SRM UNIVERSITY RAMAPURAM CAMPUS DEPARTMENT OF MANAGEMENT STUDIES Study Material MBN 510 - Production and Operations Management

UNIT II Chapter 1 - Product Design Chapter 2 Process planning ( Refer class notes) Chapter 3 Make or Buy Decisions Chapter 4 Modern production management ( CAD,CAM) UNIT - III Chapter 1 Production Planning & Control Chapter 2 - Demand Forecasting Chapter 3 Plant location Chapter 4 Plant Layout Chapter 5 - Capacity planning Chapter 6 - Inventory control UNIT IV Chapter 1 - Quality Control Chapter 2 Work Study ( method study/ time Study/ Work measurement) UNIT V

By Mrs.VIJAYA RANI ANANDAN, MBA., M.Phil., (Ph.D)., Assistant Professor (OG) Department of Management studies SRM University Ramapuram Campus.

CONTENTS

Chapter 1 Maintenance Management Chapter 2 Purchasing Chapter 3 Store Keeping

UNIT - 1 Chapter1 - Overview of Production Management Chapter 2 - Production System

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

Unit - 1 Chapter - 1 Overview of Production Management Synopsis Meaning of POM Scope of POM Objectives of POM Functions of POM Factors affecting POM POM relation with other functional areas

INPUTS Materials Machines Men Money

PROCESS

OUTPUT

Transformation

Goods & services

Production and operations management (POM) is the management of an organizations production system. A production system takes inputs and converts them into outputs.

MEANING OF PRODUCTION Production 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 materials, Machines, Men ( Labour), Money and Methods.

The conversion process is the predominant activity of a production system. The primary concern of an operations manager is the activities of the conversion process.

MEANING OF PRODUCTION MANAGEMENT A few definitions of production management are being reproduced here under to understand the meaning of the term clearly: 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: By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus 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. SCOPE OF PRODUCTION MANAGEMENT Specifying and accumulating the input resources, i.e., management, men, information, materials, machine and capital. Designing and installing the assembling or conversion process to transform the inputs into output, and Coordinating and operating the production process so that the desired goods and services may be produced efficiently and at a minimum cost. FUNCTIONS OF PRODUCTION MANAGEMENT a) 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. b) 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. c) 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. d) 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. e) 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 By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, 3 SRM University, Ramapuram Campus

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. f) 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 decision trees. g) Production planning: the decision in production planning include preparation of short-term production schedules, plan for maintaining the records of raw materials, finished and semifinished 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 h) Production control: after planning, the next managerial curves, linear programming, and

the production plans because production plans cannot be activated unless they are properly guided and controlled. 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. i) 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.

PRODUCTS VERSUS SERVICES 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

production function is to control the production according to requires keeping the productive system that produces them in By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, 4 SRM University, Ramapuram Campus

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. OBJECTIVES MANAGEMENT Every system (or organization) has a purpose, certain objectives & goals to achieve since the objectives of an organization PRODUCTS Tangible Can be produced to inventory for-off theshelf availability Minimal contact ultimate consumer with SERVICES Intangible and perishable; consumed in the process of their production 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 OF PRODUCTION/ OPERATIONS

objectives should be unambiguously identified, properly structured and Availability achieved by keeping theexplicitly stated. productive system open for In general terms, the objectives of an organization may be to produce services High contact with clients or customers Simple processing Demand commonly variable on hourly, daily and weekly bases . the goods/or services in required quantities and of right 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 Markets served by productive system are usually local Relatively small units to serve local markets Location dependent on location of local customers, clients and users objectives and cost objectives. I. Performance Objectives The performance objectives may include: a) Efficiency or productivity expressed as output per unit of

Complex and interrelated processing Demand on productive systems variable on weekly, monthly, and seasonal basis Markets served productive system regional, national international by are and

Large units that can take advantage of economies of scale

input. b) Effectiveness: It concerns expressed whether a right set of

outputs is being produced. Where efficiency may refer to By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, 5 SRM University, Ramapuram Campus

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 accepted d) Lead times: Manufacturing lead-time or throughput time is the time elapsed

Maintenance cost Cost of carrying inventory Cost of stock outs, storage, back-logging, lost sales Cost of delayed deliveries Cost of material handling Cost of inspection and Opportunity cost

in the conversion process? Minimization of idle time, delays, waiting etc. For the purpose of managerial decision-making, we should will reduce throughput time. e) Capacity utilization: Percentage utilization of manpower, machines etc. is calculated in order to enhance overall capacity utilization. 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. II. Cost objectives Attaining 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 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: Direct and Indirect labour cost Scrap/rework cost By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus 6 POM RELATION WITH OTHER FUNCTIONAL AREAS 1.Human Resource - Recruit people ( Labour) for production consider the total relevant systems costs including visible and invisible. A longer term cost implication rather than only shortterm will help in arriving at better decision.

Department activities. 2. Finance Allocation Funds ( Money) for production department ( for purchasing land , machinery, materials ect.,) 3.Marketing Department Making demand forecasting, customer satisfaction, marketing research etc.,

Unit I Chapter 2

TYPES OF PRODUCTION SYSTEM According to Webster, System is a regular interacting inter -

Production system

dependent group of items forming a unified whole. A system may have many components and variation in one component is likely to

Types of Production system

affect the other components of the system e. g. change in rate of production will affect inventory, overtime hours etc. Production system is the framework within which the production activities of an organization are carried out. At one end of a system are inputs and at

Continuous Production

Intermittent Production

the other output. Input and output are linked by certain process or operations or activities imparting value to the inputs. These processes, operations or activities may be called production system. The nature of

Batch Production

Job Production

production system may differ from company to company or from plant to plant in the same firm. ELEMENTS OF PRODUCTION SYSTEM (1) Inputs

Mass production ( Flow)

Process Production pr

Assembly line Production

(2) Conversion process (3) Outputs (4) Storage (5) Transportation

Analytical

Synthetic

(6)

Information

TYPES OF PRODUCTION SYSTEMS There are two main types of production systems (1) Continuous system By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus 7

(2) Intermittent system I. CONTINUOUS OR FLOW SYSTEM : According to Buffa, Continuous flow production situations are those where the facilities are standardised as to routing and flow since inputs are standardised. Therefore a standard set of processes and sequences of process can be adopted. Thus continuous or flow production refers to the manufacturing of large quantities of a single or at most a very few varieties of products with a standard of processes and sequences. The mass production is carried continuously for stock in anticipation of demand. CHARATERISTICS OF CONTINUOUS OR FLOW SYSTEM: The volume of output is generally large (mass production) and goods are produced in anticipation of demand. The product design and the operations sequence are standardised i.e. identical products are produced. Special purpose automatic machines are used to perform standardized operations. Machine capacities are balanced so that materials are fed at one end of the process and finished product is received at the other end. Fixed path materials handling equipment is used due to the predetermined sequence of operations. Product layout designed according to a separate line for each product is considered.

MERITS OF CONTINUOUS OR FLOW SYSTEM: The main advantage of continuous system is that work in progress inventory is minimum. The quality of output is kept uniform because each stage develops skill through repetition of work. Any delay at any stage is automatically detected. Handling of materials is reduced due to the set pattern of production line. Mostly the materials are handled through conveyer belts, roller conveyers, pipe lines, overhead cranes etc. Control over materials, cost and output is simplified. The work can be done by semi- skilled workers because of their specialisation. DEMERITS OF CONTINUOUS OR FLOW SYSTEM : Continuous system, however, is very rigid and if there is a fault in one operation the entire process is disturbed. Due to continuous flow, it becomes necessary to avoid pilling up of work or any blockage on the line. Unless the fault is cleared immediately, it will force the preceding as well as the subsequent stages to be stopped. Moreover it is essential to maintain stand-by equipments to meet any breakdowns resulting in production stoppages. Thus investments in machines are fairly high.

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

TYPES OF CONTINUOUS PRODUCTION SYSTEM (A) MASS PRODUCTION : Mass production refer to the

(C) Assembly lines : Assembly lines a type of flow production which is developed in the automobiles industry in the U.S.A. A manufacturing unit prefers to develop and employ assembly line because it helps to the efficiency of production. In an assembly line, each machine must directly receive materials from the previous machine and pass it directly to the next machine. Machine and equipment should be arranged in such a manner that every operator has a free and safe access to each machine. Space should be provided for free movement of fork lifts, trucks etc. which deliver materials and collect finished products. II.INTERMITTENT PRODUCTION SYSTEM ACCORDING TO BUFFA, Intermittent situations are those where the facilities must be flexible enough to enough to handle a variety of products and sizes or where the basic nature of the activity imposes change of important characteristics of the input (e.g. change in the product design). In instances such as these, no single sequence pattern of operation is appropriate, so the relative location of the operation must be a compromise that is best for all inputs considered together. In the industries following the intermittent production system, some components may be made for inventory but they are combined differently for different customers. The finished product is heterogeneous but within a range of standardized options assembled by the producers. Since production is partly for stock and partly for 9

manufacturing of standardized parts or components on a large scale. Mass production system offers economies of scale as the volume of output is large. Quality of products tend be uniform and high due to standardized and mechanization. In a properly designed and equipped process, individual expertise plays less prominent role. (B) PROCESS PRODUCTION : Production is carried on continuously through a uniform and standardized sequence of operations highly sophisticated and automatic machines are used. Process production is employed in bulk processing of certain materials. The typical processing industries are fertilizers plants, petrochemical plants and milk diaries which have highly automated systems and sophisticated controls. They are not labourintensive and the worker is just an operator to monitor the system and take corrective steps if called for. On the basis of the nature of production process, flow production may be classified in Analytical And Synthetic Production . In Analytical Process production, a raw material is broken into different products e. g. crude oil is analysed into gas, naptha, petrol etc. Similarly, coal is processed to obtain coke, coal gas , coaltar etc.. Synthetic process of production involves the mixing of two or more materials to manufacture a product for instance, lauric acid, myristic acid, stearic acid are synthesised to manufature soap.

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

consumer demand, there are problems to be met in scheduling, forecasting control and coordination. CHARACTERISITICS OF INTERMITTENT PRODUCTION SYSTEM : The flow of production is intermittent, not continuous. The volume of production is generally small. A wide variety of products are produced. General purpose, machines and equipments are used so as to be adaptable to a wide variety of operations. No single sequence of operations is used and periodical adjustments are made to suit different jobs or batches. Process layout is most suited.

(A)

JOB PRODUCTION : job production involves the

manufacturing of single complete unit with the use of a group of operator and process as per the customers this is a special order type of production. Each job production or product is different from the other and no repetition is involved. The product is usually costly and non- standardized. Customers do not make demand for exactly the same product on a continuing basis and therefore production become intermittent. Each product is a class by itself and constitute a separate job for production process. Shipbuilding, electric power plant dam construction etc. are common examples of job production CHARACTERISTICS : The product manufacture is custom-made or non standardized. Volume of output is generally small. Variable path materials handling equipment are used. A wide range of general purpose machines like grinders, drilling, press, shaper etc is used . MERITS : It is flexible and can be adopted easily to change in product design. A fault in one operation does not result into complete stoppages of the process. it is cost effective and time- effective since the nature of the operation in a group are similar there is reduced materials 10

Intermittent system is much more complex than continuous production because every product has to be treated differently under the constraint of limited resources. Intermittent system can be effective in situation which satisfy the following conditions: The production centers should be located in such a manner so that they can be handle a wide range of inputs. Transportation facilities between production centers should be flexible enough to accommodate variety of route different inputs. It should be provided with necessary storage facility.

TYPES OF INTERMITTENT PRODUCTION.

handling since machines are close in a cell. By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

The waiting period between operation is also reduced. This also results in a work- in- progress inventrory.

Both job production and batch production are similar in nature, except that in batch production the quantity of product manufacture is comparatively large. DEMERITS : work-in-progress inventory is high and large storage space is required . The main problem in batch production is ideal time between one operation and other the work has to wait to until a particular operation is carried out on the whole batch. COMPARISON OF DIFFERENT PRODUCTION SYSTEM As we have discussed various system and sub-system in detail in

DEMERITS: Job shop manufacturing is just most complex system of production e. g. in building a ship thousand of individual parts must be fabricated and assemble. A complex schedule of activity is required to ensure smooth flow of work with out any bottleneck. Raw materials and work-in-progress inventories are high due to uneven and irregular flow of work. Work loads are unbalanced, speed of work is slow and unit costs are high (B) BATCH PRODUCTION : it is defined as, The

the above lines, we can now make a comparative study of them as follows (1) MANUFACTURING COST : Cost of production per

manufacture of a product in small or large bathes or lots at intervals by a series of operations, each operation being carried out on the whole batch before any subsequent operation is performed the batch production is mixture of mass production and job production and job production under it machines turn out different product at intervals, each product being produced for

unit is lowest in process production while it is highest in job production because large scale continuous production is carried out under process production. Unit cost in mass production is higher while it is lower than the batch production or job production. (2) SIZE AND CAPITAL INVESTMENT : as stated earlier , the scale of operation is small in job production, medium in batch production, large in mass production and very large in process production. Hence the size of capital investment different from system. Process production calls for the higher investment while

comparatively short tome using mass production methods.

mass production requires lesser amount of capital investment . it By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, 11 SRM University, Ramapuram Campus

is lower in case of job production and comparatively higher in batch production. (3) FLEXIBILITY IN PRODUCTION : in case of in demand

intermittent character during odd times, workers particularly unskilled worker are thrown out of job. On the contrary, mass and process production systems provide greater job security to worker because production operation are carried out continuously in anticipation of stable and continuous demand of the product.

of the product, the production facilities may be adjust very shortly with out increasing much expenses under the system of job or batch production .But both the sub-system of continuous production system i.e, mass production or process production employ single purpose machine in their manufacturing process. They can not adjust their production facilities so quickly and easily as is possible in job or batch production where general purpose machines are used (4) REQUIRED TECHNICAL ABILITY : both job and batch

(7)

INDUSTRIALS APPLICATION

the application of

different system is suitable in different industries depending upon the nature of work. The mechanisum of job production applies in products of construction and manufacturing industries like building , bridges special purpose machines etc. batch production is mostly used in mechanical engeering and consumer-goods industries like cotton, jute , machine tools , shoe-making etc. mass production is found in automobiles, sugar refining, refrigerators , electricals goods etc. process production is most appropriate in chemical , petroleum , milk processing industries etc.

production require high skilled technical foreman and other executives . but under mass production for process production systems, managerial ability plays plays an important role because it require higher ability for planning and coordinating several functions in mass and process production than in the case of job and batch production. (5) ORGANISATIONAL STRUCTURE : mostly functional

organization is adopted in case of job and batch production systems. On the other hand , divisional organization is preferred in mass

product process production system due to the greater emphasis for centralization.

