DMBA 201 Production and Operations Management
DMBA 201 Production and Operations Management
1.1 Introduction
Production refers to the creation of goods and services for consumption by
the society. Such creation typically involves converting inputs to desired
outputs using different conversion or transformation processes. In fact, the
first step is to decide upon the desired outputs and then to identify the inputs
and the corresponding conversion processes. Production management
encompasses all those activities that enable conversion of a set of inputs
into outputs which are useful to meet the human needs. Figure 1.1 depicts a
diagrammatic representation of production management.
Production
Inputs Output
Management
Production
Planning
Production Control
Dispatching Expediting
Planned inventories are for the purposes of building up buffer stocks to cater
to unexpected demands or anticipated disruptions in the manufacturing flow
lines. However, they introduce costs which the management has to accept
for the safety it provides. But inventories cover up inefficiencies and
therefore have to be brought under control. Inventories also help in
decoupling the successive stages if, in case, any stage runs short of items.
Just-in-time and lean manufacturing methodologies were developed to
minimise wastage across the organisation. If a firm is optimistic about the
demand, then that firm increases their planned inventories. On the other
hand, if the demand is weak when compared to the expectations, then that
firm’s unplanned inventories are high.
1.2.3 Material control and material handling
Material control is a management function whereby procurement, storage,
and issuance of the storage material for purposes of manufacturing the
products or consumption are conducted. Typically, material control involves:
Formulating the policies regarding selection of suppliers
Determining the quantities to be ordered
Fixing the prices
Formulating the terms of delivery
Checking for obsolescence and unusable materials
Classifying the material using different criteria for better monitoring
Material handling refers to the activities that are conducted to provide
suitable and sufficient space for the materials that are stored either before
starting their usage or during their usage. It is also concerned with the
movement of materials. The equipments range from hand trolleys, forklifts,
hoists, cranes to automatic handling devices.
Output
Productivi ty
Input
While the above ratio may imply efficiency, productivity is the value added
for every unit of investment. Thus, it is value added upon cost.
Enhancement of productivity is achieved by either reducing the inputs for
the same output or increasing the output by using the same input.
Productivity can be calculated for:
A single operation
A functional unit
A department or division
A plant
Productivity is a measure of the efficiency of the system and looks at the
economies achieved during the processes. Every process will have a
number of contributors which help in achieving the maximum productivity.
The processes are people, machines, facilitating goods, ancillary
equipments, and technology. Each of these elements attempts to enhance
the contribution of other elements.
Opportunities exist at all stages of the workflow in the entire system to
introduce measures for increasing the productivity. However in actual
manufacturing situations, the inefficiencies will have a cascading effect in
hampering the productivity. Communication, effective review processes, and
innovative methods will ensure optimisation of resources. Building up
reliability into the equipments and managing the supply chain to economise
on the cost factors improves productivity.
Quite often, productivity may suffer because of several problems associated
with different elements of production. In such cases, quality circles are very
efficient in executing low cost projects by using non-intrusive methods of
improving productivity and quality throughout the organisation.
Quality circles:
Voluntary groups of employees who develop solutions to various
problems with less additional resources
Manipal University Jaipur B1627 Page No. 9
Production and Operations Management Unit 1
Involve all persons who are actually involved in the production system
and the information they elicit and bring about improvements that are
highly cost effective
Unveil creativity and encourage team work and bring about
improvements almost on a day-to-day basis
Bring continuous incremental changes in a harmonious way instead of
dramatic changes
Encourage identification of possible failures and seek methods of
preventing things going wrong
Case-let
In 1992, IBM in collaboration with an outsourced agent started the
TeleServices Center to provide customer services. Through this service
centers, IBM has provided an integrated and comprehensive marketing
service. It was organised into three groups.
1) The Customer Service Group handles simple enquiries and provides
customers with technical support and assistance solving complex
problems
2) The Telesales Group handles account management and sales of IBM
products and services that do not require field sales support
3) The Direct Marketing Group is responsible for generating new product
leads, upgrades, service contracts, and seminar attendance
The integration of the TeleSerivces Center within IBM has:
Reduced the cost of customer contact from $500 to $15. This is almost
a 97% reduction
Shrunk the field sales cycles up to 80%
Generated 125% of goal for leads
Exceeded customer expectations almost 80% of the time – according
to a customer service satisfaction survey
Similarly, Siemens ROLM in collaboration with an outsourced agent,
designed and implemented an on-site Client Call Center. Within a period
of six months, the company generated 116% of goals for sales leads,
grossed over $4.2 million in MAC sales and produced leads valued as
high as $1M.
[Source: http://callcentres.com.au/outsourcadv.htm]
Methods improvement
Methods improvement starts with methods analysis. The focus of this
process is to find out how a job is done and breaking it down to the
elemental tasks so that they are amenable for analysis. This is done for both
running jobs and new jobs. For a new job, the description becomes the input
for analysis. For current jobs, the analyst depends on observations, records,
and suggestions of the persons involved in the job. When improved
methods are suggested, they are implemented and records are created for
assessing the consequences of the methods improvement procedures.
The analyst should involve all concerned persons in the process so that
acceptance becomes possible and opportunities open up for further
improvements. Moreover, the people actually involved would be interested
in improving their productivity and will help the analyst in the process.
1.4.2 Balancing of workstations
Assembly lines carry out operations in a sequence so that the product gets
completed in stages. Since the workflow has to be uniform and operations
may require different periods for completion, the necessity of line balancing
is felt. Capacities at workstations are so adjusted that a product takes
approximately the same amount of time during each stage in the process of
assembly. The core part of line balancing involves establishing the suitable
cycle time and balancing the individual work stations in terms of the cycle
time.
1.4.3 Quality tools
Kaoru Ishikawa is the originator of fishbone diagrams to identify the root
cause of any problem. Figure 1.5 depicts an example of a fishbone diagram.
The causes for the existence of a problem are classified as pertaining to the
material, processes or method, or any factor that goes into production. The
matter is further investigated and pursued till the exact cause is determined.
Ishikawa further mentioned that the bulk of the quality related problems can
be solved by using 7 QC (Quality Control) tools, which include:
a. Flow charts
b. Pareto diagrams
c. Cause and effect diagrams
d. Control charts
e. Scatter diagram
f. Check sheet
g. Histogram
Case Study 1
Rookz Motors is one of the leading car manufacturers in India. The quality
and variety of cars manufactured enriched a stronghold in the Indian
market. In the year 1998, Rookz faced strong competition from foreign and
other automobile players who offered varied designs, products as well as
better technology. The only advantage that Rookz Motors had over the
other car companies was the cost factor. The prices of Rookz cars were
relatively less than those of its competitors. Finally, Rookz Motors began
to lose its market share.
The CEO of Rookz Motors called a meeting of the engineers and other
department leaders to discuss the market condition and the strengths and
weaknesses of Rookz and their competitors were discussed. To take the
company forward in a highly competitive market, he suggested that the
firm bring out new designs and models that would cater not only to the
middle class market but also increase the market share.
The new project was handed over to Rahul. Rahul asked the CEO for 4
months to analyse the financial needs and seek for the coordination of the
other departments. Rahul invited the other department officials to
participate and give suggestions regarding the time and resources needed
to produce such a car. However, Rahul was not ready with the design, and
he concluded that he did not have enough finance. He also stated that the
cooperation from the employees of the other department was lacking. The
CEO was disappointed.
The work was then handed over to Kiran Kumar. He was a specialist in
computer-aided design. When the work was assigned to him, the first task
that he undertook was to form a quality circle consisting of members from
the design, production, and other departments. The team consisted of ten
members. The members with their knowledge and coordination were able
to submit the design for a car model in two months. Their designed car
would cost around two lakh rupees. The CEO appreciated the efforts of
Kiran and his team and advocated the formation of more quality teams
that would not only help the firm in improving the quality of products but
also in increasing the coordination between the various departments.
Measurement of time required for any task is measured using motion study
and work measurement methods.
Motion study is an analysis of a specific job in an effort to find the most
efficient method in terms of time and effort.
Work measurement is the use of accurate observation and recording to
determine the time it would take for a qualified worker to complete a
specific job to a required level of performance.
Standards are set taking into consideration the differences in performance
by different workers and allowances for accommodating relaxation needs of
human beings. Periods during changeover of jobs, taking trials, inspecting,
and adjusting the tools are all factors that should be considered.
Monotony, difficult conditions, and complexity of work contribute to lesser
production. Reducing the stresses induced by these is a part of superior job
design. There are three steps involved in increasing the labour productivity.
1. Balancing operations in assembly line
2. Reallocation of workers
3. Setting up productivity norms and evaluation of production operations
Let us now discuss these three steps in detail.
Case Study 2
Anil and Ravi have a small company to assemble chairs from pre-cut chair
‘kits’. They hired three workers. There are three process involved in
assembling a chair:
1. Assembling the back rest
2. Assembling the frame (seat and arm rest)
3. Attaching the back rest and the frame
Each worker was assigned the task of assembling all the three processes
of the chair. They were each given a target of 30 chairs a week. Therefore,
the weekly target was 90 chairs a week. The workers could meet that
target.
The company flourished and the demand for chairs increased. To meet
the increasing demand with the same amount of workers, Anil and Ravi
had to devise a strategy.
According to their strategy, each worker was allocated the task of
assembling any one of the three processes. This strategy helped each
worker to specialise in the task he/she was performing, thereby, improving
the efficiency of the job. Thus, Anil and Ravi could increase production by
an additional 15 chairs a week.
1.7 Training
Job descriptions provide the details about the contents of a job which need
to be performed with efficiency. The person should be evaluated for his or
her knowledge level, skill level, and the behavioural aspect (attitude). Any
shortfall has to be corrected, and it is this process that we call training.
When the task is performed systematically under supervision and guidance,
the job gets done. The purpose of training is to enhance the performance so
that the overall objective of achieving the desired productivity is achieved.
Needs are assessed, gaps are measured, and the remedial actions are
planned. New methods, advanced technology, and latest equipments call for
training for those who use these. Training programmes enhance motivation,
which is an important attribute of a productive employee. It gives an
assurance to the manager and confidence to the employee. Different
methods are employed depending upon the needs, time, and budget.
Training also adds value to the workers’ contribution and thus paves the
way for career development, which every employee looks forward to. This is
a motivating factor and thus reduces attrition and assures better
performance. Entropy hampers the efficiency and training is necessary to
maintain even the existing levels of efficiency. When expansion
development is on the anvil, training is an efficient tool to make the process
efficient. Implementation of TQM and other change management
programmes depend on training for their success.
Self Assessment Questions
9. The personnel are equipped with a variety of skills that are required to
manage and sort out the problems on a day-to-day basis. (True / False)
10. The purpose of training is to enhance___________.
1.8 Summary
Let us recapitulate the important concepts discussed in this unit:
Production management encompasses all those activities that enable
conversion of a set of inputs into outputs
Production operations involve conversion of materials into saleable
products.
Productivity is generally expressed as the ratio of outputs to inputs.
Getting the maximum productivity depends on the utilisation of machines
most efficiently with a well-trained and motivated workforce.
Transferring of materials inside the operations area also has to be
optimised for efficiency.
Job descriptions are important to select, train, and deploy the personnel.
1.9 Glossary
Lean Manufacturing: Lean manufacturing involves never ending efforts
to eliminate or reduce ‘waste’ or any non-value adding activity in design,
manufacturing and distribution processes
Inventory: Quantity of goods and materials on hand; stock
Assembly line: An arrangement of workers, machines, and equipment
in which the product being assembled passes consecutively from
operation to operation until completed.
