Study Material Prod Management 1

Production and Operations Management

Production &Operations Management

Study Material ForBBA (IPU) 5th Semester

Compiled by:

Neelam GulatiAssoc. Professor

DAV Institute Of Management, Faridabad

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CONTENTSUnit IChapter1Production Management

Meaning, Nature , Scope and major decision areas of production /operation management.

Organizational chart of production management department Products vs. Services Objectives of production management Value analysis

Chapter IIDemand Forecasting

Patterns of demand Factors affecting demand Methods of forecasting

Unit IIChapter Inventory control

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

Unit IIIChapter Quality assurance

Meaning Aspects of quality Importance of quality How does management decide quality Quality insurance system

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Quality control through statistical techniques

Unit IV

Chapter Facilities location

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

Chapter Plant layout

Meaning of plant layout Objectives of plant layout Types of layout Costs associated with layout Techniques of plant layout

Chapter VProduction system

Meaning Types of production system Evaluation of various production systems

Unit 1

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Chapter1Nature and Scope of Production Management

Meaning, Nature , Scope and major decision areas of production /operation management.

Organizational chart of production management department

Products vs. Services Objectives of production management Value analysis

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

PRODUCTION PROCESS SYSTEM

INPUTS PROCESS OUTPUT

Meaning Of Production Management

A few definitions of production management are being reproduced here under to understand the meaning of the term clearly:

1. “Production management is the process of effectively planning and regulating the operations of that part of an enterprise which is responsible for actual transformation of materials into finished products”.

Elwood S. Buffa has defined the term in a broader sense as:

2. “Production management deals with decision making related to production process so that the resulting goods or services are produced according to specifications, in amounts and by the schedules demanded and at a minimum cost”.

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Information

Management

Material & land

Labor, capital

5

Goods & services

Organization Transformation


Production management, thus, is assigned with the following tasks.

i. Specifying and accumulating the input resources, i.e., management, men, information, materials, machine and capital.

ii. Designing and installing the assembling or conversion process to transform the inputs into output, and

iii. Coordinating and operating the production process so that the desired goods and services may be produced efficiently and at a minimum cost.

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

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Product selection Activities relating to & Design production system

Designing

Facilities

Location

Method Study

Production Facilities layoutplanning Capacity & materials handling

Planning

Planning Control

InventoryControl


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

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

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

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

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

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

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

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

viii. Production control: after planning, the next managerial production function is to control the production according to the production plans because production plans cannot be activated unless they are properly guided and controlled. Acc. To Soriebal and Lansburgh “Production control is the process of planning production

in advance of operations; establishing the exact route of each individual item, part or assembly; setting, starting and finishing dates for each important item, assembly and the finished products; and releasing the necessary orders as well as initiating the required follow-up to effect the smooth functioning of the enterprise

ix. Inventory Control: inventory control deals with the control over raw-materials, work-in-progress, finished products, stores, supplies, tools, and so is included in production management. The raw materials, supplies etc should be purchased at right time, right quality, in right quantity, from right source and at right price.

ORGANIZATIONAL CHART OF PRODUCTION MANAGEMENT DEPARTMENT

Sections Headed by Foreman or Superintendents

PRODUCTS VERSUS SERVICES

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EDCBA

1 2 1 2 31 2

3

4

1

2

3 1

2

3 4

Managing Director

Works Manager


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

Characteristics Of Systems To Produce Products Versus Systems To Produce Services

PRODUCTS SERVICESTangible

Can be produced to inventory for-off the-shelf” availability

Minimal contact with ultimate consumer

Complex and interrelated processing

Demand on productive system is variable on weekly, monthly, and seasonal basis

Markets served by productive system are regional, national and international

Large units that can take advantage of economies of scale

Location of system is in relation to regional, national and international markets

Intangible and perishable; consumed in the process of their production

Availability achieved by keeping the productive system open for services

High contact with clients or customers

Simple processing

Demand commonly variable on hourly, daily and weekly basis

Markets served by productive system are usually local

Relatively small units to serve local markets

Location dependent on location of local customers, clients an users

PRODUCTS AS A PART OF SERVICE

Similarly, the clear line between products and services in a service-oriented system seems to fade. A fast-food operation delivers physical product along with the service. An auto repair service repairs

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the car and provides the required parts as well. Hospital care involves medication, bandages, X-ray film, and so onThus, although it may be valid to think of systems as primarily producing either products or services, it is better to think in terms of relative emphasis. Some manufacturing systems are predominately the producers of goods and provide very little service. Some service organizations, such as tax consultants, provide almost no physical product as a part of the service. But most productive systems provide a bundle of products and services, and an appropriate analysis of the problems of production/operations management should recognize both aspects of the outputs of the system.

OBJECTIVES OF PRODUCTION/ OPERATIONS MANAGEMENT

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

Performance Objectives

The performance objectives may include:

a) Efficiency or productivity as output per unit of input.b) Effectiveness: It concerns whether a right set of outputs is being produced. Where efficiency

may refer to “doing things right”, effectiveness may mean “doing the right things”c) Quality: Quality is the extent to which a product or service satisfies the customer needs. The

output has to conform to quality specifications laid down before it can be acceptedd) Lead times: Manufacturing lead-time or throughput time is the time elapsed in the conversion process?

Minimization of idle time, delays, waiting etc. will reduce throughput time.e) Capacity utilization: Percentage utilization of manpower, machines etc.f) Flexibility: If the conversion process has the flexibility of producing a combination of

outputs, it is possible to satisfy a variety of customer needs.

Cost objectivesAttaining high degree of customer satisfaction on performance front must be coupled with lower cost of producing the goods or rendering a service. Thus cost minimization is an important systems objective. Costs can be explicit or implicit. These could be tangible in economic terms or intangible

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in social cost terms- such as delayed supplies, customer complaints etc. While managing production systems we must consider the visible and invisible, tangible and intangible costs some examples of these costs are:

a) Explicit costs:

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

b) Implicit costs:

Cost of carrying inventory Cost of stock outs, storage, back-logging, lost sales Cost of delayed deliveries Cost of material handling Cost of inspection Cost of grievances, dissatisfaction Down time cost Opportunity cost

For the purpose of managerial decision-making, we should consider the total relevant systems costs including visible and invisible. A longer term cost implication rather than only short-term will help in arriving at better decision.

OPERATIONS MANAGEMENT DECISIONSThe process of management

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

1. Periodic decisions which include selection, design and updating of resource, structure, systems and procedures.

2. Continual decisions which are required in day-to-day operations and control of production systems.

Value AnalysisValue analysis is a cost reduction & control technique, which operates by attacking the basic design of the product or service.Value analysis is “an organized procedure for the efficient identification of unnecessary costs by analysis of function --function being that property of product which makes it work or sell.”

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This means value analysis involves:-1. Identification of function- the first & most important, step in the value analysis is to make a formal statement of the function of the product or service.Function means- what is purpose of operation? What does it do?A lamp function is to ‘give light’A beam function is to ‘support weight’A cheques function is to ‘transfer cash’A shaft’s function is to ‘transmit force’.- Identification of function of product- Examine alternative way in which this function can be done.- Choosing the least cost alternative.

Value Engineering – The application of value analysis techniques at the design stage of a product or service.Value1. Value may be equated with a price, which is that which must be given, done sacrificed to

obtain a thing and any product or service will have several different values.Exchange value, the price a purchaser will offer. This is sum of two parts, value due to usefulness & the value the ownership itself bestows.Exchange value = use value + esteem value.Use value = the price the purchaser will offer in order to ensure that the purpose (or function) is achieved.Esteem value = the price which is offered beyond the use value e.g. possession of ----------?Exchange value is set by the market & is influenced by the usefulness & esteem in which the product is held.

2. Cost value (intrinsic value)- sum of all the costs incurred in providing the product.Profit = exchange value – cost valueThe task of a value analyst is to increase exchange value & decrease cost value.

Carrying out a value analysis exercise:Value analysis team – it must consist of a small core of experienced people + concerned people + intelligent laymen to raise basic & fundamental questions.A Structured Approach – gage has laid down a 12-step process for conducting value analysis exercise.1. Select the product to be analysis based on - Multiplicity of components.- Large forecast usage.- Small difference between use value & cost value.- Considerable market competition.- A long designed product.- Generation of considerable documentation.- Creation of organizational complexity.

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2. Extract the cost of product – the cost required here is the marginal or out of pocket cost – as overheads can distort the picture. Details of individual components at this stage are not required.

3. Record the number of parts – the larger the number of parts, greater the chances of reduction.4. Record all the functions – purpose of the product.5. Record the number required currently & in future.6. The above five questions are the fact finding – they firmly establish the bases upon which all

further work is created.7. Determine primary function from all the functions already listed in ‘4’. Some priority must be

established among functions. 8. List of all other ways of achieving the primary function – here ‘creativity & brainstorming’

plays important role. This should include part wise/component wise discussion.9. Assign costs to various alternatives.10. Examine the 3 cheapest alternatives.11. Decide which idea should be further developed.12. See what other functions need to be incorporated – reexamining of step 11. Does its use

contribute value.’Can anything be removed without degrading the product? Whilethe new product is being developed the value analysis team can undertake the final step.13. Ensure the new design is accepted. This will mean:- A model- Anticipated savings.- Anticipated capital expenditure.- Improvement in value.- Critical path analysis.

Gage’s 12- value analysis.1. What is it?2. What does it cost?3. How many parts?4. What does it do?5. How many functions are required?6. What is primary function?7. What else will it do?8. What will that cost?9. Which 3 alternative ways of doing the job show the largest difference between ‘cost & use

value’?10. Which ideas are to be developed?11. What other functions & specification features must be incorporated?12. What is needed to sell the ideas & forestall ‘road blocks’?

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Unit 1

Chapter II

Demand Forecasting Patterns of demand Factors affecting demand Methods of forecasting

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DEMAND FORECASTING

Forecasts are needed to aid in to determining what resources are needed, scheduling existing resources, and acquiring additional resources. Accurate forecasts allow scheduler to use machine capacity efficiently, reduce production times, and cut inventories.Forecasting method may be based on mathematical modals using historical data available, qualitative methods drawing on managerial experience, or a combination of both. Forecasting demand in such situations require uncovering the underlying patterns from available information.

Patterns of Demand

The five basic patterns of the most demand time series are-: 1. Horizontal, or the fluctuation of data around a constant mean;2. Trend, or systematic increase or decrease in the mean of the series overtime;3. Seasonal, or a repeatable pattern of increase or decrease in demand, depending on the time of

day, week, month, or season;4. Cyclic, or less predictable gradual increases or decreases in demand over longer periods of

time (years or decades); and5. Random, or unforecastable, variation in demand

Four of the patterns of demands- Horizontal, Trend, Seasonal, and Cyclic- combine in varying degrees to define the underlying time pattern of demand for a product or service. The fifth pattern, random variations, results from chance causes and thus cannot be predicted.

Factors Affecting DemandGenerally such factors can be divided into main categories: - External and Internals.

External Factors. External factors that affect demand for a firm’s products or services are beyond management’s control.Leading indicators. Such as the rate of business failures, are external factors with turning points that typically precede the peaks and troughs of general business cycle. Coincident indicator, such as unemployment figures, are the time series with turning points that generally match those of the general business cycle.Lagging indicators, such as retail sales, follow those turning points, typically by several weeks or months.

INTERNAL FACTORS: internal decision about product or service design, price and advertising promotion, packaging design, sales persons quotas or incentive and expansion and contraction of geographic market target areas all contribute to changes in demand volume. The term demand management describes the process of influencing the timing and volume of demand or adapting to the undesirable effects of unchangeable demand patterns.

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Forecasting methods The two general types of forecasting techniques used for demand forecasting are: Qualitative methods and Quantitative methods

Qualitative Method:Qualitative methods include judgment methods, which translate the opinions of managers, expert opinions, consumer surveys and sales force estimates into quantitative estimates.Quantitative Methods:Quantitative methods include casual methods and time series analysis. Casual Methods:Use historical data on independent variables, such as promotional campaigns, economics conditions, and competitors’ actions, to predict demand. Time series analysis is a statistical approach that relies heavily on historical demand data to project the future size of demand and recognize trends and seasonal patterns.