(6)

JOB SECURITY

job and batch system of production job security to workers due to their By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus 12

do not provide and type of

Unit II Chapter 1 Product Design MAJOR FACTORS IN PRODUCT DESIGN Cost Quality Time-to-market Customer satisfaction Competitive advantage PRODUCT DESIGN ACTIVITIES

Political, liability, or legal Competitive Technological

OBJECTIVES OF PRODUCT DESIGN Main focus

Customer satisfaction
Secondary focus

Function of product/service Cost/profit Quality Appearance Ease of production/assembly Ease of maintenance/service

FORMS OF PRODUCT DESIGN 1. Priliminary Design Pre design or proto type of the product design 2. Final Design Final decision making of the product design after testing etc., 3.Modular Design - is a form of standardization in which component parts are subdivided into modules that are easily replaced or interchanged. It allows:
easier diagnosis and remedy of failures easier repair and replacement

Translate customer wants and needs into product and service

requirements Refine existing products and services Develop new products and services Formulate quality goals Formulate cost targets Construct and test prototypes Document specifications

REASONS FOR PRODUCT DESIGN

Economic Social and demographic

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

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simplification of manufacturing and assembly

Chapter 3 4. Reverse Engineering - Reverse engineering is the dismantling and inspecting of a competitors product to discover product The make-or-buy decision is the act of making a strategic choice between producing an item internally (in-house) or buying it externally (from an outside supplier). The buy side of the decision also 1. Idea generation 2. Feasibility analysis 3. Product specifications 4. Process specifications 5. Prototype development 6. Design review 7. Market test 8. Product introduction 9. Follow-up evaluation is referred to as outsourcing. Make-or-buy decisions usually arise when a firm that has developed a product or partor significantly modified a product or partis having trouble with current suppliers, or has diminishing capacity or changing demand. Make-or-buy analysis is conducted at the strategic and operational level. Obviously, the strategic level is the more long-range of the two. Variables considered at the strategic level include analysis of the future, as well as the current environment. Issues like government regulation, competing firms, and market trends all have a strategic impact on the make-or-buy decision. FACTORS CONSIDERATIONS THAT FAVOR MAKING A PART IN-HOUSE:

Make-or-Buy Decisions

improvements. PHASES IN PRODUCT DEVELOPMENT PROCESS

Cost considerations (less expensive to make the part) Desire to integrate plant operations Productive use of excess plant capacity to help absorb fixed overhead (using existing idle capacity)

UNIT II By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus 14

Need to exert direct control over production and/or quality Better quality control Design secrecy is required to protect proprietary technology Unreliable suppliers No competent suppliers Desire to maintain a stable workforce (in periods of declining sales)

Procurement and inventory considerations Brand preference Item not essential to the firm's strategy

Cost considerations for the "Make " analysis include:

Incremental inventory-carrying costs Direct labor costs Incremental factory overhead costs Delivered purchased material costs Incremental managerial costs Any follow-on costs stemming from quality and related problems

Quantity too small to interest a supplier Control of lead time, transportation, and warehousing costs Greater assurance of continual supply Provision of a second source Political, social or environmental reasons (union pressure) Emotion (e.g., pride)

Incremental purchasing costs Incremental capital costs

FACTORS THAT MAY INFLUENCE FIRMS TO BUY A PART EXTERNALLY INCLUDE:

Cost considerations for the "buy" analysis include: Lack of expertise Suppliers' research and specialized know-how exceeds that of the buyer

Purchase price of the part Transportation costs Receiving and inspection costs Incremental purchasing costs Any follow-on costs related to quality or service

cost considerations (less expensive to buy the item) Small-volume requirements Limited production facilities or insufficient capacity Desire to maintain a multiple-source policy Indirect managerial control considerations

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

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As method of manufacturing, three components distinguish CIM from other manufacturing methodologies: Unit - II Chapter 4 Modern Production Management ( CIM, CAD, CAM, FMS)

Means

for

data

storage,

retrieval,

manipulation

and

presentation; Mechanisms for sensing state and modifying processes; Algorithms for uniting the data processing component with the sensor/modification component. CIM is basically use of Information and Communication Technology

Computer Integrated Manufacturing

Computer-Integrated Manufacturing (CIM) in engineering is a method of manufacturing in which the entire production process is controlled by computer. Typically, it relies on closed-loop control processes, based on real-time input from sensors. It is also known as flexible design and manufacturing. Overview The term "Computer Integrated Manufacturing" is both a method of manufacturing and the name of a computer-automated system in which individual engineering, production, marketing, and support functions of a manufacturing enterprise are organized. In a CIM system functional areas such as design, analysis, planning, purchasing, cost accounting, inventory control, and distribution are linked through the computer with factory floor functions such as materials handling and management, providing direct control and monitoring of all process operations.

(ICT)in manufacturing. History of CIM The idea of "Digital Manufacturing" is a vision for the 1980s. In the 1980s, Computer Integrated Manufacturing was developed and promoted by machine tool manufacturers and the CASA/SME (Computer and Automated Systems Association /Society for Manufacturing Engineers). "CIM is the integration of total manufacturing enterprise by using integrated systems and data communication coupled with new managerial philosophies that improve organizational and personnel efficiency."

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

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Key Challenges to CIM There are three major challenges to development of a smoothly operating Computer Integrated Manufacturing system:

Subsystems in Computer Integrated Manufacturing A Computer Integrated Manufacturing system is not the same as a "lights out" factory, which would run completely independent of human intervention, although it is a big step in that direction. Part of

Integration of components from different suppliers: When different machines, such as CNC, conveyors and robots, are using different communications protocols. In the case of AGVs, even differing lengths of time for charging the batteries may cause problems.

the system involves flexible manufacturing, where the factory can be quickly modified to produce different products, or where the volume of products can be changed quickly with the aid of computers. Some or all of the following subsystems may be found in a CIM operation:

CAD/CAM manufacturing)

(Computer-aided

design/Computer-aided

Data integrity: The higher the degree of automation, the more critical is the integrity of the data used to control the machines. While the CIM system saves on labor of operating the machines, it requires extra human labor in ensuring that there are proper safeguards for the data signals that are used to control the machines.

CAPP, (Computer-aided process planning) ERP (Enterprise resource planning) CNC (computer numerical control) machine tools DNC, direct numerical control machine tools FMS, flexible machining systems ASRS, automated storage and retrieval systems AGV, automated guided vehicles Robotics Automated conveyance systems Computerized scheduling and production control CAQ (Computer-aided quality assurance) A business system integrated by a common database. Lean Manufacturing 17

Process control: Computers may be used to assist the human operators of the manufacturing facility, but there must always be a competent engineer on hand to handle circumstances which could not be foreseen by the designers of the control software.

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

Computer-aided design
Computer-Aided Design (CAD) is the use of computer technology to aid in the design and particularly the drafting (technical drawing and engineering drawing) of a part or product, including entire buildings. It is both a visual (or drawing) and symbol-based method of communication whose conventions are particular to a specific technical field. Drafting can be done in two dimensions ("2D") and three dimensions ("3D"). Drafting is the communication of technical or engineering drawings and is the industrial arts sub-discipline that underlies all involved technical endeavors. In representing complex, threedimensional objects in two-dimensional drawings, these objects have traditionally been represented by three projected views at right angles. Overview Current Computer-Aided Design software packages range from 2D vector-based drafting systems to 3D solid and surface modellers. Modern CAD packages can also frequently allow rotations in three dimensions, allowing viewing of a designed object from any desired angle, even from the inside looking out. Some CAD software is capable of dynamic mathematic modeling, in which case it may be marketed as CADD computer-aided design and drafting.

CAD is used in the design of tools and machinery and in the drafting and design of all types of buildings, from small residential types (houses) to the largest commercial and industrial structures (hospitals and factories). CAD is mainly used for detailed engineering of 3D models and/or 2D drawings of physical components, but it is also used throughout the engineering process from conceptual design and layout of products, through strength and dynamic analysis of assemblies to definition of manufacturing methods of components. CAD has become an especially important technology within the scope of computer-aided technologies, with benefits such as lower product development costs and a greatly shortened design cycle. CAD enables designers to lay out and develop work on screen, print it out and save it for future editing, saving time on their drawings. Uses Computer-Aided Design is one of the many tools used by engineers and designers and is used in many ways depending on the profession of the user and the type of software in question. There are several different types of CAD. Each of these different types of CAD systems require the operator to think differently about how he or she will use them and he or she must design their virtual components in a different manner for each.

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

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There are many producers of the lower-end 2D systems, including a number of free and open source programs. These provide an approach to the drawing process without all the fuss over scale and placement on the drawing sheet that accompanied hand drafting, since these can be adjusted as required during the creation of the final draft. 3D wireframe is basically an extension of 2D drafting. Each line has to be manually inserted into the drawing. The final product has no mass properties associated with it and cannot have features directly added to it, such as holes. The operator approaches these in a similar fashion to the 2D systems, although many 3D systems allow using the wireframe model to make the final engineering drawing views. The Effects of CAD Starting in the late 1980s, the development of readily affordable Computer-Aided Design programs that could be run on personal computers began a trend of massive downsizing in drafting departments in many small to mid-size companies. As a general rule, one CAD operator could readily replace at least three to five drafters using traditional methods. Additionally, many engineers began to do their own drafting work, further eliminating the need for traditional drafting departments. This trend mirrored that of the elimination of many office jobs traditionally performed by a secretary as word processors, spreadsheets, databases, etc. became standard software packages that "everyone" was expected to learn.

Another consequence had been that since the latest advances were often quite expensive, small and even mid-size firms often could not compete against large firms who could use their computational edge for competitive purposes. Today, however, hardware and software costs have come down. Even high-end packages work on less expensive platforms and some even support multiple platforms. The costs associated with CAD implementation now are more heavily weighted to the costs of training in the use of these high level tools, the cost of integrating a CAD/CAM/CAE PLM using enterprise across multi-CAD and multi-platform environments and the costs of modifying design work flows to exploit the full advantage of CAD tools. CAD vendors have effectively lowered these training costs. These methods can be split into three categories: 1. Improved and simplified user interfaces. This includes the availability of role specific tailor able user interfaces through which commands are presented to users in a form appropriate to their function and expertise. 2. Enhancements to application software. One such example is improved design-in-context, through the ability to model/edit a design component from within the context of a large, even multi-CAD, active digital mockup.

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

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3. User oriented modeling options. This includes the ability to free the user from the need to understand the design intent history of a complex intelligent model.

design developed using CAD software to be manually converted into a drafted paper drawing detailing instructions for its manufacture, Computer-Aided Manufacturing software allows data from CAD software to be converted directly into a set of manufacturing

Computer - Aided Manufacturing (CAM)

instructions.

CAM software converts 3D models generated in CAD into a set of Definition: Computer-Aided Manufacturing (CAM) is the use of computer software and hardware in the translation of computer-aided design models into manufacturing instructions for numerical controlled machine tools. basic operating instructions written in G-Code. G-code is a programming language that can be understood by numerical controlled machine tools essentially industrial robots and the G-code can instruct the machine tool to manufacture a large number of items with perfect precision and faith to the CAD design.

Applications The field of computer-aided design has steadily advanced over the past four decades to the stage at which conceptual designs for new products can be made entirely within the framework of CAD software. From the development of the basic design to the Bill of Materials necessary to manufacture the product there is no requirement at any stage of the process to build physical prototypes.

Modern numerical controlled machine tools can be linked into a cell, a collection of tools that each performs a specified task in the manufacture of a product. The product is passed along the cell in the manner of a production line, with each machine tool (i.e. welding and milling machines, drills, lathes etc.) performing a single step of the process.

In addition to lower running costs there are several additional benefits to using CAM software. By removing the need to translate CAD models into manufacturing instructions through paper drafts it enables manufactures to make quick alterations to the product design, feeding

Computer-Aided Manufacturing takes this one step further by bridging the gap between the conceptual design and the manufacturing of the finished product. Whereas in the past it would be necessary for a

updated instructions to the machine tools and seeing instant results. By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, 20 SRM University, Ramapuram Campus

In addition, many CAM software packages have the ability to manage simple tasks such as the re-ordering of parts, further minimising human involvement. Though all numerical controlled machine tools have the ability to sense errors and automatically shut down, many can actually send a message to their human operators via mobile phones or e-mail, informing them of the problem and awaiting further instructions.

Additionally, the field of computer-aided management is fraught with inconsistency. While all numerical controlled machine tools operate using G-code, there is no universally used standard for the code itself. Since there is such a wide variety of machine tools that use the code it tends to be the case that manufacturers create their own bespoke codes to operate their machinery.

While this lack of standardisation may not be a problem in itself, it can All in all, CAM software represents a continuation of the trend to make manufacturing entirely automated. While CAD removed the need to retain a team of drafters to design new products, CAM removes the need for skilled and unskilled factory workers. All of these developments result in lower operational costs, lower end product prices and increased profits for manufacturers. FLEXIBLE MANUFACTURING SYSTEM Problems A flexible manufacturing system (FMS) is a manufacturing system in which there is some amount of flexibility that allows the system to react in the case of changes, whether predicted or unpredicted. This flexibility is generally considered to fall into two categories, which both contain numerous subcategories. 1. The first category, machine flexibility, covers the system's ability to be changed to produce new product types, and ability to change the become a problem when the time comes to convert 3D CAD designs into G-code. CAD systems tend to store data in their own proprietary format (in the same way that word processor applications do), so it can often be a challenge to transfer data from CAD to CAM software and then into whatever form of G-code the manufacturer employs.

Unfortunately, there are several limitations of computer-aided manufacturing. Obviously, setting up the infrastructure to begin with can be extremely expensive. Computer-aided manufacturing requires not only the numerical controlled machine tools themselves but also an extensive suite of CAD/CAM software and hardware to develop the design models and convert them into manufacturing instructions as well as trained operatives

order of operations executed on a part. to run them. By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

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2. The second category is called routing flexibility, which consists of the ability to use multiple machines to perform the same operation on a part, as well as the system's ability to absorb large-scale changes, such as in volume, capacity, or capability. Most FMS systems comprise of three main systems. The work machines which are often automated CNC machines are connected by a material handling system to optimize parts flow and the central control computer which controls material movements and machine flow. The main advantages of an FMS is its high flexibility in managing manufacturing resources like time and effort in order to manufacture a new product. The best application of an FMS is found in the production of small sets of products like those from a mass production. Advantages

Industrial FMS Communication An Industrial Flexible Manufacturing System (FMS) consists of robots, Computer-controlled Machines, Numerical controlled machines (CNC), instrumentation devices, computers, sensors, and other stand alone systems such as inspection machines. The use of robots in the production segment of manufacturing industries promises a variety of benefits ranging from high utilization to high volume of productivity. Each Robotic cell or node will be located along a material handling system such as a conveyor or automatic guided vehicle. The production of each part or work-piece will require a different combination of manufacturing nodes. The movement of parts from one node to another is done through the material handling system. At the end of part processing, the finished parts will be routed to an automatic inspection node, and subsequently unloaded from the Flexible Manufacturing System.

Productivity increment due to automation Preparation time for new products is shorter due to flexibility Saved labor cost, due to automation Improved production quality, due to automation However, it is not always necessary that on increasing flexibility productivity also increases. The FMS data traffic consists of large files and short messages, and mostly come from nodes, devices and instruments. The message size ranges between a few bytes to several hundreds of bytes. Executive software and other data, for example, are files with a large size, while messages for machining data, instrument to instrument communications, status monitoring, and data reporting are transmitted in small size.

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

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There is also some variation on response time. Large program files from a main computer usually take about 60 seconds to be down loaded into each instrument or node at the beginning of FMS operation. Messages for instrument data need to be sent in a periodic time with deterministic time delay. Other type of messages used for emergency reporting is quite short in size and must be transmitted and received with almost instantaneous response. The demands for reliable FMS protocol that support all the FMS data characteristics are now urgent. The existing IEEE standard protocols do not fully satisfy the real time communication requirements in this environment. The delay of CSMA/CD is unbounded as the number of nodes increases due to the message collisions. Token Bus has a deterministic message delay, but it does not support prioritized access scheme which is needed in FMS communications. Token Ring provides prioritized access and has a low message delay, however, its data transmission is unreliable. A single node failure which may occur quite often in FMS causes transmission errors of passing message in that node. In addition, the topology of Token Ring results in high wiring installation and cost. A design of FMS communication protocol that supports a real time communication with bounded message delay and reacts promptly to any emergency signal is needed. Because of machine failure and malfunction due to heat, dust, and electromagnetic interference is common, a prioritized mechanism and immediate transmission of

emergency messages are needed so that a suitable recovery procedure can be applied. A modification of standard Token Bus to implement a prioritized access scheme was proposed to allow transmission of short and periodic messages with a low delay compared to the one for long messages. Unit II Chapter 5 DEMAND FORECASTING Forecasts are needed to aid in 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 methods may be based on mathematical models 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;

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

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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); and 5. Random, or unforecastable, variation in demand

II. 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.

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 DEMAND Generally such factors can be divided into main categories: - Externals and Internals. I. External Factors. External factors that affect demand for a firms products or services are beyond managements 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.

Forecasting methods The two general types of forecasting techniques used for demand forecasting are: Qualitative methods and Quantitative methods II.QUALITATIVE METHODS a) Sales Force Estimate Sales force estimates are forecasts compiled from estimates of future demand made periodically by members of a companys 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.

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

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But it also has several disadvantages. Individual biases of the sales people 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. b) 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 will discuss later, executive opinion 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. c) 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. By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus 25

 d) 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. Where

There is little evidence that Delphi forecasts achieve high degrees of accuracy. However, they are known to be fair- togood in identifying turning points in new product demand. Poorly designed questionnaires will result in ambiguous or false conclusions.

II. QUANTITATIVE METHOD a) Linear Regression In 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 + bX Y = dependent variable X = independent variable a = Y-intercept of the line

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.

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. b) Time series methods

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

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Simple 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. Weighted Moving Averages. In the simple moving average method, each demand has the same weight in the average --namely, 1/n. In the weighted 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 to 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. c) 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. 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 =(Demand this period) + (1-) (Forecast calculated last period)= Dt+(1-)Ft Ft+1 =Ft + (Dt-Ft) Larger values emphasize recent levels of demand and result in forecasts more responsive to changes in the underlying average. Smaller 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 periods 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.

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

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Unit III Chapter 1

efficiency. In other words, production planning involves looking ahead, anticipating bottlenecks and identifying the steps necessary to ensure smooth and uninterrupted flow of production. It determines the

Production Planning & Control

requirements for materials, machinery and man-power; establishes the exact sequence of operations for each individual item and lays down the

Production Planning and control are basic managerial functions which are essential to every organized activity. Proper planning and control of manufacturing activities or the production system is equally essential for efficient and economical production. Economy and productivity are to a large extent directly proportional to the thoroughness with which the planning and control functions are performed. In a modern enterprise, production is a complex system and steps must be taken to ensure that goods are produced in the right quantity and quality, at the right time and place and by the most efficient methods possible. This is the task of production planning and control.

time schedule for its completion. Objectives of Production Planning The basic objectives of production planning are as under:(i) On the basis of the sales forecast and its engineering analysis, to estimate the kind of the resources like men, materials, machines, methods etc. in proper quantities and qualities. It also estimates when and where these resources will be required so that the production of the desired goods is done most economically.