1.11 Answers
Terminal Questions
1. Production management encompasses all those activities that enable
conversion of a set of inputs into desired outputs. Refer section 1.1 and
1.2 for more details.
2. Procurement, manufacturing, maintenance, inventory management are
some of the functions of production management. Refer to 1.1 and 1.2.
3. Productivity is expressed as the ratio of outputs to inputs. Refer to 1.3.
4. Lack of expertise, quality considerations, nature of demand, and cost
factors may restrict outsourcing. Refer to 1.4.1.
5. The purpose of training is to enhance the performance so that the
overall objective of achieving the desired productivity is achieved. Refer
to 1.7.
Discussion Questions:
What do you think are the reasons for low productivity in India?
What suggestions do you offer to improve the situation?
Can you compare and analyze India’s productivity with respect to other
countries?
Reference:
Rishi Joshi. India's Bane: Low productivity. Business Today. September
3, 2007
E-Reference:
http://callcentres.com.au/outsourcadv.htm. Retrieved on 25, November
2011.
2.1 Introduction
In the previous unit, we dealt with integrated production management,
system productivity, capital productivity, labour productivity, personnel
productivity, and training. In this unit, we will deal with operations strategy,
tools for implementation of operations, and industry best practices.
Operation management is the systematic design, direction, and control of
the processes that transform inputs into services and products for the
customers. It goes from one side with suppliers and ends with customers. It
covers the entire value chain. It encompasses all management activities
using resources such as:
Plants – The factory and the location where all the activities take place.
It includes machinery and heavy equipments
People – Direct or indirect workforce
Parts – The components, sub-assemblies, or even products
1
Fig. 2.1: Links between the Factors of Operations Management
1
Operations Management, Krajewski and Ritzman – Prentice Hall India (7th Edition, 2004)
Quality – Quality is the driving factor for any organisation. When buying
a product, a customer will always think about the value of the money he
or she is investing. Even if the price of the product is high, the quality of
the product will provoke the customer to buy it. Typical examples of
companies focusing on quality are Amway, Coco-Cola, Pepsi,
Tupperware, Sony, BMW, etc. Many Indian companies coming under
Tata group and automotive products manufacturers like Maruti Suzuki,
Rane (Madras) have won awards for providing high quality products.
Quality also includes cost competitiveness by various methods like Just-
In-Time (JIT), lean manufacturing, Total Quality Management (TQM),
and Total Productive Maintenance. Quality enables the firm to be
competitive, but more importantly, helps the company to remain stable.
Time – Time aspect considers that deliveries are made on time to meet
the customers’ expectations. Time taken to develop and market new
products is becoming very critical in the global environment. To seek
more business, organisations should reduce the time taken for each
factor during operations. The organisations mainly focus on reducing the
time for the elements. Time is also interpreted as “speed of response” to
any call from the customer, be it for post-sales service or new product
development or maintenance. Figure 2.3 depicts the factors to be
reduced during operations.
Remember
Operations strategy takes under its umbrella the quality of the product or
service, time taken to deliver the product, and flexibility to meet the
changing demands of the customers.
customer focus, total quality, and concern for environment will always be
followed. A business strategy is the result of a decision taken at the highest
level. This outlines how the resources are deployed to achieve the goals in
an environment. A general framework to guide and activate the think-tanks
in the organisation is to come up with proposals. Action plans with time
frames, authority hierarchies, and feed-back mechanisms are formulated
and designed. At this stage, detailed scenarios as to the likely
consequences are considered and contingency plans are worked out for
implementation, if situations call for the same. Being in readiness with
alternatives is a good way of assuring the success of any plan.
For example, the production of a model of motor cycle is to be increased by
25% and the price is to be reduced by 10%. This decision would have been
taken as a strategy to meet the increasing demands which are real in order
to fulfil the following:
Enter a niche market of the competitor
Augment marketing department’s claim after a vigorous sales campaign
Any other reason
The strategy for the marketing function would be many like promising
freebies, making the commission attractive for the dealer, or opening more
service outlets. The objective of an operations strategy is to achieve the
long-term goals established by the business strategy. The operations
strategy would consider the following constraints:
Subcontracting or including additional machinery
Improving productivity using different methods
Revamping assembly lines
Motivating the employees
Promoting existing employees or hiring new ones
Identifying and developing new suppliers
Looking for opportunities to reduce costs as scaling up provides scope
The above measures will be under consideration at all times. When a
change is considered, identification of areas of cooperation and
collaboration becomes easy. Opportunities arise for understanding and
resolution of problems. Setting up visible targets to meet the deadlines
encourages application of ‘constancy of purpose’ as per Deming. This in
itself would be a strategy for improving quality and productivity. In addition, it
is relevant to note the current trends and changes and switch over to
appropriate actions.
2.2.2 Strategic decision making
Decision making is the most crucial management function. Decisions
commit the organisation and its members to activities which have financial
repercussions and affect the functioning of other departments or divisions.
Therefore, decisions are taken after lots of deliberations which involve steps
like data gathering, analysis, and predicting outcomes. Figure 2.4 depicts
planning and decision making.
Accuracy of data and their relevance for the matter under consideration are
the factors which affect the quality of decisions. In addition, the following
factors also form the basis of decision making:
Boston Consulting Group (BCG) has classified four types of industries and
the approaches available. Figure 2.6 depicts the classification of industries
according to BCG.
Another useful framework to identify the product portfolio is the BCG matrix
that classifies the product offerings along a two dimensional matrix in terms
of growth and market share. This analysis enables a company to prioritise
its product mix to ensure growth and revenue. (Source: QuickMBA.com)
Size of advantage vs. number of approaches to achieve advantage
When the volume of the industry is large, the advantage for a firm is high,
but the number of approaches is small. On the other hand, if it is
fragmented, the size of the advantage is small, and the approaches are
many. The options available and the quantum of advantage are the
considerations for any strategy. For products differentiation, we consider
form, features, and the quality of performance. By form, we mean the
shapes, dimensions, and aesthetics which determine the physical aspects of
the product.
The components and parts that are integral to the product may not be visible
but will have suitable and easy forms for assembly, identification, extraction,
insertion, and inspection. This is necessary for making a product serviceable
and repairable to meet the customers’ needs. The dimensions are optimised
for safe use, safety, and durability.
Aesthetics is the ultimate differentiator to attract the customer and make him
comfortable using it. Features contribute for differentiation to a large extent.
It addresses the requirements of the customer in such a way as to make the
products meet them in a way that the competitors do not. Again,
performance is looked at from the point of view of reliability, durability, and
reparability.
Any organisation in the manufacturing or the service sector has to develop a
strategy and ensure sustainability through competitive environment.
Strategy is not static but varies with time and changes in environment.
Particularly when changes are occurring rapidly, strategy needs to be
frequently revised and modified. This further demands innovative abilities
and persistence.
Self Assessment Questions
1. ____________ is the systematic design, direction, and control of the
processes that transform inputs into services and products for the
customers.
2. A business strategy is the result of a decision taken at the highest level
which outlines how the resources are deployed to achieve the goals.
(True / False)
Tax to be paid
Others
The bills payable section will have to verify the data regarding the above
and seek the inspection reports from the quality control department/user.
Before the actual payment is made, verifications such as the terms of
payment and availability of funds are done. Verification will help you to
notice the following:
Information is sought or given
Materials received and transferred
Papers/instructions are received/issued for initiating activities
All these are also operations. However, for our study, we will limit our focus
to operations involving manufacturing. We identify a set of specialised
techniques. We call them tools which can be standardised for ease of
implementation and control. In the recent times, operations are considered
from end to end of value chain which means the operations that start from
sourcing of materials and other inputs to successful delivery of products to
customers or end users.
2.3.1 Implementation of operations
Implementation is the process of executing the planned operations. When
planning and controlling functions are put together, we call it as
Implementation of Operations.
The planning is the process of estimating, routing, and scheduling. The
controlling functions are conducted while the manufacturing is going on, like
dispatching and expediting. Figure 2.7 depicts the implementation of
operations.
software, especially SAP, have many modules that store, sort, and analyse
data and make them available to the staff across the globe in many plants,
enabling managers to streamline their operations. Software specific to
functions, applications, or organisation can be obtained. Microsoft
Operations Manager 2005 is a useful tool in this regard. Figure 2.8 depicts
Microsoft Operations Manager 2005.
Case-let 1
MakTel is a national telecom provider. The customer utilisation of ISDN
was less; therefore, the company faced poor sales of ISDN services for
several years. Also, the quality of service delivery was low. The company
applied Pareto analysis to extract the reasons for the failures in service
delivery. The analysis showed that the problem is poor quality of network
terminals and unqualified technicians for provisioning of the ISDN
service. MAkTel rectified the problems and energised the company sales.
Case-let 2
In the recent times, technology is intensively used to track the processes
that are part of the value chain. Radio Frequency Identification (RFID)
helps in tracking and monitoring the flow of goods as they travel through
the entire line. Gillete company uses RFID exclusively for razor blade
movement in cases and pallets from manufacturing centres to customers’
place through distribution centres. The company claims an operational
savings of more than 20%. As stated in infoworld.com, dated 15-08-2005,
Gillette, RFID has improved order processing, streamlined inventory
management systems, and increased shipment accuracy, according to
Dick Cantwell, the company's vice president of global value chain.
Manipal University Jaipur B1627 Page No. 38
Production and Operations Management Unit 2
Steps in benchmarking
Planning, analysis, integration, and action are the four steps recognised in
the process of benchmarking. The select criteria are compared with the
performance parameters of the company which is considered the best in the
industry. Targets are set and activities are conducted to reach them. Let us
discuss in detail about the steps which are necessary for conducting a
benchmarking operation.
Planning – Planning determines the process, service, or the product to
be benchmarked on which metrics are assigned for collection of data.
Analysis – Analysed data gives inputs for comparison with the target
company’s performance on the parameter benchmark on which data
was collected. Measuring gaps helps in identifying the process which
should be improved for reaching the benchmark.
Integration – Resources are required across all functions to achieve the
target needs. Integration involves putting together resources like people,
equipments, and communication, so that, progress is unhindered and all
activities reach their logical conclusions without loss of initiative or time.
Action – When changes are needed, actions have to be planned
according to the steps earlier stated. The teams are provided with
necessary leadership, authority, and supporting facilities to enable them
to complete all activities within the time frame set for the purpose. Since
benchmarking is done in specific areas, it is necessary to maintain the
focus and implement actions without losing initiative, so that, results
become demonstrable.
Remember
Pragmatic benchmarking is a method of measuring a company’s
processes, methods, and procedures in a way that all functions in great
detail.
2.5 Summary
Let us recapitulate the important concepts discussed in this unit:
Operation management is the systematic design, direction, and control
of the processes that transform inputs into services and products for the
customers.
Optimisation of operations is vital to enable the firm to be competitive.
Operations function should be guided by strategies which are consistent
with the organisation strategy.
Strategy is very important for the operations because it guides the
managers in implementing policies which have long-term implications for
productivity, quality, and customer satisfaction.
It is imperative that we measure up to the best in the industry by
benchmarking and being competitive.