Judgement MethodsWhen adequate historical data are lacking, as new product is introduced or technology is expected to change, firms rely on managerial judgment and experience to generate forecasts.I Sales Force EstimateSales force estimates are forecasts compiled from estimates of future demand made periodically by members of a company’s sales force. This approach has several advantages.

The sales force is the group most likely to know which products or services customers will be buying in the near future, and in what quantities.

Sales territories often are divided by district or region. Information broken down in this manner can be useful for inventory management, distribution, and sales force staffing purposes.

The forecasts of individual sales force members can be combined easily to get regional or national sales.

But it also has several disadvantages. Individual biases of the salespeople may taint the forecast; moreover, some people are

naturally optimistic, other more cautious. Sales people may not always be able to detect the difference between what a customers

“wants” (a wish list) and what a customer “needs” (a necessary purchase). If the firm uses individual sales as a performance measure, salespeople may underestimate

their forecasts so that their performance will look good when they exceed their projections or may work hard only until they reach their required minimum sales.

II EXECUTIVE OPINION Executive opinion is a forecasting method in which the opinions, and technical knowledge of one or more managers are summarized to arrive at a single forecast. As we discuss later, executive opinion

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can be used to modify an existing sales forecast to account for unusual circumstances, such as a new sales promotion or unexpected international events. Executive opinion can also be used for technical forecasting. This method of forecasting has several disadvantages. Executive opinion can be costly because it takes valuable executive time. Although that may be warranted under certain circumstances, it sometimes gets out of control. In addition, if executives are allowed to modify a forecast without collectively agreeing to the changes, the resulting forecast will not be useful.

III MARKET RESEARCH Market research is a systematic approach to determine consumer interest in a product or services by creating and testing hypotheses through data-gathering surveys. Conducting a market research study includes

1. Designing a questionnaire that request economic and demographics information from each person interviewed and asks whether the interviewee would be interested in the product or services;

2. Deciding how an administrative sample of household to survey, whether by telephone polling, mailings, or personal interviews;

3. Selecting a representative sample of households to survey, which should include a random selection within the market area of the proposed product or service; and

4. Analyzing the information using judgment and statistical tools to interpret the responses, determine their adequacy, make allowance for economic or competitive factors not included in the questionnaire, and analyze whether the survey represents a random sample of the potential market.

Market research may be used to forecast demand for the short, medium, and long term. Accuracy is excellent for the short term, good for the medium term, and only fair for the long term.

IV DELPHI METHOD The Delphi method is process of gaining consensus from a group of experts while maintaining their anonymity. This form of forecasting is useful when there are no historical data from which to develop statistical models and when managers inside the firm have no experience on which to base informed projections. A coordinator sends a question to each member of the group of outside experts, who may not even know who else, is participating. The Delphi method can be used to develop long-range forecasts of product demand and new product sales projections. It can also be used for technological forecasting. The Delphi methods can be used to obtain a consensus from a panel of experts who can devote their attention to following scientific advances, changes in society, government regulations, and the competitive environment.

The Delphi method has some shortcomings, including the following major ones. The process can take a long time (sometime a year or more). During that time the panel of

people considered to be experts may change, confounding the results or at least further lengthening the process.

Responses may be less meaningful than if experts were accountable for their responses. There is little evidence that Delphi forecasts achieve high degrees of accuracy. However,

they are known to be fair to good in identifying turning points in new product demand. Poorly designed questionnaires will result in ambiguous or false conclusions.

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CAUSAL METHODS:

I LINEAR REGRESSIONIn linear regression, one variable, called a dependent variable, is related to one or more independent variables by a linear equation.In the simple linear regression models, the dependent variable is a function of only one independent variable, and therefore the theoretical relationship is a straight line: Y=a + bXWhere Y = dependent variable X = independent variable a = Y-intercept of the line b = slope of the line.The objectives of linear regression analysis is to find values of a and b that minimize the sum of squared deviations of the actual data points from the graphed line.The sample correlation coefficient, r, measures the direction and strength of the relationship between the independent variable and the dependent variable. The value of r can range from – 1.00 to + 1.00.

II TIME SERIES METHODSSimple Moving Averages. The simple moving average method is used to estimate the average of demand time series and thereby remove the effects of random fluctuation. It is most useful when demand has no pronounced trend or seasonal influences.Specially, the forecast period t + 1, can be calculated as Ft+1 = sum of last n demands = Dt + Dt+1 + Dt-2 +…..Dt-n+1 n n

where Dt = actual demand in period t n = total number of periods in the average Ft+1 = forecast for period t + 1 Weight Moving Averages. In the simple moving average method, each demand has the same weight in the average --namely, 1/n. In the weight moving average method; each historical demand in the average can have its own weight. The sum of the weight equal 1.0.The advantage of a weighted moving average method is that it allows you emphasize recent demand over earlier demand. The forecast will be more responsive than the simple moving average forecast to changes in the underlying average of the demand series. Nonetheless, the weighted moving average forecast will still lag behind demand because it merely averages past demands. This lag is specially noticeable with a trend because the average of the time series is systematically increasing or decreasing.

III EXPONENTIAL SMOOTHING. The exponential smoothing method is a sophisticated weighted moving average method that calculates the average of a time series by giving recent demands more weight than earlier demands.

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It is the most frequently used formal forecasting methods because of its simplicity and the small amount of data needed to support it. Ft+1 =a(Demand this period) + (1-a) (Forecast calculated last period)= aDt+(1-a)FtFt+1 =Ft + a(Dt-Ft)Larger a values emphasize recent levels of demand and result in forecasts more responsive to changes in the underlying average. Smaller a values treat past demand more uniformly and result in more stable forecasts.Exponential smoothing requires an initial forecast to get started. There are two ways to get this initial forecast: Either use last period’s demand or, if some historical data are available, calculate the average of several recent periods of demand. The effect of the initial estimate of the average on successive estimate of the average diminishes over time because, with exponential smoothing, the weights given to successive historical demands used to calculate the average decay exponentially.Exponential smoothing has the advantages of simplicity and minimal data requirements. It is inexpensive to use and therefore very attractive to firms that make thousands of forecasts for each time period. However, its simplicity also is disadvantage when the underlying average is changing, as in the case of a demand series with a trend.

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UNIT II

Chapter IInventory control

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

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INVENTORYInventory are those stocks or items which are used to support production (raw materials and work-in-process items), supporting activities (maintenance, repair, and operating supplies), and customer service (finished goods and spare parts).The purpose of inventory management is to determine the amount of inventory to keep in stock- how much to order and when to replenish, or order.

Reasons for holding inventory: - Inventory helps us in following areas Meeting variations in supplier lead time Getting quantity discounts Facing price changes Meeting scarcities of materials Controlling manufactured parts and goods Cover period between production runs Allow flexibility in production scheduling Cope up variations in product demand (safety stock) Getting economies of scale.

Types of inventories Inventories include Raw materials: purchased items or extracted materials that are converted via the manufacturing process into components and products.

Work-in-process: a product or products in various stages of completion throughout the plant. Finished-goods: Items ready for sale to a customer

MRO: maintenance, repair and operation supplies.

Important terms in inventory :-Safety stock To avoid customer services problem and the hidden costs of unavailable components, companies hold safety stock.. Safety stock protects against uncertainties in demand, lead time, and supply. Safety stocks are desirable when supplies fail to deliver the desired quantity on the specified date with acceptable quality or when manufactured items have significant amounts of scraps or rework. Safety stock inventory ensures that operations aren’t disrupted when such problems occur, allowing subsequent operations to continue.Lead time The lead time is the time between the moment an order is placed and when the merchandise arrives in inventory . Lead times may vary greatly depending on the number of resources required and how congested these resources are currently. If the order is placed to a wholesaler across the street who carries adequate inventory, then few resources are involved and the lead time will be quite short. In such a case, it is convenient to model the lead time as zero.

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If long transportation times are involved, or if the vendor typically produces after receiving the order, then it may be convenient to model the lead time as a constant.However, if either transportation or the shop floor have variable loads over time, the lead time will vary significantly and may be treated as probabilistic.

Selective Inventory Control

ABC Analysis1.Select a criterion (sales / usage) based on importance2. Rank the inventory items on criterion3. Calculate the cumulative sales and/or usage for all items4. Assign items into A, B, C groups5. Assign inventory levels and warehouse locations for each item.

Based on Pareto’s Law of “Cause and Effect”Means Always Better control Indicates“ Vital few- Trivial many”

A- Few items are of key importance and valueB&C-Numerous in number, but less significant.A – ITEMS: A items are those items which have a high rate of usage and/or high unit cost and account for 80%of the total value of usage in the inventory . High consumption Value Very Strict Control No Safety Stock Frequent Ordering Weekly Control Statement Many Sources of Supply Rigorous Value Analysis Accurate Forecast in Material Planning Minimization of Waste Obsolete and Surplus Maximum Efforts to Reduce Lead Time.

B – ITEMS : B items are those numbers of items which in total account for 15%of the total value of usage. Moderate consumption Value Moderate Control Low Safety Stock Ordering Once in a week Monthly control statement Two or More sources of supply Moderate value Analysis Estimate based on past Quarterly control Moderate efforts

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

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

Storage costs

Rent/depreciation

Labor

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

Money tied up (loss of interest, opportunity cost)

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

Stock deterioration (lose money if product deteriorates whilst held)

Theft/insurance

Ordering costs - associated with ordering and receiving an order

Clerical/labor costs of processing orders

Inspection and return of poor quality products

Transport costs

Handling costs

Shortage or Stock out Costs: A stock-out occurs when we have insufficient stock to supply customers. Usually stock outs occur in the order lead-time, the time between placing an order and the arrival of that order.

Given a stock-out the order may be lost completely or the customer may choose to backorder, i.e. to be prepared to wait until we have sufficient stock to supply their order

The Master Production Schedule

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A Master Production Schedule (MPS) represents a plan for manufacturing. When a firm uses Material Requirement Planning System (MRP), the MPS provides the top-level input requirements. It develops the quantities and dates to be exploded for generating per period requirement, for subassemblies, piece parts, and raw materials. The MPS is not a sales forecast, but it is a feasible manufacturing plan. It also serves as a customer order backlog system. It considers changes in capacity or loads, changes in finished goods inventory, and fluctuations in demand. A detailed MPS also determines the economics of production by grouping various demands and making lot sizes. Thus MPS maintains the integrity of the total system backlogs, anticipated backlogs, and lower-level component requirements. This is to say that master schedule or master production schedule formalizes the production plan to converts it into specific material and capacity requirements.

The MPS should consistent with the aggregate production plan (APP) from which it is derived. It should consider, in detail, the unit measure, such as tons for steel or number of units of a component required per period, the efficiency, and the utilization factor of the system. There are different time horizons, aggregation level, and time utilization factor of the system. There are different time horizons, aggregation levels, and time brackets in MPS and APP. The relationship of MPS to other manufacturing and control activities is given in figure number 15. The output of the aggregate planning process is set of parameters indicating aggregate inventory or backlog levels, the number of shifts to be operated, the number of employees to be hired or laid off, the anticipated amount of sub-contracting, and the aggregate amount to be produced with in a certain time periods. The APP provides a basis for decision making regarding specific production dates, available capacity, total demand, lead-time, or inventory constraints that cannot be reconciled within the company policy objectives. Although this information is necessary, it is not sufficient for the smooth functioning of a firm. What is necessary is a plan stated in terms of specific products that are to be produced in certain quantities by certain dates. The process of deriving such an MPS that is consistent with the overall APP is called desegregation.

It is important to recognize that the MPS is not a control technique or a system.

Rather, it is a logical representation of information for decision-making. The MPS highlights conflicts that can be solved only by people. If the MPS is done properly, the rest of the system can be harnessed to reach the desired objectives of management.

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Forecasts and Orders

Aggregate Plan

Tentative Master Schedule

Trial FVT onMRP CRP

System System

Firm Master Schedule

Is Materia

lAdequa

te?

Is Capacit

yAdequa

te?

To MRP & CRP Systems

Figure 15: Relationship between MPS and other systems.

Domestic & International

End products and

Service parts

ReviseMaster

Schedule

ReviseMaster

Schedule

No No

Yes Yes


1. The effect of capacity on the MPS

The importance of an accurate and feasible schedule cannot be overemphasized. The MPS is an important input in deriving rough-cut capacity planning, as exhibited in figure 5.15. The existing capacity and changes to it over the planning horizon become a major constraint. Considerations to capacity should include actual number of shifts scheduled, number of days scheduled in a week, overtime policy, available equipment, and workforce levels. The capacity should be expressed in terms of what is feasible, rather than in theoretical possibility estimates. In addition to scheduling hours, factors such as efficiency and utilization should be included.

