G02: Production and

Operations Management

Course Instructor:
Anil Kumar
B.E. (Production and Industrial Engg., Govt. Engg. College, Kota)
M.Tech (Industrial Engg. & Operations Research, IIT Bombay)
P.hD.* (R.T.U., Kota)
Course Objectives:
The purpose of this course if for students to analyze production and service
operation systems and their relationship with all other functions and activities in
the organization. Deterministic and probabilistic models will be used to support
decision-making. The objective(s) of this course are:
1. To increase understanding of the problems and opportunities faced by the
operation’s manager in manufacturing and service operations.
2. To develop an ability to apply operations management concepts in a variety of
settings.
• To develop an understanding of operations management techniques in order to be
able to evaluate recommendations made by technical specialists in the field. 2
Course Outline

G02:Production and
L T P C
Operations Management
3 0 0 3
Pre-requisites -
Additional requisites An online coursera course is mandatory.

3
Unit 1: Introduction [6 L]
Nature and Scope of Production and Operations Management, its Relationship with other Systems in the
Organisation, Factors Affecting System and Concept of Production and Operation Management. Facility
Location, Types of Manufacturing Systems, Lean Manufacturing, Layout Planning and Analysis.

Unit 2: Production System and Related Concepts [6 L]

Functions of Production and Material Management, Types of Production Systems, Productivity Variables,
and Productivity Measurement, Production Planning and Control, Mass Production, Batch Production, Job
Order Production, Product Design and Development, Process Selection, Capacity Design, Determination
of Material Required, Procedure for Purchasing, Distribution of Materials.

Unit 3: Scheduling and Measuring Production Activities [6 L]

Scheduling: - Operational scheduling, job sequencing (FCFS, SPT, EDD, LPT), Gantt Scheduling Chart &
Johnson’s rule on two machines. Maintenance Management Concepts, Work Study, Method Study, Work
Measurement, Work Sampling, Work Environment and Safety. Forecasting- Definition, types, Qualitative
(grass roots, market research and Delphi method) and quantitative approach (simple moving average
method, weighted moving average and single exponential smoothing method), forecast error, MAD, BIAS.
4
Unit 4: Material and Inventory Management [6 L]
An overview of Material Management, Material Planning and Inventory Control, Inventory Models,
(Classical EOQ, Model with Shortages), ABC Analysis, VED Analysis, JIT, Purchase Management,
Store Management, Safety Management.

Unit 5: Quality in Production and Operations Management [6 L]

Quality Assurance, Acceptance Sampling, OC Curve characteristic, Statistical Process Control,
Attribute (x bar-chart, R-chart) and Variable charts (p-chart, np-chart, c-chart, u-chart), Total Quality
Management, QMS and ISO Standards.
Recommended Readings:
1. Adam and Ebert, Ronald J, Production and Operation Management-Concepts, Models & Behaviour, PHI New Delhi
2. Charry SN, Production and Operation Management-Concepts Methods and Strategy, PHI New Delhi 2005
3. Baff. ES, Modern Production Management; John Willey, New York 1993
4. Garg, Ajay-Production and Operations Management, TMH, Delhi
5. Chase, B Richard, Shankar, R., Jacobs, F.R., Aquilano, N.J.-Operations and Supply Management TMH, Delhi
6. Pannesseluam, R., Production and Operations Management, PHT, Delhi
7. Martinich, J.S., Production and Operations Management, TMH, Delhi
8. Aswathappa, K, Production and Operations Management, TMH, Delhi
5
9. Madan, Pankaj; Production and Operation Management; New Delhi; Global
Operations Management
❖Operations function consists of all activities directly related to producing goods or
providing services.
• The distinct –active- role of operations:
• Inputs become Outputs after some Transformation

Organization

Production/
Finance Marketing
Operations

6
Overview
• Production and Operation Management deals with the creation of goods and
services through the application of the business concept.
• They are also vital in both service and manufacturing firms.
• It has a primary objective, which is to employ the company’s resources to
produce goods and services fit for the market.
• The goal of the production function is to add value.
• Be it product or services; the idea is to create something that will strengthen the
relationship between the organization and customers.

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Importance of production management:
Production management is relevant to the firm’s success in many ways.
Used efficiently, it can lead to numerous accomplishments which will take the
business to a great height.

Following are the importance of production management:

• Helps the Firm to Accomplish its Objectives
• Boost Business Reputation and Goodwill
• Reduces the Cost of Production

Accomplishments: something that has been achieved successfully.

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Meaning of "Production"
• Production implies the creation of goods and services to satisfy human needs.
• It involves conversion of inputs (resources) into outputs (products).
• It is a process by which, raw materials and other inputs are converted into finished products.
• Now, the term "manufacturing" to refer to the process of producing only tangible goods
whereas the word "production" (or operation) is used to refer to the process of creating
both goods (which are tangibles) as well as services (which are intangibles).
• Any process which involves the conversion of raw materials and bought-out components
into finished products for sale is known as production. Such conversion of inputs adds to
the value or utility of the products produced by the conversion or transformation process.

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Meaning of “Operations”
• The term “operations” refers to a function or system that transforms inputs into outputs of
greater value.
• Operations are often defined as a transformation or conversion process wherein inputs such as
materials, machines, labour and capital are transformed into outputs (goods and services).
• In a productive system, if the outputs are strictly tangible goods, such a system is
referred to as a “production system” and the transformation process is referred to as
“production”.
• Nowadays, the service system in which the output is predominantly a service or even a
pure service, is also treated as a productive system and often referred to as an “operating
system” instead of a “production system”.