2.6 Glossary
Strategy: plan for achieving the goals and objectives in best possible
way
Environmental scanning: monitoring of organisation’s internal and
external environment for detecting opportunities and threats
Core competencies: unique ability that the organisation acquires that
cannot be easily imitated
2.8 Answers
Terminal Questions
1. Refer 2.1 and 2.2
2. Refer 2.2 and 2.2.1
3. Refer 2.2.2
Manipal University Jaipur B1627 Page No. 43
Production and Operations Management Unit 2
4. Refer 2.2.3
5. Refer 2.3 and 2.3.1
6. Refer 2.4
However the competitors are not quietly watching. The second biggest
tractor manufacturer, TAFE group, had a decent growth of 17%, led by its
most famous brand Massey Ferguson (also the name of its partner). This
brand enjoys very good brand equity among tractor buyers. TAFE’s
acquisition of Eicher’s Tractor Division (way back in 2005) has also helped it
to grow both in terms of volumes and technology.
(Sources:
http://www.researchandmarkets.com/reports/607322/tractor_market_in_india_
an_analysis
http://www.mahindratractorworld.com/
Bhandar, Bhupesh (2010), Collaborative Competition, The Strategist, Business
Standard, 27 December 2010.)
Discussion Questions:
1. What are the objectives that Mahindra and Mahindra had in mind when
they noticed their position in the tractors’ market?
2. What strategies are followed by Mahindra and Mahindra in reaping
success in the tractors’ market?
3. What other strategies might have been followed by Mahindra and
Mahindra to accomplish their objectives?
4. Is “merger and acquisition” a good strategy? Under what
circumstances? Discuss with relevance to operations management.
References:
Krajewski and Ritzman, (2004) Operations Management, 7th Edition,
Prentice Hall India.
Operations Management, Krajewski and Ritzman – Prentice Hall India
(7th Edition, 2004)
Miland M.Lele, Creating Strategic Leverage: New York, John Wiley
1992)
E-References:
www.QuickMBA.com. Retrieved on 23, November 2011.
3.13 Case-let 2
3.14 Summary
3.15 Glossary
3.16 Terminal Questions
3.17 Answers
3.18 Answers to Caselets 1 & 2
3.1 Introduction
In the previous unit, we dealt with operations management and strategy,
tools for implementation of operations, and industry best practices. In this
unit, we will deal with operations strategy as a competitive weapon;
competitive capabilities and core competencies; linkage between corporate,
business, and operations strategy; developing operations strategy; elements
or components of operations strategy; competitive priorities; manufacturing
strategies; service strategies; and global strategies and role of operations
strategy.
To succeed in a competitive business environment, organisations should
evolve sound strategies with which they can achieve their business
objectives. The strategies that are planned for implemention should be long
term and broad based to achieve the set of objectives. The normal practice
is to develop organisational strategies at three levels of operations namely
a) corporate level, b) business level, and c) functional level.
While the corporate strategy looks into organisational goals, developing the
core competence and achieving the competitive advantage for their
products, the business level strategy looks at market segmentation and
competitive priorities to be considered for their products or services. The
functional level strategy looks at operations to produce these products by
managing the capability, productivity, quality, flexibility, cost of production,
delivery, and finally after sales and services.
Organisations achieve competitive advanatge over its competitors by
providing products or services that meet the customer requirements of cost,
quality, performance, durability, etc. The corporate strategy determines the
customers to be served, the new products or services to be produced, and
the suitable strategies to be met in competitions from both domestic and
international markets.
Competitiveness is one of the crucial factors that decides the survival and
growth of a firm. This competitiveness is how effectively an organisation
meets the needs of its consumers as compared to its immediate
competitors. For such competitions, the organisations look into their
operational strengths and equip themselves effectively to use their strengths
and opportunities as competitive weapons.
These competitive weapons are explained below in detail.
3.4.1 Product/services expertise
Expertise gained through operational strengths in the areas of functionalities
and process capabilities will make them the market leaders for such
products.
3.4.2 Quick delivery
The flexible capacity built into the production line and the process adopted
to produce and supply in time will all together provide the much desired
customer satisfaction. This strategy will help sustain the product and its
market lead.
3.4.3 Flexibility in production
The organisation has to develop a capability for change. The adaptation to
change begins with environmental scanning by which trends can be
monitored to suit the needs of the society. There may be a threat to the
product if competotors gain an edge over the broadening product lines,
improved quality, or lowering costs. New entrants into the market or
competiitors offering substitute product may also throw challenges to the
dominant product. To counter this, the desired flexibilty in production must
be built in and operations strategy must be modified accordingly.
3.4.4 Low cost production and processes
The unit cost of each product is required to be lowered to meet the
competition. The cost review on labour, material, and overhead costs of
production lines are to be assessed. An organisation with an efficient and
effective production system will provide such feasibilities to reduce costs.
The operations strategy should also facilitate the processing of products at
lower costs.
Figure 3.1 above depicts how the operations strategy is developed under
the umbrella of the corporate strategy. It shows the factors that go into the
operations strategy and shows the link between the corporate, business,
and the competitive priorities under the operations strategy. Here, the long-
term operation’s strategic decisions are directly connected to developing
new products, determining production capacity, establishing facilities,
adopting new technologies, locating plants appropriately, and taking suitable
decisons on building and sustaining the quality of products.
The operations strategy translates the product plans and competitive
priorities into decision making processes. The operation decisions
determine the processes required to handle the volume and variety to be
produced for each market segement. Hence, these decisions govern the
design of the processes, systems, and the procedures that help the
operations strategy.
Selection of the market is another key element. To suit the market
requirements, operation managers develop appropriate processes and
designs to achieve the set objectives. The operations strategy should be
flexible enough to support a product or service throughout its life cycle and
for future changes in the market demand. The operations strategy should
also be consistent with the other functional strategies of marketing, finance,
and human resources.
3.8.4 Flexibility
Flexibility is the ability to provide a wide variety of products, and it measures
how fast the manufacturer can convert its process line used for one product
to produce another product after making the required changes. The two
types of flexibilities are:
Customisation
Volume flexibility
While customisation is the ability of the firm to satisfy the specific needs of
each its customer, the volume flexibility is the ability to accelerate or
decelerate the rate of production to handle the fluctuations in demand. For
example, the production of fertilisers of different specifications and
applications.
Joint venture
Joint venture is an agreement between the two firms to produce jointly. This
approach is used to gain access to foreign markets and quickly promote
their interest. Here, the outside firm supplies the technology and expertise
and the local firm provide the required resources for the operations,
processing, human resoucres, infrastructure, etc. For example, Maruti
Suzuki, Hero Honda, etc.
Technology transfer and licencing
Technology transfer is the term used to describe the processes by which
technological knowledge moves within or between organisations. The
technological knowledge that is transferred can assume various forms. It
can be embodied in goods (including physical goods, plant and animal
organisms), services and people, and organisational arrangements, or
codified in blueprints, designs and technical documents.
Licensing is a business arrangement in which one company gives another
company permission to manufacture its product for a specified payment.
While licensing agreements are mainly used in commercialization of a
technology, they are also used by franchisers to promote sales of goods and
services.
3.11.2 Locating the operations abroad and after sales support
Locating the manufacturing operation in a foreign country is another way of
penetrating the new markets. Since economical and political environment
will be different and the customer’s needs vary, it is essential for firms to
have a detailed techno-economic survey before planning the entry. The
operations strategy will be different from what the company is presently
practising. If it is a standardised product to be sold in the foriegn country, the
methodology and operational strategy could be the same. For example,
McDonalds, Domino’s Pizza, etc.
Self Assessment Questions
1. Select correct answer out of the alternatives given
i. While formulating the corporate objectives, the manager considers
a) Market conditions
b) Political and social environments
c) Economic environment
d) All the above
ii. Nirma manufactures different varieties of soaps for the market and
the production system followed is a
a) Customised production
b) Standardised production
c) Stock-to-order
d) Assemble-to-order
iii. When products are produced well in advance and stored for
marketing, the operations strategy is known as
a) Produce-to-stock
b) Produce-to-order
c) Custom-to-order
2. Which of these is not an operation strategy?
a) Production systems
b) Product plans
c) Collaboration for production
d) Process decisions
e) Capacity decisions
3. Fill up the blanks with appropriate word/words
i. Operations strategy is defined as the set of decisions that are
warranted in the operational processes, which supports the
_____________ of the business.
ii. The six elements of operations strategy that has a direct bearing on
the corporate strategy are:
1) Designing of the production system
2) Facilities for production and services
3) ________________________________
4) Technology selection, development, and process development
5) Allocation of resources
6) Focus on facilities planning
iii. The following three manufacturing strategies are dominant in
industries:
1) Make-to-stock
2) ____________________
3) Make-to-order
3.12 Case-let 1
3.13 Case-let 2
3.14 Summary
Let us recapitulate the important concepts discussed in this unit:
Operations strategy is a decision making process of selecting the
suitable manufacturing strategies and manufacturing priorities. This
exercise will enable the organisation to respond to the market needs in
the most effective manner by aligning the resources and activities of the
organisation to deliver the products that are likely to succeed in the
market.
Operations strategy involves planning, organising, and allocating of all
the resources to gain the competitive advantage.
Operations strategy is defined as the set of decisions that are warranted
in the operational processes which supports the competitive strategies
of the business. It is a long-range business plan for the company’s
products and will provide a road map for the operational functions to be
pursued for achieving business strategies.
Strategic decisions include capacity building; evolving production
systems, type of processes, manufacturing technology to be adopted,
nature of products to be produced, type of material flow and other
logistics, and the means to achieve the required level of performance.
Corporate strategy involves monitoring and making changes to suit the
external environment and exploiting the core competencies.
Competitiveness is one of the crucial factors that decides the survival
and growth of a firm. Organisations will look into their operational
strengths and use them effectively as competitive weapons.
There are six elements of operations. They are designing of the
production system; facilities for production and services; product or
service design and development; technology selection, development,
and process development; allocation of resources; and focus on facilities
planning.
Operating strategy should also analyse the competitive priorities like
cost, quality, time, and flexibility which are the capabilities to be built in
to meet the market expectations.
The three dominant manufacturing strategies are make-to-stock
strategy, assemble-to-order strategy, and make-to-order strategy. These
systems are practised for categories of batch production; mass
3.15 Glossary
Cash cow products: Cash cow products provide lots of cash for the
firms. They have high market share, and they are always in the growing
market.
Competitive advantages: Organisations achieve competitive
advantages by providing their customers what they want and better or
more effective products than their competitors and take the lead
Core competence: The organisation’s resources and capabilities are
the sources of their unique competencies
Customisation: Customisation is the ability of a firm to satisfy the
specific needs of each customer.
3.17 Answers
References:
Frazier, G., and Gaither, N. (2002). Operations Management . South
Western/Thomson Learning.
Ronald, E. J. And Everett, A.E. (2009). Production & Operations
Management. Phi Learning.
Unit 4 Forecasting
Structure:
4.1 Introduction
Objectives
4.2 What is Forecasting?
4.3 The Strategic Importance of Forecasting
Human resources
Capacity
Supply chain management
4.4 Why Forecasting is required?
Benefits from forecasts
Cost implications of forecasting
Decision making using forecasting
4.5 Classification of Forecasting Process
4.6 Methods of Forecasting
4.7 Forecasting and Product Life Cycle
4.8 Selection of the Forecasting Method
4.9 Qualitative Methods of Forecasting
4.10 Quantitative Methods
What is time series?