When the total requirement specified by the inputs exceeds available capacity, the MPS should indicate a need for corrective action. The alternative decision may involve extending the delivery date, changing capacity, finding ways to divert parts from other activities, and so forth that may need critical inputs from management, especially when policy guidelines are inadequate.

Inputs such as labour, material machinery, and equipment needed for each job must be computed and as such MPS derives the production inventory system of any organization. MPS is the key element of a firm’s production systems and such it should continually reflect what the firm can and will do. The key functions of MPS are:

i) To translate plan into specific end item,ii) To evaluate alternative schedules,iii) To generate materials requirements,iv) To generate capacity requirement,v) To facilitate information processing,vi) To maintain valid priorities andvii) To effectively utilize capacity.

The time required in MPS depends upon various factors such as: type, volume and component lead time of the product being produced. However, a common interval used in MPS is weekly schedule as this time interval generally coincides with the time brackets used in most MRP system. MPS can be done in three steps, they are:

1. Consolidate all gross requirements for the master schedule items. In this stage along with customer’s orders and forecasts, service parts and interplant demands are also included in gross requirement.

2. Net out the requirements. (Net out requirement = Gross requirement – on hand inventory)

3. Group the net requirements into planned orders to be released in a time-phased schedule.

Once scheduling is over, the planning stage comes to an end. Now the plan is to be executed this is done by dispatching the orders and by having a close watch on production activities, so that delivery promises are met with.

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Objective of Materials Management

Materials management function is a staff function and it has to support the objectives of the undertaking as a whole they are: (i) Survival and Growth, (ii) Maximum satisfaction to customers, (iii) Good working conditions to employees, (iv) Technological lead over competitors. In addition objectives of materials management are:

i) Maintaining continuity of productive operations by ensuring a uniform flow of materials,ii) Reducing materials cost by using systematic inventory control techniques, iii) Releasing working capital for productive purposes, by efficient control of inventoriesiv) Increasing the competitiveness of end products by ensuring right quality at right price in

both national and international markets.v) Saving foreign exchange through economic use of foreign purchases and import

substitutes.vi) Establishing good buyer and seller relations.vii) Ensuring low departmental costs and high efficiency, andviii) Setting high ethical standards.

By careful financial analysis, it can be shown that a 5% reduction in material costs will result in increased profits equivalent to a 36% increase in sales. Reduction of materials cost is more preferable by a manager than achieving an increase in sales. To increase sales, lot of efforts are to be made and as it deals with external environment and uncertainties, it will be easier to tackle the problem of reducing the materials cost.

A.B.C. Analysis

Figure 1: A.B.C. Analysis

Problem 1. 20 items stocked in a firm is given below. Other particulars such as annual consumption value etc are given in descending order. Draw ABC curve.

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100 –

90 –

70 –

Y

O X10 40

Percentages of item100

A

B

C

Cum

ulat

ive

annu

al tu

rnov

er in

per

cent

age


Item no. Cumulative % of items

%

Annual consumption

units

Unit price in Rs.

Annual consumption value in Rs.

Cumulative percentage

%1 2 3 4 5 6

1234567891011121314151617181920

5101520253035404550556065707580859095100

10050020025256550503050209040352050100252025

400607520010020252030143005101017.506310106

40000300001400050002500130012501000900700600450400350350300300250200150

40.0070.0084.0089.0091.5092.8094.0595.0595.9596.6597.2597.7098.1098.4598.8099.1099.4099.6599.85100.00

In the above table second column shows cumulative percentage of total items and column number 6 shows cumulative percentage of percentage of annual consumption cost with respect to total cost of inventory. In the table 10 percent of the items (Column Number 2) consumes 70 percent of annual consumption cost. Item number 3 to 5 i.e. another 15% of the items cover 20 percent of annual consumption cost. From item number 6 to 20 i.e. 75% of items consume only 10 percent of the annual consumption value. First 10% of items are known as A class items, second 20% of items are known as B class of items and the last 75% of items are C class items. It shows that by exercising control over first two items, we are exercising the control over 70% of inventory cost. Even if you save 10% of the value, it is substantially handsome savings. Hence top level managers are involved, while purchasing A class items, middle level managers are involved, while purchasing the B class items and C class items are purchased in bulk by lower level personnel, like store keeper.

VED Analysis

In addition to the intrinsic or market value of materials, which is invested in the materials, there is sometimes a nuisance value to the materials. In ABC analysis, we have seen that annual consumption value; quantity of material consumed and the unit cost plays a vital role. This is to say that ABC Analysis deals with the annual consumption value of the item due to their presence and not any other aspect such as the criticality of the martial or the nuisance value. The nuisance value is the cost associated with materials due to their absence. Some of the materials are important by their absence and not merely by their presence. In case they are not available, the whole production

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system may come to standstill and involve high cost of loss of production. Here the cost of the item is not the question, but the availability is the matter. The investment in these materials may be small but for non-availability of the item the costs or losses that the company going to involve will be very high. These are critical items, which are required in adequate quantity.

With the above discussion, we can understand that materials may be classified depending upon their criticality, i.e. on functional basis. The degree of criticality can be stated as whether the material is vital to the process of production, or essential to the process of production or desirable for the process of production. This classification is known as VED analysis, V stands for vital, E stands for essential and D stands for desirable items. In addition to the conventional ABC analysis, VED analysis also plays an important role in materials management. VED ranking may be done on the basis of the shortage costs of materials, which can be either quantified or qualitatively expressed.

a) Combination of ABC and VED analysis: ABC and VED analysis, used for classification, one depending on the consumption value and the other on the criticality of the item both are important. In case we combine the both and classify the materials depending both on the consumption value and the criticality, it will give us a fruitful result. This can be made in nine ways, which is shown in the matrix given below:

This type of classification helps the management to decide the materials policy and what service levels are expected to see that no difficulty is faced. An item belongs to both V class and A class, is costlier (more annual consumption), at the same time of higher critically, the management should see that it should be available any time the need arises and the stock levels to be controlled properly to see that inventory carrying costs are kept under control. The service levels to be maintained are shown in the matrix for various combinations.

b) Fast moving, Slow moving and Non-moving analysis: (FSN analysis) This analysis relates to the demand for the materials and stock-moving pattern. Fast moving materials are to be stocked nearer to the store keeper and slow moving materials are stocked at a considerable distance and the non-moving materials are stocked in a place without causing inconvenience to day-to-day movement of men and materials. Similarly, fast moving materials must be kept in a place easily reached by the storekeeper. Non-moving materials are kept in a remote place, as they are required for use. This analysis will help for optimal utilization of space available and materials handling time of the storekeeper.

In addition to the above analysis, we can also use some of the characteristics of material for classification. For example, perishable or obsolescence. These characteristics are particularly helpful for chemicals and drugs, which have low shelf life. Here classification is made on the basis of shelf life as long shelf life, medium shelf life and short shelf life. This classification is known as PQR classification. Sometimes the bulk versus weight of the materials is of

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V E DA AV AE ADB BV BE BDC CV CE CD

ABC-VED classification matrix.

V E DA 90

%80%

70%

B 95%

85%

75%

C 99

%

90%

80%


importance in terms of providing space for the materials in the stores, and therefore another classification i.e. XYS classification is used. Here the classification is bulky and not bulky materials.

Inventory control problems

Two basic factors, which we have to answer when dealing with inventory problems, are (i) When to order (produce or purchase)? (ii) How much to order or purchase?

1. When to order?

This is related to the lead-time of an item. Lead-time may be defined as the time interval between the placing an order and to receipt of material. It may be replenishment order on an outside firm or within the works. There should be enough stock for each item so that customer’s order can be reasonably met from this stock until replenishment. This stock level, known as reorder level, has, therefore, to be determined for each item. It is determined by compromising the cost of maintaining stocks and the disservice to the customer if his orders are not filled in time.

2. How much to order

Each order is associated with it the ordering cost or acquiring cost. To keep it low, the number of orders should be as few as possible i.e. the order size should be large. But larger the size of the order, higher will be the inventory carrying costs. These two are contradictory to each other. Hence a balance is achieved by selecting the right quantity for each order. This quantity is known as ‘Economic order quantity’ when dealing with purchase models and ‘Economic batch quantity’, when dealing with manufacturing models. Next section deals with some important inventory models. These models depend on the nature of demand. Whether the demand is deterministic or probabilistic in nature. They are known as deterministic models or probabilistic models respectively. Before discussing the models, let us try to understand what are Fixed quantity System and Fixed Period System. They are generally known as p-System and q-System. These two are also inventory control methods.

i) p-System or Fixed Period System: Here orders for materials are placed every time at a fixed period, say on every first of the month or once in every 15 days and so on. But the quantity for which order is placed will differ from order to order depending on the demand or rate of consumption. That is the period of order is fixed but he quantity varies.

ii) q-System or Fixed Quantity System: In this system, the order quantity remains same with all orders placed for a material but the period of placing order for the material will differ. This period once again depends on the demand or the rate of consumption. This is also known as ‘two – bin’ system. Both are shown in figure 2.

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Y

O X

Y

O X

Lev

el o

f in

vent

ory

Lev

el o

f in

vent

ory

Fixed quantity system

Fixed quantity system

Time Timet1 t2 t3

q3

q2

q1

d1

d2

d3

d1

d2

d3

q

Figure 2: Fixed period system and Fixed Quantity System.


Materials requirement planning (MRP)

Material requirement planning or MRP as it is called, is a special technique to plan the requirement of materials for production. This is different from EOQ model discussed above. In spite of safety stock maintained to meet the uncertainties in delivery times of inventory, sometimes, production requirements are not met with. Many production managers come across a problem, where raw materials required for production are purchased as per EOQ and still they do not have the availability of material required at the time when demand arises. This is particularly true when the product requires many raw materials or components. Out of many components or materials even one of them is not available when needed the production cannot be continued. It is because the service levels of each stock of materials are not taken into account.

Let us consider an example that a product requires 10 different components for assembly. The manager fixed 95% service level for the stock of each component. This means that only 5% of the time there may a stock out position and 95% of the time the stock available for production. But the manager experiences more stock out positions than his expectations. The manger needs 10 components all at one point of time. Each material is stored with 95% service level. The probability that each material is separately available over a long length of time is 0.95. But, the probability that all the ten materials are available simultaneously is equals to (0.95)10 = approximately 0.60. This means to say that actual availability is only 60% of the time. That is 40% of the time he experience shortage of components. Hence the statistical methods must be understood properly and applied to the situations to avoid difficulty. EOQ and Safety stock calculations are made for individual components and not for bunched requirement of components. In such cases, instead of adopting statistical safety calculations, better we go for Materials Requirement Planning.

Material requirement planning deals with the requirement of raw materials of components, which directly depend upon the requirement of production. It seems, it would be better if we know the production plan or production schedule for the assembly of the finished product and accordingly arrange for all the raw materials that go into the finished products, rather than depending upon the statistics and probabilities and EOQ and safety stock. This is exactly what we do in Materials Requirement Planning (MRP). It is simple system of calculating arithmetically the requirement of the input materials at different point of time based on the actual production plan. In fact it is a good old method. When the factory system was in infant state, the artisan, who has to produce a product, use to calculate the requirement of material arithmetically depending on the number of products he has to produce and use to purchase that amount and never felt shortage of materials during production.

There are no probabilities involved anywhere, only the derivation of the requirement of input materials based on the requirement or plan for production of the final product. Such a system will work well for materials that have no direct demand of their own, but have only a derived demand. These materials can be called as dependent demand items. Finished assembly has the direct demand of its won and therefore it is an independent demand item. In EOQ mode the order quantity is calculated by using a formula, which has been worked out by averaging the demand (or the stock of material). The problem of shortage of dependent materials arises because of averaging the

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consumption of materials. Present day industrial scene shows that industries use hundreds of materials for their product and hence computerized packages are used for calculating the requirement of materials. The success of MRP depends on the pre-requisites of the system. The requisites are:

i) This system is suitable for dependent demand materials.ii) The demand for dependent material is derived from the master-schedule for the final

finished goods and the requirement should take lead-time into consideration.iii) A firm delivery schedule should be available.iv) MRP should incorporate flexibility.v) MRP should incorporate self-correcting mechanism depending on the changes in

demand.Better result may be obtained by using MRP and EOQ together.

