on : 1) Method study. 2) Work measurement. 3) Selection, placement, training & development. 4) Industrial relations. 1901 Henry Gantt introduced a diagrammatic tool Gantt Chart used even to-day. 1911 Harrington Emeson in book titled Efficiency as a basis for Operation & Wages stressed on labour efficiency as the basis of payment of wages. 1913 Henry Ford furnished the concept of mass production & work stations. 1915 F.W. Harris developed Economic Order Quantity. 1927 Elton Mayo forwarded the concept of Human Relations. 1931 Walter Shewart introduced Statistical Quality Control & control charts.
1900F.W.Taylor

1935 Dodge & Romig developed Inspection Sampling Plans. 1940 Blacker introduced Operation Research Applications 1947 Dantzig forwarded the idea of Linear Programming. 1950 Charles worked on Mathematical Programming. 1980 Deming & Juran studied Waste Contro,v JIT concept, CAD-CAM application. Subsequently value Engineering approach was introduced to reduce cost of production without affecting Quality, Reliability and Acceptability. Application of computer capable of handling large data efficiently & quickly.

1.2 Facilities Location & Layout. 1.3 Capacity Planning. 2.0 Periodic- Updating resources with respect to product, Process, Manpower, Wages, etc. 3.0 Operational- for day to day operation & control. 3.1 Production Planning & Control. 3.2 Quality Assurance. 3.3 Job Design. 3.4 Maintenance & Replacement. 3.5 Cost Reduction & Value Engineering. 3.6 Monitoring & Control. 3.7 Review & Up-date.

Scope of Operation & Production Management

Product Design Process Design Location of Facilities Plant Layout & Material Handling Production Planning & Control Material Management Quality Control Maintenance Management

RESPONSIBILITIES OF OPERATION MANAGER

At different levels depending on Type & Size of Organization Defines Policies, Programs & Procedures for Achieving Production Establishes Structure of Roles & Flow of Communication Assigns Authority & Responsibility for Carrying out Defined Goals Exercise control of Output & Quality meeting Requirements Maintain Good Human Relations

Types of Transformation
Depends on

Type of Products. Capacity of Production. Availability of Technology & Skills. Infrastructure & Resources.

Types of Transformation (Continued)

1.0 INTERMITTENT:
1.1 Project Production: Single assignment for

completion within Time & Cost viz. Dam, Bridge, etc. 1.2 Job Production: Products produced to customers requirement within given price & time fixed prior to contract viz. Individual garment, etc. 1.3 Batch production : Limited quantity of each product manufactured at a time viz. Pharmaceuticals, Printing press, etc.

Types of Transformation (Continued) 2.0 CONTINUOUS: 2.1 Mass & Flow Production: Arranged according to the sequence of operation for larger quantities viz. Automobile industry, T.V. sets, etc. 2.2 Process Production: Continuous for an identical product using same set of machineries. Shut down only for preventive & breakdown maintenance viz. Power, Steel, Fertilizer, refineries, etc.

WAITING LINE Basic to Creating Schedules ; Job Design ; Inventory Levels ; etc. Service Requirements are Analyzed & Facilities Established Accordingly.

ECONOMICS of WAITING LINE

Cost Effectiveness Balance.

MANAGING WAITING LINES

Determine an Acceptable Waiting Time of Customers. Divert Customers Attention while Waiting. Keep Customers Informed about Difficulty when Waiting Time is Longer than Normal. Segment Customers. Train Servers to be Polite & Friendly. Encourage Customers to Come during Slack Periods. Take Long-Term Perspective towards Reduction of Queues.

ELEMENTS of a QUEUING MODEL

Customers generated from a source requiring service. Servers on arrival customers can get the service immediately or wait in queue if the facility is busy.