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Organization of Businesses
Three basic functions
• Operations/Production
• Goods oriented (manufacturing and assembly)
• Service oriented (health care, transportation and retailing)
• Value-added (the essence of the operations functions)
• Finance-Accounting
• Budgets (plan financial requirements) Production/
• Economic analysis of investment proposals Operations
• Provision of funds (the necessary funding of the operations)
• Marketing
• Selling
• Promoting Marketing Finance
• Assessing customer wants and needs
• Communicating those needs to operations
• The need for working closely 11
Examples of operations:
Operations Examples
Goods Production ▪ Farming, Mining, Construction, Manufacturing, Power
Generation

Storage / Transportation ▪ Warehousing, Trucking, Mail Service, Moving, Taxis,

Buses, Hotels, Airlines
Exchange ▪ Retailing, Wholesaling, Banking, Renting, Leasing, Library,
Loans
Entertainment ▪ Films, Radio, Television, Concerts, Recordings
Communication ▪ Newspapers, Radio and Television, Newscasts, Telephone,
Satellites
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Operations example in Manufacturing:
Food Processing

INPUTS PROCESS OUTPUTS

Raw vegetables Cleaning Clean vegetables

Metal sheets Cutting/Rolling/Welding Cans

Energy, Vegetables Cutting Cut vegetables

Energy, Water,
Cooking Boiled vegetables
Vegetables
Energy, Cans, Boiled
Placing Can food
vegetables
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Operations example in service:
Health care
Inputs Processing Outputs

Doctors, nurses Examination Healthy

Hospital Surgery patients
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy

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The transformation model

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Business Information Flow

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Product & Services
Product

• People buy, want satisfaction, not objects.

Example: Consumers buy televisions because they want entertainment,

not because they want a box with a screen.

• Product Bundle of physical, service, and symbolic attributes designed

to satisfy a customer’s wants and needs

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Goods & Services

• Services: Intangible tasks that satisfy the needs of consumer and

business users.

• Goods: Tangible products that customers can see, hear, smell, taste, or
touch.

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Products & Services
• Purely Manufacturing organizations do not just sell a product but provide
services also.
• Pure service industries such as banks, hospitals, education and consultancies also
often provide a product.

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Why OM?

• Core of all business organizations

• Many areas interrelated with OM activities
• Management of operations is critical to create and maintain
competitive advantages

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Definitions

• Operations management is the management of an organization’s

productive resources or its production system.
• A production system takes inputs and converts them into outputs.
• 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.

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Value Added

The difference between the cost of inputs and the value or price of outputs.
Value added

Inputs Transformation / Outputs

Material Conversion Process Goods
Labor Services
Capital

Feedback

Control
Feedback Feedback

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What is Operations Management?
Defined
• Operations management (OM) is defined as the design, operation, and
improvement of the systems that create and deliver the firm’s primary
products and services

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The Importance of Operations Management
• Synergies must exist with other functional areas of the organization
• Operations account for 60-80% of the direct expenses that burden a firm’s profit.

Synergies: the interaction or cooperation of two or more organizations, substances, or other agents to produce a combined effect greater than the sum of their separate
effects.

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The historical development of operations management

• Operations in some form has been around as long as human endeavor

itself but, in manufacturing at least, it has changed dramatically over
time

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Historical Evolution of Operations Management
• Industrial revolution (1770’s)
• Scientific management (1911)
• Mass production
• Interchangeable parts
• Division of labor
• Human relations movement (1920-60)
• Unemployment insurance
• Pension plans
• Decision models (1915, 1960-70’s)
• Influence of Japanese manufacturers (1970-1990)

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 Table: Techniques and Other Contribution Management
Date (Approx.) Contribution Contributor
1776 Specialization of labor in manufacturing Adam Smith
1799 Interchangeable parts, cost accounting Eli Whitney
1832 Division of labor by skill; assignment of jobs by skill; basics of time study Charles Babbage
Scientific management; time study and work study developed; dividing
1900 Frederick W. Taylor
planning and doing of work
1900 Motion study of jobs Frank B. Gilbreth
Scheduling Techniques for employees, machines, and jobs in
1901 Henry L. Gantt
manufacturing
1915 Economic lot sizes for inventory control F. W. Harris
1927 Human relation; the Hawthorne studies Elton Mayo
1931 Statistical inference applied to quality control charts Walter A. Shewhart
1935 Statistical sampling applied to quality control; inspection sampling plans H. G. Roming
1940 Operation research applications in World War II P. M. S. Blacket
1946 Digital computer John Mauchly and J. P. Eckert
Gorge B. Dantzig, William
1947 Linear programming
OrchardHays, and others
A. Charnes, W. W. Cooper,
1950 Mathematical programming, non-linear and stochasticprocesses
H.Raiffa, and others
1951 Commercial digital computer; large-scale computationsavailable Sperry Univac
1960 Organizational behavior; continued study of people at work L. Porter
1970 Integrating operations into overall strategy and policy W. Skinner
Computer applications to manufacturing, scheduling, control, and material
1970 J. Orlicky and O. Wright
requirement planning
Quality and productivity applications from Japan; robotics, computer-aided 28
1980 W. E. Deming and J. Juran
design, and manufacturing
Objectives of Production/Operations Management
Some of the important objectives of production/operations management are :
• Maximum customer satisfaction through • Maximum employee satisfaction.
quality, reliability, cost and delivery • Maximum possible production (i.e.,
time. outputs).
• Minimum scrap/rework resulting in • Higher operating efficiency.
better product quality. • Minimum production cycle time.
• Minimum possible inventory levels (i.e. • Maximum possible profit or return on
optimum inventory levels). investment.
• Maximum utilisation of all kinds of • Concern for protection of
resources needed. environment.
• Minimum cash outflow • Maximum possible productivity.
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Responsibilities of Operations Management
• Planning • Controlling
• Capacity, utilization • Inventory
• Location • Quality
• Choosing products or services • Costs
• Make or buy • Organization
• Layout • Degree of standardization
• Projects • Subcontracting
• Scheduling • Process selection
• Market share • Staffing
• Plan for risk reduction, plan B? • Hiring/lay off
• Forecasting • Use of overtime
• Incentive plans
• Job assignments

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Scope of Operations Management
Operations Management includes:
• Forecasting
• Capacity planning
• Scheduling
• Managing inventories
• Assuring quality
• Motivating employees
• Deciding where to locate facilities
• And more . . .