Naïve method
Moving average method
Weighted moving average
Exponential smoothing method
4.11 Associative Models of Forecasting
4.12 Accuracy of Forecasting
Mean Absolute Deviation (MAD)
Standard Error (SE) of estimate
4.13 Summary
4.14 Glossary
4.15 Terminal Questions
4.16 Answers
4.17 Case Study
4.1 Introduction
In the previous unit, we have dealt with the concepts of operations strategy,
competitive capabilities and core competencies, operations strategy as a
competitive weapon, linkage between corporate, business, and operations
strategy, developing operations strategy, elements or components of
operations strategy, competitive priorities, manufacturing strategies, service
strategies, and global strategies and role of operations strategy. In this unit,
we will deal with the concepts of forecasting, the strategic importance of
forecasting, why forecasting is required, classification of forecasting
process, methods of forecasting, forecasting and product life cycle, selection
of the forecasting method, qualitative and quantitative methods of
forecasting, associative models of forecasting, and accuracy of forecasting.
Every business activity aims to satisfy some needs and wants of the society
and hence tries to gauge the demand. Only when the demand is properly
understood and predicted with sufficient accuracy, it becomes possible to
develop and utilise the resources to cater to such demands. Thus, for any
business activity to be started, the first step would be to predict the demand
and then to develop the plans towards meeting the demand either partially
or fully. Hence, it is correctly said that forecasting the demand is the first
step and demand forecasting drives all the other activities of production
systems which include human resource planning, aggregate planning,
capacity planning, and scheduling. Even if a company decides to position
itself in a certain way, it has to have done forecasting. Thus good forecasts
are of critical importance in all aspects of a business.
The forecast is the only estimate of demand until the actual demand
becomes known. However, forecasts are seldom perfect because the
demand for a certain product or service is a complex function influenced by
a multitude of variables. Many of these variables are not controllable and
even not properly evaluated in terms of magnitude and frequency. This
means that outside factors which are not known to us or properly predicted
or controlled impact the forecast tremendously. Hence, it is essential to
allow for this reality. In other words, expecting an accurate forecast is self-
defeating.
Most forecasting techniques assume that there is some underlying stability
in the system, which is not the case always. Hence, product family and
aggregated forecasts are more accurate than individual product forecasts.
Objectives:
After studying this unit, you should be able to:
define forecasting
explain the importance of forecasting
explain when to use the qualitative models
apply the different methods of forecasting and compare the results
compute the measures of forecast accuracy
identify special cases like causal and seasonal models
use a tracking signal for checking the accuracy and efficiency of
forecasting
even resemble a kind of a wild guess or may involve extensive data analysis
involving several parameters. Sometimes, it may involve a combination of a
mathematical model adjusted by a manager’s good judgment.
Forecasting is synonymous with estimating and prediction, though
forecasting is considered to be more scientific rather than a crude or vague
guesswork.
example, the government’s import policy drastically affects the capacity and
thus any industry hoping of increasing the demand and expanding the
capacity will face a major threat and possible loss.
4.4.3 Decision making using forecasting
Forecasts are always subject to uncertainty because of the changing
environment and hence, any attempt to improve the forecast accuracy only
increases the cost but not the accuracy. Keeping this in mind, the
managerial decision makers adopt the following rule:
Actual decision = Decision assuming forecasting is correct + Allowance for
forecast error.
Further to account for the uncertainty and provide allowance, it is necessary
that the forecast output contains two numbers as follows:
1) Best estimate of the demand + 2) Error
Again the question, how much of error can creep in the forecast? It is
difficult to answer. However, the error in forecast is easy to calculate once
the actual demand is known.
Forecast error = Actual demand - Forecast demand
Figure 4.2 depicts the process of forecasting and the associated factors.
Quantitative methods
Table 4.1: Quantitative methods classification
Time series analysis Causal methods
Case-let
Discussion Questions:
a. What forecasting method might be suitable for the LCV segment?
b. How do you differentiate between poor growth in the short term and
promising growth in the long term?
In the time series methods, one set of data or several sets are analysed to
obtain the forecast. In the causal methods, the association between two
variables forms the basis for forecasting.
4.10.1 What is a time series?
A time series is defined as a set of values pertaining to a variable collected
at regular intervals (weekly, quarterly, or yearly). For example, the
temperature recorded every one hour is time series. Similarly, the annual
rainfall or agricultural output forms a time series. However, it is to be noted
that to draw a reasonable conclusion, at least observations should be
available. With very little number of values, say 7 or 8, the forecasts will not
be accurate.
A time series consists of four components namely:
1) Trend
2) Cyclic
3) Seasonality
4) Random
Manipal University Jaipur B1627 Page No. 81
Production and Operations Management Unit 4
1 2 3 4 5 6 7
Year 2007 2008 2009 2010 2011 2012 2013
Number of small
9 14 17 23 26 31 35
car offerings
Using the naïve method, the forecast for the year 2013 is 31.
Every time an old period data is dropped and the new period data is
included to get the average. Therefore, the next three-year moving average
= (14+17+23)/3 = 18
This calculation is continued.
Similarly, the five-year moving average for the first five periods =
(9+14+17+23+26)/5 = 17.8
The next five-year moving average = (14+17+23+26+31)/5 = 22.2
Table 4.4: Moving averages
1 2 3 4 5 6 7
Year 2007 2008 2009 2010 2011 2012 2013
Number of small
9 14 17 23 26 31 35
car offerings
Moving average
13.333 18 22 26.667 30.667
3 periods
Moving average
17.8 22.2 26.4
5 periods
To decide upon the number of time periods, the following guide line may be
used:
(AP = Averaging Period)
Table 4.5: Guide line
Noise Dampening
Impulse Response Accuracy
Ability
AP = 3 Low High Low
AP = 5 Medium Medium High
AP = 7 High Low Medium
Noise dampening refers to the ability to smooth out the variations. Impulse
response enables to detect immediate changes and accuracy implies
minimum forecast error.
Drawbacks of moving average methods:
All the past periods in the averaging period are weighted equally
No provision is made for seasonal patterns
Sales in lakhs of
Month
Rupees
Jan 90
Feb 70
Mar 80
Apr 85
May 82
June ?
Simple moving average (4 months average)
Forecast for the month of June = ¼ [70+80+85+82] = 79.25 lakh of Rupees
Here the weights are = 1/4 for all the values.
Weighted moving average (Using weights 0.1, 0.2, 0.3, 0.4)
Forecast for the month of June
= 0.1 X 70 + 0.2 X 80 + 0.3 X 85 + 0.4 X 82 = 81.3 lakh of rupees
This simple modification to the moving average method allows forecasters
to specify the relative importance of past periods of data.
Simple Multiple
Linear Y= a +b x Y=a+bx1+cx2+dx3
Non-linear Y= a+bx2 Y=A+BX1+CX22+DX33
The forecasting procedures using regression involves the following steps:
1. The variables are plotted along Cartesian or rectangular coordinates
2. A trend equation is developed
3. The equation is used for forecasting
4. The variables are not necessarily related on a time basis
The most popular form of the simple linear regression equation is Y = a+bX,
where
Y= Dependent variable
X= Independent variable
a = Y intercept
b = Slope
For a unit change in the value of X, a change in the value of Y occurs in a
straight line manner and hence, it is easy to predict the values.
To find the values of constants a and b, the following equations are used:
∑y = na + b∑x
∑xy = a ∑x +b∑x2
Solving the above two equations, the values of a and b are obtained and
then substituted into the regression equation along with the value of X and
the value of Y is determined.
Example:
A departmental store has collected data about sales figures and profits
during the last 12 months. Obtain a regression line for the data and predict
the profit when sale is 10 Rs. lakh.
First plot the data and decide if a linear model is reasonable (i.e. do the
points seem to scatter around a straight line?) Next compute the quantities
∑x, ∑y, ∑xy and ∑x2.
Let linear regression equation is Y = a+bX, where
Y= Dependent variable, profit
X= Independent variable, sales
a = Y intercept
b = Slope
The following table is constructed:
Table 4.9: Table Construction for regression
2 2
X Y XY X Y Ŷ
7 15 105 49 225 16.15
2 10 20 4 100 8.186
6 13 78 36 169 14.558
4 15 60 16 225 11.372
14 25 350 196 625 27.302
15 27 405 225 729 28.895
16 24 384 256 576 30.488
12 20 240 144 400 24.116
14 27 378 196 729 27.302
20 44 880 400 1936 36.86
15 34 510 225 1156 28.895
7 17 119 49 289 16.15
Total ∑ 132 271 3529 1796 7159
where
y = values of the dependent variable
yest = Estimated values from the estimating equation that correspond to each
Y value.
n = number of data points used to fit the regression line.
It is important to note that the error values should be as low as possible
while making comparison and selection.
4.13 Summary
Let us now summarise the key learnings of this unit:
For any business activity to be started, the first step would be to predict
the demand and then to develop the plans towards meeting the demand
either partially or fully. This process of estimating is called forecasting
Forecasting basically helps to overcome the uncertainty about the
demand and thus provides a workable solution.
Supply chain management refers to all the activities that enable the right
product at the right place at the right price. Hence, demand forecasting
has to be done with utmost care to help identifying the vendors, pricing
choices, and material options.
Forecasting is broadly classified as quantitative and qualitative
Market survey, Delphi method, historical analysis are some of the
qualitative methods of forecasting
The quantitative methods are divided into two groups. They are time
series analysis and causal methods.
4.15 Glossary
Survey: A detailed study of a market or geographical area to gather
data on demand for a product or service, attitudes, opinions, satisfaction
level, etc
Questionnaire: A form containing a set of questions submitted to
people to gain statistical information
4.17 Answers
Terminal Questions
1. Refer to section 4.2
2. Refer to section 4.3 and 4.4
3. Refer to section 4.4.1
4. Refer to section 4.10
5. Refer to section 4.12
Discussion Questions:
1. Which model of forecasting do you suggest for plastic industry?
2. How do you factor in the Chinese threat and the environmental issues in
the growth of the industry?
3. If you are a manager in the plastic manufacturing industry, how do you
react to the positive and negative factors to the growth of the industry?
References:
Heizer, J. H. and Render, B. (2008). Operations Management. Flexible
Version, Pearson Prentice Hall, 2008.
Bana, S. (2011). It’s a plastic world, Business India. August 21, 2011.
pages 106-108
E-References:
www.icra.in . Retrieved on 23, November 2011.
saber.uca.edu. Retrieved on 23, November 2011.
5.1 Introduction
In the previous unit, forecasting, we studied that forecasting the demand is
the first step for any business activity and demand forecasting drives all the
other activities of production systems which include human resource
planning, aggregate planning, capacity planning, and scheduling. A plant
location cannot be changed frequently since a large capital needs to be
invested to build the plant and machinery in the selected area. Therefore,
before selecting a plant location, a long range forecasting is to be made to
foresee the future needs of the company. In this unit, location strategies, we
will learn about the various methodologies used to select the location of the
plant, the flexibility in location choice, the trends and practices across the
globe and also techniques available to determine the location for a particular
type of industry.
Location identification for an organisation is an important strategic level
decision taken by the top management. It involves planning and
management of the plant location. Location decisions are strategic decisions
that bind the organisation to a certain place. Hence utmost care has to be
taken while selecting the location.
for the future. These considerations are vital for the success of any firm. To
deeply understand the importance of planning in operations management,
we consider the planning of the location first and later planning of the layout
in the next unit.
Before looking at the planning process
Selecting a location to a large extent is governed by the flexibility factor
based on the type of industry or service. While some industries are
completely dependent upon the location for survival, other industries may
have varied degrees of flexibility. Flexibility in choice is obviously an
advantage and a better decision can be taken. Figure 5.1 depicts the
flexibility in choice.