PRODUCTION PLANNING
Production planning is concerned with deciding in advance what is to be produced, when to be produced, where to be produced and how to be produced. It involves foreseeing every step in the process of production so as to avoid all difficulties and inefficiency in the operation of the plant. Production planning has been defined as the technique of forecasting or picturing ahead every step in a long series of separate operations, each step to be taken in the right place, of the right degree, and at the right time, and each operation to be done at maximum

(ii)

It also aims to make all necessary arrangement so that the production targets as set in the production budget and master schedules are reached. While attaining these targets,

adjustments are made for the fluctuations in the demand.

For an effective planning of production activities, the executives concerned must have complete information regarding the following:-

(i)

Engineering data including complete analysis of the

product to be manufactured ,the operations, processes and By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, 28 SRM University, Ramapuram Campus

methods through which each component or class of product must pass, the nature of inspection required, and the method of assembly. (ii) Machine analysis giving full information regarding speeds of all available machines and their maximum capacity to perform certain operations, and the rate of

(viii)

Information as to the customers orders on hand, and the delivery for customers, and what for stock purpose.

It is the job of the production department to arrange for the order in which the work will be done the routing and scheduling of work, and determine what machines tools, workplaces materials and operatives should do the work.

output per day, week or month, and the maximum plant capacity per day for each process or operation. (iii) The various types and classes of tools and equipment required of production. (iv) Material analysis giving full information as to the type, quality and quantity of the raw material to be used in each process or operation. Also, information as to raw A balanced production planning would tend to increase operating efficiency by stabilizing productive activities, facilitate selling and customer service, and help reduce production cost by providing reliable basis for investment in raw materials and tools. It would promote fuller utilization of plant, equipment and labour by controlling all time and efforts essential in manufacturing.

materials in stores, how much are on order, and how much are a located or reserved for current orders. (v) The characteristics of each job and the degree of skill and personnel qualifications required for the effective Levels of Production Planning Production planning can be done at three levels namely Factory Planning, Process Planning and Operation Planning which are as follows: power production and (i) Factory Planning: At this level of planning the sequence of work/ tasks is planned in terms of building machines and equipment required for manufacturing the desired goods and services. The relationship of workplaces in terms of

performance of each such job. (vi) Information relating to

consumption, internal transport and material handling service. (vii) Job analysis giving information as to what methods of operation would yield uniformity of output, ease in production and reduction in costs.

departments is also planned at this stage taking into consideration the space available for the purpose. 29

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

(ii)

Process Planning: There are many operations involved in factory planning for transforming the inputs into some desired end product. In process planning these operations are located and the sequence of these operations in the production process is determined. Plans are also made for the layout of work centers in each process.

Production control may be defined as the process of planning production in advance of operations; establishing the exact route of each individual item, part of assembly; setting 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 effectivate the smooth functioning of the enterprises. According to Henry Fayol, production control is the art and science of ensuring that all which occurs is in accordance with the rules established and the instructions issued. Thus, production control regulates the orderly flow of materials in the manufacturing process from the raw material stage to the finished product.

(iii)

Operation Planning:

It is concerned with planning the

details of the methods required to perform each operation viz. selection of work centers, designing of tools required for various operations. Then the sequences of work elements involved in each operation are planned. Specifications about each transfer, work centers, nature of tools required and the time necessary for the completion of each operation are prescribed.

Production control aims at achieving production targets, optimum use of available resources, increased profits through productivity, better and more economic goods and services etc. An effective production control system requires reliable information, sound organization structure, a high degree of standardization and trained personnel for its successful operation.

PRODUCTION CONTROL
All organizations irrespective of size, use production control to some degree. In small organizations, the production control may be performed by one person; but in large complex industries the production control department is normally well-organised and highly specialized. Production control presupposes the existence of production plans, and it involves the use of various control techniques to ensure production performance as per plans. Co-ordinating men and materials and

A sound production control system contributes to the efficient operation of plant. In terms of manufacturing customers orders, production

control assures a more positive and accurate completion and delivery date. Delivering an order on time is obviously important to the customer and to the development of customer goodwill. Production control also

machines is the task of production control.

brings plan and order to chaotic and haphazard manufacturing By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, 30 SRM University, Ramapuram Campus

procedures. This not only increases the plant efficiency but also makes it a more pleasant place in which to work. Most people recognize that employees prefer to work and do better work under conditions of obvious control and plan. Morale may be considerably improved..

(vii)

To perform inspection of semi-finished and finished goods and use quality control techniques to ascertain that the produced items are of required specifications.

(viii)

It is also responsible for product design and development.

Effective production control also maintains working inventories at a minimum, making possible a real saving in both labour and material investment. Thus, good production control helps a company operate and produce more efficiently and achieve lowest possible costs. Objectives of Production Control The success of an enterprise greatly depends on the performance of its production control department. The production control department

Thus the fundamental objective of production control is to regulate and control the various operations of production process such a way that orderly flow of material is ensured at different stages of the production and the items are produced of right quality, in right quantity, at the right time with minimum efforts and cost.

Levels of Production Control Production control starts with some particular goal and formulation of some general strategy for the accomplishment of desired objectives. There are three levels of production control namely programming, ordering and dispatching. Programming plans the output of products for the factory as a whole. Ordering plans the output of components from the suppliers and processing departments. Dispatching considers each processing department in turn and plans the output from the machine, tools and other work centers so as to complete the orders by due date.

generally has to perform the following functions: (i) (ii) Provision of raw material, equipment, machines and labour. To organize production schedule in conformity with the demand forecasts. (iii) The resources are used in the best possible manner in such a way that the cost of production is minimized and delivery date is maintained. (iv) Determination of economic production runs with a view to reduce setup costs. (v) Proper co-ordination of the operations of various

Factors Determining Production Control The nature of production control operations varies from organization to organization. The following factors affect the nature and magnitude of production control methods in an organization. 31

sections/departments responsible for production. (vi) To ensure regular and timely supply of raw material at the desired place and of prescribed quality and quantity to avoid delays in production.

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

a) Nature of production: In job-oriented manufacturing, products and operations are designed for some particular order which may or may not be repeated in future. Hence production usually requires more time, whereas in a continuous manufacturing system inventory problems are more complex but control operations are rather simple due to fixed process. In mixed stock and custom manufacturing

Similarly, control is dependent on planning as the standards of performance are laid down under planning. Therefore, production and control should be considered an integrated function of planning to ensure the most efficient production and regulation of operations to execute the plans successfully. Production planning and control may be defined as the direction and coordination of the firms material and physical facilities towards the attainment of pre-specified production goals in the most efficient available way .It 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 or assembly and finished products, and releasing the necessary orders as well as initiating the required follow up to effectuate the smooth functioning of the enterprise. Thus, production planning and control involves planning, routing, scheduling, dispatching and expediting to coordinate the movements of materials, machines and manpower as to quantity, quality, time and place. It is based upon the old adage of first plan your work and then work your plan. Objectives of Production Planning and Control The main objective of production planning and control is to ensure the coordinated flow of work so that the required number of products are manufactured in the required quantity and of required quality at the required time at optimum efficiency. In other words, production planning and control aims at the following purposes: 32

systems the problem of control is further complicated due to simultaneous scheduling of combined process. b) Nature of operations/activities: In intermittent manufacturing system the operations are markedly varied in terms of their nature, sequence and duration. Due to this the control procedure requires continuous modifications and adjustments to suit the requirements of each order. c) Magnitude of operations: Centralised control secures the most effective co-ordination but as an organization grows in size, decentralization of some production control functions becomes necessary. The degree to which the performance of an activity should be decentralized depends upon the scope of operations and convenience of their locations.

PRODUCTION PLANNING AND CONTROL

Planning and control are interrelated and interdependent. Planning is meaningless unless control action is taken to ensure the success of the plan. Control also provides information feedback which is helpful in modifying the existing plans and in making new plans.

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

a)

Continuous Flow of Production: It tries to achieve as smooth and continuous production by eliminating g)

delivery of products on time by co-ordinating the production operations with customers orders. Production and Employment Stabilisation: Production planning and control aims at ensuring production and employment levels that are relatively stable and consistent with the quantity of sales. h) Evaluation of Performance: The process of production planning and control is expected to keep a constant check on operations by judging the performance of various individuals and workshops and taking suitable corrective measures if there is any deviation between planned and actual operations. Importance of Production Planning and Control The system of production planning and control serves as the nervous system of a plant. It is a co- ordinating agency which coordinate the activities of engineering, purchasing, production, selling and stock control departments. An efficient system of production

successfully all sorts of bottlenecks in the process of production through well-planned routing and scheduling requirements relating to production work. b) Planned Requirements of Resources: It seeks to ensure the availability of all the inputs i.e. materials, machines, tools, equipment and manpower in the required quantity, of the required quality and at the required time so that desired targets of production may be achieved. c) Co-ordinated work Schedules: The production activities planned and carried out in a manufacturing organization as per the master schedule. The production planning and

control tries to ensure that the schedules to be issued to the various departments/units/supervisors are in co-ordination with the master schedule. d) Optimum Inventory: It aims at minimum investment in inventories consistent with continuous flow of production. e) Increased Productivity: It aims at increased productivity by increasing efficiency and by being economical. This is achieved by optimizing the use of productive resources and eliminating wastage and spoilage. f) Customer Satisfaction : It also aims at satisfying customers requirements by producing the items as per the

planning and control helps in providing better and more economic goods to customers at lower investment. It is essential in all plants irrespective of their nature and size. The principal advantages of production planning and control are summarized below: (i) Better Service to Customers: Production planning and

control, through proper scheduling and expediting of work, helps in providing better services to customers is terms of better quality of

specifications or desires of the customers. It seeks to ensure goods at reasonable prices as per promised delivery dates. Delivery in By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, 33 SRM University, Ramapuram Campus

time and proper quality, both help in winning the confidence of customers, improving relations with customers and promoting profitable repeat orders. (ii) Fewer Rush Orders :In an organization, where there is

(v)

Reduced Idle Time: Production planning and control helps in

reducing idle time i.e. loss of time by workers waiting for materials and other facilities; because ensures that material and other facilities are available to the workers in time as per the production schedule. Consequently, less man-hours are lost, which has a positive impact on the cost of production. (vi) Improved Plant Morale: An effective system of production

effective system of production planning and control, production, operations move smoothly as per original planning and matching with the promised delivery dates. Consequently, there will be fewer rush orders in the plant and less overtime than, in the same industry, without adequate production planning and control. (iii) Better Control of Inventory: A sound system of production

planning and control co-ordinates the activities of all the departments involved in the production activity. It ensures even flow of work and avoids rush orders. It maintains healthy working conditions in the plant thus, there is improve plant morale as a by-product. (vii) Good public image: A proper system of production planning and control is helpful in keeping systematized operations in an organization .Such an organization is in a position to meet its orders in time to the satisfaction of its customers. Customers satisfaction leads to increased sales, increased profits ,industrial harmony and, ultimately, good public image of the enterprise . (viii) Lower capital requirements: Under a sound system of

planning and control helps in maintaining inventory at proper levels and, thereby, minimizing investment in inventory. It requires lower inventory of work-in-progress and less finished stock to give efficient service to customers. It also helps in exercising better control over raw-material purchasing. (iv) More Effective Use of Equipment : An efficient system of inventory, which contributes to more effective

production planning and control makes for the most effective use of equipment. It provides information to the management on regular basis pertaining to the present position of all orders in process, equipment and personnel requirements for next few weeks. The

production planning and control , everything relating to production is planned well in advance of operations. Where, when and what is required in the form of input is known before the actual production process starts .Inputs are made available as per schedule which ensures even flow of production without any bottlenecks .Facilities are used more effectively and inventory levels are kept as per 34

workers can be communicated well in advance if any retrenchment, lay-offs, transfer, etc. is likely to come about. Also, unnecessary

purchases of equipment and materials can be avoided. Thus, it is

possible to ensure proper utilization of equipment and other resources. By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

schedule neither more nor less .Thus ,production planning and control helps, in minimizing capital investment in equipment and inventories. Basic Elements of PPC ( Refer Class notes also) 1. Routing Routing may be defined as the selection of path, which each part of the product will follow, which being transformed from raw material to finished products. Routing determines the most advantageous path to be followed for department to department and machine to machine till raw material gets its final shape. Factors Affecting Routing Procedure: Manufacturing type Availability of plant equipment and its component parts. Human factors.

4. Follow up Follow up which regulates the progress of materials and parts through the Production process. This closely inter elated with activities of dispatcher to whom is delegated scheduling responsibility.

Unit - III Chapter - 2 Plant 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 :-

2. Scheduling Scheduling determines the programme for the operations. Scheduling may be defined as 'the fixation of time and date for each operation' as well as it determines the sequence of operations to be followed. 3. Dispatcing Dispatching is concerned with the starting the processes. It gives necessary authority so as to start a particular work, which has been already been planned under Routing and Scheduling. Therefore, dispatching is Release of orders and instruction for the starting of production for any item in acceptance with the Route sheet and Schedule Charts

FACTORS AFFECTING THE PLANT LOCATION

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 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.

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

35

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, producers should have regular labour supply by reducing absenteeism and strikes due to unsatisfactory working conditions . 5. Power: power may be electrical, diesel and atomic energy . All

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 area 2. rural area 3. suburban area

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 . 7. Natural factors--affect the location of those industries which require a particular climate or weather conditions 8. Political factors-States with stable government attract more industries 9. Government Subsidies and Facilities- Government gives subsidies and good industrial development facilities in backward areas. Industries reach these places to reap the benefits of such facilities. 10. Miscellaneous factorsa) sufficient water supply b) Disposal of waste c) Dangers of air-attacks d) Community attitude

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. 36

e) Ecological and environment considerations etc. 10. Development of the training institutes. By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

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 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. 7. Slums and dirty residence are not found in rural areas.

LIMITATIONS OF RURAL AREA 1. Transportation facilities are not available 2. Sometimes the services of post and telegraph and means of communication are not available 3. Banking and credit facilities are also not available 4. Absence of insurance facilities 5. Storing and warehouse facilities 6. Passenger facilities are not available 7. The advantage of ancillary units and service unit is not available 8. Such units are very far from the market place and this increases the cost of distribution of finished goods 9. Skilled workers are not available 10. Municipal facilities like water supply, drainage, fire fighting are not available in rural areas 11. 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 unit 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

8. No danger of bombardment in wartime. city area which is located at a short distance, e.g. Odhav, narol, By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, 37 SRM University, Ramapuram Campus

kathawada, naroda, and vatva are the suburban areas of the ahmedabad city. Advantages of suburban area 1. Land is available at a cheaper rate 2. Adequate land is available 3. Infrastructure facilities like road, water supply, drainage etc. 4. Skilled and unskilled both type of labourers are available 5. It is possible to tap the advantage of industrial training institutes, management development programmes etc, which are available in nearby city area 6. The nearby city area provides a substantial market for the products of the unit 7. 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 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

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 dhabol 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

by roads and railway, mobility of the labour and persuasive and the development of the industrial estate to state governments. In each By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, 38 SRM University, Ramapuram Campus

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 government 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 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

location of the industries. Thus, the whole pattern of decision about the location of industries has undergone substantial changes in recent times.

organizations and the government comes in conflict on the issue of the By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

39

UNIT II Chapter - 3 Plant Layout OBJECTIVES OF A GOOD PLANT LAYOUT MEANING OF PLANT LAYOUT Plant 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 is minimized. According to MoNaughton Waynel, A good layout results in comforts, There is the proper utilization of space Waiting time of the semi-finished products is minimized. Working conditions are safer, better (well ventilated rooms etc.) and improved Material handling and transportation is minimized and efficiently controlled. The movements made by the worker are minimized. Suitable spaces are allocated to production centers. Plant maintenance is simpler. There is increased flexibility for changes in product design and for future expansion. A good layout permits material to move through the plant at the desired speed with the lowest cost There is increased productivity and better product quality with reduced capital cost. Boosting up employee morale by providing employee comforts and satisfaction. There should be no hiding-places into which goods can be mislaid.

convenience, appearance, safety and profit. A poor layout results in congestion, waste, frustration and inefficiency. According to James Moore, Plant layout is a plan of an optimum arrangement of facilities including personnel, operating equipment, storage space, material handling equipments and all other supporting services along with the design of best structure to contain all these facilities. In the words of James Lundy, It identically involves the allocation of space and the arrangement of equipment in such a manner that overall costs are minimized.