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Decision making In Production/Operations Management

• The production/operations managers manage all activities of the

production/operations systems which convert inputs into the desired outputs
(goods and services).
• They must co-ordinate the use of resources through the managerial process of
planning, organising, staffing, directing (or influencing) and controlling.

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Key Decisions of Operations Managers
• What
What resources/what amounts
• When
Needed/scheduled/ordered
• Where
Work to be done
• How
Designed
• Who
To do the work

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Decision making In Production/Operations Management
contd..
The decisions which production/operations managers make may be classified into
three general categories:
(i) Strategic Decisions:
• Decisions about products, processes and facilities. These decisions are
strategically important and have long-term significance for the organisation.
(ii) Operating Decisions:
• Decisions about planning production to meet demand.
• These decisions must help to resolve the issues concerned with planning
production to meet customers’ demands for products and services and to achieve
customer satisfaction at reasonable costs.
(iii) Control Decisions:
• Decisions about controlling operations concerned with day-to-day activities
of the workers, quality of products and services, production costs, overhead
costs and maintenance of plant and equipment.
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PROBLEMS OF PRODUCTION/OPERATIONS
MANAGEMENT
The problems involved in production management require two major types of decisions
relating to :
(i) Design of the production system and
(ii) Operation and control of the production system.
Decisions related to the design of production system are long-run decisions whereas,
decisions related to operations and control of the production system are short-run
decisions.

The problems involve the relative balance of the emphasis on such factors as cost, service
and reliability of both functional and time performance, which depends on the basic
purposes of the total enterprise and on the general nature of goods and services produced.

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 Long-Run and Short-Run Decisions

Long-run decisions related to the Short-run decisions related to the

design of the production system are: operations and control of the system are:
• Selection and Design of Products • Inventory and Production Control
• Selection of Equipment and Processes • Maintenance and Reliability of the
• Production Design of Parts Processed System
• Job Design • Quality Control
• Location of the System • Labour Control
• Facility Layout • Cost Control and Improvement

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Long-Run Decisions
Long-run decisions related to the design of the production system are:
(i) Selection and Design of Products:
• Product selections and designs with productive capability (i.e., producibility of products) are
interdependent.
(ii) Selection of Equipment and Processes:
• Selection of the most economic equipment and processes among the various alternatives
considered, the firm's capability to invest in capital assets and
• its basic approach to production (i.e., job, batch, mass or continuous production) must be considered.
(iii) Production Design of Parts Processed:
• Production design aims at selection of equipment, processes, and tools for economic production
which set limits on the cost of outputs.

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Long-Run Decisions contd…
(iv) Job Design:
• Involves basic organisation of work as well as matching workers to their jobs in order to reduce
fatigue and improve productivity.
(v) Location of the System:
• It is a trade-off decision since there is no one best location for a productive system to be located.
• Balance of cost factors determined by various considerations is critical.
(vi) Facility Layout:
• Involves decisions related to design capacity, basic modes of production, shifts of working, use of
overtime and subcontracting.
• Overall material handling cost is minimised.
• Other factors involved are heating, lighting and other utility requirements, the allocation of storage space,
washing space and the design of the building to house the layout.

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Short-Run Decisions
Short-run decisions related to the operations and control of the system are :
(i) Inventory and Production Control:
• Decisions made are concerned with allocation of productive capacity consistent with demand and
inventory policy.
• Feasible schedules must be worked out and the load on machines and labour and the flow of
production must be controlled.

(ii) Maintenance and Reliability of the System:

• Decisions must be made regarding the maintenance effort, maintenance policy and practice
recognising the fact that machine down time may lead to idling of labour and production stoppage
resulting in lost sales.

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Short-Run Decisions contd…
(iii) Quality Control:
• Decisions must be made to set permissible levels of risk that bad parts are produced and
shipped or the risk that good parts are scrapped due to sampling inspection.
• Inspection costs must be balanced with the probable losses due to passing defective materials or
products. Decisions regarding controlling the quality of on-going processes must be taken.
(iv) Labour Control:
• Labour is the major cost element in most products and services. Hence, work measurement and
wage incentive systems must be developed to control labour costs and to increase labour
productivity.
(v) Cost Control and Improvement:
• Day-to-day decisions which involve the balance of labour, material and overhead costs must be
made by production supervisors.

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Facility Location
INTRODUCTION
• Facility location is a critical strategic decision.
• Location activity has been very high in recent decades as a result of technology
improvements, economic growth, international expansion and globalization,
and corporate restructuring, mergers and acquisitions.
• Three important reasons for location of facility are competition, cost and many
hidden effects. Several techniques can be used as part of a location strategy to
determine the merits of prospective sites.

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Facility Location
Factors effecting the Facility Location: The top five location factors for global
companies are
• Costs
• Infrastructure
• Labour characteristics
• Government and political issues
• Economy

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 LOCATION VIEWPOINTS
• Alfred Weber, a German economist and sociologist, classified the location factors into
primary and secondary categories.

Primary Factors: Materials, labour and agglomeration are responsible for

industrialization in different locations.

• Materials are required in each and every type of industry to produce goods or
services. Therefore, the cost of transportation of these materials must be minimum.

• The availability of labour of required skill level is another criterion to produce the
goods of desired quality.

• The third aspect of agglomeration is the concept of clustering, where a particular

type of industrial unit is established with a view to getting most of the required
facilities readily available in a relatively small area.
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LOCATION VIEWPOINTS
Secondary Factors:
• The secondary factors such as easy communication, cheap bank credits and
insurance constitute agglomeration. If these factors are not suitable to
companies, then these act as deglomerating factors.
• Andreas Predohl also pointed out that companies relocate their plants and
facilities considering new advantages and disadvantages because of changing
business environments and industry modifications in geographical regions in
global business conditions, thus making the hub for a particular industry.