In this section, let us study in detail about the factors influencing plant
location.
5.2.2 General factors
The general factors that influence the plant location are listed as follows:
Availability of land – Availability of land plays an important role in
determining the plant location. On several occasions, our plans,
calculations and forecasts suggest a particular area as the best to start
an organisation. However, availability of land may be in question. In
such cases, we will have to choose the second best location.
Availability of inputs – While choosing a plant location, it is very
important for the organisation to get the labour at the right time and good
quality raw materials. The plant should be located:
Near to the raw material source
At the market place
Close to the market when universally available, so as to minimise the
transportation cost
Case-let 1
Pavan is planning to start an industry in India. He has four options to
locate the plant, Chandigarh, Bhopal, Bangalore, and Cochin. He used
the rating plan method to select the best location suitable for his business
needs. Pavan initially listed important factors of the business need (See
column 1 of table 5.1). According to the rating plan method, in column 2
of the same table, he has given the proportional values for each factor in
percentages. For example, the proportionate values given to the factors
are 20%, 15%, 20%, 15%, etc. The total of the proportionate value is
100%. Table 5.1 depicts the rating plan approach used by Pavan.
Table 5.1: Rating Plan Approach
Proportional
Factors Chandigarh Bhopal Bangalore Cochin
Value % age
Availability of 20 20 10 15 05
labour
Raw material 15 15 10 15 10
sources
Market 20 20 20 15 10
proximity
Site 15 10 10 15 10
Government 10 5 10 5 10
policies
Infrastructure 10 10 5 10 5
for employees
Scope for 10 10 10 5 5
expansion
Total 100 90 85 80 55
When individual ratings are given to the factors for each city (See
Column 3, 4, 5 & 6 of Table 5.1) we see that Chandigarh has maximum
rating (90 out of 100) and therefore, Pavan has chosen, Chandigarh for
locating the plant.
Factor rating method – In factor rating method, each of the factors for
location is rated and the rating of the competitive locations is considered.
Then, the products of the rating are added and the location which gets the
maximum product of rating is selected.
Now, let us consider an example for better understanding the factor rating
method. Table 5.2 depicts the factor rating and location rating of three
locations.
Example 1
Table 5.2: Example of Factor Rating Method
Location Product of
Sl. Factor rating rating
Factor
No. rating
A B C A B C
1 Suitability of labour 6 8 6 5 48 36 30
2 Proximity to suppliers 7 6 9 6 42 56 42
3 Transportation facilities 5 8 7 9 40 35 45
4 Tax advantage 4 3 8 7 12 32 28
5 Power 7 8 6 9 56 42 63
6 Water 6 8 8 8 48 48 48
7 Housing 3 5 7 9 15 21 27
8 Education 4 6 6 8 24 24 32
9 Climate 3 5 9 6 15 27 18
10 Community 3 5 6 5 15 18 15
11 Availability of land 5 6 8 7 30 40 35
12 Owner’s preference 3 4 6 5 12 18 15
Total score : 357 397 398
However, we find that both B and C have almost the same total. In such
cases, personal preference or reconsideration of any of the factors may be
advisable. So, one of these places for setting up the plant is chosen. This
rating method is amenable to the consideration of various other factors
which are relevant for locating the plant. The decision may even be
changed, looking into the expansion programmes or the development of
nearby places, which may be suitable for a particular industry.
Case-let 2
Ravi is planning to start a new industry in India. For locating the plant, he
tabulated the factor rating and the location rating of 2 locations - Goa and
Cochin. Find the best location based on the factor rating method with the
details depicted in table 5.3.
Table 5.3: Factor Rating Approach
Solution
Table 5.4 depicts the factor rating of the locations - Goa and Cochin.
Table 5.4: Product Rating
The total score for Cochin is higher than that of Goa. Hence location
Cochin is the best choice.
Example 2
Consider the data in table 5.5. In column 3, max points, if we decide to
have 1000 points as the maximum possible score considering all factors,
we can then evaluate each location and allocate points. Column 4, 5, 6, &
7 indicates the maximum rating for each factor. By adding the given
ratings for factors of each location, we get 540 for Location A, 670 for
Location B, 690 for Location C, and 745 for Location D. The location
which gets the maximum rating would be chosen, that is, location D is
chosen. Table 5.5 depicts the point rating method used for various
locations.
Case-let 3
A chain of auto components store wishes to build a new distribution
centre to serve the southern region of a country. It is considering three
possible locations namely Gopalpur, Kalyan Nagar and Penwar. Table
5.6 depicts the factors, weights, and ratings being considered. Which city
should they choose?
Ratings
Nearness to 20 4 7 5
markets
Labour cost 5 8 8 4
Taxes 15 8 9 7
Nearness to 10 10 6 10
suppliers
Table 5.7 depicts the ratings and weighted ratings for the three locations.
Table 5.7: Factors versus Ratings and Weighted Ratings
It may be noted that what are considered as fixed costs at one time will not
remain so for any length of time, though they are not influenced by the
production volume. For example, the rent may remain constant only for one
or two years and will change later. However for calculation purpose we can
consider the costs as fixed over the planning horizon.
Kote Steel company is considering building a plant in one of three possible
locations. They have estimated the following parameters for each location.
Identify the volume for which each location would be suitable. Table 5.8
depicts the fixed cost versus variable cost for three locations.
Table 5.8: Various Parameters for the Three Locations
Solution
From 0 to 10,000 units, Pantnagar is suitable
From 10,000 to 20,000 units, Ganganagar is suitable
Above 20,000 units, Goripara is suitable.
Centre of gravity method – This method is used mainly when:
Transportation costs, either for distribution of products or collection of
materials from different suppliers, is the main criterion
Production rates are high
The volume and weights of materials that have to be moved are huge
Time taken, either to receive material from suppliers or delivery to
customers, is critical
It is better to locate the facility at such a place, which caters to the different
points most optimally. The vital factor is the load, that is, number of items, or
the weights that need to be moved from the central location to the existing
or demanding points. We use this method when, both distance and load
have to be considered for optimality in terms of cost.
Example 3
Table 5.10 depicts the tonnages that would be supplied from five
locations to a plant.
Table 5.10: Loads and Coordinates of Five Locations
Load Coordinates (X, Y)
Location A 2100 (50, 250)
Location B 3800 120,500
Location C 3200 475, 610
Location D 1200 680,370
Location E 2500 470,120
Locate the five places in a graph using the x and y coordinates and then
locate the centre of gravity point P. We will calculate the x and y co-
ordinates of the central location (P) such that the cost of shipment from
such central location gives the minimum cost in the following way:
CX
L i Xi
CY
L i Yi
SLi SLi
Location Coordinates
(X, Y)
Load (Li) Lx (or) L i Xi Ly (or) L i Yi
From the respective table 5.11, we get the centre of gravity CX and CY.
CX
L i Xi
CY
L i Yi
SLi SLi
3977500 5121000
CX 318 CY 400
12800 12800
Figure 5.5 depicts the graphical representation of all the five locations A, B,
C, D, and E, and centre of gravity point P.
Case-let 4
Solution
To calculate the centre of gravity, first calculate co-ordinates of loads of
each centre (LX, LY). Table 5.13 depicts the tabulated calculations.
Next we find, the target areas centre of gravity co-ordinates, CX and CY.
CX
L i Xi
SLi
475
CX 6.5
73
CY
L i Yi
SLi
276
CY 3.78
73
The centre of gravity calculated is (6.5, 3.78). Managers can now search
in the vicinity for the optimal location using the centre of gravity as
starting point.
Note: Ranking the factors and giving weight age for them is one of the
ways of determining the plant location. The methods used to determine
the location are ‘rating plan method’, ‘factor rating method’, ‘point rating
method’, ‘break-even analysis’, and ‘centre of gravity method’.
6. In ________ method, the various factors for locating a plant are given
ratings.
5.3 Summary
Let us recapitulate the important concepts discussed in this unit:
Location identification for an organisation is an important strategic level
decision taken by the top management.
Location decisions are made on the basis of various parameters.
Planning the facilities for manufacturing is a very crucial activity
involving, huge amounts of finance and thus requiring top management
decisions.
The way the machines are laid out is important to achieve the maximum
productivity and minimum movement of materials inside the plant.
Different types of layouts are considered depending on the variety of
products and their volumes.
5.4 Glossary
Plant location: The selection of a place for locating a plant; here plant
is the term used for the land, buildings, and equipment used in carrying
on an industrial undertaking.
Plant location decision: Plant location decision may be understood as
the function of determining where the plant should be located for
maximum operating economy and effectiveness
Break-even analysis: An analysis to determine the point at which
revenue received equals the costs associated with receiving the
revenue.
5.6 Answers
Discussion Questions:
1. Should Tata Steel now consider other countries and start negotiating?
2. In the rating method, are “political” factors more relevant than other
factors in developing the overall score of the locations?
3. Will time delays kill profitability?
References:
Amruta Karambelkar, The Curious Case Of Tata Steel In Vietnam –
Analysis. Written by: IPCS
Panneerselvam R. Production and Operations Management. PHI
Learning Pvt. Ltd.
E-References:
http://www.eurasiareview.com/08122011-the-curious-case-of-tata-steel-
in-vietnam-analysis/.Retrieved on 16, December 2011.
www.ipcs.org. Retrieved on 16, December 2011.
www.tata.com. Retrieved on 16, December 2011.
6.1 Introduction
In the previous unit, we learnt about the various methodologies used to
select the location of the plant, the flexibility in location choice, the trends
and practices across the globe and also techniques available to determine
the location for a particular type of industry. In this unit we will study about
facility or layout planning and analysis.
Production systems whether manufacturing a product or being responsible
for providing a service need a specific place to carry out their operations.
These systems also need an arrangement of machines, equipment, and
Increased output
Fewer production delays
Savings in floor space - production, storage, and service
Reduced material handling
Greater utilization of machinery, manpower, and service
Reduced inventory-in-process
Shorter manufacturing time
Reduced clerical work and indirect labor
Easier and better supervision
Less congestion and confusion
Easier adjustment to changing conditions
Facilitate the overall production process.
Minimize material handling costs
Increase production throughout
Effective utilization of available space
Improve employee morale
Utilize labor effectively
Avoid unnecessary capital investment
Provide flexibility
Reduce in-process inventories
Cargo area
Baggage collection and retrieval
Counters
Security check area
Canteens
Administrative offices
Storage area
Health care
Restrooms
This is the time for abandoning old practices and equipment and
changing to improvement methods.
Rearranging a present layout – This involves new and efficient
methods and equipment. The problem is one of using as much of the
existing facilities as is consistent with new plans and methods. The
problem occurs often with changes in model or style of products or with
modernisation of productive equipment.
Minor adjustments in existing layouts – Reasons are changes in
operating conditions; changes in design of certain parts, increase in
sales volume, addition of new but similar product, adopting new
equipment, or new conveyor, or inspection changes. All these mean
adjustments are in the arrangement of work areas, personnel, and
material placement. These adjustments present the most frequent layout
problems. Here the layout engineer must build into or onto an existing
arrangement, various improvements without changing the over-all layout
plan and with a minimum of costly interruptions or adjustments to the
existing installation.