Summary Production planning in the intermediate range of time is termed as “Aggregate Planning” . It is thus called because the demand on facilities and available capacities is specified in aggregate quantities e.g. aggregate quantities of thousands of litres of paint , or tons of fabrication work , or number of automobiles etc. Aggregate planning is made within the broad framework of the long-range plan. Usually the planning horizon for such plan is from a month to a year . The physical plant and equipment capacity would be fixed over this planning horizon . Therefore the sales orders have to be met by strategies like : -1. Overtime 2. Additional temporary workers .3. Inventory .4. Sub- contracting .5. Having backlog of orders .6. Smoothening of demand .7. Turning down some sales orders .

Each of these strategies has a cost associated with it . The marginal cost of overtime is easy to estimate , whereas the costs of undertime are not easy to determine . The hiring costs include the costs of selection , the costs of training and the cost of maintaining additional records . There are also costs associated with learning on the job of a newly hired employee.

Costs of inventory include the cost of capital for carrying the inventory , the cost of obsolescence , taxes and insurance etc. Stock- out costs are cost due to loss of goodwill and loss of sales of the customer . The cost of subcontracting is the amount by which the subcontracting costs is greater than the manufacturing cost at the higher level of production .

Characteristics of aggregate planning:

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

Looks at aggregate product demand, stated in common terms

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Looks at aggregate resource quantities, stated in common terms

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

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

Objective of aggregate planning frequently is to minimize total cost over the planning horizon.

Other objectives which should be considered:

maximize customer service

minimize inventory investment

minimize changes in workforce levels

minimize changes in production rates

maximize utilization of plant and equipment

Aggregate Planning StrategiesActive strategy:

Attempts to handle fluctuations in demand by focusing on demand management

Use pricing strategies and/or advertising and promotion

Develop counter-cyclical products

Request customers to backorder or advance-order

Do not meet demand

Passive strategy (reactive strategy):

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

Vary work force size by hiring or layoffs

Vary utilization of labour and equipment through overtime or idle time

Build or draw from inventory

Subcontract production

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Negotiate cooperative arrangements with other firms

Allow backlogs, back orders, and/or stockouts

Mixed strategy:

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

Firms will usually use some combination of the two

Passive (reactive) Strategies in Aggregate Planning: Basic Approaches

Chase approach:Capacities (workforce levels, production schedules, output rates, etc.) are adjusted to match demand requirements over the planning horizon. Advantages:

anticipation inventory is not required, and investment in inventory is low

labour utilization is kept high

Disadvantages:

expense of adjusting output rates and/or workforce levels

alienation of workforce

Level ApproachCapacities (workforce levels, production schedules, output rates, etc.) are kept constant over the planning horizon. Advantages:

stable output rates and workforce levels

Disadvantages:

greater inventory investment is required

increased overtime and idle time

resource utilizations vary over time

UNIT III

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Chapter II

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

Quality Assurance

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

All the above questions reveal the meaning of quality. Quality is fitness for use whether for a product or a service.

C. D. Lewis defined quality as “ the degree to which a specific product satisfies a particular class of consumers or consumers in general or the degree to which it confirms to a design specification or the distinguishing feature of a product’s taste, colour, appearance etc”.

Product quality has entered the consciousness of the managers with a vengeance. It has become crystal clear that high quality products have a distinct advantage in the marketplace, that market share can be gained or lost over the quality issue. Therefore quality is the competitive priority.

The top management sets basic quality standards and goals based on corporate and market inputs, engineering and R&D express these standards in terms of detailed specifications, purchasing and incoming inspections attempt to ensure that meet specifications, the production system must be designed so that it is capable of meeting quality standards and must then produce the requisite quality; inspection and quality controls establish the procedures to ensure that quality is actually produced maintenance keeps equipment capable of producing the requisite quality and so on.

The slogan, “Quality is everyone’s job” is really true. In order to produce quality products everyone should be in on the act. Quality assurance is designed to maintain reliability of the entire productive system to do what it was designed to do.

The following are the typical quality measures of the output of the productive systems: - TYPE OF SYSTEM MEASURE OF OUTPUT Manufacturing Dimensions, tolerances on dimensions, chemical composition,

surface finish, performance tests Medical service False positive diagnosis, false negative diagnosis Postal service Waiting time at post office, errors in delivery, overall delivery

time. Banks Waiting time at windows, clerical errors

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

Aspects of quality

1. Quality of design 2. Quality of conformance

Quality of design refers to properties and characteristics acquired by the product at the design and development stage. These properties depend on the type of material used, safety factors allowed, knowledge and skill of design, personnel employed etc. . Quality of design is the fundamental requisite.

Quality of conformance is adherence to the quality of design while the product is being actually produced. Howsoever successful the production is in achieving quality of conformance; it cannot go beyond quality laid down by design. Design itself should consider the type of manpower available and the equipment used. If design is blind to these aspects, the quality of conformance is likely to drop. Quality is a collaborative effort of the designer and the production engineer.

Importance of quality

Existence of manufacturing organization depends on the quality of the product or services it manufactures or supplies.

Employees feel proud to be associated with a producer of quality product and service. Departments and branches in the same organization also feel proud when appreciated for higher

quality. Customers also like to buy products of high ranked companies. A producer of high quality products and services earns high profits and goodwill in the long run. Quality is the only tool to compete in today’s world. Quality product manufacturer’s attract highly skilled and professional people.

Cost of poor quality

Reduction in sales, thus reduction in profits. Re-establishment of goodwill lost due to poor quality is difficult and time consuming. Cost of rework of the defectives.

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Need of more rigorous inspection and testing. People in organisation shift responsibility of defectives on others. Indemnity in case of guarantees to customers. Replacement of inferior quality products sold. Sale of substandard products at low price. Defective products may cause delays and stoppages in production processes. Supplier may have to incur legal cost to face the suits and claim under consumer protection act. Forcible withdrawal of substandard product by instruction of the court. Wrong use of a product may happen because of improper instructions and labels on the product

packing. This may lead to enormous problems.

Two dimensions of quality-positive and negative

Positive costs These costs are attributed to having a spell out optimum quality right from procurement of raw materials to the delivery of the finished product to the final customer.These costs have two aspects, costs for formulation of strategic policies for total quality. There is an attempt to prevent problems, and solve them when they arise. There are training costs to have a quality culture. Another aspect of positive cost is the inspection cost. Both these aspects are investments, which no organisation can avoid. The positive costs should not exceed 6 p.c. Of total turnover, which is a trivial cost to bear considering the benefits, which accrue therefrom.

Negative Costs

They are three types:

1) Costs attribute defects creeping in the manufacturing process. 2) Costs due to rectification of defects like after –sales service costs.3) Costs on account of rejection of a consignment by a customer for sub-standard quality goods, especially by an importer. Many a time, non- production departments contribute a great deal to the negative costs e.g. purchase department, maintenance department, design and engineering department.

How does the manufacturer decide quality ? The marketing department in terms of quality, quantity and price makes the assessment or study of customer needs. This information is passed on to the design-engineering department. Then a detailed specification is prepared by the design engineer with the help of heads of all departments. The cost of production and ability to produce are also considered while developing the detailed specifications. Thus one can say that specifications are the detailed description of product’s design in quantitative terms. Generally three types of specifications are used: -

1) Technical specifications- physical and chemical properties desired in the product. When the desired properties are in the measurable form, they are termed as

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2) Performance specifications - describe, the performance or use of the products of the products or the services that a product will give. The conformance to the quality can be conformed by using the product.

3) Brand Name - Performance specification s are extensively used in purchasing highly technical military and space products and also complicated machines and machine tools with sophisticated technology. When it becomes very costly to develop performance or technical specifications or such a practice does prove satisfactory, purchases are made on the basis of brand names.

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

The quality assurance system

Outputs Inputs

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Processes


Breakdowns

Control loops for maintaining system reliability by monitoring quality and quantity of output

Figure 1

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

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Monitor quality and quantity of output

Readjust processes to conform to

standards Interpret results

Standards

Maintain equipment through repair and preventive programs

Establishment of policies regarding quality desired in relation to markets, investments requirements, return on investment, potential competition, etc.

Quality and the design of products and services in relation to productive system

Design of productive system to be compatible with quality, cost, and capacity requirements


Schematic representation of the relationships among policies, design of products and services, design of the productive system, and the maintenance of system reliability for qualities and quantities.

Fig 2 places the reliability system in context. The organisation must set policies regarding the desired quality in relation to markets and needs, investment requirements, return on investment potential competition, and so forth. For profit making organisations, this involves the judgement of where in the market the organisation has a relative advantage. Thus one can say that the production system must be designed so that it is capable of meeting quality standards and must then produce the requisite quality; inspection and quality control establish procedures to ensure that

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Quality standards for materials processes performance of: services products

Inspection and control of incoming materials

Production of goods and services

Inspection and control of processes and performance of products and/or services

Maintenance and preventive maintenance systems

Information for revision of nature of services offered and

Information for revision of quality standards


the quality is actually produced; maintenance keeps equipment capable of producing the requisite quality; and so on.The slogan “quality is every one’s job” is really true. In order to produce quality products, every one must be on the act. Quality assurance is designed to maintain the reliability of the entire productive system to do what it was designed to do.

Statistical Quality Control

Historical perspective

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

Shewhart kept improving and working on this scheme, and in 1931 he published a book on statistical quality control, "Economic Control of Quality of Manufactured Product", published by Van Nostrand in New York. This book set the tone for subsequent applications of statistical methods to process control.

Two other Bell Labs statisticians, H.F. Dodge and H.G. Romig spearheaded efforts in applying statistical theory to sampling inspection. The work of these three pioneers constitutes much of what nowadays comprises the theory of statistical quality and control. There is much more to say about the history of statistical quality control and the interested reader is invited to peruse one or more of the references.

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Control Charts

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

Characteristics of control charts

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

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

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Variables Control Charts

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

Shewhart Control Charts for variables

Let w be a sample statistic that measures some continuously varying quality characteristic of interest (e.g., thickness), and suppose that the mean of w is w, with a standard deviation of w. Then the center line, the UCL and the LCL are

UCL = w + k w Center Line = w LCL = w - k w

where k is the distance of the control limits from the center line, expressed in terms of standard deviation units. When k is set to 3, we speak of 3-sigma control charts.

Historically, k = 3 has become an accepted standard in industry.

The centerline is the process mean, which in general is unknown. We replace it with a target or the average of all the data. The quantity that we plot is the sample average, . The chart is called the chart.

We also have to deal with the fact that is, in general, unknown. Here we replace w with a given standard value, or we estimate it by a function of the average standard deviation. This is obtained by averaging the individual standard deviations that we calculated from each of m preliminary (or present) samples, each of size n. This function will be discussed shortly.

It is equally important to examine the standard deviations in ascertaining whether the process is in control. There is, unfortunately, a slight problem involved when we work with the usual estimator of

. The following discussion will illustrate this.

Sample Variance If 2 is the unknown variance of a probability distribution, then an unbiased estimator of 2 is the sample variance

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

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

Fractional Factorials

With this definition the reader should have no problem verifying that the c4 factor for n = 10 is .9727.

Mean and standard deviation of the estimators So the mean or expected value of the sample standard deviation is c4 .

The standard deviation of the sample standard deviation is

What are the differences between control limits and specification limits ? Control limits vs. specifications Control Limits are used to determine if the process is in a state of statistical control (i.e., is producing consistent output).

Specification Limits are used to determine if the product will function in the intended fashion.

How many data points are needed to set up a control chart? How many samples are needed? Shewhart gave the following rule of thumb:

"It has also been observed that a person would seldom if ever be justified in concluding that a state of statistical control of a given repetitive operation or production process has been reached until he had obtained, under presumably the same essential conditions, a sequence of not less than twenty five samples of size four that are in control."