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DEFINITION OF FACILITY LOCATION
• Facility should be located in a business environment to satisfy the clients
with an objective function, requiring minimum place and transportation,
thus minimizing cost and maximizing profits.
• Facility location issues should be sorted out in the light of the following aspects.
1. Environment
2. Facilities
3. Clients
4. Objective Functions

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FACTORS INFLUENCING PLANT LOCATION/FACILITY LOCATION

• Location conditions are complex and each comprises a different Characteristic of a

tangible (i.e. Freight rates, production costs) and non-tangible (i.e. reliability, security,
quality) nature.
• Tangible cost based factors such as wages and products costs can be quantified
precisely into what makes locations better to compare.
• Non-tangible features, which refer to such characteristics as reliability, availability
and security, can only be measured along an ordinal or even nominal scale.
• Other non-tangible features like the percentage of employees that are unionized can
be measured as well.

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FACTORS INFLUENCING PLANT LOCATION/FACILITY LOCATION

1. General locational factors, which include controllable and uncontrollable factors for all
type of organisations.
2. Specific locational factors specifically required for manufacturing and service
organisations.

Location factors can be further divided into two categories:

• Dominant factors are those derived from competitive priorities (cost, quality, time, and
flexibility) and have a particularly strong impact on sales or costs.
• Secondary factors also are important, but management may downplay or even ignore
some of them if other factors are more important

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General Locational Factors
CONTROLLABLE FACTORS
1. Proximity to markets
2. Supply of materials
3. Transportation facilities
4. Infrastructure availability
5. Labour and wages
6. External economies
7. Capital
UNCONTROLLABLE FACTORS
8. Government policy
9. Climate conditions
10. Supporting industries and services
11. Community and labour attitudes
12. Community Infrastructure
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Specific Locational Factors for Manufacturing
Organisation
DOMINANT FACTORS: Factors dominating location decisions for new
manufacturing plants can be broadly classified in six groups. They are listed in the
order of their importance as follows:
1. Favourable labour climate
2. Proximity to markets
3. Quality of life
4. Proximity to suppliers and resources
5. Utilities, taxes, and real estate costs

49
Specific Locational Factors for Manufacturing
Organisation
1. Favorable labour climate:
• An important factor for labour-intensive firms in industries such as textiles, furniture, and
consumer electronics.
• It wage rates, training requirements, attitudes toward work, worker productivity, and union strength.
• Many executives consider weak unions or al low probability of union organizing efforts as a distinct
advantage.
2. Proximity to markets:
• Locating near markets is particularly important when the final goods are bulky or heavy and
outbound transportation rates are high.
• For example, manufacturers of products such as plastic pipe and heavy metals all emphasize
proximity to their markets.

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Specific Locational Factors for Manufacturing
Organisation
3. Quality of life:
• Good schools, recreational facilities, cultural events, and an attractive lifestyle contribute to quality of
life.
4. Proximity to suppliers and resources:
• In many companies, plants supply parts to other facilities or rely on other facilities for management
and staff support.
• These require frequent coordination and communication, which can become more difficult as
distance increases.
5. Utilities, taxes, and real estate costs:
• Other important factors that may emerge include utility costs (telephone, energy, and water), local
and state taxes, financing incentives offered by local or state governments, relocation costs, and land
costs.
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Specific Locational Factors for Manufacturing
Organisation
SECONDARY FACTORS
• There are some other factors needed to be considered,
• including room for expansion, construction costs, accessibility to multiple
modes of transportation, the cost of shuffling people and materials between
plants, competition from other firms for the workforce, community attitudes,
and many others.
• For global operations, firms are emphasizing local employee skills and
education and the local infrastructure

52
Specific Locational Factors for Service Organisation
DOMINANT FACTORS
• The factors considered for manufacturers are also applied to service providers, with one important addition the
impact of location on sales and customer satisfaction. Customers usually look about how close a service

facility is, particularly if the process requires considerable customer contact.

• PROXIMITY TO CUSTOMERS
• TRANSPORTATION COSTS AND PROXIMITY TO MARKETS
• For warehousing and distribution operations, transportation costs and proximity to markets are extremely
important. With a warehouse nearby, many firms can hold inventory closer to the customer, thus reducing
delivery time and promoting sales.

• LOCATION OF COMPETITORS

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Specific Locational Factors for Service Organisation
SECONDARY FACTORS
• Retailers also must consider the level of retail activity, residential density, traffic flow,
and site visibility.
• Retail activity in the area is important, as shoppers often decide on impulse to go
shopping or to eat in a restaurant.
• Traffic flows and visibility are important because businesses’ customers arrive in cars.
Visibility involves distance from the street and size of nearby buildings and signs.
• High residential density ensures nighttime and weekend business when the population
in the area fits the firm’s competitive priorities and target market segment.

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Fig.: Factors influencing plant location.
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LOCATION MODELS

Various models are available which help to identify the ideal location. Some of the popular
models are:
1. Factor rating method
2. Weighted factor rating method
3. Load-distance method
4. Centre of gravity method
5. Break even analysis

56
1. Factor Rating Method
The process of selecting a new facility location involves a series of following steps:
1. Identify the important location factors.
2. Rate each factor according to its relative importance, i.e., higher the ratings is indicative
of prominent factor.
3. Assign each location according to the merits of the location for each factor.
4. Calculate the rating for each location by multiplying factor assigned to each location with
basic factors considered.
5. Find the sum of product calculated for each factor and select best location having highest
total score.

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Example 1: Let us assume that a new medical facility, Health-care, is to be located in
Delhi. The location factors, factor rating and scores for two potential sites are shown
in the following table. Which is the best location based on factor rating method?