Scheduling difficulties
Wasted cubic space
Idle people and equipment
Excessive time in process
Poor housekeeping
Example 1
The letter codes stated here help to express the degree of closeness
between two departments taken as a pair:
A – Absolutely necessary = 16
E – Essential or especially important = 8
I – Important = 4
O – Ordinarily important or okay = 1
U – Unimportant = 0
X – Undesirable = -80
The example here is taken from www.resourcesystemconsulting.com.
Figure 6.5 depicts the closeness ratings given using a special chart known
as REL chart.
Figure 6.8 depicts the current layout and proposed layout with mathematical
scores.
Example 2
Consider six departments numbered 1 to 6 and the closeness rating as
depicted in Figure 6.9.
To start with, highest priority is given for two ratings namely A and X. Hence
the departments with these ratings are listed separately.
1 2 6
3 5 4
called the travel chart or the load-distance matrix, which assists in designing
a new layout and valuating a layout.
A typical travel chart will show; how many items or how much material is
being transported or how many people are moving between departments,
and it is necessary to find out what is the corresponding total time or
distance. This is usually done by multiplying the load by the distance
traveled and is used as a measure to evaluate the layout. Typically called as
the load x distance analysis, it also helps to find busy routes and also
indicates how much of backward movement or reverse flow takes place in
the given layout. Table 6.3 depicts
Table 6.3: Travel Chart
To: A B C D E
From
A 15 20 6
B 3 12 14
C 20 10 6
D 18 4 12
E 14 18
All diagonal elements will be zero indicating nothing can go to a department
from the same department. For example from A to A it is zero units
transported. The values above the diagonal indicate the movement in the
forward direction, and the values below the diagonal represent possible
back tracking and attempt should be made to eliminate or minimise this. The
units or numbers used in the travel chart represent an amount of material
handling for example, pallet loads per day, frequency of trips, etc. The
calculation procedure enables the evaluation of different layouts; to find out
the total load times, the distance for each layout, and the results are
tabulated. It is to be remembered that while the load remains the same the
other variable namely; the distance keeps depending on the relative location
of the departments. In a linearly arranged layout as depicted in the
figure 6.10, the distance increases as the departments are added.
A B C D E
Fig. 6.10: Linearly Arranged Layout
10 A B
10 C D
10 10
From the calculations it is clear that two major values namely 600 and 500
are between A and C, and A and D. A and C are adjacent and hence, C and
D will be interchanged to make A and D adjacent to each other. Then the
resultant layout will be as depicted in the figure 6.12.
Again the load-distance calculations are carried out and the results are
depicted in the table 6.5.
Table 6.5: Long Distance Calculations
Between Load Distance Load X Distance
A and B 50 10 500
A and C 20 20 400
A and D 30 10 300
B and C 15 10 150
B and D 20 20 400
C and D 40 10 400
Total 2150
We notice that the total load distance has decreased from 2200 to 2150 and
hence, this change is justifiable.
Example 4
Four departments A, B, C, and D are to be located in four rooms marked 1,
2, 3, and 4 as depicted in the figure 6.13. The centre to centre distance
between adjacent rooms is 20 feet. The flows between the departments are
as depicted in the table 6.6. The supervisor, Mr. Jeff wants department B to
be in Room 2 only. Obtain the layout satisfying this condition and find the
total cost of movement?
Suppose Mr. Jeff agrees to give up his choice and wants a layout with the
minimum total cost of movement, what will be the new layout and its total
movement cost? What improvement do you see?
1 2 3 4
Fig. 6.13: Layout
Table 6.6: Flow between Departments in Units
To → A B C D
From ↓
A - 25 30 20
B - - 15 25
C 35 - - 50
D 40 - - -
Example 5
Six departments marked A, B, C, D, E, and F are to be located in six
production areas marked 1, 2, 3, 4, 5 and 6. The quantity moved between
the departments is depicted in the table 6.7. Obtain the layout that
minimises the total distance traveled. The adjacent departments are located
at a distance of 1 unit (say equal to 20 feet). Figure 6.14 depicts the six
production areas.
1 2 3
4 5 6
Fig. 6.14: Six Production Areas
A C F
B D E
Fig. 6.15: Optimum Solution
As the items move along the line, the work is progressed intermittently and
leaves the line as a finished product. Typically the objective is, to divide the
work content equally among the workstations so that the workstations are
loaded as evenly as possible. This is known as balancing. Firstly, if such a
balance is not achieved, a certain amount of inefficiency will arise because
some stations will have more work to perform than others, and all the
stations are expected to process same number of items per period of time.
Secondly, unequal work content at different workstations leads to unequal
work distribution and also formation of queue of items. Hence, to ensure a
smooth flow, all the workstations are given the same time to process the
items. The entire line typically, on a manual or power-driven conveyor
moves from workstation to workstation at a constant rate.
The time required to complete the work allotted to each station is known as
the “service time” and the time available at each station is known as the
“cycle time”, normally longer than the service time. The cycle time includes
both the productive as well as the non-productive time along with idle time if
any. Non productive time includes time for movement, handling and
inspection time. The manner in which the work content is allocated to the
station is influenced by the technological sequence of the assembly and
expressed by precedence requirements, that is, one operation must be
completed before the other operation can start. Such constraints limit the
ability to achieve complete or perfect balance while allocating work to
stations.
The allocation of work elements to a workstation may also be influenced by
“zoning” constraints which occurs in two ways: positive zoning constraint
demands that certain operations have to be clubbed together because of
certain sharing of resources, and negative zoning which insists that certain
operations should be clubbed together because of interference or conflict.
All these constraints make it very difficult or impossible to achieve perfect
line balance and hence, a certain amount of balancing delay or balancing
loss is inevitable. Balance delay is defined as the total time available to
complete the given job and the total time required. In other words, the
balance delay is the difference in time between the service time and the
cycle time, expressed as a percentage of the cycle time.
The objective of line balancing is that, given a desired cycle time, the
attempt is to assign work elements to workstations to:
Minimise idle time or balancing delay
Minimise the number of work stations
Distribute balancing delay evenly between stations
Avoid violating any constraints
As it is difficult to achieve all these objectives simultaneously at least one
objective has to be satisfied. Based on this premise, several researchers
have proposed different heuristic methods to realise the desired goal.
Discussing all the different approaches is beyond the scope of this topic and
hence a few methods are illustrated.
Several calculations are involved in line balancing. The different terms and
corresponding calculations are stated here as follows:
Cycle time, C
1
C=
r
Where, c = cycle time in hours per unit, and r = desired output rate in units
per hour
Theoretical minimum number of workstations:
TM =
t (to be rounded up)
c
Idle time nc t
(%) Efficiency=
t 100
nc
Balance delay (%) = 100 – Efficiency
Assigning the operations or tasks to workstations is based on heuristics as
given here:
Longest task time – Choose the available task with the longest task time
Most following tasks – Choose the available task with the largest
number of following tasks
Ranked positional weight – Choose the available task for which the sum
of following task times is the longest
Shortest task time – Choose the available task with the shortest task
time
Least number of following tasks - Choose the available task with the
least number of following tasks
Practice problems (Ref: Heizer and Render (2008) Operations
Management)
An assembly line is to operate eight hours per day with a desired output of
240 units per day. Table 6.8 depicts the task times and precedence
relationships.
Table 6.8: Task Times and Precedence Relationships
Immediate
Task Task time (seconds)
predecessor
A 60 None
B 80 A
C 20 A
D 50 A
E 90 B, C
F 30 C, D
G 30 E, F
H 60 G
Draw the precedence diagram. What is the cycle time? Balance this line
using the “longest task time” rule. Find the efficiency and the balance delay.
First we draw the precedence diagram. Figure 6.17 depicts the precedence
diagram.
Cycle time c = production time per day/ required output per day
= (8 hour/day) (3600 seconds / hour) / 240 units per day =
120 seconds per unit
After drawing the precedence diagram, the next step is to assign the tasks
to the workstations. First we calculate the theoretical minimum number of
workstations as follows:
Minimum number of workstations n = total task time / Cycle time
= 420 / 120 = 3.5 or rounded as 4 (Workstations cannot be a fraction)
Now using this number of workstations the tasks have to be assigned
without violating the precedence relationships. Furthermore, in each
workstation the total task time cannot exceed the cycle time.
Starting from workstation 1, task A has a task time of 60 seconds and can
only be clubbed with another task such that the total time doesn’t exceed
120 seconds.
A + B = 60 + 80 = 140 (Not feasible because exceeds 120)
A + C = 60 + 20 = 80 (Feasible)
A + D = 60 + 50 = 110 (Feasible)
Between the two feasible combinations, A + D is selected using the rule
“longest task time”.
Similarly, other tasks are assigned and line is balanced. The final allocation
of tasks to the four workstations is depicted in the Table 6.9.
The Efficiency=
t 100 = 420
= 0.875 or 87.5%
nc 4(120)
And balance delay = 1- Efficiency = 1- 0.875 = 0.125 or 12.5%
Activity 1
The desired output for an assembly line is 360 units which operates 450
minutes per day. Table 6.10 depicts information about task times and
precedence relationships. Draw the precedence diagram. What is the
cycle time? Balance this line using the “largest number of following
tasks” rule. Find the efficiency.
Table 6.10: Task Times and Precedence Relationships
Immediate
Task Task time (seconds)
predecessor
A 30 None
B 35 A
C 30 A
D 35 B
E 15 C
F 65 C
G 40 E, F
H 25 D, G
It should be noted that any of the systems described above have to suit the
purpose and economies that can be derived. Before implementing any of
these, a detailed study of alternatives, a plan for expansion or reduction in
the requirement of a particular product or a probable shifting of the location,
etc will have to be undertaken.
Some of the factors affecting the selection of equipment are listed here:
(See Figure 6.19)
Material properties
Size, weight and nestability
Carton counts, pallet counts
Value
Fragility
Environment – temperature, humidity
System requirements for the product
Volume per product
Number of order to be shipped
Response time
Supporting processes – labelling, pricing
Growth factors
Economic factors
Investment required
Project life
Rate of return
6.14 Summary
Let us now summarise the key learnings of this unit:
A layout refers to the arrangement of facilities connected with
production, support, customer service, and other activities
The primary objective of plant layout is to increase productivity and also
to ensure employee satisfaction and lowering the costs.
The type of layout is generally determined by the type of product,
volume of production and types of production process.
The layout developed for a manufacturing purpose has to primarily
favour easy and smooth operations to enable the desired level of output
Process layout is concerned with the grouping of machines, process, or
services according to their function.
6.15 Glossary
Process: Set of activities to accomplish a task
Work station: Assigned location for an employee to perform his or her
job, and which is equipped with all the required tools and facilities.
6.17 Answers
6.18 Case-let
Layout in a seminar hall
Seminar halls are very commonly constructed as a part of the academic
building in universities and institutes of higher learning. The seating capacity
may vary from 50 to 300 and typically people gather to listen and discuss
topics of common interest. They may also be used to conduct training. Here
the most important point is the convenience for the speaker and also the
participants. Because nowadays, the sessions are more interactive in nature
rather than monologues from one speaker, it is necessary that the layout is
carefully set.
Discussion Question:
1. What are the reasons for redesigning the layout in a seminar hall?
References:
Heizer, J. & Render, B. Operations Management, 10th Edition, Prentice
Hall, USA.2010.
Krajewski, L. J. & Ritzman, L.P. Operations Management: Strategy and
Analysis, 6th Edition, New Delhi: Pearson Education Asia, 2005.
Gaither, N. Production and Operations Management: Problem Solving
and Decision Making Approach, 4th Edition. - Chicago: Dryden Press,
1990.