TYPES OF PLANT LAYOUT There are three basic types of plant layout: By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus 40

(1) Functional or process layout, (2) Product or line layout, (3) Stationary layout. (4) Combination Layout 1. Process or Functional Layout: It is also known as functional layout and is characterized by 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 function 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. Receiving Lathe Department Milling Department Shipping Packaging 6) 5) 4) 3) 2)

as and when required without upsetting the existing plant layout plan. Better quality product, because the supervisors and workers attend to one type of machine and operations. Variety of jobs, coming as different job orders make the work more interesting for workers. 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. Like product layout, the breakdown of one machine does not interrupt the entire production flow. 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

Surface Finishing

Assembling

inspection

Advantages of Functional or Process Layout: 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 7)

depreciate or become obsolete as rapidly as specialized machines. It results in lower

investment in machines. Under process layout, better and efficient

supervision is possible because of specialization in operation. 41

Disadvantages Functional or Process Layout: By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

i.e. machines are arranged in the sequence in which a given Automatic material handling is extremely difficult because fixed material handling equipment like conveyor belt is not possible to use. Completion of same product takes more time. Raw material has to travel larger distances for getting processed to finished food. This increases material handling and the associated costs. It is not possible to implement the group incentive schemes on the basic of quantity of the product manufactured. This type of layout requires more floor space than the product layout because a distinct department established for each operation. 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. 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. iii) ii) Operation1 operation2 operation3 operation4 operation4 Advantages of Product or line Layout : i) Automatic material handling, lesser material handling movement, times and cost. 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. 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 2. Product or line 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 iv) production is got eliminated or avoided due to proper arrangement of machine in sequence. Less in-process inventory- The semi-finished product or IN OUT 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.

work-in-progress is the minimum and negligible under this By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, 42 SRM University, Ramapuram Campus

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 of Product or line Layout: 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 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.

3. Static Product Layout or Fixed 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 By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, 43 SRM University, Ramapuram Campus

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: 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

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. 4. Group layout (or cellular layout) There is a trend now to bring an element of flexibility into manufacturing system as regards to variation in batch sizes and sequence of operations. A grouping of equipment for performing a sequence of operations on family of similar components or products has become all the important. Group technology (GT) is the analysis and comparisons of items to group them into families with similar characteristics. GT can be used to develop a hybrid between pure process layout and pure flow line (product) layout. This technique is very useful for companies that produce variety of parts in small batches to enable them to take advantage and economics of flow line layout. The application of group technology involves two basic steps; first step is to determine component families or groups. The second step in applying group technology is to arrange the plants equipment used to process a particular family of components. This represents small plants within the plants. The group technology reduces production planning time for jobs. It reduces the set-up time. 44

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 Disadvantages of Stationery Layout: 1. Higher capital investment: As compared to product or process layout, capital investment is higher in this type of

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

Thus group layout is a combination of the product layout and process layout. It combines the advantages of both layout systems. If there are m-machines and n-components, in a group layout (Group-Technology Layout), the m-machines and n-components will be divided into distinct number of machine-component cells (group) such that all the components assigned to a cell are almost processed within that cell itself. Here, the objective is to minimize the inter cell movements. Advantages of Group Technology Layout Group Technology layout can increase Component standardization and rationalization. Reliability of estimates. Effective machine operation and productivity. Customer service.

FACTORS INFLUENCING PLANT LAYOUT The following are some important factors, which influence the planning of effective layout to a significant degree. a) 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. b) 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. c) 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

It can decrease the Paper work and overall production time. Work-in-progress and work movement. Overall cost

Limitations of Group Technology Layout This type of layout may not be feasible for all situations. If the product mix is completely dissimilar, then we may not have meaningful cell formation

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. d) Nature of plant location: The size shape and topography of the site at which the plant is located will naturally affect the type of layout to be followed in view of the maximum utilization of the space available By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, 45 SRM University, Ramapuram Campus

.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: e) 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. f) 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. g) 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. h) Climate:Sometimes, temperature, illumination and air are the deciding factors

in the location of machines and their establishments. For example, in By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, 46 SRM University, Ramapuram Campus

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. i) 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, 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. j) 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. k) Human factor and working conditions:-

Men are the most important factor of production and therefore special consideration for 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. l) 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 47

Cost of labor dissatisfaction and health risks By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

 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. TOOLS AND TECHNIQUES OF PLANT LAYOUT 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. b) 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 , rearranged, combined, simplified or subdivided for greater economy. 3. Process flow diagram: The diagram is both supplement 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

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, scape 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 makes the mechanical handling possible, (iv) it provides a visual picture of proposed or existing plan of layout at one place, (v) it offers flexibility to meet future changes in the production requirements. 48

show the movement of work. It is a good technique to show long By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

(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. PRINCIPLES OF FACILITY LAYOUT 1. Principle of integration: A good layout is one that integrates men, materials, machines and supporting services and others in order to get the optimum utilisation of resources and maximum effectiveness. 2. Principle of minimum distance: This principle is concerned with the minimum travel (or movement) of man and materials. The facilities should be arranged such that, the total distance travelled by the men and materials should be minimum and as far as possible straight line movement should be preferred.

3. Principle of cubic space utilization: The good layout is one that utilise both horizontal and vertical space. It is not only enough if only the floor space is utilised optimally but the third dimension, i.e., the height is also to be utilised effectively. 4. Principle of flow: A good layout is one that makes the materials to move in forward direction towards the completion stage, i.e., there should not be any backtracking. 5. Principle of maximum flexibility: The good layout is one that can be altered without much cost and time, i.e., future requirements should be taken into account while designing the present layout. 6. Principle of safety, security and satisfaction: A good layout is one that gives due consideration to workers safety and satisfaction and safeguards the plant and machinery against fire, theft, etc. 7. Principle of minimum handling: A good layout is one that reduces the material handling to the minimum.

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

49

Unit III Chapter 4 Capacity Planning MEANING OF CAPACITY Capacity is the limiting capability of a productive unit to produce within a stated time period, normally expressed in terms of output units per unit of time.

This does not mean I am advocating a one to one relationship for higher capacity for production to costs; in fact larger units tend to cost proportionately less than smaller units. E.g. Pakistan Steel Mill at Karachi is one good example, where higher costs are misunderstood as the mills capacity is not being fully utilized d) Involves long-term commitment: Once long term commitments of resources have been taken, the difficulty of reversing would cost more. Indicating a capacity increase or decrease for an organization set up

IMPORTANCE OF CAPACITY PLANNING a) Impacts ability to meet future demands: Capacity essentially limits the rate of possible output. Having capacity to satisfy demand can allow a company of taking advantage of tremendous opportunities. An international automobile manufacturer of good repute increased its production by working on its capacity decision after its quality product received a lot more demand than it was originally anticipated. b) Affects operating costs: We already know that estimated or forecasted demand differs from actual demand, so the ideal concept of capacity matching demand is untrue. Organizations should be willing to take a critical decision to balance the cost of over and under capacity. Overcapacity reflects overkill of resources and under capacity shows a weak management philosophy to make best use of an available market. c) Acts as a major determinant of initial costs: It is typical to see that greater the capacity of a productive unit, greater would be the cost.

would mean additional costs. e) Affects competitiveness: This is very critical, if a firm has an excessive capacity or can quickly add capacity, which fact may serve as a barrier against entry by other firms. f) Affects ease of management: Capacity increase or decrease decisions involves management to answer the question of operating the organization as well as an increase or decrease in the plant capacity g) Globalization adds complexity: Capacity decision often involves making a decision in a foreign country which requires the management to know about the political, economic and cultural issues. h) Impacts long range planning: Capacity decisions extend beyond 18 months and thus get classified as long term in nature

TYPES OF CAPACITY 1. Design capacity: Designed capacity of a facility is the planned or engineered rate of output of goods or services under normal or full

scale operating conditions. For example, the designed capacity of the By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, 50 SRM University, Ramapuram Campus

cement plant is 100 TPD (Tonnes per day). Capacity of the sugar factory is 150 tons of sugarcane crushing per day. 2. System capacity: System capacity is the maximum output of the specific product or product mix the system of workers and machines is capable of producing as an integrated whole. System capacity is less than design capacity or at the most equal, because of the limitation of product mix, quality specification, breakdowns. The actual is even less because of many factors affecting the output such as actual demand, downtime absenteeism. The system capacity is less than design capacity because of long range uncontrollable factors. The actual output is still reduced because of short-term effects such as, breakdown of equipment, inefficiency of labour. The system efficiency is expressed as ratio of actual measured output to the system capacity. System Efficiency (SE) = Actual output System capacity 3. Licensed capacity: Capacity licensed by the various regulatory agencies or government authorities. This is the limitation on the output exercised by the government. 4. Installed capacity: The capacity provided at the time of installation of the plant is called installed capacity. 5. Rated capacity: Capacity based on the highest production rate established by actual trials is referred to as rated capacity. due to machine/equipment failure, unauthorized

FACTORS AFFECTING CAPACITY DECISION 1. Facilities. The design of facilities includes the size as well as the provision of expansion. Other important factors that are necessary include transportation costs, distance to market, labor supply, energy supply sources and the ease and smoothness with which work can be performed. We should also include environmental factors such as heating, lighting and ventilation which not only increase the performance of the workforce but also act as source of motivation and worker loyalty. A failure to comply with this would indicate poor design which in reality translates to lack of managerial acumen. 2. Product and service factors can have a tremendous influence on capacity. E.g. when items are similar, the ability of the system to produce those items is generally much greater than when successive items are different and unique. The idea is more uniformity in the final product service output the greater capacity. I am making a reference to a PC manufacturer in USA which decided that it would standardize its products and split its assembly lines only at the point where the a small differential product feature was required. 3. Process factors refer to the quantity and quality requirements of a process. Quantity always refers to capacity. Another added feature is quality of output. If quality of output does not match the standard requirements it would generate inspection and possible reworks. 4. Human factors include skill, craftsmanship, training and qualification to handle any job it also includes the motivational factors. 51

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

5. Operational factors with respect to effective capacity always refer to scheduling, late deliveries, acceptability of purchased materials, parts, quality inspection, control procedures and inventory problems. Scheduling issues arise when an organization has a difference in equipment capabilities for development of alternative capacities. Inventory problems have a negative impact on capacity 6. Supply chain factors relate to any short coming to suppliers, warehouse processing, operational hick up or distribution issues. 7. External factors include product standards, safety regulations, unions and pollution control standards. At times organizations have experienced shutting down of their facility if they could not provide support to government regulations of pollution control.

sometimes companys todays products may not be existing in the future. Long range capacity requirements are dependent on marketing plans, product development and lifecycle of the product. Long-term capacity planning is concerned with accommodating major changes that affect overall level of the output in long-term. Marketing environmental assessment and implementing the long-term capacity plans in a systematic manner are the major responsibilities of management. Following parameters will affect long range capacity decisions. 1. Multiple products: Companys produce more than one product using the same facilities in order to increase the profit. The manufacturing of multiple products will reduce the risk of failure. Having more than one product helps the capacity planners to do a

CAPACITY PLANNING DECISIONS AND STRATEGIES Capacity planning is concerned with defining the long-term and the short-term capacity needs of an organization and determining how those needs will be satisfied. Capacity planning decisions are taken based upon the consumer demand and this is merged with the human, material and financial resources of the organization. Capacity requirements can be evaluated from two perspectiveslongterm capacity strategies and short-term capacity strategies. 1. Long-term capacity strategies Long-term capacity requirements are more difficult to determine because the future demand and technology are uncertain. Forecasting

better job. Because products are in different stages of their life-cycles, it is easy to schedule them to get maximum capacity utilisation. 2. Phasing in capacity: In high technology industries, and in industries where technology developments are very fast, the rate of obsolescence is high. The products should be brought into the market quickly. The time to construct the facilities will be long and there is no much time as the products should be introduced into the market quickly. Here the solution is phase in capacity on modular basis. Some commitment is made for building funds and men towards facilities over a period of 35 years. This is an effective way of capitalising on technological breakthrough. 52

for five or ten years into the future is more risky and difficult. Even By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

3. Phasing out capacity: The outdated manufacturing facilities cause excessive plant closures and down time. The impact of closures is not limited to only fixed costs of plant and machinery. Thus, the phasing out here is done with humanistic way without affecting the community. The phasing out options makes alternative arrangements for men like shifting them to other jobs or to other locations, compensating the employees, etc. 2. Short-term capacity strategies Managers often use forecasts of product demand to estimate the short-term workload the facility must handle. Managers looking ahead up to 12 months, anticipate output requirements for different products, and services. Managers then compare requirements with existing capacity and then take decisions as to when the capacity adjustments are needed. For short-term periods of up to one year, fundamental capacity is fixed. Major facilities will not be changed. Many short-term adjustments for increasing or decreasing capacity are possible. The adjustments to be required depend upon the conversion process like whether it is capital intensive or labour intensive or whether product can be stored as inventory. Capital intensive processes depend on physical facilities, plant and equipment. Short-term capacity can be modified by operating these facilities more or less intensively than normal. In labour intensive processes short-term capacity can be changed by laying off or hiring

capacity also depend upon how long the product can be stored as inventory. The short-term capacity strategies are: 1. Inventories: Stock of finished goods during slack periods to meet the demand during peak period. 2. Backlog: During peak periods, the willing customers are requested to wait and their orders are fulfilled after a peak demand period. 3. Employment level (hiring or firing): Hire additional employees during peak demand period and layoff employees as demand decreases. 4. Employee training: Develop multi-skilled employees through training so that they can be rotated among different jobs. The multiskilling helps as an alternative to hiring employees. 5. Subcontracting: During peak periods, hire the capacity of other firms temporarily to make the component parts or products. 6. Process design: Change job contents by redesigning the job.

Measures of capacity: When outputs are relatively homogenous, capacity units are rather obvious. For e.g .an Auto plant uses number of autos, beer plant uses cases of beer etc. When the output units are diverse, it is common to use the measure of the availability. For e.g.- airlines use seat available i.e. seat miles as a measure instead of seats. 53

people or by giving overtime to workers. The strategies for changing By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

When different types of equipment are used for performing a wide variety of machinery operation, & the output may be unique parts. The value of the labor & material of the output could vary widely. Thus the capacity of the shop is normally stated as the capacity of the limiting resources, e.g., the labour hours.

Unit III Chapter - 5 INVENTORY CONTROL

MEANING OF INVENTORY Inventory are those stocks or items which are used to support production (raw materials and work-in-process items), supporting

Measure of capacity of different organizations

Type of Org.

Capacity Measures

activities (maintenance, repair, and operating supplies), and customer service (finished goods and spare parts).

Auto Plant Power Plant Airlines Hospital Restaurant

Number Of Autos Mw Available Seat Miles Available Bed Days Available Seat Turns

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. OBJECTIVES OF INVENTORY To ensure availability of material at all times. To minimize wastage. To Offer better service for customers. To promote manufacturing efficiency. To Control production level. To economize on purchasing. To Optimization of investment and efficient use of capital.