Factor Rating
Sr. No. Location factor
Rating Location 1 Location 2
1. Facility utilization 8 3 5
2. Total patient per month 5 4 3
3. Average time per emergency trip 6 4 5
4. Land and construction costs 3 1 2
5. Employee preferences 5 5 3

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 Factor Rating
Sr. No. Location factor
Rating Location 1 Location 2
1. Facility utilization 8 3 5
2. Total patient per month 5 4 3
3. Average time per emergency trip 6 4 5
4. Land and construction costs 3 1 2
5. Employee preferences 5 5 3

Sr.
Factor Location 1 Location 2
Location Factor Rating (Rating) Total= (Rating) Total=
No.
(1) (2) (1) x (2) (3) (1) x (4)
1. Facility utilization 8 3 5
2. Total patient per month 5 4 3
3. Average time per emergency trip 6 4 5
4. Land and construction costs 3 1 2
5. Employee Preferences 5 5 3
Total Total
The total score for location 2 is higher than that of location 1. Hence location 2, is the best choice.
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 Factor Rating
Sr. No. Location factor
Rating Location 1 Location 2
1. Facility utilization 8 3 5
2. Total patient per month 5 4 3
3. Average time per emergency trip 6 4 5
4. Land and construction costs 3 1 2
5. Employee preferences 5 5 3

Sr.
Factor Location 1 Location 2
Location Factor Rating (Rating) Total= (Rating) Total=
No.
(1) (2) (1) x (2) (3) (1) x (4)
1. Facility utilization 8 3 24 5 40
2. Total patient per month 5 4 20 3 15
3. Average time per emergency trip 6 4 24 5 30
4. Land and construction costs 3 1 3 2 6
5. Employee Preferences 5 5 25 3 15
Total 96 Total 106
The total score for location 2 is higher than that of location 1. Hence location 2, is the best choice.
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2. Weighted Factor Rating Method
• In this method to merge quantitative and qualitative factors, factors are assigned
weights based on relative importance and weightage score for each site using a
preference matrix is calculated.
• The site with the highest weighted score is selected as the best choice.
• Example: Let us assume that a new medical facility, Health-care, is to be located
in Delhi. The location factors, weights, and scores (1 = poor, 5 = excellent) for two
potential sites are shown in the following table. What is the weighted score for
these sites? Which is the best location?
Scores
Sr. No. Location factor Weight
Location 1 Location 2
1. Facility utilization 25 3 5
2. Total patient km per month 25 4 3
3. Average time per emergency trip 25 3 3
4. Land and construction costs 15 1 2
5. Employee preferences 10 5 3 61
 Scores
Sr. No. Location factor Weight
Location 1 Location 2
1. Facility utilization 25 3 5
2. Total patient km per month 25 4 3
3. Average time per emergency trip 25 3 3
4. Land and construction costs 15 1 2
5. Employee preferences 10 5 3

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3. Load-distance Method
• The load-distance method is a mathematical model used to evaluate locations
based on proximity factors.
• The objective is to select a location that minimizes the total weighted loads moving
into and out of the facility.
• The distance between two points is expressed by assigning the points to grid
coordinates on a map.
• An alternative approach is to use time rather than distance.

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3. Load-distance Method contd…
DISTANCE MEASURES
• Suppose that a new warehouse is to be located to serve Delhi. It will receive inbound shipments
from several suppliers, including one in Ghaziabad.
• If the new warehouse were located at Gurgaon, what would be the distance between the two
facilities?
• If shipments travel by truck, the distance depends on the highway system and the specific
route taken.
• Computer software is available for calculating the actual mileage between any two locations in
the same county.
• However, for load-distance method, a rough calculation that is either Euclidean or rectilinear
distance measure may be used.
*Euclidean distance is the straight-line distance, or shortest possible path, between two points.

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3. Load-distance Method contd…
• The point A=(10,15) on the grid represents the
supplier’s location in Ghaziabad, and the point
B=(30,10) represents the possible warehouse location
at Gurgaon. The distance between points A and B is the
length of the hypotenuse of a right triangle, or
dAB = Sqrt ((XA – XB)2 + (YA – YB)2)

65
3. Load-distance Method contd…
• Rectilinear distance measures distance between two points with a series of 90°
turns as city blocks.
• Essentially, this distance is the sum of the two dashed lines representing the base
and side of the triangle in figure.
• The distance travelled in the x-direction is the absolute value of the difference in x-
coordinates. Adding this result to the absolute value of the difference in the y-
coordinates gives:

DAB = |XA – XB| + |YA – YB|

66
 3. Load-distance Method contd…
• Example: The new Healthcare facility is targeted to serve
Sr. Census
seven census tracts in Delhi. The table given below shows the (x, y) Population (l)
No. tract
coordinates for the centre of each census tract, along with the 1 A (2.5, 4.5) 2
2 B (2.5, 2.5) 5
projected populations, measured in thousands. Customers will
3 C (5.5, 4.5) 10
travel from the seven census tract centres to the new facility 4 D (5,2) 7
when they need health care. Two locations being considered for 5 E (8,5) 10
6 F (7,2) 20
the new facility are at (5.5, 4.5) and (7, 2), which are the centres
7 G (9, 2.5) 14
of census tracts C and F.
Details of seven census tract centres, coordinate distances along DAB = |XA – XB| + |YA – YB|
with the population for each centre are given below. If we use the
population as the loads and use rectilinear distance, which
location is better in terms of its total load distance score?
67
 Sr. Census
(x, y) Population (l)
3. Load-distance Method contd… No.
1
tract
A (2.5, 4.5) 2
2 B (2.5, 2.5) 5
• SOLUTION: Calculate the load-distance score for each 3 C (5.5, 4.5) 10
location. Using the coordinates from the above table. 4 D (5,2) 7
5 E (8,5) 10
Calculate the load-distance score for each tract.
6 F (7,2) 20
• Using the formula DAB = |XA – XB| + |YA – YB| 7 G (9, 2.5) 14
Locate at (5.5, 4.5) Locate at (7, 2)
Census tract (x, y) Population(l)
Distance (d) Load-distance Distance (d) Load-distance
A (2.5, 4.5) 2 3+0=3 6 4.5 + 2.5 = 7 14
B (2.5, 2.5) 5 3+2=5 25 4.5 + 0.5 = 5 25
C (5.5, 4.5) 10 0+0=0 0 1.5 + 2.5 = 4 40
D (5,2) 7 0.5 + 2.5 = 3 21 2+0=2 14
E (8, 5) 10 2.5 + 0.5 = 3 30 1 + 3=4 40
F (7,2) 20 1.5 + 2.5 = 4 80 0+0=0 0
G (9, 2.5) 14 3.5 + 2 = 5.5 77 2+ 0.5 = 2.5 35
Total 239 Total 168
Summing the scores for all tracts gives a total load-distance score of 239 when the facility is located at (5.5, 4.5)
versus a load-distance score of 168 at location (7, 2). Therefore, the location in census tract F is a better location.
68
4. Centre of Gravity
Centre of gravity is based primarily on cost considerations.
• This method can be used to assist managers in balancing cost and service objectives.
• The centre of gravity method takes into account the locations of plants and markets, the volume of
goods moved, and transportation costs in arriving at the best location for a single intermediate
warehouse.
The centre of gravity is determined by the formula:

69
 4. Centre of Gravity contd…
Example: The new Health-care facility is targeted to
Census
serve seven census tracts in Delhi. Sr. No. (x,y) Population (l)
tract
• The table given below shows the coordinates for the 1 A (2.5, 4.5) 2
centre of each census tract, along with the projected 2 B (2.5, 2.5) 5
populations, measured in thousands. 3 C (5.5, 4.5) 10
• Customers will travel from the seven census tract 4 D (5,2) 7
centres to the new facility when they need healthcare. 5 E (8, 5) 10
• Two locations being considered for the new facility 6 F (7,2) 20
are at (5.5, 4.5) and (7, 2), which are the centres of 7 G (9, 2.5) 14
census tracts C and F.
• Details of seven census tract centres, coordinate
distances along with the population for each centre
are given below. Find the target area’s centre of
gravity for the Health-care medical facility.
70
 Census
Sr. No. (x,y) Population (l)
tract
1 A (2.5, 4.5) 2
2 B (2.5, 2.5) 5
3 C (5.5, 4.5) 10
4 D (5,2) 7
5 E (8, 5) 10
Sr. No. Census tract (x,y) Population (l) Lx Ly 6 F (7,2) 20
1 A (2.5, 4.5) 2 5 9
2 B (2.5, 2.5) 5 12.5 12.5
7 G (9, 2.5) 14
3 C (5.5, 4.5) 10 55 45
4 D (5,2) 7 35 14
5 E (8, 5) 10 80 50
6 F (7,2) 20 140 40
7 G (9,2.5) 14 126 35
Total 68 453.50 205.50
Next, we find C x and Cy.
Cx = 453.5/68 = 6.67 Cy = 205.5/68 = 3.02
The centre of gravity is (6.67, 3.02). Using the centre of gravity as starting point, managers can now
search in its vicinity for the optimal location. 71
5. Break Even Analysis
Break even analysis implies that at some point in the operations, total revenue equals total cost.
• Break even analysis is concerned with finding the point at which revenues and costs agree
exactly.
• It is called ‘Break-even Point’.
• Break even point is the volume of output at which neither a profit is made nor a loss is incurred.
The Break Even Point (BEP) in units can be calculated by using the relation:

72
Fig.: Units of output or percentage of capacity
73
Potential locations X, Y and Z have the cost structures shown below. The ABC
company has a demand of 1,30,000 units of a new product. Three potential locations
X, Y and Z having following cost structures shown are available. Select which
location is to be selected and also identify the volume ranges where each location is
suited?

Location X Location Y Location Z

Fixed Costs Rs. 150,000 Rs. 350,000 Rs. 950,000

Variable Costs Rs. 10 Rs. 8 Rs. 6

74
Solution: Solve for the crossover between X and Y:
10X + 150,000 = 8X + 350,000
2X = 200,000
X = 100,000 units
Solve for the crossover between Y and Z:
8X + 350,000 = 6X + 950,000
2X = 600,000
X = 300,000 units
Therefore, at a volume of 1,30,000 units, Y is the appropriate strategy.
From the graph (Fig. 2.4) we can interpret that location X is suitable up to 100,000
units, location Y is suitable up to between 100,000 to 300,000 units and location Z is
suitable if the demand is more than 300,000 units.
75
BEP chart

76
6. LOCATIONAL ECONOMICS
Example: From the following data select the most advantageous location for setting
a plant for making transistor radios
Site X Site Y Site Z
Rs. Rs. Rs.
(i) Total initial investment 2,00,000 2,00,000 2,00,000
(ii) Total expected sales 2,50,000 3,00,000 2,50,000
(iii) Distribution expenses 40,000 40,000 75,000
(iv) Raw material expenses 70,000 80,000 90,000
(v) Power and water supply expenses 40,000 30,000 20,000
(vi) Wages and salaries 20,000 25,000 20,000
(vii) Other expenses 25,000 40,000 30,000
(viii) Community attitude Indifferent Want business Indifferent
(ix) Employee housing facilities Poor Excellent Good
77
Location Y can be selected because of higher rate of return.
78
Layout Planning and Analysis

79
PLANT LAYOUT
• Plant layout refers to the physical arrangement of production facilities. It is the
configuration of departments, work centres and equipment in the conversion
process. It is a floor plan of the physical facilities, which are used in production.

• According to Moore “Plant layout is a plan of an optimum arrangement of

facilities including personnel, operating equipment, storage space, material
handling equipment and all other supporting services along with the design of
best structure to contain all these facilities.”