Chase, R.B., Jacobs, R.F. & Aquilano, N.J. Operations Management for
Competitive Advantage, 10th Edition – New Delhi: Tata McGraw-Hill
Publishing Company Limited, 2003.
E-Reference:
www.resourcesystemconsulting.com.
7.1 Introduction
In the previous unit, facility or layout planning and analysis, we studied
about a layout which refers to the arrangement of facilities connected with
production, support, customer service, and other activities. It involves the
physical arrangement of work centres, storage, space for material handling
and movement, utility areas and other essential spaces required for
production and operations. In this unit, total quality management, we will
study about the definition of quality and quality control as a system. We will
also study about quality control techniques, quality based strategy and total
quality management.
Quality has become a very important aspect of operations management and
even regarded as a critical success factor. Producing the items in required
quantities at the right time is not enough to satisfy the customers as
Inspect Inspect
Open Open Pack
Reject Reject
2) Check sheet - Check sheets are used to record the number of defects,
types of defects, locations at which they are occurring, times at which
they are occurring, and workmen by whom they are occurring. The sheet
keeps a record of the frequencies of occurrence with reference to
possible defect causing parameters. It helps to implement a corrective
procedure at the point where the frequencies are more. Table 7.1 depicts
a sample check sheet.
Table 7.1 Sample Check Sheet
No. of
Defects 1 2 3 4 5
Day
The table shows that the number of defects 1 and 5 are not many as
compared to defect number 2 which increased over the days and appears to
be stabilising at the higher side and therefore needs to be attended
immediately. The column which shows days can be changed to observed by
the hour, if need be. A check list is a special type of check sheet which
enables to provide a set of standardised activities or actions to be taken up
while performing a task and to ensure quality.
100
90
80
70
FREQUENCY
60
50
50
40 32
27 29
30
20
20 14
10
0
A B C D E F
marching towards zero defects. Pareto diagrams are vertical bar charts
drawn to indicate the extent of each category of problems in descending
order of magnitude of the problem. Typically Pareto diagrams are drawn
both before and after the quality initiative to visualise the improvement.
5) Scatter diagram – Scatter diagram is used when we have two variables
and want to know the degree of relationship between them. We can
determine if there is a relationship between the variables and also the
degree of extent over a range of values of the variables. Sometimes, we
can observe that there is no relationship, in which we can change one
parameter being sure that it has no effect on the other parameter.
Further if there is a relationship between the variables, it also reveals the
type of relation namely positive or negative. Figure 7.5 depicts a sample
scatter diagram.
VARIABLE 2
Fig. 7.5: Sample Scatter Diagram
We can see that the change in variable 2 does not have much effect on
variable 1. The other interpretation can be that for a small change in
variable 1, the effect on variable 2 is more.
6) Control charts – Control charts are used to verify whether a process is
under statistical control. This means the process is subject to variations
due to random causes and there are no variations due to assignable
causes. Variables, when they remain within a range, will render the
desired quality in the product and maintain the specifications. This is
called the quality of conformance. The range of permitted deviations is
determined by design parameters. Samples are taken and the mean and
range of the variable of each sample (subgroup) is recorded. The mean
of the means of the samples is taken as the central line, and deviations
equal to three times the standard deviation corrected for sample size,
are used to determine the control limits. The control above the mean line
is called the Upper Control Limit (UCL) and the control limit below the
mean line is called the Lowe Control Limit (LCL). Assuming normal
distribution, we expect 99.97 percent of all values to lie within the Upper
Control Limit (UCL) and Lower Control Limit (LCL) – corresponding to +
3. The graphical representation of data helps in changing settings to
bring back the process closer to the target. As long as all the plotted
values taken from samples in chronological order fall within the control
limits, the process is considered to be under control. If one or more
points fall outside the control limits, the process is considered to be out
of control and subject to variations due to assignable causes. In addition,
the pattern of points whether; continuously raising or lowering, close to
the central line, closer to the limits, five points continuously ascending or
descending, clustering of points around central line or limits, erratic
variation, and other such patterns, indicate that the process is not fully
under control and hence demands investigation. Once the out of control
signal is received the process stops and the investigation begins. It
should be noted that based on sample size the limits are calculated
using constants.
Figure 7.6 depicts a control chart.
Example 1
A shaft is to be made with a diameter of 25mm. The area required to be
ground is between +0.01 and -0.02mm by a process of centre less
grinding. A sample of 5 numbers is taken every hour and the
observations are recorded as under. Table 7.2 depicts a sample check
sheet.
Table 7.2: Sample Check Sheet
Samples
Time 1 2 3 4 5
3R 3R
UCL x LCL x
d2 n d2 n
7) Cause and effect diagram – Cause and effect diagram represents all
the possible causes which lead to a defect on quality characteristics. The
effect is indicated at the end of the arrow and all the causes
plan. In this case a range of defectives is fixed. If defectives are less, the lot
is accepted. If it is more than the higher number, the lot is rejected. If the
number of defectives falls between the above two numbers, another sample
of a higher size is taken for inspection and if the total number of defectives
is less than another determined number, the lot is accepted. Acceptance
sampling is not quality improvement or correction, but only a way of
ensuring that the number of defectives is within a certain permitted number.
L CX T
2
Where,
L = Total loss
C= Cost constant
X = Average value of the quality characteristic
T = Target value of the characteristic
Taguchi also talks about losses to society because of a dent in quality - both
the manufacturers and users in society will have to endure the
consequences of reduced performance as long as the product is used.
Self Assessment Questions
4. ___________ is a visual representation of a process showing the
various steps.
5. ___________ are used to record the number of defects, types of
defects and locations at which they are occurring.
6. ____________ is used when we have two variables and want to know
the degree of relationship between them.
7. According to Juran, the definition of quality is “Fitness for use”. (True /
False)
Case-let
Bank of America is the world largest bank. Their goal is to be number
one in customer satisfaction. The bank achieved its goal by enhancing
enterprise-wide quality system. The quality system focused on:
Aligning the company from top-to-bottom by organising the customer
segments.
Linking the performance plans to strategic goals.
Improving business process excellence
Identifying critical business processes
Using six sigma across business
Hiring external six sigma master black belts and black belts to build
workforce
Eliminating errors in core processes
Expanding six sigma into sales environment for improving revenue
growth
Within 2 years of implementing quality control Bank of America has
achieved:
20% growth in customer delight
2.3 million Customer households
29% reduction in customer complaints
52% rise in stock value
29% increase in earnings per share
Rated number one company in 2002
– (Source:http://www3.best-in-class.com/)
Cost of quality
Since olden days attempts have been made to find out the cost of quality
and many researchers have examined different situations involving quality.
Cost of quality is understood as the cost that would be incurred, if quality is
not maintained. However; in the modern context it is considered, as the total
cost required to provide desired quality, and the cost that would be incurred
to check quality along with the cost of failure. Thus, the cost of quality is
divided into four categories as follows:
Prevention costs – Prevention costs are costs of all activities that are
designed to prevent poor quality from arising in products or services.
Examples include the costs for:
quality planning
supplier evaluation
new product review
Appraisal costs – Appraisal costs are costs; that occur because of the
need to control products and services, to ensure a high quality level in all
stages, conformance to quality standards and performance requirements.
Examples include the costs for:
checking and testing purchased goods and services
in-process and final inspection/test
field testing
Internal failure costs – Internal failure costs are costs that are caused by
products or services, not conforming to requirements or customer/user
needs, and are found before delivery of products and services to external
customers. They would have otherwise led to the customer not being
satisfied. Deficiencies are caused both by errors in products and
inefficiencies in processes. Examples include the costs for:
rework
delays
re-designing
shortages
failure analysis
re-testing
downgrading
External failure costs – External failure costs are costs that are caused by
deficiencies found, after delivery of products and services to external
customers, which lead to customer dissatisfaction. Examples include the
costs for:
complaints
repairing goods and redoing services
warranties
customers’ bad will
losses due to sales reductions
7.8 Summary
Let us recapitulate the important concepts discussed in this unit:
Quality has become a very important aspect of operations management
and even regarded as a critical success factor
As per ISO 9000 standards, quality is defined as “totality of
characteristics and features of a product/service that bear on its ability to
satisfy the stated/ implied needs”.
Achievement of quality is not limited to the production department or the
quality control department.
Modern concepts of quality go beyond maintaining dimensions and
making the products work well.
Quality is to be incorporated into all functions of management along with
transport, accounting, and packaging.
Total quality envisages where suppliers and customers are treated as
partners to achieve total quality.
Implementations of concepts like six-sigma assure enhanced customer
satisfaction.
7.9 Glossary
Efficiency: ability to accomplish a job with a minimum expenditure of
time and effort.
Conformance: Certification or confirmation that a good or service meets
the requirements of accepted practices and prescribed rules and
regulations
Acceptance sampling: the statistical procedure employed in
determining whether to accept or reject a production batch
7.11 Answers
Ever since the project was announced by the company Tata Motors that
they are going to release a car that is affordable to the average Indian
middle class family, there were more sceptics than before who expected the
cost boundary of Rs. One Lakh to be impossible to achieve. But the
company proved the myth wrong and delivered to the market a car what
was a dream buy for the average middle class families.
True to its capacity and efficiency Tata Motors reduced the cost as much as
they can through “homegrown engineering” cutting the cost by efficient
design and eliminating all the frills but maintaining only the essentials. The
car thus was proved to be cost effective and of course affordable to the
Indian middle class families.
There were several hiccups after the loss the most important one being
safety. As if to prove the safety factor is low, a couple of accidents raised
doubts about the car’s strengths and weaknesses. The company no doubt
tried to convince the customers by drawing their attention to the fact that the
cars were tested for all types of failure.
Tata Nano enjoyed a roller coaster drive in sales since inception and after
about 1,40,000 vehicles had been sold in around two years’ time came the
jolt.
As reported in the media, particularly Business Standard, Tata Motors is
taking 1,40,000 Nano cars off the roads to replace the starter motor free of
cost. This is seen as the biggest recall in the Indian auto market.
The exercise of recall is to replace the starter motor - an electrical
component - in the world's cheapest car and is expected to cost the
company around Rs.115 crore.
"The replacement will cover the entire lot of Nanos produced since the
launch of the mini car in 2009 and sold till November 21 this year," the
company's spokesperson said. However, it excludes the Nano 2012 model
which rolled off the Tata assembly line on November 21 this year.
Will the company face a severe crunch financially because of this massive
recall is the question on everyone’s mind. Thought the spirit of Nano seems
to be unfazed as seen through the launch of new model for the year 2012,
there is no gainsaying in the fact that the image while already shaky has
taken a big hit.
Manipal University Jaipur B1627 Page No. 177
Production and Operations Management Unit 7
TQM advocates “Do it the first time, next time and every time”. Has this
policy been corroborated by Nano?
(Source:http://www.autofocusasia.com/management/tata_nano.htm,
http://in.reuters.com/article/2009/03/30/idINIndia-38567520090330,
timesofindia.indiatimes.com/speednewsshow/8167915.cms)
Discussion Questions:
1. What might be the reasons for Tata Nano’s recall?
2. Is the company right in this action?
3. Does this incident affect the image of the company?
4. What cost of failure is involved here?
5. What lessons are there for manufacturers?
Reference:
Gaither.N, Frazier.G, “Operations Management” (9th Edition), South-
Western/Thomson Learning
E-References:
http://www3.best-in-class.com/.Retrieved on 20, December 2011.
www.businessdictionary.com. Retrieved on 20, December 2011.
http://www.autofocusasia.com/management/tata_nano.htm. Retrieved on
20, December 2011.
http://in.reuters.com/article/2009/03/30/idINIndia-38567520090330.