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

54

TYPES OF INVENTORY Raw materials and purchased parts from outside suppliers. Components: subassemblies that are awaiting final assembly. Work in process: all materials or components on the production floor in various stages of production. Finished goods: final products waiting for purchase or to be sent to customers. Supplies: all items needed but that are not part of the finished product, such as paper clips, duplicating machine toner, and tools. PURPOSES OF INVENTORY To maintain independence of operations To meet variation in product demand To allow flexibility in production scheduling To provide a safeguard for variation in raw material delivery time To take advantage of economic purchase-order size

running. Hence, inventory plays an important role in the supply chain of the organization. Following are the reasons for carrying inventory: 1. Meeting production requirement: Raw materials, components and parts are required for producing finished goods. The manufacturing organization keeps stocks of these materials to meet the requirement of production. Companies operating on JIT principle also keep some inventory in stock to meet contingencies. 2. Supporting operational requirement: To support production operations, inventories are required for repairs, maintenance and operational support. These inventories include spare parts of production machinery, consumables, like lubricants and welding rods, chemical etc. 3.Customer service considerations: Products like equipment, machinery or appliances require replacement of spare parts for trouble free and smooth operations. Suppliers maintain an inventory of these parts to extend after sales services to their valued clients. This is closely related to the level of customer service offered by the company. 4. Hedging against future expectations: To take care of shortages of material availability in the market or an anticipated increase in the prices of the product, the customer buys in excess and keeps the material in stock, in order to keep his operations running without

REASONS FOR CARRYING INVENTORY Inventory is required for producing finished goods, extending service to the customers and keeping the buyers manufacturing operation

interruptions. This obviously increases the inventory level for a short period. However the benefits derived from keeping excess inventory outweighs its carrying cost. 55

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

COSTS INVOLVED in INVENTORY a) Carrying Costs Carrying costs cover the cost incurred as a result of carrying inventory. These costs include the money tied up in inventory, the costs of storing and managing the inventory, such as warehouse costs, equipment costs, inventory management systems, personnel etc. Costs associated with the risk of damage, loss, scrap, wear and tear, and obsolescence must also be included here, along with the cost of insuring against some of these risks. b) Purchasing Costs An organization has to invest funds to buy the relevant components and raw materials in order to build up the inventory. This investment comes from savings, cash flow, or borrowings. c) Storage Costs Regardless of the type of inventory held, space will be needed to store the material. The cost of space is significant in any business, and unnecessary levels of stock should be avoided. Warehousing costs include maintenance of warehouse and equipment, the capital cost of the storage facility (for example rental), and, most significantly, the cost of labor required to manage and move materials. d) Insurance Costs

Most manufacturing organizations insure their goods against losses due to factors such as fire, flood, and theft. Therefore, the higher the value of goods in storage, the higher the insurance costs. e) Quality Costs If there are large amounts of inventory in storage and a quality problem is identified in the manufacturing process, significant costs will be incurred in unpacking, retesting, and, if necessary, reworking, and repacking the product. Moreover, by the time a problem is identified and fixed, other volumes of product are likely to have been produced with similar or different defects. The cost associated with this could be considerable. f) Cost of Obsolescence The greater the level of inventory in a process, the higher the risk that components or finished products may have to be scrapped because of obsolescence. For example, if engineering personnel decide to change a feature on a product in response to customer demands, the customers might not want the older model. An engineering change may also mean that a particular component is no longer needed for the organizations products. g) Cost of Ordering Inventory management can reduce the overall ordering costs of raw materials and components by ordering in larger quantities, which decreases the number of orders. However, the total landed cost of the item, and not just the price of the item itself, needs to be taken into account. This includes the cost of receivers who take in material, the By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, 56 SRM University, Ramapuram Campus

costs of setting up suppliers, and the cost of material planners and buyers, and any other cost associated with placing orders on either the factory or suppliers. h) Cost of Items Suppliers do offer bargains and discounts for bulk buying. However, it should be remembered that the total landed cost of the component is more important than the price of the component itself. The potential cost associated with poor quality, storage space, obsolescence, and insurance for these bargain components must be considered. i) Cost of Production Setup In many manufacturing organizations, the setup cost is considerable. This cost can be reduced by having machines processing the same material and producing the same product for longer periods of time. Frequent changeover of the stock slows production down. j)Cost of Stockouts and Lost Sales If deliveries are not made on time to customers or if products are not available on the market consistently, sales are likely to be lost. The cost of a missed sale is very difficult to calculate, but the potential of losing a customer and sales must be factored into any cost analysis. k) Cost of Assessing Inventory Most manufacturing organizations perform a physical inventory at least annually, and production activities cease during this period. Physical inventories are timeconsuming and usually require human and time resources for stock

inventories can result in counting errors and recounts. The greater the in-house inventory, the greater the resource requirement and the likelihood of error becomes. l) Capacity-Related Costs These costs result from changes to levels of manufacture. They include overtime and undertime costs, hiring, layoff and training of staff, and shift premiums. They can be avoided by levelling production and building inventory in slack periods that will be used to help meet demand in busy periods.

INVENTORY CONTROL TECHNIQUES: 1. Material Requirement Planning (MRP I) 2. Manufacturing Resource Planning (MRP II) 3. Just In-Time (JIT)

1. MATERIALS REQUIREMENT PLANNING (MRP- I) Introduction Material requirement planning is basically a planning tool, which is based on sales forecast used in the production schedule. Whether production schedule is based on historical past sales data or market forecast, it takes into account the changes in the demand for the end-products. The idea of MRP is not entirely new. It was developed in the 1970s and used before for job-lot production or custom build order.

count and discrepancy rectification. The manual nature of physical However with the advent of Computers and Information Technology By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, 57 SRM University, Ramapuram Campus

the availability of quick information and data processing is now facilitated Basically MRP performs the following five functions: 1. It keeps track of a computerised Inventory Control. 2. It manages an efficient Production Planning System. 3. Management Information system. 4. Manufacturing Control System. 5. Time-phasing of requirements using posted average lead times. The demand for the end-products is independent as also some service parts and some service parts and some other higher order assemblies sold direct to customers. Other requirements of materials, components and parts have dependent demands based on endproducts, which are quantitatively expressed in the production schedule. In MRP, safety stock at the item level disappears and the order quantity formula which assumed a fairly constant demand, with some minor fluctuations, need not be calculated for discrete demands for most of the dependant demand inventory items. The recognition of the fact that time is a more important element with respect to delivery and materials availability as per schedule rather than quantity, gives this planning tool a new meaning eliminating carrying cost altogether Materials Requirement Plan [MRP I] is a Popular concept in 1960&1970. Consists of a computer system, a manufacturing information system, and building on inventory, production scheduling

and administering all inputs to production and a concept and philosophy of management. MRP system consists of a set of logically related procedures, decision rules, and records designed to translate a master production schedule into time phased net inventory requirements and the planned coverage of such requirement for each component item needed to implement schedule. An MRP system re-plans net requirements and coverage as a result of changes in either the master schedule, demand, and inventory status or product composition. MRP systems meet their objective by computing net requirements for each inventory item, time-phasing them, and determining their proper coverage MEANING OF MRP I Material requirements planning is a Computer-based information system that translates master schedule requirements for end items into time-phased requirements for subassemblies, components, and raw materials. MRP is a systematic planning and control methodology for production and inventory. Specifically, it is a procedure for planning and controlling the raw material, purchased parts, and work in progress (WIP) inventories required in manufacturing in a product. MRP is designed to answer three questions: i. ii. iii. What is needed, How much is needed, and When is it needed? 58

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

OBJECTIVES a) Ensure the availability of materials components and products for planned production and customer delivery. b) Maintain the lowest possible inventory level. c) Plan manufacturing purchasing activities. activities, delivery schedules and

MRP I inputs The MRP I inputs are Master production schedule, bill of materials inventory status file and product structure file. a) Master production schedule (MPS) Master Production Schedule is designed to meet the market demand (both the firm orders and forecasted demand) in future in the taken planning horizon. MPS mainly depicts the detailed delivery schedule of the end products. However, orders for replacement components can also be included in it to make it more comprehensive. A Master Production Schedule or MPS is the plan that a company has developed for production, inventory, staffing, etc. It sets the quantity of each end item to be completed in each week of a shortrange planning horizon. A Master Production Schedule is the master of all schedules. It is a plan for future production of end items. Master Production schedule provide information and details of how many end items will be produces within specifies periods of time to the MRP I. b) Bill of materials (BOM) Bill of Materials represents the product structure. It encompasses information about all sub components needed, their

PROCESS OF MRP - I MRP is a simple system of calculating arithmetically the requirements of the input materials at different points of time based on actual production plan. MRP can also be defined as a planning and scheduling system to meet time-phased materials requirements for production operations. MRP always tries to meet the delivery schedule of end products as specified in the master production schedule.MRP starts with customers demand for the quantity of end product and the time when the products are needed. Then MRP explodes the time and need for components based upon the end product need. MRP process consist of two elements I.MRP I inputs II.MRP I Outputs Master Production Schedule

Bill of Materials

Materials Requirement Planning (MRP I)

Inventory Master File

quantity, and their sequence of buildup in the end product. Information about the work centers performing buildup operations is also included in it. A bill of materials (BOM) is a list of the raw materials, sub-

Planned Order Released

assemblies, intermediate assemblies, sub-components, components, Released order Order rescheduling futureRani Anandan , AP (OG) MBA Dept, By Mrs.S.Vijaya 59 SRM University, Ramapuram Campus

parts and the quantities of each needed to manufacture an end product. No physical dimension is described in BOM. Bill of materials is a record of all the components of an item, the parent component relationship and usage quantities of a particular product. The bill of material information is derived from engineering design. MRP Process get information from bill of materials record on what type of raw materials, sun-components are required to produce the required end product c) Inven tory Status Fil e Inventory status file keeps an up-to-date record of each item in the inventory. Information such as, item identification number, quantity on hand, safety stock level, quantity already allocated and the procurement lead time of each item is recorded in this file. II.MRP I ou tputs a) Planned Orders future This is the order quantity of an item that is planned to be ordered so that it is received at the beginning of the period under consideration to meet the net requirements of that period. This order has not yet been placed and will be placed in future. b) Planned Order Release This is the order quantity of an item that is planned to be ordered in the planned time period for this order that will ensure that the item is received when needed. Planned order release is determined by offsetting the planned order receipt by procurement lead time of that item.

c) Order Rescheduling This highlights the need of any expediting, de-expediting, and cancellation of open orders etc. in case of unexpected situations. Advantages of MRP I Improved business results [ROI, profits] Improved manufacturing results Better manufacturing control More accurate and timely information Less inventory Time phased ordering of materials Less materials obsolescence Higher reliability More responsiveness to market demand Reduced production costs

Disadvantages of MRP - I

Due to small lot purchases high material acquisition costs and high ordering costs

Stock out costs are more as safety stock protection is low 60

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

A limitation of software as adapting to specific situations is difficult. So modification of the software is necessary

addresses operational planning in units, financial planning in dollars, and has a simulation capability to answer "what-if" questions and extension of closed-loop MRP. Evolution of MRP II Material Requirements Planning (MRP - I) and Manufacturing

2. MANUFACTURING RESOURCE PLANNING (MRP II) MRP I is updated and expanded to include financial and marketing and logistics elements. This newer version is called Manufacturing Resources Planning or MRP II. Includes entire set of activities involved in planning and control of production. It consists of a variety of functions of modules and includes production planning, resource requirements planning, master production scheduling, materials requirement planning [MRP I], shop floor control and purchasing. Manufacturing Resource Planning, also known as MRP - II, is based on combining Material Requirement Planning (MRP) with Capacity Requirements Planning (CRP), with the additional inputs from other computer systems within the organization. MRP - II is designed to widen the range of MRP to allow financial and production planning. Meaning of MRP II Manufacturing Resource planning is the process of planning and

Resource Planning (MRPII) are predecessors of Enterprise Resource Planning (ERP), a business information integration system. The development of these manufacturing coordination and integration methods and tools made todays ERP systems possible. Both MRP - I and MRPII are still widely used, independently and as modules of more comprehensive ERP systems, but the original vision of integrated information systems as we know them today began with the development of MRP - I and MRPII in manufacturing. The vision for MRP- I and MRPII was to centralize and integrate business information in a way that would facilitate decision making for production line managers and increase the efficiency of the production line overall. In the 1980s, manufacturers developed systems for calculating the resource requirements of a production run based on sales forecasts. In order to calculate the raw materials needed to produce products and to schedule the purchase of those materials along with the machine and labor time needed, production managers recognized that they would need to use computer and software technology to manage the information. Originally, manufacturing operations built custom software programs that ran on mainframes. 61

control of activities related to materials, capacity, finance, engineering, sales and marketing. Manufacturing Resource Planning (MRP II) as a method for the effective planning of all resources of a manufacturing company. It

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

Material Requirements Planning (MRP - I) was an early iteration of the integrated information systems vision. MRP - I information systems helped managers determine the quantity and timing of raw materials purchases. Information systems that would assist managers with other parts of the manufacturing process, MRP - II, followed. While MRP - I was primarily concerned with materials, MRP- II was concerned with the integration of all aspects of the manufacturing process, including materials, finance and human relations. Benefits of MRP II 1. Inventory reductions of one fourth to one third 2. Higher inventory turn over 3. Improved consistency in on-time customer delivery 4. Reduction in purchasing costs due to less urgent purchases 5. Minimization of workforce overtime 3. JUST IN TIME - INTODUCTION In today's competitive world shorter product life cycles, customers rapid demands and quickly changing business environment is putting lot of pressures on manufacturers for quicker response and shorter cycle times. Now the manufacturers put pressures on their suppliers. One way to ensure quick turnaround is by holding inventory, but inventory costs can easily become prohibitive. A wiser approach is to make your production agile, able to adapt to changing customer demands. This can only be done by JUST IN TIME (JIT) philosophy.

JIT is both a philosophy and collection of management methods and techniques used to eliminate waste (particularly inventory). JIT applies primarily to repetitive manufacturing processes in which the same products and components are produced over and over again. The general idea is to establish flow processes (even when the facility uses a jobbing or batch process layout) by linking work centers so that there is an even, balanced flow of materials throughout the entire production process, similar to that found in an assembly line. To accomplish this, an attempt is made to reach the goals of driving all queues toward zero and achieving the ideal lot size of one unit. The goal of JIT, therefore, is to minimize the presence of non-valueadding operations and non-moving inventories in the production line. This will result in shorter throughput times, better on-time delivery performance, higher equipment utilization, lesser space requirement, lower costs, and greater profits. Another important aspect of JIT is the use of a 'pull ' system to move inventories through the production line. Under such a system, the requirements of the next station are what modulate the production of a particular station. It is therefore necessary under JIT to define a process by which the pulling of lots from one station to the next is facilitated. Meaning of JIT Just-in-time (JIT) is a management philosophy that strives to eliminate sources of such manufacturing waste by producing the right

part in the right place at the right time. The Waste results from any By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, 62 SRM University, Ramapuram Campus

activity that adds cost without adding value, such as moving and storing. JIT (also known as lean production or stockless production) should improve profits and return on investment by reducing inventory levels (increasing the inventory turnover rate), reducing variability, improving product quality, reducing production and delivery lead times, and reducing other costs (such as those associated with machine setup and equipment breakdown). History of JIT The technique was first used by the Ford Motor Company as described explicitly by Henry Ford's My Life and Work (1922): "We have found in buying materials that it is not worthwhile to buy for other than immediate needs. They bought only enough to fit into the plan of production, taking into consideration the state of transportation at the time. If transportation were perfect and an even flow of materials could be assured, it would not be necessary to carry any stock whatsoever. The carloads of raw materials would arrive on schedule and in the planned order and amounts, and go from the railway cars into production. That would save a great deal of money, for it would give a very rapid turnover and thus decrease the amount of money tied up in materials. With bad transportation one has to carry larger stocks. They followed the concept of "dock to factory floor" in which incoming materials are not even stored or warehoused before going into production. This paragraph also shows the need for an effective freight management system (FMS) and Ford's Today and Tomorrow (1926) describes one.

The technique was subsequently adopted and publicised by Toyota Motor Corporation of Japan as part of its Toyota Production System (TPS). Japanese corporations could afford large amounts of land to warehouse finished products and parts. Before the1950s, this was thought to be a disadvantage because it reduced the economic lot size. (An economic lot size is the number of identical products that should be produced, given the cost of changing the production process over to another product.) The undesirable result was poor return on investment for a factory. Also at that time, Japanese companies had a bad reputation as far as quality of manufacturing and car manufacturing in particular was concerned. One motivated reason for developing JIT and some other better production techniques was that after World War II, Japanese people had a very strong incentive to develop a good manufacturing technique which would help them rebuild their economy. They also had a strong working ethic which was concentrated on work rather than on leisure, and this kind of motivation was what drove Japanese economy to succeed. Therefore Japans wish to improve the quality of its production led to the worldwide launch of JIT method of inventory. Toyota Motors The basic elements of JIT were developed by Toyota in the 1950's, and became known as the Toyota Production System (TPS).The chief engineer Taiichi Ohno, a former shop manager and eventually vice president of Toyota Motor Company at Toyota in

the1950s examined accounting assumptions and realized that another By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, 63 SRM University, Ramapuram Campus

method was possible. The factory could be made more flexible, reducing the overhead costs of retooling and reducing the economic lot size to the available warehouse space. Over a period of several years, Toyota engineers redesigned car models for commonality of tooling for such production processes as paint-spraying and welding. Toyota was one of the first to apply flexible robotic systems for these tasks. Some of the changes were as simple as standardizing the whole sizes used to hang parts on hooks. The number and types of fasteners were reduced in order to standardize assembly steps and tools. In some cases, identical subassemblies could be used in several models. Toyota engineers then determined that the remaining critical bottleneck in the retooling process was the time required to change the stamping dies used for body parts. These were adjusted by hand, using crowbars and wrenches. It sometimes took as long as several days to install a large (multiton) die set and adjust it for acceptable quality. Further, these were usually installed one at a time by a team of experts, so that the line was down for several weeks. Toyota implemented a program called Single Minute Exchange of Die (SMED). With very simple fixtures, measurements were substituted for adjustments. Almost immediately, die change times fell to about half an hour. At the same time, quality of the stampings became controlled by a written recipe, reducing the skill required for the change. Analysis showed that the remaining time was used to search

new die in place with the line in operation) and dedicated tool-racks reduced the die-change times to as little as 40 seconds. Dies were changed in a ripple through the factor flowing. After SMED, economic lot sizes fell to as little as one vehicle in some Toyota plants. Carrying the process into parts-storage made it possible to store as little as one part in each assembly station. When a part disappeared, that was used as a signal to produce or order a replacement. JIT was firmly in place in numerous Japanese plants by the early 1970's. JIT began to be adopted in the U.S. in the 1980's. as a new product began

Objectives of JIT Increasing the organizations ability to compete with others and remain competitive over the long run. The competitiveness of the firms is increased by the use of JIT manufacturing process as they can develop a more optimal process for their firms. Increasing efficiency within the production process. Efficiency is obtained through the increase of productivity and decrease of cost. Reducing wasted materials, time and effort. It can help to reduce the costs.

for hand tools and move dies. Procedural changes (such as moving the By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

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 Identify and response to consumers needs. Customers needs and wants seem to be the major focus for business now, this objective will help the firm on what is demanded from customers, and what is required of production. Optimal quality/cost relationship. The organization should focus on zero- defect production process. Although it seems to be unrealistic, in the long run, it will eliminate a huge amount of resources and effort in inspecting, reworking and the production of defected goods. Reduce unwanted wastes. Wastes that do not add value to the products itself should be eliminated. Develop a reliable relationship between the suppliers. A good and long- term relationship between organization and its suppliers helps to manage a more efficient process in inventory management, material management and delivery system. It will also assure that the supply is stable and available when needed. Plant design for maximizing efficiency. The design of plant is essential in terms of manufacturing efficiency and utility of resources Adopt the work ethnic of Japanese workers for continuous improvement. Commit a long-term continuous improvement iii. ii.

throughout the organization. It will help the organization to remain competitive in the long run. Elements of JIT According to Cheng, the basic elements of JIT manufacturing are: a) People Involvement b) Plants c) System a) People Involvement Maintaining a good support and agreement from people involved in production. This is not only reduce the time and effort in implementation of JIT, but also minimize the chance of creating implementation problem. The attempt to maximize peoples

involvement may carry through the introduction of quality circle and total involvement concept. Manufacturers can gain support from 4 sources. i. Stockholders and owners of the company - should maintain a good long-term relationship among them. Labor organization - all labors should be well-informed about the goals of JIT, this is crucial in gaining support from them. Management support - support from all level of management. The ideas of continuous improvement should spread all over the factory, managers and all shop-floor labor.