80
Objectives of Plant Layout
The primary goal of the plant layout is to maximise the profit by arrangement of all
the plant facilities to the best advantage of total manufacturing of the product. The
objectives of plant layout are:
1. Streamline the flow of materials through the plant.
2. Facilitate the manufacturing process.
3. Maintain high turnover of in-process inventory.
4. Minimise materials handling and cost.
5. Effective utilisation of men, equipment and space.
6. Make effective utilisation of cubic space.
7. Flexibility of manufacturing operations and arrangements.
8. Provide for employee convenience, safety and comfort.
9. Minimize investment in equipment.
10. Minimize overall production time.
11. Maintain flexibility of arrangement and operation.
12. Facilitate the organizational structure.
81
Principles of Plant 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 utilisation: 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.

82
Principles of Plant Layout contd…
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
83
CLASSIFICATION OF LAYOUT
Layouts can be classified into the following five categories:
1. Process layout
2. Product layout
3. Combination layout
4. Fixed position layout
5. Group layout

84
PROCESS LAYOUT
• Process layout is recommended for batch production.
• All machines performing similar type of operations are grouped at one
location in the process layout e.g., all lathes, milling machines, etc. are
grouped in the shop will be clustered in like groups.
• Thus, in process layout the arrangement of facilities are grouped together
according to their functions.

85
PROCESS LAYOUT CONTD…
• The flow paths of material through the facilities from one functional area to
another vary from product to product.
• Usually the paths are long and there will be possibility of backtracking.
• Process layout is normally used when the production volume is not sufficient to
justify a product layout.
• Typically, job shops employ process layouts due to the variety of products
manufactured and their low production volumes.

86
PROCESS LAYOUT CONTD…
Advantages
1. In process layout machines are better utilized and fewer machines are required.
2. Flexibility of equipment and personnel is possible in process layout.
3. Lower investment on account of comparatively less number of machines and lower cost
of general purpose machines.
4. Higher utilisation of production facilities.
5. A high degree of flexibility with regards to work distribution to machineries and
workers.
6. The diversity of tasks and variety of job makes the job challenging and interesting.
7. Supervisors will become highly knowledgeable about the functions under their
department

87
PROCESS LAYOUT CONTD…
Limitations
1. Backtracking and long movements may occur in the handling of materials thus,
reducing material handling efficiency.
2. Material handling cannot be mechanised which adds to cost.
3. Process time is prolonged which reduce the inventory turnover and increases the
inprocess inventory.
4. Lowered productivity due to number of set-ups.
5. Throughput (time gap between in and out in the process) time is longer.
6. Space and capital are tied up by work-in-process.

88
Product Layout
• In this type of layout, machines and auxiliary services are located according to the
processing sequence of the product.
• If the volume of production of one or more products is large, the facilities can be arranged to
achieve efficient flow of materials and lower cost per unit.
• Special purpose machines are used which perform the required function quickly and
reliably.
• The product layout is selected when the volume of production of a product is high such that
a separate production line to manufacture it can be justified. In a strict product layout,
machines are not shared by different products.

89
Product Layout contd…
Advantages
1. The flow of product will be smooth and logical in flow lines.
2. In-process inventory is less and throughput time is less.
3. Simplified production, planning and control systems are possible.
4. Less space is occupied by work transit and for temporary storage.
5. Reduced material handling cost due to mechanised handling systems and straight
flow.
6. Perfect line balancing which eliminates bottlenecks and idle capacity.
7. Manufacturing cycle is short due to uninterrupted flow of materials.
8. Unskilled workers can learn and manage the production.
90
Product Layout contd…
Limitations
1. A breakdown of one machine in a product line may cause stoppages of machines
in the downstream of the line.
2. A change in product design may require major alterations in the layout.
3. The line output is decided by the bottleneck machine.
4. Comparatively high investment in equipments is required.
5. Lack of flexibility. A change in product may require the facility modification.

91
 Combination Layout

• A combination of process and product layouts

combines the advantages of both types of layouts.
• A combination layout is possible where an item is
being made in different types and sizes.
• Here machinery is arranged in a process layout
but the process grouping is then arranged in a
sequence to manufacture various types and sizes
of products. It is to be noted that the sequence of
Fig.: Combination layout for making different
operations remains same with the variety of types and sizes of gears
products and sizes.
92
 Fixed Position Layout
• This is also called the project type of layout.
• In this type of layout, the material, or major components remain in a fixed location and
tools, machinery, men and other materials are brought to this location.
• This type of layout is suitable when one or a few pieces of identical heavy products are to be
manufactured and when the assembly consists of large number of heavy parts, the cost of
transportation of these parts is very high.

Fig: Fixed position layout 93

 Fixed Position Layout contd…
Advantages
1. The major advantages of this type of layout are:
2. Helps in job enlargement and upgrades the skills of the operators.
3. The workers identify themselves with a product in which they take interest and pride in
doing the job.
4. Greater flexibility with this type of layout.
5. Layout capital investment is lower

Fig: Fixed position layout 94

Group Layout (or Cellular Layout)

Fig.: Group layout or Cellular layout

95
Lean Manufacturing
• It is a systematic approach to
• identify and eliminate wastes of all non-value added activities through
continuous improvement.
• The main benefits of this are lower production costs, increased output and shorter
production lead times”
• It is also called as a manufacturing system in which friction is absent. Masaaki
Imai calls this friction as muda (waste) which consists of all non-value-adding
activities.
• Lean manufacturing which is often called Just in Time (JIT) or Agile
Manufacturing or Lean Manufacturing. 96
The 3 M’s of Lean
Lean manufacturing is a Japanese method focused on 3M’s. These Ms are:
• Muda, the Japanese word for waste,
• Mura, the Japanese word for inconsistency, and muri, the Japanese word for
unreasonableness.
• Muda, specifically focuses on activities to be eliminated. Within manufacturing,
there are categories of waste.
Waste is broadly defined as anything that adds cost to the product without adding
value to it.

97
7 Forms of Waste

98
The 5 S’s of Lean
Much of Lean manufacturing is applying “common sense” to manufacturing environments. In
implementing Lean, 5 S’s are frequently used to assist in the organization of manufacturing.