It is important to note that control chart properties, such as false alarm probabilities, are generally given under the assumption that the parameters, such as and , are known. When the control limits are not computed from a large amount of data, the actual

General rules for detecting out of control or non-random situaltions WECO stands for Western Electric Company Rules

Any Point Above +3 Sigma --------------------------------------------- +3 LIMIT

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2 Out of the Last 3 Points Above +2 Sigma --------------------------------------------- +2 LIMIT 4 Out of the Last 5 Points Above +1 Sigma --------------------------------------------- +1 LIMIT 8 Consecutive Points on This Side of Control Line =================================== CENTER LINE 8 Consecutive Points on This Side of Control Line --------------------------------------------- -1 LIMIT 4 Out of the Last 5 Points Below - 1 Sigma ---------------------------------------------- -2 LIMIT 2 Out of the Last 3 Points Below -2 Sigma --------------------------------------------- -3 LIMIT Any Point Below -3 Sigma

Trend Rules: 6 in a row trending up or down. 14 in a row alternating up and down

Attributes Control Charts

Attributes data arise when classifying or counting observations The Shewhart control chart plots quality characteristics that can be measured and expressed numerically. We measure weight, height, position, thickness, etc. If we cannot represent a particular quality characteristic numerically, or if it is impractical to do so, we then often resort to using a quality characteristic to sort or classify an item that is inspected into one of two "buckets".

An example of a common quality characteristic classification would be designating units as "conforming units" or "nonconforming units". Another quality characteristic criteria would be sorting units into "non defective" and "defective" categories. Quality characteristics of that type are called attributes.

Note that there is a difference between "nonconforming to an engineering specification" and "defective" -- a nonconforming unit may function just fine and be, in fact, not defective at all, while a part can be "in spec" and not fucntion as desired (i.e., be defective).

Examples of quality characteristics that are attributes are the number of failures in a production run, the proportion of malfunctioning wafers in a lot, the number of people eating in the cafeteria on a given day, etc.Types of attribute control charts Control charts dealing with the number of defects or nonconformities are called c charts (for count).

Control charts dealing with the proportion or fraction of defective product are called p charts (for proportion).

There is another chart which handles defects per unit, called the u chart (for unit). This applies when we wish to work with the average number of nonconformities per unit of product. Counts Control Charts

Defective items vs individual defects

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http://www.itl.nist.gov/div898/handbook/pmc/section3/pmc332.htm




The literature differentiates between defect and defective, which is the same as differentiating between nonconformity and nonconforming units. This may sound like splitting hairs, but in the interest of clarity let's try to unravel this man-made mystery.

Consider a wafer with a number of chips on it. The wafer is referred to as an "item of a product". The chip may be referred to as "a specific point". There exist certain specifications for the wafers. When a particular wafer (e.g., the item of the product) does not meet at least one of the specifications, it is classified as a nonconforming item. Furthermore, each chip, (e.g., the specific point) at which a specification is not met becomes a defect or nonconformity.

So, a nonconforming or defective item contains at least one defect or nonconformity. It should be pointed out that a wafer can contain several defects but still be classified as conforming. For example, the defects may be located at noncritical positions on the wafer. If, on the other hand, the number of the so-called "unimportant" defects becomes alarmingly large, an investigation of the production of these wafers is warranted.

Control charts involving counts can be either for the total number of nonconformities (defects) for the sample of inspected units, or for the average number of defects

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Acceptance Sampling

Contributions of Dodge and Romig to acceptance sampling Acceptance sampling is an important field of statistical quality control that was popularized by Dodge and Romig and originally applied by the U.S. military to the testing of bullets during World War II. If every bullet was tested in advance, no bullets would be left to ship. If, on the other hand, none were tested, malfunctions might occur in the field of battle, with potentially disastrous results. Definintion of Lot Acceptance Sampling Dodge reasoned that a sample should be picked at random from the lot, and on the basis of information that was yielded by the sample, a decision should be made regarding the disposition of the lot. In general, the decision is either to accept or reject the lot. This process is called Lot Acceptance Sampling or just Acceptance Sampling. "Attributes" (i.e., defect counting) will be assumed Acceptance sampling is "the middle of the road" approach between no inspection and 100% inspection. There are two major classifications of acceptance plans: by attributes ("go, no-go") and by variables. The attribute case is the most common for acceptance sampling, and will be assumed for the rest of this section. Important point A point to remember is that the main purpose of acceptance sampling is to decide whether or not the lot is likely to be acceptable, not to estimate the quality of the lot. Scenarios leading to acceptance sampling Acceptance sampling is employed when one or several of the following hold:

Testing is destructive

The cost of 100% inspection is very high

100% inspection takes too long

Acceptance Quality Control and Acceptance Sampling It was pointed out by Harold Dodge in 1969 that Acceptance Quality Control is not the same as Acceptance Sampling. The latter depends on specific sampling plans, which when implemented indicate the conditions for acceptance or rejection of the immediate lot that is being inspected. The former may be implemented in the form of an Acceptance Control Chart. The control limits for the Acceptance Control Chart are computed using the specification limits and the standard deviation of what is being monitored (see Ryan, 2000 for details).

An observation by Harold Dodge In 1942, Dodge stated:

"....basically the "acceptance quality control" system that was developed encompasses the concept of protecting the consumer from getting unacceptable defective product, and encouraging the producer in the use of process quality control by: varying the quantity and severity of acceptance inspections in direct relation to the importance of the characteristics inspected, and in the inverse relation to the goodness of the quality level as indication by

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http://www.itl.nist.gov/div898/handbook/pmc/section7/pmc7.htm#Ryan,


those inspections."

To reiterate the difference in these two approaches: acceptance sampling plans are one-shot deals, which essentially test short-run effects. Quality control is of the long-run variety, and is part of a well-designed system for lot acceptance.

An observation by Ed Schilling Schilling (1989) said:

"An individual sampling plan has much the effect of a lone sniper, while the sampling plan scheme can provide a fusillade in the battle for quality improvement."

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

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

Double sampling plans: After the first sample is tested, there are three possibilities:

1. Accept the lot

2. Reject the lot

3. No decision

If the outcome is (3), and a second sample is taken, the procedure is to combine the results of both samples and make a final decision based on that information.

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

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

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

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Unit IV

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Chapter I

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

FACILITIES LOCATION

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

FACTORS AFFECTING SIZE OF THE FIRM

1. Availability of capital: the size of the firm depends upon the availability of capital.

2. Entrepreneurial ability and efficiency: the ability experiences and managerial efficiency of the entrepreneur is one of the important factors that determine the size of the business unit.

3. Risk of uncertainties: firms have to face fluctuations in demand for their products and accordingly adjust their policies and strategies in order to survive and maintain the positioning the market.

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TYPE OF ORGANIZATION :

The size of the firm also depends on the type of organization, e.g., sole trading business concern or individual proprietorship, partnership firm, private companies that are managing business on small and medium scale. Joint Stock Companies require capital on large scale.

Availability inputs: The size can be larger if the inputs are available on a large scale. Where the inputs will have to be transported from a distance and there is also some uncertainty, the size is bound to be small.

Nature of product: In the case of processing of raw materials resulting in the production of joint and by products, the scale is naturally more if the entrepreneur decides to process all the products. In case of production of less standardized and more artistic products the size is bound to be small.

Laws of returns: But where increasing returns apply, large production will result in lower cost, so that the firms can keep on growing larger in size provided the demand for the product is elastic.

Government regulation or licensing policy of government: The size of the firm depends on the decision taken by the entrepreneur and on the attitude in the government.

FACTORS AFFECTING THE PLANT LOCATION

1. Primary factors

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Supply of Raw-material

Supply Of Nearness Capital to market

Transport Availability facilitities of power

LabourSupply


2. Secondary factors

FACTORS OF LOCALISATION:

a)Primary factors

1.Supply of raw material: It is necessary to consider the adequate supply of raw materials and the nature of raw materials. The cost of raw materials is an important element of the total cost of production.

2.Nearness to market: Nearness to market is important from the point of view of his control over the market. In those industries where the raw materials are obtained from different source, nearness to source of raw materials is not as important as nearness to the market.

3.Transport Facilities: Speedy transport facilities are needed for the regular and timely supply of raw materials at low .

4.Supply of labour :The supply of labour at low cost is important .It should also be regular . Nearness to source of labour supply is very important . Therefore , producer s should have regular labour supply by reducing absenteeism and strikes due to unsatisfactory working conditions .

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Miscellaneous Factors

Natural Personal FactorsFactors

Initial start Political & & goodwill Factors

Historical Govt. & Religious Subsidies &

Factors Facilities


5.Power: power may be electrical , diesel and atomic energy . All types of power required must be in abundance in order to ensure smooth flow of production.

6.Supply of capital :Industries require huge capital hence capital market must be developed at industrial centres . Not only this , industrial development banks and other financial services must also be encouraged .

b)Secondary Factors

1.Natural factors--affect the location of those industries which require a particular climate or weather conditions

2.Political factors-States with stable government attract more industries

3.Government Subsidies and Facilities- Government gives subsidies and good industrial development facilities in backward aras . Industries reach these places to reap the benefits of such facilities.

4.Historical and Religious Factors- S ome places have industrial importance and some have religious importance e.g. Kohlapur, benaras ,agra ,nasik etc. Industries grow because of these important features.

5.Initial Start and Goodwill- Once one industry starts at a certain place other industries come their. E.g. Jamshedpur became an industrial town in the following manner .

6.Personal Factor: Personal likeness for a place affects the establishment of business at a place .

7.Miscellaneous factors- a)sufficient water supply

b)Disposal of wastec)Dangers of air0-attacks d)Community attitudee)Ecological and environment considerations etc.

Selection Of Site (Urban, Rural Or Suburban Area)

There are broadly three possible alternatives open for the selection of the locality of the industrial unit:

1. urban or city area2. rural area3. suburban area

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The relative advantages and disadvantages of each area are discussed as under:

URBAN AREA

Due to certain typical advantages available only in the city area, promoters show preference for the city area as the location of the industrial unit.

ADVANTAGES OF CITY AREA

1. Availability of good transportation facilities 2. Good and prompt postal and communication services 3. Banking and credit facilities.4. Services of insurance companies.5. Sufficient storing facilities.6. Ample availability of skilled and unskilled workers.7. Vicinity of the market.8. Facility of the ancillary and service units.9. Transport facilities by road and railways.10. Development of the training institutes.11. Educational, medical and recreational institutes increase the amenities of lives.

DISADVANTAGES OF URBAN OR CITY AREA

1. The cost of land is very high.2. Sufficient land is not available.3. The cost of labour is relatively high.4. The rate of labour turnover is very high.5. Trade union movement is very strong.6. The rates of taxes are also relatively high.7. The industrialization in the city area gives birth to slums and dirty residences which creates

the typical problems of sanitation and health.

RURAL AREA

The following are its advantages and limitations.Advantages of Rural Area

1. The land is available at cheaper rates.2. Large plots of the land available.3. The rates of labour are relatively lower.4. The rate of labour turnover is low.5. The industrial relations between labour and management are relatively amicable.6. The municipal restrictions, which are found in city areas, do not exist in rural areas, e.g.,

height of building, constructed area in total land etc.

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7. Slums and dirty residence are not found in rural areas.8. No danger of bombardment in wartime.

LIMITATIONS OF RURAL AREA

1. Transportation facilities are not available 2. Sometimes the services of post and telegraph and means of communication are not available3. Banking and credit facilities are also not available4. Absence of insurance facilities5. Storing and warehouse facilities6. Passenger facilities are not available7. The advantage of ancillary units and service unit is not available8. Such units are very far from the market place and this increases the cost of distribution of

finished goods9. Skilled workers are not available 10. Municipal facilities like water supply, drainage, fire fighting are not available in rural areas11. There is absence of recreation facilities, good educational institutes, good and sufficient

medical facilities etc.

Suburban area

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

Advantages of suburban area

1. Land is available at a cheaper rate2. Adequate land is available 3. Infrastructure facilities like road, water supply, drainage etc.4. Skilled and unskilled both type of labours are available5. It is possible to tap the advantage of industrial training institutes, management development

programmes etc, which are available in nearby city area6. The nearby city area provides a substantial market for the products of the unit7. Educational institutes, medical facilities and other recreational facilities are available in the

suburban area itself as well as in the nearby city area

The limitation of suburban area as a site for industry is that in the development process, it may be converted into a part of the urban area with all its merits and demerits.