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iv.

Government support - government can show their support by extending tax and other financial help. This can enhance the motivation, and also help in financing the implementation of JIT

v.

Continuous improvement - this concept should be adopted by every members in the organization in order to carry out JIT. This is the most important concept of JIT. This can allow an organization to improve its productivity, service, operation and even customer satisfaction in an on- going basis.

b) Plants Certain requirements are needed to implement JIT, there are: i. Plant layout - the plant layout is mainly focus on maximizing working flexibility. It requires the use of "multi-function workers". ii. Demand pull production - it means to produce when the order is received. This can manage the quantity and time more appropriately. iii. Kanban - a Japanese term for card or tag. Special inventory and process information are written on the card. This helps tying and linking the process more efficiently. There are two types of kanban card system a) production card (P card) and b) Move card (M-card). iv. Self-inspection - it is carried out by the workers at catch mistakes immediately.

c) System This refers to the technology and process that combines the different processes and activities together. Two major types are i. ii. MRP- I (Material Requirement Planning) and MRP II (Manufacturing Resource Planning).

MRP- I is a computer-based, bottom-up manufacturing approach. This involves two plans, production plan and master production schedule. Production plan involves the management and planning of resources through the available capacity. Master production schedule involves what products to be produced in what time. MRP II is mainly involved the management or planning of financial resources in order to carry out the operation. Advantages of JIT a) Increasing the organizations ability to compete with others and remain competitive over the long run is very important. b) The competitiveness of the firms is increased by the use of JIT manufacturing process as they can develop a more optimal

process for their firms. By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

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c) The key is to identify and respond to consumers needs. Customers needs and wants should be the most important focus for business today. This objective will help the firm on what is demanded from customers, and what is required of production. d) Moreover, the optimal quality and cost relationship is also important. The organization should focus on zero-defect production process. Although it seems to be unrealistic in the long run, it will eliminate a huge amount of resources and effort in inspecting, and reworking defected goods. e) Another important goal should be to develop a reliable relationship between the suppliers. A good and long-term relationship between an organization and its suppliers helps to manage a more efficient process in inventory management, material management, and delivery system. It will also assure that the supply is stable and available when needed. f) Moreover, adopt the idea of continuous improvement. If committed to a long-term continuous improvement idea, it will help the organization to remain competitive in the future Disadvantages of JIT a) There is little room for mistakes as minimal stock is kept for re-working faulty product

b) Production is very reliant on suppliers and if stock is not delivered on time, the whole production schedule can be delayed c) There is no spare finished product available to meet unexpected orders, because all product is made to meet actual orders however, JIT is a very responsive method of production SELECTIVE INVENTORY CONTROL TECHNIQUES For facilitation of procurement, consumption and costing, the materials are classified in several ways discussed below. a) ABC Analysis To make investment on working capital effective, ideally the amount logged in each item of inventory should be analyzed. However, with large amounts of such items and their speedy turnover, detailed analysis is not easily possible. ABC analysis is based on the assumption that 20% of all items held on inventory share 80% of its total cost. Group A consists of top 5 to 10% items which constitute 70 to 75% of total inventory cost. Group B constitutes the middle 10 to 15% items and represent 10 to 15% of cost. Group C constitutes the remaining 75 to 85 % items costing 5 67

to 10% of the total inventory. By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

The managements concern for these items follow Thick on the best and thin on the rest focus the attention on the care, use and disposal of the costliest few items and let the smaller value lot be bought and stocked in plenty. Thus money locked is minimum and purchase processing cost is minimized. This system was so popular that the ABC System was once called Always Best Control. However with automated inventories its use is gradually reducing. b) VED Analysis This system adds a new dimension to ABC analysis. The materials are classified into Vital (like Head in a human being), Essential (like arms) and Desirable (like hair). To cater for those items which can bring the normal functioning of a factory to a standstill? EG. Critical machine spares or items in limited production. c) VEIN Analysis In this system four classes. Vital, Essential, Important and Normal are used for classification. This classification may be combined with VED or ABC Analysis to give a set of 12 strategies for the type of material to be handled by an organization. d) XYZ Classification This is based on value of items in storage and used to review the inventories and their uses at scheduled interval. It helps in reduction and control of obsolescence of inventories. e) FSN Classification This classification is based on consumption pattern; items are classified into Fast, Slow and Non moving items.

f) SDE Classification This classification is based on Lead Time analysis for procurement or purchasing. The items are classified into Scarce, Difficult or Easy to procure. g) GOLF Classification This is based on the supply resources and for formulating strategy for procurement, items are classified into Government controlled, ordinarily available in open market, Local and Foreign items. h) S OS Classification This classification is based on seasonal or non seasonal availability of items. Items are classified as Seasonal and Off Seasonal. i) HML Classification This classification is based on the individual costs. Items are classified into High, Medium or Low cost items. INVENTORY MODELS Inventory models deal with idle resources like men, machines, money and materials. These models are concerned with two decisions: how much to order and when to order so as to minimize the total cost. For the first decisionhow much to order, there are two basic costs are considered namely, inventory carrying costs and the ordering or acquisition costs. I. ECONOMIC ORDER QUANTITY (EOQ) Economic order quantity (EOQ) is that size of the order which gives

maximum economy in purchasing any material and ultimately By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, 68 SRM University, Ramapuram Campus

contributes towards maintaining the materials at the optimum level and at the minimum cost. In other words, the economic order quantity (EOQ) is the amount of inventory to be ordered at one time for purposes of minimizing annual inventory cost. The quantity to order at a given time must be determined by balancing two factors: (1) The cost of possessing or carrying materials and (2) The cost of acquiring or ordering materials. Purchasing larger quantities may decrease the unit cost of acquisition, but this saving may not be more than offset by the cost of carrying materials in stock for a longer period of time. Formula of Economic Order Quantity (EOQ)

company. What advice you offer and how much would it save the company per year?

Solution: D = 9000 parts per year Co = Rs. 15 per order Cc = 15% of average inventory per year = Rs. 20 0.15 = Rs. 3 per each part per year

EOQ= 2*Co*D Cc

EOQ= 2*Co*D Cc D= Annual Demand Co= ordering cost or Cost of Order Cc= Carrying Cost Example: A manufacturing company purchase 9000 parts of a machine for its annual requirements ordering for month usage at a time, each part costs Rs. 20. The ordering cost per order is Rs. 15 and carrying charges are 15% of the purchase price per unit per year. You have
1) Constant or uniform demand: Although the EOQ model assumes

EOQ= 2*15*9000 3 EOQ= 300 units Assumptions of EOQ Model:

constant demand, demand may vary from day to day. It also assumes that the usage rate can be predicted exactly. If demand is not known in 69

been assigned to suggest a more economical purchase policy for the By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

advance the model must be modified through the inclusion of safety stock. 2) Constant unit price: The EOQ model assumes that the purchase price per unit of material will remain unaltered irrespective of the order quantity. It also assumes a constant cost throughout the year. It does not take into account the quantity discounts offered. 3) Constant carrying costs: Unit carrying costs may vary substantially as the size of the inventory rises, perhaps decreasing because of economies of scale of storage. This is not taken into consideration in EOQ. Same is the case with economy of transporting larger volumes. It is also assumed that this cost can be determined precisely. 4) Constant ordering cost: EOQ assumes that ordering cost are constant and can be determined precisely. 5) Instantaneous Delivery: it is assumed that the delivery of goods is instantaneous, and further that there is no goods in transit. 6) Independent Orders: if multiple orders result in cost saving by reducing paper work and the transportation cost, the original EOQ model must be further modified. Thus, the EOQ model does not take into aacount multiple products orders. 7) Availability of Finance: it is also assumed that there is no constraint in the availability of funds.

1. Erratic Changes usage: the formula presumes the usages of materials are both predictable and evenly distributed. When this is not the case, the formula becomes useless. 2. Faulty Basic Information: Order cost varies from commodity to commodity and the carrying cost can vary with companys opportunity cost of capital. Thus the assumption that the ordering cost and the carrying cost remains constant is faulty and hence EOQ calculations are not correct 3. Costly Calculations: the calculation required to find out EOQ is extremely time consuming. More elaborate formula is more expensive. In many cases, the cost of estimating eth cost of ordering and carrying and calculating EOQ exceeds the savings made by buying that quantity. 4. No formula is a substitute for a common sense: sometimes the EROQ may suggest that we order a particular commodity every week based on the assumption that we need it at eth same rate for the next one year. However we have to order iot in eth quantities according to our judgment. Some items can be ordered every week; some can be ordered monthly, depends on how feasible it is for eth firm. Further the model does not work well in case of seasonal items. 5. EOQ ordering must be used by Judgment: sometimes

guidelines provide a conflict in ordering where an order strategy Limitation of the EOQ Formula: conflicts with an operational goal, order strategy should be changed to permit honoring the goal. By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus 70

6. Quantity Discounts: in the EOQ analysis, it has been assumed that material prices and transportation costs are constant factor for the range of order quantities considered. In practice some situations occur in which the delivered unit cost of material decreases significantly if a slightly larger quantity than the originally computed EOQ is purchased. Quantity discounts, freight rate schedules and price increases may create such situations.

Preferable for consumption value items. Appropriate for widely different types of inventory within the same firm.

Most suitable when inventory carrying cost is measurable and significant.

Automatic generation of replenishment order at the appropriate time by the comparison of stock level against re-order level.

METHODS OF EOQ MODELS

1. Fixed order quantity system or Q system 2. Periodic Review system or P system

Somewhat more responsive to fluctuations in demand.

I. Fixed order quantity system or Q - system In this system, the order quantity is fixed and the frequency of ordering varies and is determined by the fluctuations in demand. In such a system four quantities serve as critical decision rules: (1) Maximum inventory which are the most items ever to be stocked. (2) Minimum inventory which is the safety reserve below which should not fall (3)The reorder point that the level of inventory at which a replenishment order should be placed is calculated by the formula: Reorder point = Average usage rate x Lead time .The order size: Usually the replenishment order quantity is invariably the E.O.Q Advantages Simple cheap to operate and reliable.

Disadvantages Many times may reach reorder level at the same time, thus overloading the reordering system. There are no records of stock level and usage rates data. It does not lend itself to ordering more items simultaneously from the same source. The drawback could be set off by classifying as slow-moving . fast- moving, etc., and to make it easier, to group such items of each category according to supplier wherever possible. 2. Periodic review inventory system or P system This system has a fixed ordering interval but the size of order quantity may vary with the functions in demand. This system is

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

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specified for any item by: Review period and requisitioning objective or replenishment level (ROL) Advantages The inventory being reviewed at periodic intervals, therefore there is no flexibility in the order time. Thus the fluctuation in demand is taken care of by the safety stock. All stock items are reviewed periodically so that there is more chance of obsolete items being eliminated. It is preferable whenever inventory carrying cost is meaningless. Larger quantity discounts may be obtained when a range of stock items are ordered at same time from a supplier. The ordering inventory costs are low. The suppliers also give better price discounts since the sale is guaranteed. The service i.e., keeping to delivery schedule, is better since suppliers known to your requirements in advance and can plan for it. Because orders will always be in the same sequence, there may be production economics due to more efficient production planning and lower set-up costs. Disadvantages

This system requires more inventory on hand, for a given frequency or shortage, as compares to the fixed order inventory system.

Less responsive to changes in consumption. If the rate of usage changes shortly after a review, a stock out may well occur before the next review.

Unless demands are reasonably consistent, it is difficult to set appropriate periods for review.

It requires additional labor to review items of stock at items other than when receipts and issues are being posted.

Difference between Q- system and P - system Q- SYSTEM the stock level. The moment the stock checked P - SYSTEM at fixed regular

1) There is continuous surveillance of Normally, the stock level is

in hand touches ROL, order equal to interval and the order is placed EOQ, is placed. for a quantity to replenish to the maximum pre determined level. 2)The average inventory is less The average inventory level is compared to P system expected to be more compared to Q system.

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

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3) The probability of stock out is low. The probability of stock out It is more sensitive to the demand could be higher .It is not fluctuations promptly to and any can respond sensitive to unanticipated

These principal assumptions are: The demand (D) is known and constant within a certain period of time The unit cost of the inventory item (U) is constant The annual holding-cost per unit (Ch) is constant The setup-cost per batch (C) is constant The production time (tp) is known and constant We are dealing with one kind of product There is no interaction with other products The aspect of time does not play a role, just the setup time does The setup cost is constant and does not act upon the batch quantity.

unanticipated demand behaviors

demand behaviors. 4) The order quantity is fixed but the The review period is fixed but review period is variable 5) The order quantity is variable

safety stock se at level to The safety stock is required to

guard against demand fluctuations cater the demand fluctuation during the replenishment period lead during the replenishment lead time time plus the review period therefore higher stock levels are required

II. Economic Batch Quantity (EBQ) Economic batch quantity (EBQ), also called "optimal batch quantity" or economic production quantity, is a measure used to determine the quantity of units that can be produced at minimum average costs in a given batch or production run. Economic Production Quantity model (also known as the EPQ model) is an extension of the Economic Order Quantity model. The Economic Batch Quantity model, or production lot-size model, is similar to the EOQ model in that we are attempting to calculate an optimum for the batch quantity we have to produce.

Formula

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

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UNIT IV CHAPTER 1 QUALITY CONTROL

that quality is actually produced

maintenance keeps

equipment

capable of producing the requisite quality and so on. The slogan, Quality is everyones job is really true. In order to produce quality products everyone should be in on the act. Quality

MEANING OF QUALITY C. D. Lewis defined quality as the degree to which product satisfies a particular class of consumers the distinguishing feature etc. a specific

assurance is designed to maintain reliability of the entire productive system to do what it was designed to do.

or consumers in The following are the typical quality measures of the output of the productive systems: -

general or the degree to which it confirms to a design specification or of a products taste, colour, appearance

Product quality has entered the consciousness of the managers with a vengeance. It has become crystal clear that high quality products

TYPE OF SYSTEM Manufacturing

MEASURE OF OUTPUT

Dimensions, tolerances on dimensions, chemical co surface finish, performance tests

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. Medical service Postal service

False positive diagnosis, false negative diagnosis

Waiting time at post office, errors in delivery, overa time.

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

Banks

Waiting time at windows, clerical errors

Produce what consumer wants Product quality is what is perfect from customers point of view. There is no point in making chemically pure salt for the consumer 74

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 By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

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

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.

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 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 Aspects of quality product and service. Departments and branches in the same organization also feel proud 1. Quality of design 2. Quality of conformance 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 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, profits and goodwill in the long run. Quality is the only tool to compete in todays world. Quality product manufacturers attract highly skilled and professional people. customers purchasing power becomes the upper limit for customers willingness to pay. Hence best quality for a customer is best product at the price he can sacrifice.

knowledge and skill of design, personnel employed etc. . Quality of design is the fundamental requisite.