QUEUING SYSTEM
1.0 Source Population & Customer Arrival Pattern. 1.1 Exponential Distribution 1.2 Poisson's Distribution 2.0 Servicing System 3.0 Customers Exiting from System

CUSTOMER ARRIVAL PATTERN

1.0 Distribution: 1.1 Constant 1.2 Exponential or Poisson 2.0 Pattern: 2.1 Controllable 2.2 Uncontrollable 3.0 Size & Arrival: 3.1 Single 3.2 Batch 4.0 Degree of Patience: 4.1 Patient 4.2 Impatient

QUEUE SITUATION
1.0 Length: 1.1 Potential Length 1.2 Limited Capacity 2.0 Number of Lines: 2.1 Single 2.2 Multiple 3.0 Discipline: 3.1 First Come, First Served 3.2 Shortest Possible Time 3.3 Reservation First 3.4 Emergencies First

SERVICING SYSTEM
Structure 1.0 Single Channel: 1.1 Single Phase 1.2 Multi Phase 1.1 Single Phase 1.2 Multi Phase

2.0 Multi Channel:

EXIT SYSTEM

After Customer Service 2 Situations are Possible

Customer may Return to Source Population Competing for Service Again Low Possibility of Reservice

Inventory Management
Minimize Inventory while Maintaining Service Levels

Why Inventory ?
Service to customers. Continuity of production. Efficient use of capital. Economy in buying. Risk reduction
Uncertainties in lead times, production, demand, transportation Simplicity of administrative load

Types of Inventory
Raw Materials Finished Products Component Parts, Spares & Supplies Work in Progress

Relevant Costs in an Inventory System

Procurement costs
Cost of material Ordering cost (appx. fixed- administrative, inspection, transportation etc.)

Inventory Carrying or Holding Costs

Capital Cost Storage & handling charges Loss due to Deterioration & Obsolescence Taxes & Insurance

Stock-outs costs
Lost sales Back-orders Difficult to quantify

Decisions
When to order How much to order Types of System
Continuous Review Periodic Review

Dependent and Independent demand

The Inventory Cycle

Q
Quantity on hand Profile of Inventory Level Over Time

Usage rate

Reorder point

Receive order

Place Receive order order

Place Receive order order

Time

Lead time

Figure 11-4

Cost Minimization Goal

The Total-Cost Curve is U-Shaped
Annual Cost
TC Q D H A 2 Q

Ordering Costs
QO (optimal order quantity) Order Quantity (Q)

Economic Production Quantity Assumptions

Only one item is involved Annual demand is known Usage rate is constant Usage occurs continually

Production rate P is constant Lead time does not vary No quantity discounts

Economic Production Quantity

Production & Usage Usage Production & Usage

Usage

Safety Stock
Quantity

Maximum probable demand during lead time Expected demand during lead time

ROP Safety stock

LT Time

Safety Stock Level

Level of customer service desired
Lead time of supply Uncertainty in demand and lead time

PURCHASING
Consolidation of Purchase Indents Identify Proper Source of Supply Decide Method of Purchase Floating Enquiries, Receipt & Scrutiny of Offers / Quotations Negotiation, Finalization, Approval & Release of Purchase Orders Pre-delivery Follow-up & Inspection Receipt, checking & Acceptance of Materials

STORAGE, HANDLING & DISTRIBUTION

Stores Location avoid unnecessary material handling Store Management adopt simpler system Distribution Equitable supply through designated outlets avoiding overstocking or out of stock situation

ABC ANALYSIS
Always Better Control Analysis - Segregates all Items into 3 categories depending on Importance & Annual Usage value. A-items: 5-10 % of Total Items account for 70-75 % of Total Value; Require Rigid Control B-items: 10-15 % of Total Items account for 1015%of Total Value; Require Lower Control C-items: 70-80 % of Total Items account for 5-10 % of Total Value; Require Minimum Attention

ECONOMIC ORDER QUANTITY

Balancing between Ordering, Inventory Carrying & Stock out Costs.

SAFETY / RESERVE / BUFFER - STOCKS Minimum Quantity of Materials keeping in view Consumption Pattern & Procurement Time to maintain Continuity of Production.

MATERIALS REQUIREMENT PLANNING

Determine Requirements of Raw Materials & Other Items to Ensure Continuous Supply as per Demand with Minimum Capital Lock. Integral Part of Production Planning covering both Inventory Control & Scheduling.

INVENTORY MODELS
Fixed Order Quantity Models (Q-Model based on EOQ. Fixed Time Period Models (P-Model based on Fixed Order Interval System. Q-Model : Event Triggered P-Model : Time triggered
Besides : Deterministic (demand per unit time is certain). - Probabilistic (described by a probability distribution).