Recent trends in the location of industries

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The traditional factors like nearness of sources of materials, motive power, nearness of markets, labour supply etc. have no longer remained the effective pulling forces for location of industries. The location trends have changed substantially due to the development of substitute raw materials, network of electrification and transportation by roads and railway, mobility of the labour and persuasive and compulsive policies of the government for balanced regional development. The recent trends in the selection of industrial locations can be described as under.

1. Priority for the sub urban areas: the industrialist shows their preference of the sub urban area as the sight for establishment of a new unit or relocation of the existing one. The industrial policy of the government does not permit the establishment of a new unit or expansion of an existing one in city areas.

2. Industrial development in the notified backward areas: in order to have balanced regional development, the central government as well as the state government has notified certain backward areas; example punch mahals, bharuch and sunder nagar are the centrally notified backward district of gujarat state. Similarly, gujarat state government has also notified certain backward talukas. Different types of incentives like cash subsidy, tax relieves, concessional financial assistance, cheaper land and power supply etc. are provided. So, many such areas have been developed substantially in recent times. An illustration can be cited for the industrial development of halol in punch mahals, ankleshwar in bharuch and sunder nagar.

3. Establishment of industrial estate: industrial estate is a piece of vast land divided into different plots wherein factory shades are constructed. The government of India has planned a national policy for the development of industrial estate. It has assigned a responsibility of the development of the industrial estate to state governments. In each state, the state development corporation (sdc) has developed many industrial estates practically in all the districts of the state. Industrial estates have also been developed by private entrepreneurs and chambers of commerce. The plots of land along with factory shades and infrastructure facilities are developed in the industrial estates and are sold to the prospective promoters. The establishment of industrial states has greatly affected the location of industry.

4. Decentralization of industries: under the conscious industrial policy of the government, concentration of industrial units is prevented through licensing policy. New units are not permitted to be started and certain industrially congested areas. Similarly, existing units are established in additional plants in a less developed areas or sometimes relocate the whole unit in such areas.

5. Increased role of the govt in the decision of location of industries: government through persuasive and compulsive methods greatly affects the location decisions in recent times. It provides certain attractive incentives to the promoters to establish their units in less developed areas, at the same time it does not permit excessive industrialization in certain developed areas.

6. Competition between government and institutions: as industry provides job opportunities to the local population, many local organizations attempt to tempt the prospective promoters

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

UNIT IV

Chapter IIIPlant layout

Meaning of plant layout Objectives of plant layout Types of layout Costs associated with layout Techniques of plant layout

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MEANING OF PLANT LAYOUTPlant layout means the disposition of the various facilities (equipments, material, manpower etc.) within the areas of the site selected. Plant layout begins with the design of the factory building and goes up to the location and movement of work. All the facilities like equipment, raw material, machinery, tools, fixtures, workers etc. are given a proper place. In the words of James Lundy, “It identically involves the allocation of space and the arrangement of equipment in such a manner that overall cost are minimized”. According to MoNaughton Waynel, “A good layout results in comforts, convenience, appearance, safety and profit. A poor layout results in congestion, waste, frustration and inefficiency”.

Plant layout is very complex in nature as it involves concept relating to such fields as engineering, architecture, economics and business administration. Hence a plant layout, with proper design, encompasses all production and service facilities and provides for the most effective utilization of men, with materials and machines constituting the process, is a master blue print for coordinating all operations.

Objectives of a Good Plant Layout

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

If a layout is to fulfill this goal, it should be planned with the following clear objectives in mind.

1) There is the proper utilization of cubic (i.e. length, width and height). Maximum use of volume available should be made. For example, conveyors can be run above head height and used as moving work in progress or tools and equipments can be suspended from the ceiling. The principle is particularly true in stores where goods can be stored at considerable height without inconvenience.

2) Waiting time of the semi-finished products is minimized.3) Working conditions are safer, better (well ventilated rooms etc.) and improved4) Material handling and transportation is minimized and efficiently controlled. For this , one has to

consider the movement distances between different work areas as well as the number of times such movements occur per unit period of time.

5) The movements made by the worker are minimized.6) Suitable spaces are allocated to production centers.7) Plant maintenance is simpler.8) There is increased flexibility for changes in product design and for future expansion. It must be

capable of incorporating, without major changes, new equipment to meet technological requirement or to eliminate waste.

9) A good layout permits material to move through the plant at the desired speed with the lowest cost.

10) There is increased productivity and better product quality with reduced capital cost.

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11) Boosting up employee morale by providing employee comforts and satisfaction.12) The work should be so arranged the there is no difficulty in supervision, coordination and

control. There should be no ‘hiding-places’ into which goods can be mislaid. Goods – raw materials and ready stocks – must be readily observed at all times. It will reduce the pilferage of material and labour.

It should be noted here that the above stated objectives of plant layout are laudable in themselves; it is often difficult to reconcile all of them in a practical situation. And as such, the highest level of skill and judgment are required to be exercised. For this, close association between the entrepreneurs and experienced engineers is a must.

Types of Plant LayoutThere are three basic types of plant layout:

(1) Functional or process layout, (2) Product or line layout, (3) Stationary layout. However the choice of one or the other type of layout depends upon the

machine and techniques used in the production.

(a) Process Layout: It is also known as functional layout and is characterized by the keeping similar machines or similar operation at one location (place). In other words, separate departments are established for each specialized operation of production and machines relating to that functions are assembled there. For example, all lathe machines will be at one place, all milling machines at another and so on. This type of layout is generally employed for industries engaged in job-order production and non-standardized products. The process layout may be illustrated in the

(b) Diagram given below.

z

F I C E S

Advantages:

1) Wide flexibility exits as regards allotment of work to equipments and workers. The production capacity is not arranged in rigid sequence and fixed rate capacity with line balancing. Alteration or change in sequence of operation can easily be made as and when required without upsetting the existing plant layout plan.

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Receiving

Lathe

Deptt

Services

Milling

Deptt

SurfaceShipping

Packaging

Assembling inspection

Finishing

IN


2) Better quality product, because the supervisors and workers attend to one type of machine and operations.

3) Variety of jobs, coming as different job orders make the work more interesting for workers.

4) Workers in one section are not affected by the nature of operations carried out in another section. E.g. the rays of welding do not affect a lathe operator, as the two sections are quite separate.

5) Like product layout, the breakdown of one machine does not interrupt the entire production flow.

6) This type of layout requires lesser financial investment in machines and equipments because general-purpose machine, which are usually of low cost, are used and duplication of machine is avoided. Moreover, general-purpose machine do not depreciate or become obsolete as rapidly as specialized machines. It results in lower investment in machines.

7) Under process layout, better and efficient supervision is possible because of specialization in operation.

Disadvantages:

1) Automatic material handling is extremely difficult because fixed material handling equipment like conveyor belt cannot be possible to use.

2) Completion of same product takes more time.3) Raw material has to travel larger distances for getting processed to finished food.

This increases material handling and the associated costs.4) It is not possible to implement the group incentive schemes on the basic of quantity of

the product manufacturing.5) This type of layout requires more floor space than the product layout because a

distinct department established for each operation.6) Compared to line layout inventory investment are usually higher in case of process

layout. It increases the need of working capital in the form of inventory.7) Under process layout, cost of supervision is high because (i) the number of

employees per supervisor is less that result in reduced supervisory span of control, and (ii) the work is checked after each operation.

© Product Layout: it is also known as line (type) layout. It implies that various operations on a product are performed in a sequence and the machine are placed along the product flow line i.e. machines are arranged in the sequence in which a given product will be operated upon. This type of layout is preferred for continuous production i.e. involving a continuous flow in-process material towards the finished product stage.

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OUT

Operation1 operation2 operation3 operation4 operation4


Advantages:

i) Automatic material handling, lesser material handling movement, times and cost.ii) Product completes in lesser time. Since material is fed at one end of the layout and

finished product is collected at the other end, there is no transportation of raw material backward and forward. It shortens the manufacturing time because it does not require any time-consuming interval transportation till the completion of the process of production. Line balancing may eliminate idle capacity.

iii) Smooth and continuous flow of work. This plant ensures steady flow of production with economy because bottlenecks or stoppage of work at different point of production is got eliminated or avoided due to proper arrangement of machine in sequence.

iv) Less in-process inventory. The semi-finished product or work-in-progress is the minimum and negligible under this type of layout because the process of production is direct and uninterrupted.

v) Effective quality control with reduced inspection points .It does not require frequent changes in the machine set-up. Since production process is integrated and continuous, defective parts can easily be discovered and segregated. This makes inspection easy and economical.

vi) Maximum use of space due to straight production flows and reduced need of interim storing.

Disadvantages:

i) Since the specific product determines the layout, a change in product involves major changes in layout and thus the layout flexibility is considerably reduced.

ii) The pace or rate of working depends upon the output rate of the slowest machine. This involves excessive idle time for other machines if the production line is not adequately balanced.

iii) Machines being scattered along the line, more machines of each type have to be purchased as stand by, because if one machine in the line fails, it may lead to shut down of the complete production line

iv) It is difficult to increase production beyond the capacities of the production lines.v) As the entire production is the result of the joint effort of all operation in the line, it is

difficult to implement individual incentive schemes.vi) Since there is no separate department for various types of work, supervision is also

difficult.

vii) Under this system, labour cost is high because

(a) Absenteeism may create certain problems because every worker is specialist in his own work or he specializes on a particular machine .In order to avoid the

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bottleneck, surplus workers who are generalists and can be fitted on a number of machines will have to be employed;

(b) Monotony is another problem with the workers .By doing the work of repetitive nature along assembly line, they feel bored. They have no opportunity to demonstrate their talent;

(c) Noise, vibrations, temperature, moisture, gas etc. may cause health hazards .In this way, labour costs are high.

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

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

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

Advantages of stationery Layout:

The advantages of this type of layout are as under:

1. Flexible: This layout is fully flexible and is capable of absorbing any sort of change in product and process. The project can be completed according to the needs of the customers and as per their specifications.

2. Lower labour cost: People are drawn from functional departments. They move back to their respective departments as soon as the work is over. This is economical, if a number of orders are at hand and each one is in the different stage of progress. Besides, one or two workers can be assigned to a project from start to finish. Thus it reduces labour cost.

3. Saving in time: The sequence of operations can be changed if some materials do not arrive or if some people are absent. Since the job assignment is so long, different sets of people operate simultaneously on the same assignment doing different operations

4.Other benefits: (1) It requires less floor space because machines and equipment are in moving position and there is no need of fixing them.

(2) This arrangement is most suitable way of assembling large and heavy products.

Disadvantages Of Stationery Layout:

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IN OUTIN

OUT


The disadvantages of this type of layout are:1. Higher capital investment: As compared to product or process layout, capital investment is

higher in this type of layout. Since a number of assignments are taken, investments in materials, men and machines are made at higher cost.

2. Unsuitability: This type of layout is not suitable for manufacturing or assembling small products in large quantities. It is suitable only in case where the product is big or the assembling process is complex.

Factors influencing plant layout

The following are some important factors, which influence the planning of effective layout to a significant degree.

1) Nature of the product: The nature of the product to be manufactured will significantly affect the layout of the plant. Stationary layout will be most suitable for heavy products while line layout will be best for the manufacture for the light products because small and light products can be moved from one machine to another very easily and, therefore, more attention can be paid to machine locations can be paid to machine locations and handling of materials.

(2) Volume of production: Volume of production and the standardization of the product also affect the type of layout. If standardized commodities are to be manufactured on large scale, line type of layout may be adopted.

(3) Basic managerial policies and decisions: The type of layout depends very much on the decisions and policies of the management to be followed in producing the commodity with regard to the size of plant, kind and quality of the product, scope for expansion to be provided for, the extent to which the plant is to be integrated, amount of stocks to be carried at anytime, the kind of employee facilities to be provided etc.