Cost of poor quality 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 Reduction in sales, thus reduction in profits. Re-establishment of goodwill lost due to poor quality is difficult and time consuming. 75

conformance; it cannot go beyond quality laid down by design. Design

itself should consider the type of manpower available and the Cost of rework of the defectives. By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

 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 sub- standard 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.

UNIT IV CHAPTER - 2 WORK STUDY

MEANING AND DEFINITION OF WORK STUDY According to the ILO, Work Study is a term used to embrace the techniques of method study and work measurement, which are employed to ensure the best possible use of human and material resources in carrying out a specified activity. According to British Standards Institute, Work study is generic term for those techniques, particularly method study and work measurement which are used in the examination of human work in all its contexts and which lead systematically to the investigation of all factors which affect the efficiency and economy of the situation being renewed, in order to effect improvement.

NOTE: Refer Text book and class notes for Statistical Quality Control (SQC) Techniques of SQC OC curve

OBJECTIVES OF WORK STUDY Provide more and improved physical means to motivate the workers. Improve the basic process by research and development. Improve the methods of operation. Simplify and improve the product and reduce the variety, i.e. standardize the product. Improve organization, product planning and control. By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

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 Improve manpower efficiency at all levels. STEPS INVOLVED IN WORK STUDY There are eight basic steps involved in a work study procedure. Some of them are common to both method study and work measurement. These steps are: 1) Select: The job or the process or the operation to be studied. 2)Record : All relevant facts about the job or process or operation using suitable charting techniques such as operation process chart, flow process chart, flow diagram, SIMO chart (simultaneous motion chart) and man-machine chart. 3) Examine: Critically all the recorded facts, questioning the purpose, place, sequence, person and the means of doing the

whichis the assessment of the time, which a job should take. Both are carried out systematically and follow very similar patterns. Work study

Method Study

Work Measurement

METHOD STUDY

Meaning and definition of Method Study Work methods analysis or Method study is a scientific technique of observing recording and critically examining the present method of performing a task or job or operation with the aim of improving the present method and developing a new and cheaper method. It is also known as methods improvement or work improvement. It

job/process/operation. 4) Develop: The new method for the job/process/operation. 5)Measure: The work content and establish the standard time using an appropriate work-measurement technique, viz., time study using stop watch, synthesis method, analytical estimating method, pre-determined motion time system and work sampling. 6) Define: The new method for the job/process/operation. 7) Install: The new method as standard practice 8) Maintain: The new method for the job/process/operation. TECHNIQUES OF WORK STUDY Work-study has two closely related facets: method study, an examination of the ways of doing work, and work measurement,

encompasses the study of work processes, working conditions and equipments and tools used to carry out the job. According to British Standard Institute, Method Study may be understood as the systematic recording and critical examination of existing and proposed ways of doing work, as a means of developing and applying easier and more effective method and reducing costs

Objectives of Method Study 77

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

1) To study the existing / proposed method of doing any job, operation or activity. 2) To develop an improved method to improve productivity and to reduce operating costs 3) To reduce excessive materials handling or movement and thereby reduce fatigue of workmen 4) To improve utilization of resources. 5) To eliminate wasteful and inefficient motions. 6) To standardize work methods or processes, working conditions, machinery, equipments and as tools

d) Multiple activity chart/Man-machine charts e) Simultaneous motion chart (SIMO Chart) ii) Diagrams such as a) Flow diagram b) String diagram c) Cycle graph d) Chronocycle graph 3) Examine : The recorded facts critically, challenging everything being done and seeking alternatives, questioning the purpose (What is achieved?), the means (How is it achieved?), sequence (When is it achieved?), place (Where is it achieved?), and the person (Who achieves it?). a) What is done? What is the purpose of the operation? Why should it be done? What would happen if it were not done? Is every part of the operation necessary? b) Who does the work? Why does this person do it ? Who could do it better? Can changes be made to permit a person with less skill and training to do the work? c) Where is the work done? Why is it done there? Could it be done somewhere else more economically? d) When is the work done? Why should it be done then? Would it be better to do it at some other time?

Steps involved in Method Study or Method study procedure The various steps involved in method study are as follows: 1) Select: The work or job to be studied and define the objectives to be achieved by method study. The job selected to have maximum economic advantage, shall offer vast scope for work improvement through reduction of excessive materials handling and fatigue of workmen, offer scope for improving the working conditions and improving the utilizations of resources. 2) Record: All the relevant facts or information pertaining to the existing method using the recording techniques such as: i) Process charts a) Outline (operation) process chart / operation process chart b) Flow process chart-material type, man-type and machine type / equipment type. c ) Two handed process chart

e) How is the work done? Why is it done this way By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

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4) Develop: The improved method by generating several alternatives and selecting the best method. The factors to be considered while evaluating alternatives and selecting the best method are: i) Cost of implementation ii) Expected savings in time and cost. iii) Feasibility iv) Reducibility v) Acceptance to design, production planning and control, quality control, production and sales departments. vi) Reaction of employees to the new method. vii) Short term or long term implication of the alternative. Establish the new method by providing suitable equipment design, mechanical aids, jigs and fixtures, tools, working conditions, material handling equipments, workplace layout and work, planning and control techniques. 5) Install: The improved (new) method in three phases planning, arranging and implementing phases. In the first two phases, the programmes of installation and a schedule (i.e. time table) are planned and necessary requirements such as resources, equipments, tools, operating instructions to workers are provided. The implementation phase involves the introduction of the developed method as standard practice to achieve the desired results. 6) Maintain: The new method by ensuring that the installed method is functioning well. This is done by periodic checks and verifications at

new method is practiced to achieve the benefits of methods study and also to achieve higher productivity

WORK MEASUREMENT Work measurement is also called by the name time study. Work measurement is absolutely essential for both the planning and control of operations. Without measurement data, we cannot determine the capacity of facilities or it is not possible to quote delivery dates or costs. We are not in a position to determine the rate of production and also labour utilisation and efficiency. It may not be possible to introduce incentive schemes and standard costs for budget control. Objectives of Work Measurement 1. Comparing alternative methods. 2. Assessing the correct initial manning (manpower requirement planning). 3. Planning and control. 4. Realistic costing. 5. Financial incentive schemes. 6. Delivery date of goods. 7. Cost reduction and cost control. 8. Identifying substandard workers. 9. Training new employees.

Techniques of Work Measurement regular intervals. Proper control procedures are used to ensure that the By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

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Various techniques of work measurement are: 1. Time study: A work measurement technique for recording the times and rates of working for the elements of a specified job carried out under specified conditions and for analysing the data so as to determine the time necessary for carrying out the job at the defined level of performance. In other words measuring the time through stop watch is called time study. 2. Synthetic data: A work measurement technique for building up the time for a job or pans of the job at a defined level of performance by totaling element times obtained previously from time studies on other jobs containing the elements concerned or from synthetic data. 3. Work sampling: A technique in which a large number of observations are made over a period of time of one or group of machines, processes or workers. Each observation records what is happening at that instant and the percentage of observations recorded for a particular activity, or delay, is a measure of the percentage of time during which that activities delay occurs. 4. Predetermined motion time study (PMTS): A work measurement technique whereby times established for basic human motions (classified according to the nature of the motion and conditions under which it is made) are used to build up the time for a job at the defined level of performance. The most commonly used PMTS is known as Methods Time Measurement (MTM). 5. Analytical estimating: A work measurement technique, being a

elements of a job at a defined level of performance is estimated partly from knowledge and practical experience of the elements concerned and partly from synthetic data. STANDARD TIME Standard time is the time allowed to an operator to carry out the specified task under specified conditions and defined level of performance. Standard time may be defined as the, amount of time required to complete a unit of work: (a) Under existing working conditions, (b) Using the specified method and machinery (c) By an operator, able to the work in a proper manner, and (d) at a standard pace. Thus basic constituents of standard time are: 1. Elemental (observed time). 2. Performance rating to compensate for difference in pace of working. 3. Relaxation allowance. 4. Interference and contingency allowance. 5. Policy allowance

development of estimating, whereby the time required to carry out By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

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objectives), and responsibilities and implement them by means such as maintenance planning, maintenance control and supervision, and several improving methods including economical aspects in the UNIT V CHAPTER 1 MAINTENANCE MANAGEMENT organization. OBJECTIVES OF MAINTENANCE MANAGEMENT To achieve minimum breakdown and to keep the plant in good working condition at the lowest possible cost. To keep the machines and other facilities in such a condition MEANING AND DEFINITION OF MAINTENANCE that permits them to be used at their optimal capacity without interruption. To ensure the availability of the machines, buildings and services required by other sections of the factory for the performance of their functions at optimal return on investment TYPES OF MAINTENANCE The design life of most equipment requires periodic maintenance. Belts need adjustment, alignment needs to be maintained, proper lubrication on rotating equipment is required, and so on. In some cases, certain components need replacement,e.g., a wheel bearing on a motor vehicle, to ensure the main piece of equipment (in this case a car) last for its design life. Different approaches have been developed to know how maintenance can be performed to ensure equipment reaches or exceeds its design life. In addition to waiting for a piece of equipment to fail (reactive maintenance) the other approaches are preventive 81 MANAGEMENT Maintenance encompasses all those activities that maintain facilities & activities equipment in good working order so that a system can perform as intended. Maintenance can also be termed as asset management system which keeps them in optimum operating condition. Maintenance is defined as the combination of all technical, administrative and managerial actions during the life cycle of an item intended to retain it in, or restore it to, a state in which it can perform the required function (function or a combination of functions of an item which are considered necessary to provide a given service). All the activities of the management that determine the maintenance objectives or priorities (defined as targets assigned and accepted by the management and maintenance department), strategies (defined as a management method in order to achieve maintenance

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

maintenance, maintenance.

predictive

maintenance,

or

reliability

centered

2. Labour intensive. 3. Includes performance of unneeded maintenance. 4. Potential for incidental damage to components in conducting unneeded maintenance. Depending on the facilities current maintenance practices, present equipment reliability, and facility downtime, there is little doubt that many facilities purely reliant on reactive maintenance could save much more than 18% by instituting a proper preventive maintenance program. While preventive maintenance is not the optimum maintenance program, it does have several advantages over that of a purely reactive program. By performing the preventive maintenance as the equipment designer envisioned, we will extend the life of the equipment closer to design. This translates into dollar savings. Preventive maintenance (lubrication, filter change, etc.) will generally run the equipment more efficiently resulting in dollar savings. While we will not prevent equipment catastrophic failures, we will decrease the number of failures. Minimizing failures translate into maintenance and capital cost savings. 2. Breakdown (Reactive) Maintenance Breakdown maintenance is basically the run it till it breaks maintenance mode. No actions or efforts are taken to maintain the equipment as the designer originally intended to ensure design life is reached. Studies as recent indicate that, this is still the predominant

1. Preventive Maintenance Preventive maintenance can be defined as,Actions performed on a time or machine-run-based schedule that detect, preclude, or mitigate degradation of a component or system with the aim of sustaining or extending its useful life through controlling degradation to an acceptable level. Preventive maintenance is a means to increase the reliability of their equipment. By simply expending the necessary resources to conduct maintenance activities intended by the equipment designer, equipment life is extended and its reliability is increased. In addition to an increase in reliability, lot of amount will be saved over that of a program just using reactive maintenance. Studies indicate that this savings can amount to as much as 12% to 18% on the average. Advantages 1. Cost effective in many capital intensive processes. 2. Flexibility allows for the adjustment of maintenance periodicity. 3. Increased component life cycle. 4. Energy savings. 5. Reduced equipment or process failure. 6. Estimated 12% to 18% cost savings over reactive maintenance program. Disadvantages 1. Catastrophic failures still likely to occur.

mode of maintenance. By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

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Advantages to breakdown maintenance can be viewed as a doubleedged sword. If we are dealing with new equipment, we can expect minimal incidents of failure. If our maintenance program is purely reactive, we will not expend manpower or incur capital cost until something breaks. Since we do not see any associated maintenance cost, we could view this period as saving money. In reality, during the time we believe we are saving maintenance and capital cost, we are really spending more money than we would have under a different maintenance approach. We are spending more money associated with capital cost because, while waiting for the equipment to break, we are shortening the life of the equipment resulting in more frequent replacement. We may incur cost upon failure of the primary device associated with its failure causing the failure of a secondary device. This is an increased cost we would not have experienced if our maintenance program was more proactive. Our labour cost associated with repair will probably be higher than normal because the failure will most likely require more extensive repairs than would have been required if the piece of equipment had not been run to failure. Chances are the piece of equipment will fail during off hours or close to the end of the normal workday. If it is a critical piece of equipment that needs to be back on-line quickly, we will have to pay maintenance overtime cost. Since we expect to run equipment to failure, we will require a large material inventory of repair parts. This is a cost we could minimize under a different maintenance strategy.

Advantages 1. Involves low cost investment for maintenance. 2. Less staff is required. Disadvantages 1. Increased cost due to unplanned downtime of equipment. 2. Increased labour cost, especially if overtime is needed. 3. Cost involved with repair or replacement of equipment. 4. Possible secondary equipment or process damage from equipment failure. 5. Inefficient use of staff resources. 3. Predictive Maintenance Predictive maintenance can be defined asMeasurements that detect the onset of a degradation mechanism, thereby allowing causal stressors to be eliminated or controlled prior to any significant deterioration in the component physical state. Results indicate current and future functional capability. Basically, predictive maintenance differs from preventive

maintenance by basing maintenance need on the actual condition of the machine rather than on some preset schedule. Preventive maintenance is time-based. Activities such as changing lubricant are based on time, like calendar time or equipment run time. For example, most people change the oil in their vehicles every 3,000 to 5,000 miles travelled. This is effectively basing the oil change needs on equipment run time. No concern is given to the actual condition and performance capability of the oil. It is changed

because it is time. This methodology would be analogous to a preventive By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, 83 SRM University, Ramapuram Campus

maintenance task. If, on the other hand, the operator of the car discounted the vehicle run time and had the oil analyzed at some periodicity to determine its actual condition and lubrication properties, he may be able to extend the oil change until the vehicle had travelled 10,000 miles. This is the fundamental difference between predictive maintenance and preventive maintenance, whereby predictive maintenance is used to define needed maintenance task based on quantified material/equipment condition. There are many advantages of predictive maintenance. A wellorchestrated predictive maintenance program will eliminate catastrophic equipment failures. Schedule of maintenance activities can be made to minimize or delete overtime cost. It is possible to minimize inventory and order parts, as required, well ahead of time to support the downstream maintenance needs and optimize the operation of the equipment, saving energy cost and increasing plant reliability. Past studies have estimated that a properly functioning predictive maintenance program can provide a savings of 8% to 12% over a program utilizing preventive maintenance alone. Depending on a facilitys reliance on reactive maintenance and material condition, it could easily recognize savings opportunities exceeding 30% to 40%. Independent surveys indicate the following industrial average savings resultant from initiation of a functional predictive maintenance program: Advantages 1. Increased component operational life/availability. 2. Allows for pre-emptive corrective actions.

3. Decrease in equipment or process downtime. 4. Decrease in costs for parts and labour. 5. Better product quality. 6. Improved worker and environmental safety. 7. Improved worker moral. 8. Energy savings. 9. Estimated 8% to 12% cost savings over preventive maintenance program. Disadvantages 1. Increased investment in diagnostic equipment. 2. Increased investment in staff training. 3. Savings potential not readily seen by management. 4 .Routine Maintenance ongoing maintenance activities such as cleaning washrooms, grading roads and mowing lawns, which are required because of continuing use of the facilities;

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

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UNIT V CHAPTER - 2 PURCHASING MEANING AND DEFINITION OF PURCHASING Purchase is the procurement of goods or services from some external sources. Purchasing is the procuring of materials, tools, stores (or supplies) and services required for the manufacture of a product, maintenance of the machines, and uninterrupted running of the manufacturing plant in a manner that guarantees the marketing of the company's products in the quantities desired, at the time promised and at the competitive price consistent with quality desired. According to Alford & Betty Purchasing is defined as the procurement of the materials, supplies, machines, tools and operation of a manufacturing plant. OBJECTIVES OF PURCHASING To acquire the goods or services at minimum cost. To ensure the continuous flow of production. To develop the main and attenuate sources of supply. To ensure timely delivery. To make optimum utilization of capital. To acquire quality product so that quality output is served to the consumer.