The 5 S’s are from Japanesse and are:

• Seiri (sort, necessary items)
• Seiton (set-in-order, efficient placement)
• Seison (sweep, cleanliness)
• Seiketsu (standardize, cont. improvement)
• Shitsuke (sustain, discipline)

99
100
Benefits of Lean Manufacturing
1. Defects and wastage - Reduce defects and unnecessary physical wastage, including excess use of
raw material inputs, preventable defects, costs associated with reprocessing defective items, and
unnecessary product characteristics which are not required by customers.
2. Cycle Times - Reduce manufacturing lead times and production cycle times by reducing waiting
times between processing stages, as well as process preparation times and product/model conversion
times.
3. Inventory levels - Minimize inventory levels at all stages of production, particularly works-in-
progress between production stages. Lower inventories also mean lower working capital
requirements.
4. Labor productivity - Improve labor productivity, both by reducing the idle time of workers and
ensuring that when workers are working, they are using their effort as productively as possible
(including not doing unnecessary tasks or unnecessary motions).
5. Utilization of equipment and space - Use equipment and manufacturing space more efficiently
by eliminating bottlenecks and maximizing the rate of production though existing equipment, while
minimizing machine downtime.
6. Flexibility - Have the ability to produce a more flexible range of products with minimum
changeover costs and changeover time
101
Steps of Lean Manufacturing
• Specify value
• can only be defined by the ultimate customer
• Identify the value stream
• exposes the enormous amounts of waste
• Create flow
• reduce batch size and WIP
• Let the customer pull product through the value stream
• make only what the customer has ordered
• Seek perfection
• continuously improve quality and eliminate waste

From Lean Thinking by Womack and Jones

102
Mass Production And Push System
Pioneered by Henry Ford, mass production adds the following to the industrial
revolution era’s principles:
• Standard products and operational efficiency
• Flow ( Usage of conveyors at final assembly )
• Economies of Scale
• Special purpose machinery ( product specific )
• Go - No Go gauges
• More precise parts for easy assembly.

103
Problems with the Ford System (PUSH System)
• Long delivery times.
• Weakness in responding to customer demands.
• Increase in inventories.
• Decrease in quality.
• Increase in non value adding activities.
• Increasing hierarchy and bureaucracy.
• Additional costs.
• More capital reqirement.
• Lack of ability to provide product variety
• Lack of model changeover ability because nearly all machines are focused on
producing one specific part.
• Unskilled workers perform simple, repetitive jobs, no pride in work

104
 Toyota Production System (Pull System)
• Many of the concepts in Lean
Manufacturing originate from
the TPS.
• TPS is a manufacturing
system aims to increase
production efficiency by the
elimination of waste.
• The Toyota production system
was invented and made to
work, by Taiichi Ohno.
• Ohno concluded that
different kinds of wastes
(non value added works) are
the main cause of
inefficiency and low
productivity.
105
A. JIT-Pillar
• Just-in-time(JIT) manufacturing is a Japanese management philosophy applied in
manufacturing.
• Just in Time (JIT) helps to optimize company resources like capital, equipment, and labor.
• The goal of JIT is the total elimination of waste in the manufacturing process.
• It is based on producing only the necessary units in the necessary quantities at the
necessary time by bringing production rates exactly in line with market demand or
Takt time.
• In short, JIT means making what the market wants, when it wants, by using a
minimum of facilities, equipment, materials, and human resources

106
Principles Of JIT-System

107
Principles Of JIT-System

108
3- Leveling the production
• Leveling is the sequencing of orders in a repetitive pattern, and the smoothing of day-to-day
variations in total orders to correspond to longer-term demand

109
4-Takt Time
• Takt time is the rate at which you need to complete a product in order to meet customer
demand. It comes from the German word “Takt,” meaning beat or pulse in music. Within
manufacturing, takt is an important measure of output against demand.

Example: Accounting forms are read by a company’s staff and returned to the customer.
The company has a 9-hour workday for its employees, of which 1 hour is the allocated
lunch break.
•Available production time = 8 hours or 480 minutes
•Assume that the customer sends in 20 accounting forms to be read
•TAKT Time Formula = 480/24 = 20 minutes/form
This means that the staff would have to work at a speed of 20 minutes per form to meet
the customer’s needs or demands. 110
 Benefits and Limitations of Takt Time
Limitations:
Benefits:
• It only takes one station to halt the production
• Bottlenecks are quicker to identify as
of an entire line.
stations slowing the production line can be
• Short takt time can increase the likelihood of
easily identified
injury and machine breakdowns, as workers
• Faster to locate underperforming stations in
rush to meet this optimal production rate
a production line
• Takt does not take into account unpredictable
• Production lines are stripped of waste as
variables such as bathroom breaks or reset
manufacturers focus on value-added work
periods between units
• Takt instills routine functions on the
• As customer demand increases, production
production line, enabling operators to work
lines need to be restructured to accommodate
faster and produce more output.
shorter takt time 111
112
Takt Time vs. Cycle Time vs. Lead Time

• Lead time is the time frame between an order being received and the client
getting their value. The lead time focuses on the time it takes to fulfill customer
orders.

• Cycle time is the time your team spends actively working on a customer order.
• Takt time is the maximum amount of time you need to comply with to meet
customer demand.

113
B. TPS - Jidoca Pillar (Quality at the Source)
• Quality at the Source, also called “Do It Right the First Time”, means that quality
should be built into the production process in such a way that defects are unlikely
to occur in the first place, Jidoka is authority to stop production line.

114
115
3- Poka Yoke (Error Proofing) prevents defects.

• Poka Yoke – Simple methods for in-line quality testing (not just visual inspection),
sometimes referred to as “Poka Yoke”, are implemented so that defective materials do
not get passed through the production process.
• The Machines shutdowns – When defects are generated, production is shut down until
the source of the defect can be solved.
• This helps ensure a culture of zero tolerance for defects and also prevents defective
items from working their way downstream and causing bigger problems downstream.
• For example, at Toyota any worker can shut down the production line. This also helps
ensure accountability by upstream workers.

116