(4) Nature of plant location: The size shape and topography of the site at which the plant is located will naturally l affect the type of layout to be followed in view of the maximum utilization of the space available .For e.g., if a site is near the railway line the arrangement of general layout for receiving and shipping and for the best flow of production in and out the plant may be made by the side of the railway lines .If space is narrow and the production process is lengthy, the layout of plant may be arranged on the land surface in the following manner:

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(5) Type of industry process: This is one of the most important factors influencing the choice of type of plant layout. Generally the types of layout particularly the arrangement of machines and work centers and the location of workmen vary according to the nature of the industry to which the plant belongs. For the purpose of lay out, industry may be classified into two broad categories:

(i) Intermittent and (ii) continuous. Intermittent type of industries is those, which manufacture different component or different machines.Such industries may manufacture the parts, when required according to the market needs. Examples of such industries are shipbuilding plants. In this type of industry functional layout may be the best. The second type of industry in ‘continuous industry. in this type of industry raw material are fed at one end and the finished goods are received at another end. A continuous industry may either be analytical or synthetic . A analytical industry breaks up the raw material into several parts during the course of production process or changes its form, e.g. oil and sugar refineries. A synthetic industry on the other hand mixes the two or more materials to manufacture one product along with the process of production or assembles several parts to get finished product. Cement and automobiles industries are the examples of such industry. Line layout is more suitable in continuous process industries.

6. Types of methods of production: -Layout plans may be different according to the method of production proposed to be adopted. Any of the following three methods may be adopted for production- (1) Job order production, (2) batch production, and (3) mass production. Under job production goods are produced according to the orders of the customers and therefore, specification vary from customer to customer and the production cannot be standardized. The machines and equipment can be arranged in a manner to suit the need of all types of customers. Batch production carries the production of goods in batches or group at intervals. In this type of manufacturing the product is standardized and production is made generally in anticipation of sales. In such cases functional or process layout may be adopted. In case of mass production of standardized goods, line layout is most suitable form of plant layout.

7. Nature of machines:-Nature of machines and equipment also affects the layout of plants. If machines are heavy in weight or create noisy atmosphere, stationery layout may reasonably be adopted. Heavy machines are generally fixed on the ground floor. Ample space should be provided for complicated machines to avoid accidents.

1. Climate:- Sometimes, temperature, illumination and air are the deciding factors in the location of machines and their establishments. For example, in lantern manufacturing industry, the spray-painting room is built along the factory wall to ensure the required temperature control and air expulsion and the process of spray painting may be undertaken.

9.Nature of material: -Design and specification of materials, quantity and quality of materials and combination of materials are probably the most important factors to be considered in planning a layout. So, materials storage,

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space, volume and weight of raw materials, floor load capacity, ceiling height ,method of storing etc. should be given special consideration. This will affect the space and the efficiency of the production process in the plant. It will facilitate economic production of goods and prompt materials flow and soundly conceived materials handling system.

10. Type of machine: -Machines and equipment may be either general purpose or special purpose. In addition certain tools are used. The requirements of each machine and equipment are quite different in terms of their space; speed and material handling process and these factors should be given proper consideration while choosing out a particular type of layout. This should also be considered that each machine and equipment is used to its fullest capacity because machines involve a huge investment. For instance, under product layout, certain machines may not be used to their full capacity so care should be taken to make full use of the capacity of the machines and equipment.

12.Human factor and working conditions:- Men are the most important factor of production and therefore special consideration for the their safety and comforts should be given while planning a layout, specific safety items like obstruction-free floor, workers not exposed to hazards, exit etc. should be provided for. The layout should also provide for the comforts to the workers such as provision of rest rooms, drinking water and other services etc. sufficient space is also to be provided for free movement of workers.

13. Characteristics of the building: -

Shape of building, covered and open area, number of storeys, facilities of elevators, parking area and so on also influence the layout plan. In most of the cases where building is hired, layout is to be adjusted within the spaces available in the building. Although minor modification may be done to suit the needs of the plants and equipment. But if any building is to be constructed, proper care should be given to construct it according to the layout plan drawn by experts. Special type of construction is needed to accommodate huge or technical or complex or sophisticated machines and equipment.

Costs Associated With Plant Layout

The costs associated with a decision on plant layout are:

Cost of movement of material from one work area to another. Cost of space. Cost of production delay, if any, which are indirect costs. Cost of spoilage of material, if any, when the materials are staged or stored in condition which

determine the quality of the material Cost of labor dissatisfaction and health risks Cost of changes required, if the operational conditions changed in the future. This is the long-

term cost.A good layout should minimize all these costs put together.

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Techniques of plant layout

In designing or improving the plan of plant layout, certain techniques or tools are developed and are in common use today. The techniques or tools are as follows:

1)Charts and diagrams: In order to achieve work simplification, production engineers make use of several charts and diagrams for summarizing and analyzing production process and procedure. These include a)Operation process chart:It subdivides the process into separate operations and inspection. When a variety of parts and products are manufactured which follow a different path across several floor areas, an operation process chart may be necessary for the important material items or products. The flow lines of the charts indicate the sequence of all operation in the manufacturing cycle.Flow process chart:This chart is the graphic summary of all the activities taking place on the production floor of an existing plant. By preparing this type of chart, it can be found out as to where operations can be eliminated to rearrange, combined, simplified or subdivided for greater economy.Process flow diagram:The diagram is both supplemented and substitute of process flow chart. It helps in tracing the movement of material on a floor plan or layout drawing. A diagram may be drawn to scale on the original floor plan to show the movement of work. It is a good technique to show long materials hauls and backtracking of present layouts, thereby indicating how the present layout may be improved. Colored lines can show the flow of several standards products.

Layouts, thereby indicating how the present layout may be improved. Colored lines can show the flow of several standard products.

This diagram can be used to analyze the effectiveness of the arrangement of the plant activities, the location of specific machines, and the allocation of space. It shows how a more logical arrangement and economical flow of work can be devised.

(2) Machines data card: This card provides full information necessary for the placement and layout of equipment. The cards are prepared separately for each machine. The information generally given on these cards include facts about the machine such as capacity of the machines, cape occupied, power requirements, handling devices required and dimensions.

(3) Templates: Template is the drawing of a machine or tool cut out from the sheet of paper. Cutting to scale shows the area occupied by a machine. The plant layout engineer prepares a floor plan on the basis of reel vent information made available to him. The template technique is an important technique because (i) it eliminates unnecessary handlings, (ii) minimize backtracking of materials, (iii) it make the mechanical handling possible, (iv) it provides a visual picture of proposed or existing plan of layout at one place, (v) it offer flexibility to meet future changes in the production requirements.

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(4) Scale models: Though the two-dimensional templates are now in extensive use in the fields of layout engineering but it is not much use to executives who cannot understand and manipulate them .One important drawback of template technique is that it leaves the volume, depth, height and clearance of the machines to the imaginations of the reader of the drawing. These drawbacks of the template technique have been removed through the development of miniature scale models of machinery and equipment cast in metal.With scale models, it has now become possible to move tiny figures of men and machines around in miniature factory .The miniature machines and models of material handling equipment are placed in a miniature plant and moved around in pawn on a chessboard.

(5) Layout drawings: Completed layouts are generally represented by drawings of the plant showing wall, columns, stairways, machines and other equipments, storage areas and office areas.

The above techniques and tools are used for the planning of layout for the new plant.

Construction of new building

For effective and efficient operation of the plant, design of the building is one of the main considerations. The building housing the plant should be designed in such a way that it can meet the requirements of the concern operation and its layout. According to JAMES LUNDY, “An ideal plant building is that which is built to house with most efficient layout that can be provided for the process involved, yet which is architecturally ultra active and of such a standard shape and design as most flexible in its use and expensive units construction”.

The layout may be said to efficient if it is housed in the building that ensures comforts and health of the workers engaged to the plant with reference to heat, light, humidity, circulation of air etc. and on the other hand, it protects the plant and equipment and materials from the weather.

These are several factors, which are to be considered in constructing a new building for housing the plant. These are:

1. Adaptability: The building structure should be fully adaptable to the needs and requirements of the plant .In the beginning, most of the enterprises carry their business in rented buildings which is generally not suitable to the needs and special requirements of the industries with the obvious reason that the landlord constructs the building to suit average conditions of a manufacturing units and they cannot be persuaded to make the necessary changes effecting the flexibility. As to the degree of adaptability, it may be needed that buildings are more easily adapted to fit the needs of the continuous process than to those of any other.

2. Provision for additions and extensions: In designing and constructing a new factory building, care must be taken to provide for additions and extensions, which may arise to meet the necessary and peculiar needs in due course of time. There must be every possibility to add more units without disturbing the existing the manufacturing system. KIMBALL AND KIMBALL had rightly suggested that “an ideal building plan is one built on same ‘unit’ system like a sectional book case, so that additional units can be added at any time without

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disturbing the manufacturing system and organization “. As a general rule extension can be made most conveniently at right angles to the direction of flow of work.

3. Number of storeys: Another important decision while designing new plant building is to consider number of storeys to be built. Before taking a decision towards number of storeys, the management should bear in mind the comparative advantages and disadvantages of one storey and many storeys.

UNIT II

Chapter IV

Production system

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Meaning Types of production system Evaluation of various production systems

Production Systems

TYPES OF PRODUCTION SYSTEMS

Looking from a different point of view, the entire problem of production/operations management can be visualized as that of managing the “material” flow into, through, and out of the production system. If we try to detail out the flow characteristics inside the conversion systems, we shall find that some systems have very smooth and streamlined flow; some others may have more complex flow characteristics. In general, the more complex the flow characteristics inside the system, the more difficult it becomes to manage the system. On the bases of material flow characteristics, the production system can be grouped in to the following 4 categories;

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a) Mass production or flow line production systemb) Batch production systemc) Job shopd) Unit manufacture of projects.

The main focus of production management problems will therefore depend upon the type of the system. Problems, which are very crucial for mass production, may not be relevant for batch production and vice-versa. It is therefore very important to identify the type of systems we are managing and then focus on main problems of planning and control relevant to that system. A brief description of these problems is given in the following sub-sections. Figure given below is helpful for understanding the characteristics of a typical production system.

Material Flow Characteristics Of A Typical Production System

Inputs Output Materials Products Labour Machines Facilities Energy Information Technology These systems have simplest flow characteristics constituting straight-line flow. Facilities are arranged according to sequence of operations where the output of one stage becomes input to the next stage. The whole system is cascaded.Major production management problems in mass production systems are- balancing of production assembly lines, machine maintenance and raw material supply. A production line consists of the series of production centers, if work load is unbalanced then the most bottle-necked production stage will govern the whole output rate. This will result in increased through put time and poor capacity utilization thus contributing to low productivity. Hence a production or assembly line should be designed such that its workload is as evenly balanced as possible. Maintenance becomes important because if any production is under breakdown it will block the whole line unless quickly restored back into operational effectiveness. Raw material to first stage is important to avoid shortage and subsequent starvation of the whole line.There are methods and techniques available to attend to the above mentioned problem areas.

Batch production system

If a variety of products are made with relatively small volume of production, it may not be possible to layout a separate line for each product. In such cases, batch production concept is adopted when a product is made in a certain quantity called as “Batch quantity” on a machine, and after a while it is

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discontinued and another product is scheduled in a certain batch quantity. Thus various products compete for the share of a machine. The machines are for general purpose. Some prominent problem areas are:

a) Optimal layout planning for the production system.b) Aggregate production planning to absorb demand fluctuations economically.c) Machine job allocation problem.d) Determination of economic batch quantity.e) Scheduling and sequencing of operations.

Production control assumes significance in such systems as the status of progress of various products must be chased up and effectively monitored.

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

1. In selective inventory management one of the methodology used is known as VED analysis. VED stands for………

2. ABC Analysis is selection control of times based on……….3. FSN stands for………..4. ABC stands for………..5. MRP stands for……….6. Aggregate planning is planning for……term and is not for………….planning7. SQC stands for………

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8. SPC stands for…….and does control of process through……..charts.9. Various types of control charts used are…….and……charts,……..charts,

and……….charts10.The SQC technique used for incoming inspection of material is called…………

plans. 11.JIT concept in quality means………..12.QC stands for………and QA stands for……..13.ISO 9001,ISO 9002 and ISO 9003 are the three modules which are for

certification.ISO 9001 involves…….. ,…………..,……….. and………ISO 9002 involves……...,…………..and………….ISO 9003 involves…………..and ………..only.Where ISO…….and ISO……….are only guidelines for Quality Assurance for selection of……..and………elements respectively.

14.Ordering cost and inventory carrying costs are………..in nature and hence they give rise to a point of intersection at which Total Inventory Carrying cost is………

15.A quality circle is a small……….of employee in companies who discuss and try to improve the quality of the output and other work related matters.

16. The ‘p’ chart is used for………type of data and ‘c’ type of chart is used for……….type of data.

17.Quality costs can be mainly divided into 3 costs………costs,………….. cost and………cost.