QUALITY MANAGEMENT and STATISTICAL QUALITY CONTROL

Total Quality Management in Organization Improve Quality of Products & Services continuously at all levels & every activities. of the organization. Improves Efficiency & Effectiveness. Enables defects Prevention. Maximization of Customer Satisfaction.

QUALITY SPECIFICATION
To produce better quality of products at minimum cost. Analyses causes of variation in quality for remedial measures. Preparation of quality standards & steps. To achieve quality control of inputs / at source & during manufacturing. Design quality to meet customers expectations, requirements & satisfaction. Ultimate objective is zero defects.

Cost of Quality
Costs attributable for production of desired Quality. Can be classified as Appraisal cost inspection, testing, etc. Prevention cost to identify cause of defects & implement corrective action like redesign, training, etc. Internal failure cost within the system. Generation of scrap, repair, rework, etc. External failure cost- defects passed through the system. Handling complaints, loss of good will, warranty replacements, repair, etc.

CONTINUOUS IMPROVEMENT (CI)

CI is improvement of machinery, materials, labor utilization, production methods, value engineering towards efficiency, lower cost of production, through innovation, suggestions of team members, bench marking, quality control, quality awards, targeting zero defects, etc.

ACCPTANCE SAMPLING
Process of evaluation a smaller portion of Product To check conformity with specification for Acceptance or Rejection. Advantages In inspection of destructive nature, material can be saved. Economy of time & money and inspection fatigue compared to 100 % inspection. Smaller inspection staff is required. Disadvantages Risky if samples are not representative.

CONTROL CHARTS
Advantages of this important Quality Control Technique Indicate whether process is under control to ensure product quality level. Detect unusual variations in a process for timely corrective action to reduce rejection, scrap generation, repair, replacement, etc.

TYPES OF CONTROL CHARTS

1.0 Variable

1.1 X-chart 1.2 R-chart

2.0 Attributes

2.1 P-chart

FACILITY LOCATION & LAYOUT

Strategic, Long term commitment & Non-repetitive in nature as once facilities are established Difficult to shift, Involve cost & Interruption of production & services, loss of market share & clients, etc. Without detailed analysis, poor selection can be constant source of higher cost, difficult marketing & transportation, unsteady supply of raw materials & non-availability of skilled manpower leading to frequent disturbance of production as well as sub-standard quality, customer Dissatisfaction, competitive disadvantage, etc. [Contd.] [

FACILITY LOCATION & LAYOUT (Continued)

Reasons for Decisions: New facilities are required to be set up. Existing operations are difficult to expand due to non-availability of space. Growth of business necessitates establishment of additional facility. Emergence of new social, political & economic conditions forces change in location of existing facility.

TOPICS
Issues in Facility Location Various Plant Location Methods Facilities Layout

COMPETITIVE LOCATION
The need to produce close to the customer due to time-based competition, trade agreements, and shipping costs. The need to locate near the appropriate labor pool to take advantage of low wage costs and/or high technical skills.

FACTORS GOVERNING FACILITIES LOCATION

Proximity to Market / Customers Proximity to Raw Materials Skilled Manpower Infrastructure / Business Climate Transportation Legislation & Taxation Social & Political Factors Environmental Regulations

PLANT LOCATION METHODS

Factor rating system widely used as

diverse factors can be combined. Centre of gravity method considers the distance between existing facilities & volume of goods to be shipped. Generally used to locate intermediate or distribution warehouses. Analytic delphi method specialists or experts or knowledgeable persons views are collected.

ANALYTICAL DELPHI METHOD

1. Form two Delphi panels. 2. Identify threats and opportunities. 3. Determine direction and strategic goals of the organization. 4. Develop alternatives. 5. Prioritize alternatives

FACILITIES LAYOUT

Once a location is finalized, the next issue is to plan suitable layout. Layout involves determination of space requirement for facilities & arranging them to ensure smooth flow with minimum cost. Layout decisions are strategic as once made it is difficult to change.

FACILITIES LAYOUT (Continued)

Good layout results in convenience, comfort, appearance, safety, efficiency & profits. Poor layout causes congestion, disruption, unnecessary handling & movement, inefficiency & frustration.

FOUR BASIC LAYOUT FORMATS

Process or Functional layout Product or Line layout Fixed Position or Stationary layout Group Technology (Cellular) layout (Problems shall be explained on the Board)