To achieve economy in cost of materials by adopting latest techniques like value analysis, ABC analysis etc To maintain steady flow of materials to ensure uninterrupted production or operation To create goodwill and enhance the company's reputation for fairness and integrity through dealings with the suppliers. To enable the company to maintain a competitive position and earn a fair return on its investment FUNCTIONS AND RESPONSIBILITIES OF PURCHASING DEPARTMENT Functions of purchasing department or often categorized as the responsibilities of Purchasing Manager are:(i) Vendor Development The primary responsibility of a purchase manager is to search for and identify a list of possible suppliers. He should ensure that sources of supplies are reliable and stable. (ii) Selection of Suppliers The purchase manager should examine the cost of the material and other aspects. And selection should be made after analyzing all the relevant issues. (iii) Contract Negotiations and Communication Interface Once a vendor is selected, the purchasing manager should negotiate and establishes the terms and conditions of contract to be drawn between the two parties. 85

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

(iv) Order Preparation Once selected the source of supply, the next step is to authorise the selected supplier to supply material, which is done by placing the purchase order. A purchase order is a formal document (a written commitment) prepared by the buying department on behalf of the company to authorise (request) the supply of the goods and services in the quantities, at the time and at the price specified in the document. (v) Follow-up Follow-up is the function of seeing that the suppliers effect deliveries on time. Follow up has become the foremost function of buyers. Vendors, be it a small manufacturer, a trader or a supplier at a distance, take little initiative in delivering the goods on time. (vi) Value Analysis The purchasing manager conducts value analysis that aims at achieving cost effectiveness and maintaining the required level of quality The responsibilities and functions of Purchasing Manager are also include: Locating, selecting and developing sources of supply Scrutinizing purchase indents and deciding suitable method of buying Floating enquiries, processing quotations, conducting

Co-ordination with inward inspection including timely return of defective materials back to suppliers Endorsing suppliers invoices for payment Processing suppliers requests for price increases including price negotiations Attending to suppliers representatives and travelling salesmen Arranging discussion meetings between suppliers

representatives and companys officials Disposal of surplus, obsolete and scrap materials Advising management on new materials, new products, forward buying etc. Acting as a link between companies finance department and suppliers for timely payment of bills Attending to periodical activities like applying licence, quota etc Maintaining companies image among suppliers PROCEDURE OR STEPS INVOLVED IN PURCHASING 1. Purchase Requisition: All the departments of the organisation are asked to make a requisition for purchase. 86 for import

negotiations and releasing purchase orders Pre-delivery follow up and shortage chasing

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

2. Decision of Purchase: Collecting requisition from various departments and handed it to Purchase department / committee head. Purchase head decide what to purchase and in what quantity. 3. Study of Market conditions: Market trends are analysed to generate an idea of price and availability of product. 4. Selection of Vendors. 5. Placing of Purchase order. 6. Receiving of order The general pattern for handling purchase orders is as follows: 1. A department initiates a request for goods or services and sends it to the Purchasing Department. 2. Purchasing staff verifies that the specifications are complete and selects potential sources. 3. Purchasing staff follows good business practices in determining the best offer for required materials or services. We review quotations based upon: unit costs and total costs; completeness of the order and adherence to the specifications listed; delivery costs; delivery time; and warranties, maintenance, installation, etc., e.g., service

4. When we award an order, we will FAX or mail the purchase order form containing a purchase order number to place an order. In some circumstances, we may telephone in an order with a purchase order number. 5. You must send an invoice with the purchase order number noted on the invoice to the Accounts Payable Department before a payment can be made 8 Rs OR PRINCIPLES OF PURCHASING 1. RIGHT PRICE It is the primary concern of any manufacturing organization to get an item at the right price. But right price need not be the lowest price. It is very difficult to determine the right price; general guidance can be had from the cost structure of the product. The tender system of buying is normally used in public sector organizations but the objective should be to identify the lowest responsible bidder and not the lowest bidder. The technique of learning curve also helps the purchase agent to determine the price of items with high labour content. The price can be kept low by proper planning and not by rush buying. Price negotiation also helps to determine the right prices. 2. RIGHT QUALITY Right quality implies that quality should be available, measurable and understandable as far as practicable. In order to determine the quality of a product sampling schemes will be useful. The right quality is determined by the cost of materials and the technical characteristics as suited to the specific requirements. The quality particulars are

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

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normally obtained from the indents. Since the objective of purchasing is to ensure continuity of supply to the user departments, the time at which the material is provided to the user department assumes great importance. 3. RIGHT TIME For determining the right time, the purchase manager should have lead time information for all products and analyse its components for reducing the same. Lead time is the total time elapsed between the recognition of the need of an item till the item arrives and is provided for use. This covers the entire duration of the materials cycle and consists of pre-contractual administrative lead time, manufacturing and transporting lead time and inspection lead time. Since the inventory increases with higher lead time, it is desirable to analyse each component of the lead time so as to reduce the first and third components which are controllable. While determining the purchases, the buyer has to consider emergency situations like floods, strikes, etc. He should have contingency plans when force major clauses become operative, for instance, the material is not available due to strike, lockout, floods, and earthquakes. 4. RIGHT SOURCE The source from which the material is procured should be dependable and capable of supplying items of uniform quality. The buyer has to decide which item should be directly obtained from the manufacturer. Source selection, source development and vendor rating play an

important role in buyer-seller relationships. In emergencies, open market purchases and bazaar purchases are restored to. 5. RIGHT QUANTITY The right quantity is the most important parameter in buying. Concepts, such as, economic order quantity, economic purchase quantity, fixed period and fixed quantity systems, will serve as broad guidelines. But the buyer has to use his knowledge, experience and common sense to determine the quantity after considering factors such as price structure, discounts, availability of the item, favourable reciprocal relations, and make or buy consideration. 6. RIGHT CONTRACTS The buyer has to adopt separate policies and procedures for capital and consumer items. He should be able to distinguish between indigenous and international purchasing procedures. He should be aware of the legal and contractual aspects in international practices. 7. RIGHT TRANSPORTATION Right mode of transportation have to be identified as this forms a critical segment in the cost profile of an item. It is an established fact that the cost of the shipping of ore, gravel, sand, etc., is normally more than the cost of the item itself. 8. RIGHT PLACE OF DELIVERY Specifying the right place of delivery, like head office or works, would often minimize the handling and transportation cost. METHODS OR TYPES OF PURCHASING 1) Tender Buying Government department and public sector undertakings in

India follow this method of buying. Private sector organizations to By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, 88 SRM University, Ramapuram Campus

adopt tender buying if the value of the purchase exceeds the prescribed limits, say Rs. 25000 or Rs. 50000 fixed by the management as policy decision. Characteristics The buying department establishes bidders list and invites them to submit bids. Bids on receipt are evaluated by comparison and the right supplier is selected. Advantages Tender buying is the purchasers most important single tool to select qualified supplier on the basis of competitive prices. It eliminates possibility of favoritism, patronage, and personal preferences. Disadvantage Tender buying is costly and time consuming and therefore used by private sector undertaking only when the value of purchase is high. 2) Group purchasing Group purchasing refers to buying of items of trivital value in a single purchase order. Characteristics Minimum and maximum levels are fixed for each item within each classified group.

Stocks on hand are reviewed periodically, say once a month or once in 12 months

Quantity equal to the difference between the maximum level and stock on hand is procured for each item

3) Hand to mouth buying Hand to mouth buying also called buying according to the requirements refers to the frequent purchases of an item in small quantities. Characteristics Purchases are made only when demand arises. Purchases are made to cover immediate requirements. Quantity purchased is generally small though at time at large quantity may be purchased. The terms of contract is negotiated.

Advantages Lower inventory investment. Low carrying charges. Reduced deterioration and obsolescence of materials. Limitation of losses from price declines.

Disadvantages 89

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

Comparatively higher price due to urgencies and loss of quantity discounts. Possible losses occasioned by an upward jump in prices. Acceptance of sub standard goods in emergency.

Advantages Both buyer and seller enjoy the savings resulting from regularity of production and small inventories. Buyer is assured of supply of goods while supplier is assured of business. Supplier can effectively plan his factors of production while buyer can plan his requirements of finance

1) Scheduled buying Scheduled buying is the process of procuring an item in staggered deliveries according to the delivery schedule furnished to the supplier by the buyer. Characteristics A purchase order covering annual requirements is placed with the supplier. The supplier is given the estimate of the procurement needs covering a mutually agreed period of time. Fresh delivery schedules are given to the supplier prior to completion of the previous schedule Monthly deliveries are usually specified except for perishable material, bulky items and others required in large quantities or where supplier has setup production facilities especially for the buyer.

5) Blanket orders Blanket orders refer to the purchase of variety of items from single sources, usually a middleman. Characteristics A blank order specifies the category of items covered by the order, The items covered by the order generally have low unit value. More than one middle man may be selected to avoid hold-ups in case of non-availability of an item with one

By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

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UNIT V CHAPTER 3 STORES MANAGEMENT MEANING Stores organization may be defined as a systematic coordination and combination of efforts in manner, which would result in optimum efficiency with a minimum of expenditure. The term Store, Storehouse, or Warehouse refer to a building or room or place where materials are kept. OBJECTIVES OF STORES MANAGEMENT To facilitate a balanced and smooth flow of raw materials, components ,tools ,and any other items necessary to meet production requirements To maintain optimum stock of materials to compensate for irregular supplies by suppliers. To achieve efficient utilization of storage space To reduce of materials handling equipments. To provide codification of stored items for easy recognition To enable flexibility on production schedules To facilitate quantity purchases at discount prices To keep the account of all goods kept in stores

To prevent theft ,damage, wastage and deterioration of stored materials To maintain record of all incoming materials and issue of materials to user dept FUNCTIONS OF STORES DEPARTMENT 1. Receipt: It refers to the flow diagramme. Any item of goods or material that enters the organization always enters through the stores. Similarly, every item unless specifically excluded, has to leave through the store. Stores isthe final account keeper of all materials. Material sent by any supplier after the security clearance comes to the stores. Stores check the document carried by the carrier, known as Delivery Challan, against the copy of the Purchase Order placed on the supplier by the organization. Once the adequacy is established and quantityis verified, the material is sent for testing for quality parameters. Some times quality control teats are elaborate and time consuming. If the policy of receipt is to unload the material subject to quality control acceptance, it is cleared for unloading. Unloaded material is kept on the hold if it not yet cleared by quality control department. If the material is rejected it is sent back to the supplier after clear documentation. 2. Storage: Once the quality control department, as per the quality plan in the quality system, approves the unloaded material it is moved to a specific place in the stores layout. The material is so stored that it By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, 91 SRM University, Ramapuram Campus

becomes easy to retrieve and issue subsequently. Storage should also ensure protection against deterioration, damage and pilferage. Detailed system is adopted for location and labeling of items while in storage. Storage plan is made keeping in mind, Nature of the product- physical state, toxicity, inflammability and other hazards Volume and weight- heavy or light Movement frequency- fast moving or slow moving 3. Retrieval: Easy and quick retrievability of items that are demanded by the internal customers. Easy identification, maximum space utilization and minimum handling are key factors to retrieval functions. It is common knowledge in many of the companies that after hours of searching for the item is declared to be out of stock. This causes hold up of production process and avoidable urgent purchase of out of stock material. This function takes place as per established retrieval system. 4. Issue: It refers to the flow diag., fulfilling customer demand for the item in minimum time, keeping quality high and cost minimum is issue. An internal customer doesnt pay the price but he has to fulfill requirement of authorization for the demand. A duly authorized indent or requisition for the item is the key 5. Records:

It is maintaining records of receipt and issue. Updating the stock levels as per movement of materials. Basic records of store are bin card and stock register. Bin card is placed on the bin in which items are stored. This gives information about receipt, issue and balance. Stock register gives all the information in the bin card and also the value. 6. Housekeeping: Maintenance of spic and span cleanliness in the store and ensuring principle of Place for Everything and Everything in its place is fully implemented. Good housekeeping ensures satisfactory work practices 7. Control: Taking measures to ensure material plan is being adhered to. Any changes in consumption pattern or replenishment pattern are closely monitored for corrective action. Material movement is watched to identify nonmoving material for disposal. Effective control puts into effect management objective of no shortage and no excess. 8. Surplus management: Effective disposal system for unneeded material to reduce inventory cost and proactive measures to eliminate deterioration and

obsolescence. Ref. To the note on obsolete, surplus and scrap management. 9. Verification: Stock verification to eliminate gap between information and physical stock. In stores some items are maintained as stock items. The stores

triggers the procurement cycle for such items when a predetermined By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, 92 SRM University, Ramapuram Campus

reorder level is reached. Hence correct stock position through verification is critical to ensure no shortage and no excess for the item. 10. Interaction & coordination: Very close interaction between Purchasing, production, quality control and engineering functions is obviously needed in the discharge of the functions discussed so far. It also becomes necessary to coordinate the flow of material samples and information through a network of departments for performance of stores functions. Besides, every management function being an internal customer interaction is very important DUTIES AND RESPONSIBILTY OF STORES DEPARTMENT A storekeeper would have several duties and responsibilities, which he may carry out himself or through his subordinates. These are: a) To receive incoming materials, including all work connected therewith, like opening of packages, counting and checking. b) To stare materials in the right place and in the best suited prescribed manner. c) To ensure that materials are properly preserved, periodical inspection and correct methods. d) To carry out all movements of materials including movement to Storage from receipt and Storage to Dispatch, Packing and Forwarding.

e) To maintain complete, up-to-date and correct records both for physical storage financial accounts. STORES ORGANIZATION

Store is a function of materials management in an organization. Hence it is generally found that stores function reports to the materials manager. But in some situations stores function reports to the production function. The earlier type of arrangement is based on the concept that stores along with other functions of materials management can be integrated into the materials organization. This will stream line all materials management functions effectively. The other arrangement is leaning on the fact that production function is very closely linked to stores. And a common command can reduce cost and increase effectiveness. And also keep material accounting outside the scope of procurement function. Centralized or Decentralized stores organization Centralized stores concept is to store all items at a central place and control materials movement from this central place. Whereas decentralization concept is moving the material to the respective consumer function or directly to the points of use. Features of centralized stores organization Effective supervision and control.

Issue at single point reduces cost of issue By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus

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 Reduced personnel requirement Efficient layout for stores Better handling technology Better inventory checks Maintenance of optimum stores Fewer redundant and obsolete items Elaborate documentation Features of Decentralized stores organization Reduced handling Customer friendly Diluted risk of fire Fewer production stoppages Visual management is easier STORAGE SYSTEMS 1. Physical systems Physical storage of material is very important from the point of view of identification, retrieval and issue. Various methods adopted for physical storage are mentioned below.

a) Closed door system: The stored material is held under lock and key. Entry into the store is restricted authorized persons only. Physical movement of the material is only with authorized documents only. Maximum security and tight control on movement are features of this system b) Open stores system: In this system material is stored near point of use and there is restriction on consumption. Control passes on to the operations department c) Random access stores system: There is no fixed location for an item. Item occupies the available physical slot when it enters the store. Stores address is fixed to the occupying item electronically. For issue the item is located by this address. This system facilitates maximum space utilization but electronic control is needed. 2. Stores record system In stores management two types of records are fundamental one is called bin card or stock card and the other is stores ledger. a) Stock card or bin card: bin card, fixed on the bin shows the quantity received, issued and balances. Copy of this record is maintained for reference by the stores in charge. This record also triggers purchase activity when Reorder level of an item is reached store ledger, contains value in addition to the physical stock which is also shown on the bin card. 3. Issue system By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus 94

From the stores material is issued for internal consumption and sometimes issued to outside parties for processing. a) Issue to consuming department: Material is issued to consuming departments against a material requisition slip which is duly authorized and made with reference to a work order for production. Quantity needed for production is mentioned in the work order and stores employees are not authorized to issue excess quantity. Hence an automatic control is exercised on consumption. The work order mentioned above is raised based on the bill of materials for production. b) Issue to outside parties for processing: Procedure is same but a rigid control is exercised. 4. Stores accounting systems Purpose of stores accounting is to know Cost of materials consumed in production Levels of wastage produced Value of material lying in stock

Tax Packaging charges, etc. .

Methods of Stores accounting system a) FIFO System: First in first out system- when the material is issued it is assumed that the one, which came first, is going out. Hence the rate pertaining to the first in is applied. To the stock latest price is applied When there are several price changes this system becomes complex b) LIFO System: Last in first out at the time of issue. When the material is issued latest entrant is assumed to be going out. Hence latest prices are applied to the issue. And receipt price is applied to stock. c) Average cost system: An average is established with price of each item in every shipment taken into account. Total items received and price paid for these items is calculated. And average price for each item from this lot is calculated and applied to the issue and stock. d) Market value system: While issuing current market price is applied. Stock value is calculated at receipt price e) Standard cost method:

For ascertaining the above following factors are taken into account Material price Freight charges Insurance Duties

Based on price trend a standard price is fixed for a particular period and this price is applied . 5. Stock verification systems By Mrs.S.Vijaya Rani Anandan , AP (OG) MBA Dept, SRM University, Ramapuram Campus 95

Discrepancies invariably occur between physical stock and books in spite of good store keeping. Hence a system is needed to locate this gap and apply correction. Purpose of Stock verification is: To reconcile stock figures with books To identify areas for tighter control To keep a check on pilferage and fraudulent practices To back up balance sheet stock figures

***** ALL THE BEST****

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