18.TQM stands for………..

EXERCISE 2State whether the following statements are True (T) or False (F)

1. A forklift can be used for horizontal as well as vertical movements2. Mobile cranes cannot move from one place to another.3. Selection of material handling equipment depends upon the nature of the

commodity to be handled.4. Line layouts generally involve low investments by way of equipment and

machinery.5. Plant layout and material handling are closely interred related.6. A stock item is a part of inventory.7. EOQ strikes a balance between inventory carrying cost and ordering costs.

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8. Decrease of death rate due to advancement in medical sources is associated into trend analysis of Time Series.

9. Increase sale of cloth and garments during the months of Oct. and Nov. is associated with Trend analysis of Time Series.

10.Decline of ice-cream sales during winter season is associated with seasonal analysis of Time Series

11.Senior executive spend more time on ‘A’ items than on ‘B’ or ‘c’ items.

CASE IPART EMPORIUM

It’s June 6, Sue McCaskey’s first day in the newly created position of materials manager for parts Emporium. A recent graduate of a prominent business school, McCaskey is eagerly awaiting her first real-world problem. At approximately 8:30.It arrives in the form of status reports on inventory and orders shipped. At the top of an extensive computer printout is a handwritten note from Joe Donnell, the purchasing manager: “Attached you will find the inventory and customer services performance data. Rest assured that the individual inventory levels are accurate because we took a complete physical inventory count at the end of last week. Unfortunately, we don’t keep compiled records in some of the areas as you requested. However, you’re welcome to do so yourself. Welcome aboard!”

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A little upset that aggregate information isn’t available, McCaskey decide to randomly select a small sample of approximately 100 items and compile inventory and customer service characteristics to get a feel for the “total picture.” The results of this experiment reveal to her why Parts Emporium decided to create the position she now fills. It seems that the inventory is in all the wrong places. Although there is an average of approximately 60 days of inventory, a customer service is inadequate. Parts Emporium series to backorder the customer orders not immediately filled from stock, but some 10 percent of demand is being lost to competing distributorships. Because stockouts are costly relative to inventory holding costs, McCaskey believes that a cycle-services level of at least 95 percent should be achieved.Parts Emporium, Inc., was formed in 1967 as a wholesale distributor of automobile parts by two disenchanted auto mechanics, Dan Block and ED sprigs. Originally located in Block’s garage, the firm showed slow but steady growth until 1970, when it relocated to an old, abandoned meatpacking warehouse on Chicago’s South Side. With increased selection, combined with the trend toward longer car ownership, led to an explosive growth of the business in the mid to late 1970s. By 1991, Parts Emporium was the largest independent distributor of auto parts in the North central region.In 1993, Part Emporium relocated in a sparkling new office and warehouse complex off interstate 55 in suburban Chicago. The warehouses space alone occupied more than 100,000 square feet. Although only a handful of new products have been added since the warehouse was constructed, its utilization has increased from 65 percent to more than 90 percent of capacity. During this same period, however, sales growth has stagnated. These conditions motivated Block and sprigs to hire the first manager from outside the company in the firm’s history.Sue McCaskey knows that although her influence to initiate changes will be limited, she must produce positive results immediately. Thus she decides to concentrate on two products from the extensive product line: the EG151 exhaust gasket and the DB032 drive belt. If she can demonstrate significant gains from proper inventory management for just two products, perhaps Block and sprigs will give her the backing needed to change the total inventory management system.

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

Week Actual Demand Week Actual Demand 1 104 2 103 3 107 4 105 5 102 6 102 7 101 8 104 9 100

12 9713 99 14 102 15 9916 103

17 101 18 101 19 104 20 108

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10 100 11 103

21 97

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

Week Actual Demand Week Actual Demand 11 18 12 33 13 53 14 54 15 51 16 53

17 50 18 53 19 54 20 49 21 52

Because this product is new, data are available only since its introduction in week 11. Currently, 324 units are on hand; there are no backorder and no schedule receipts a lot size of 1000 units is being used, with the lead-time fairly constant at three weeks.The wholesale price that part Emporium charges their customers are $ 12.99 for the EG151 exhaust gasket and $8.89 for the DB032 drive belt. Because no quantity discount are offered on these two highly profitable items, gross margins based on current purchasing practices are 32 percent of wholesale price for the exhaust gasket and 48 percent of the wholesales price for drive belt.Parts Emporium estimates its cost to hold inventory at 21 percent of its inventory investment. This percentage recognizes the opportunity costs of tying money up in inventory and the variable costs of taxes, insurance, and shrinkage. The annual report notes other warehousing expenditures for utilities and maintenance and debt services on the 100,000- square-foot warehouse, which was built for $1.5 million. However, Mc Caskey reasons that these warehousing costs can be ignored because they won’t change for the range of inventory policies that she is considering.Out-of-pocket costs for Part Emporium to place an order with suppliers are estimated to be $20 per order for exhausts gaskets and $ 10 per order for drives belts. On the outbound side, there can be delivery charges. Although most customers pick up their parts at parts Emporium, some orders are delivered to customers. To provide this services, Parts Emporium contracts with a local company for a flat fee of $21.40 per order, which is added to the customer’s bill. McCaskey is unsure whether to increase the ordering costs for parts Emporium to include delivery charges.

Questions1. Put yourself in sue Mc Caskey’s position and prepare a detailed report to Dan Block and Ed

Sprigs on managing the inventory of the EG151 exhaust gasket and the DB032 drive belt. Be sure to present a proper inventory system and recognize all relevant costs.

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2. By how much do your recommendations for these two items reduce annual cycle inventory, stock out, and order dering costs?

Source: Professor Robert Bregman, university of Houston, provided this case.

CASE IIFitness Plus, Part A

Fitness Plus, Part B, explores alternatives to expanding a new downtown facility and is include in the Instructor’s Manual. If you’re interested in this topic, ask your instructor for a preview.

Fitness Plus is a full-service health and sports club in green boro, North Carolina. The club provides a range of facilities and services to support three primary activities: fitness, recreation, and relaxation. Fitness activities generally take place in four areas of the club: the aerobics room equipped with free weights; a workout room with 24 pieces of Nautilus equipment; and a large cardiovascular workout room containing 29 pieces of cardiovascular equipment. This equipment includes nine stairsteppers, six treadmills, six life-cycle blikes, three airdyne bikes, two cross-aerobics machines, two rowing machines, and one climber. Recreational facilities comprise eight

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recquetball courts six tennis courts, and a large outdoor pool. Fitness Plus also sponsors softball, vollyball, and swim teams in city recreation leagues. Relaxation is accomplished through yoga classes held twice a week in the aerobics room, whirlpool tubs located in each locker room. And a trained message therapist.Situated in a large suburban office park, fitness Plus opened its doors in 1988. during the first two years, membership was small and use of the facilities was light. By 1992, membership had grown as fitness began to play a large role in more people’s lives. Along with this growth came increased use of club facilities. Record indicates that, in 1992, an average of 15 members per hour checked into the club during a typical day. Of course, the actual number of member per hour varied by both day and time. On some days during a slow period, only 6 to 8 members would check in per hour. At a peak time, such as Mondays from 4 :00 P.M to 7:00 P.M, the number would be as high as 40per hour.The club was open from 6:30 A.M. to 11:30 P.M. Monday through Thursday. On Friday and Saturday the club closed at 8:00 P.M., and on Sunday the hours were 12:00 noon to 8:00 P.M.As the popularity of health and fitness continued to grow, so did fitness Plus. By may 1997, the average number of members arriving per hour during a typical day had increased to 25. The lowest period had a rate of 10 members per hour; during peak periods 80 members per hour check in to use the facilities. This growth brought complaints from members about overcrowding and unavailability of equipment. Most of these complaints centered on the Nautilus, cardiovascular, and aerobics fitness areas. The owners begin to wonder whether the club was indeed too small for its membership. Past research has indicated that individuals work out an average of 60 minutes per visit.Data collected from member survey showed the following facilities usage pattern: 30 percent of the members do aerobics, 40 percent use the cardiovascular equipment, 25 percent use the Nautilus machines, 20 percent use the free weights 15 percent use the racquetball courts and 10 percent use the tennis courts. The owners wondered whether they could use this information to estimate how well existing capacity was being utilized.If capacity levels were being stretched, now was the time deciding what to do. It was already May, and any expansion of the existing facility would take at least four months. The owners knew that January was always a peak membership enrollment month and that any new capacity needed to be ready by them. However, other factors had just received a major facelift, and many new offices and business were moving back to it, causing resurgence in activity.With this growth came increased competition. A new YMCA was offering a full range of services at a low cost. Two new health and fitness facilities had opened within the past year in locations 10 to 15 minutes from fitness Plus. The first, called the Oasis, catered to the young adult crowd and restricted the access of children under 16 years old. The other facility. Gold’s Gym provided excellent weight and cardiovascular training only.As the owners thought about the situation, they had many question: were the capacities of the existing facilities constrained, and if so, where? If capacity expansion was necessary, should the existing facility be expanded? Because of the limited amount of land at the present site, expansion of some services might require reducing the capacity of others. Finally, owing to increased competition and growth downtown, was now facility would take six months to renovate, and the financial resources were not available to do both.

Questions

1. What method would you use to measure the capacity of fitness Plus? Has fitness plus reached its capacity?

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2. Which capacity strategy would be appropriate for fitness Plus? Justify your answer.3. How would you link the capacity decision being made by fitness plus to other types of

operating decision?

ASSIGNMENTS

Guidelines for attempting the assignments

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

handwriting.

Unit 1

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Chapter1Nature and scope of Production Management1.Define production. Give a brief history of the development of production management .2. Define production management and discuss its scope .3.“ Production management deals with decision making related to production processes so that the resulting goods or services are produced according to the specifications , in the amounts and by the schedules demanded and at a minimum cost”. Discuss.

Chapter IIDemand Forecasting3.“ Production management deals with decision making related to production processes so that the resulting goods or services are produced according to the specifications , in the amounts and by the schedules demanded and at a minimum cost”. Discuss.

Unit 2

Chapter IInventory control1.What is inventory .Why is it called a necessary evil for an organisation? 2.What do you favour --inventory depletion or inventory accumulation ? Explain.3.Explain various methods of inventory control with a special stress on ABC analysis . 4. Explain selective inventory control and its techniques ?

UNIT 3

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

UNIT 4

Chapter IFacilities location1.What factors affect the choice of a suitable place for location of a plant ?2.Discuss the importance of facilities location decision in operations planning .3.Why are some industries located near the source of raw materials, whereas some other industries are located near the markets for their finished goods ?

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Chapter IIPlant layout1. What is plant layout ? What are the objectives which management desires to attain through

the efficient plant layout ? 2. What are the different types of layout ? What are the advantages and disadvantages of each type

of layout ?3. What are the factors to be borne in mind while deciding upon plant layout ?4. Write short notes on the following :

(a) Techniques of plant layout .(b) Factors affecting construction of plant building.(c) Line balancing .

Chapter IVProduction system1.What are the important types of production systems ? Explain 2.Make a comparative study of different types of production systems .

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Sample Question Paper-I PRODUCTION MANAGEMENT

Unit-1

1) Explain the concept and objectives of production management. Discuss the contributions of scientific management principles, introduction of moving assembly line and Hawthorne studies in the development in the area of production management.

2) Distinguish between quantitative and qualitative techniques of forecasting. Discuss the market research method, Delphi method and regression method of forecasting.

Unit-2

3) Discuss the steps involved in capacity planning. What are the major capacity considerations in a plant? How is capacity requirement determined?

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4) What are the features of a good layout? For which type of production system, product layout is used and why?

Unit-3

5) What are the characteristics of intermittent production systems? Why is preparation of schedules in this system, a very complex process?

Unit-4

6) A company requires 12000 units of raw material per annum and each unit cost Rs. 30. Ordering cost is Rs. 10 per order and carrying costs are 20%. Calculate EOQ and total inventory cost. The supplier has offered a 2% discount if order size is 800 units. Should this offer be accepted?

7) What is OC curve? How is it drawn on a graph? Show using an illustration. Explain the following in context of OC curve:

i) Producer’s riskii) Consumer’s riskiii) AOQLiv) LTPD v) Learning curve

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Study Material Prod Management 1

Documents

Transcript of Study Material Prod Management 1