Retrieved on 20, December 2011.
timesofindia.indiatimes.com/speednewsshow/8167915.cms. Retrieved
on 20, December 2011.
8.1 Introduction
In the previous unit, total quality management, we studied about quality
control as a system; the various quality controlling techniques, and quality
based strategy. We also learnt about total quality management and the
various approaches to it. In this unit, business process modelling, we will
see the role of business process modelling (BPM) in achieving the overall
business objectives. It refers to a set of activities undertaken to optimise the
business process.
A process is a set of elements that repeatedly act to result in an output. It is
also coordinating a set of activities to produce a specific outcome. There is a
process involved in almost everything we do like preparing tea, sending a
mail, etc.
What companies really want is; best practices for increasing efficiency and
unique, often home-grown superior processes, to claim uniqueness and
create competitive advantage. Every company can assess and categorise
the processes as per the spectrum shown in the matrix and then try to build
the competitive advantage.
(Source: Howard Smith and Peterr Fingar, “Business Process Management”,
Megan Kiffer Press, USA, 2003)
In this section, let us know more in detail of the two processes of modelling.
8.3.1 Logical process modelling
Logical process modelling is the representation of putting together all the
activities of business process in detail and making a representation of them.
The initial data collected has to be arranged in a logical manner so that,
links are made between nodes for making the workflow smooth. The steps
to be followed to make the work smoother are given as follows:
1. Capture relevant data in detail to be acted upon
2. Establish controls and limit access to the data during process execution
3. Determine which task in the process is to be done and also the
subsequent tasks in that process
4. Make sure that all relevant data is available for all the tasks
5. Make the relevant and appropriate data available for that task
6. Establish a mechanism to indicate acceptance of the results after every
task or process. This is to have an assurance that flow is going ahead
with accomplishments in the desired path
Some of these activities may occur in a sequential order whereas; some of
them may run parallel. There may even be circular paths, like re-work loops.
Complexities arise when the process activities are not connected together.
Logical process model consists of only the business activities and shows the
connectivity among them. The process model is a representation of the
business activities and is different from the technology dependent ones.
Thus, we have a model that is singularly structured only for business
activities. Computer programmes are also present in the total system. This
allows the business oriented executives to be in control of the inputs,
processes and outputs. The logical process model improves control on the
access to data. It also identifies, who is in possession of data at different
nodes in the dataflow network that has been structured.
A few of the logical modelling formats are as follows:
Process descriptions with task sequences and data addresses
Flow charts with various activities and relationships
Flow diagrams
Function hierarchies
Function dependency diagrams
Every business activity, when considered as a logical process model, can
be represented by a diagram. It can be decomposed and meaningful names
can be given to the details. Verb and noun form combinations can be used
to describe each level. Nouns give the name of the activity uniquely and are
used for the entire model meaning the same activity.
Figure 8.3 depicts the ways of representing logical process modelling.
Figure 8.4 depicts the steps to set the data in a logical order.
The following steps should be considered for setting the data in a logical
order.
1. Check whether the participants in the process that is, people, teams,
and electronic applications are sufficient or, any changes and additions
need to be made.
2. Ensure that all the data expected is included or not. Generally, we start
with an initial set of data which we have. When we check them with the
requirements of the process for the desired outcomes, we find gaps.
These gaps help us in determining which subset of the data is
appropriate at each task in the process.
3. Check whether the data is sufficient for the implementation of the
process. This can be achieved by answering the following questions:
1. What is the path the process should take?
2. What decisions are to be made at any point in the process?
3. Are data available at those points?
4. State the rules used to define the various parts of the process. At
this stage, the naming conventions are also included. This is
important to be included at the process definition stage.
5. Determine the disposition of data at the end of the process and
decide the following:
a. Do we plan to keep the data or delete them?
b. If they are to be stored, where and in what form will be used?
c. What are the measures of security for access?
6. Determine the other elements depending upon the business process
and the need. The elements added must be questioned to collect a
detail data. It is better to go deeper into the details and collect data, and
make them available at this initial stage, so that a better model can be
prepared. Then, the processes will be more successful in delivering the
desired output. Process definition enables us to go into details at every
stage of the process and verify the adequacy of data, the sequential
steps in the process and fill the gaps before attempting implementation.
The purpose of setting the data in a logical order is to, locate deficiencies
and remove them. Therefore, the decisions about process and sequence
can be taken and a model can be designed which is useful in all
perspectives.
8.4.1 Constructing the process model diagram
We have seen how the process has to be defined. The business analyst can
now use process modelling software to construct diagrams and graphically
represent the business process under consideration. The following are
included in the diagrams:
The starting point of the process – It is possible that we have multiple
beginnings and different activities starting simultaneously and running
parallel.
Tasks during process execution – The tasks that are done during
process execution and their sequence and dependencies.
Nodes in the path – Nodes in the path show the activities that should
be completed before starting further activities.
Decision points – Decision points help in taking a decision between
choosing the path or whether the process should continue or not.
Process path – The points, at which the process path divides, creating
two or more paths for activities, combine and lead to another activity.
More points – At the end of the process, we may have one or more
points.
The model is built upon the following constraints:
data that get input at various stages of the process
data that get accumulated at nodes for further distribution
identifying activities that go along the path
All through the diagrams, we ensure that data is available and desired
results are being obtained. Once the model is certified, software application
will take care of the implementation of the process. Logical process
modelling will be of great assistance to system architects and developers, to
produce efficient and scalable applications.
Self Assessment Questions
5. The data collected will be set in ________ making the logical data model
complete in all respects before we attempt to define the process.
6. _________ enables us to go into details at every stage of the process
and verify the _________.
Fig. 8.5: Skills, Knowledge and Functions Required for Business Analyst
The only thing lacking is the flexibility that business situations demand all
the time. This is because, the enterprise has to perform and excel in
conditions of uncertainty, improvement, and competition. Fortunately these
are exceptions. While majority of the repeated tasks goes on smoothly, we
need to manage these exceptions. Notably, exceptions create new
processes, opportunities and help us get new insights into the processes. It
has been found that 80% of process costs arise out of managing
exceptions. These happen at many points in the value chain. Managing all
these is business process management.
Workflow does not offer options in the way processes are conducted. They
have fixed routes, activities, and schedules. Actually, there is not much
‘management’. Business process modelling goes ahead not on a fixed track,
but on bumpy roads, turning sharply to avoid collisions and overtaking the
vehicles that are ahead. It calls for all management skills.
8.6.4 Impact on process modelling
If business process modelling is not flexible in the path, then the activities or
the entities need to be aligned to make it more flexible. Therefore, it is not
any more necessary to define the total process initially. The flow of the
activities need not be fitted into a ‘model’ to be followed continuously, but
can be adapted to suit the situations the process is in. The user has choices
of subsequent activities and can take advantage of the flexibility the process
is allowed to have.
Figure 8.9 depicts the conversion of the business modelling stage to system
requirement for implementation.
8.8 Summary
Let us recapitulate the important concepts discussed in this unit:
Business process consists of a number of coordinated activities to result
in outcomes which add value to the customer. It consists of data that are
needed to know what the activities are, how they are done, how close it
is to the customer’s requirement.
Business process model is composed of a logical process and a
physical process.
Logical process modelling deals with identifying the business
requirements, and produces diagrams and charts, to show relationship
between business processes having parent-child relationships among
people, activities and data.
Physical process modelling is the design of the database to meet the
requirements of the logical model.
The business analyst’s job is to understand the requirements of the
business and work with technology experts to create databases which
interface with the applications in software.
8.9 Glossary
Entity: A person, a unit, organization, or business that has a legal and
separately identifiable existence
Reinforce: to strengthen
8.11 Answers
Yummy Bakes is one of the leading bakers in India with more than
10,000 outlets spread over. The goal of Yummy Bakes is to serve tasty
food and fast delivery to customers at each outlet by fine-tuning its
operations. However, with the increasing outlets, the goals were not
achieved to the mark. This is due to management failure. The customers
were upset with lousy food, slow service, and surly employees. Yummy
Bakes realised it, when the customer complaints were growing more
frequently and the sales rate went down by 12%.
To optimise the business process, Yummy Bakes appointed a new
business analyst to solve the business problems. The business analyst
scrutinised every detail of the business requirements and problems, its
operation procedures, data, present earnings of the business, and many
other details related to the business.
With a zeal for measuring customer satisfaction, the act of go-between
the business people and sharing the data freely with operators, the
analyst pulled off a turnaround that stunned everyone in the business
with its speed and scope. With the data, the analyst formatted the
business problems and provided solutions according to the need.
Solution
The solutions provided for the improvement of the business are listed as
follows:
Installing the massive Customer Relationship Management (CRM)
system along with Internet based data management system. The goal
was to scrutinise every detail of its business in real time.
Initiatives were appointed to collect performance measures and
revamp Yummy Bakers processes to reach customers expectations.
Mystery shoppers were sent to the restaurants to conduct anonymous
reviews using a hard-number scoring system.
Mystery dinners from outside survey firms jot down on a paper, check
list their grades for: speed of service; food temperature; presentation
and taste; cleanliness of the counter; tables and condiment of the
island; even whether the counter crew person smiles at dinners.
Reference:
Howard Smith and Peterr Fingar (2003), Business Process
Management, Megan Kiffer Press, USA
E-References:
www.forbes.com. Retrieved on 20, December 2011.
www.developer.com. Retrieved on 20, December 2011.
Structure:
9.1 Introduction
Objectives
9.2 Project Management
Understanding project management
Definitions related to project management
Need for project management
9.3 Project Management Principles
Project management knowledge areas
The project manager (PM) and responsibilities of PM
Project failure
9.4 Essentials of Project Management Philosophy
Characteristics of project mindset
Project evaluation and selection criteria
Typical characteristics of a project
Project parameters for negotiation
Value addition of project management
Project management players, their roles and responsibilities
9.5 Project Planning
Scoping
Work Breakdown Structure (WBS)
9.6 Project Process Flows
Project processes
Process groups
Process interactions
Customisation
9.7 Summary
9.8 Glossary
9.9 Terminal Questions
9.10 Answers
9.11 Case Study
9.1 Introduction
In the previous unit you learnt about business process modelling, logical
process modelling and physical process modelling. In this unit, you will learn
about project management and its principles and significance.
Project management is well recognised as a part of ‘Operation
Management’ and managing projects is considered as an essential skill
required for any management professional. Project management typically
deals with resource allocation to reach the specified objectives while
working within a certain time frame.
In this unit, you will learn Project Management by way of definitions and
explanations of the various steps involved. You will also understand the
important issues related to Human Resources, which forms a much greater
part of Project Management. It is to be remembered that, people have to
take the initiative to drive processes. Only then the system will take the
initiative to drive the people.
Objectives:
After studying this unit, you should be able to:
explain the definitions and terminology of project management
recall the fundamentals of project management
explain the importance of project management
list the principles of project management
describe the project management philosophy
More and more companies across the globe are adopting the practices of
managing projects, looking out for skilled managers and practitioners,
thereby increasing the demand for project managers globally. An
organisation understands a project as an activity that starts with a
description of a mission and ends with the completion of a deliverable or
product. An effective project management will result in identifying the tasks
required to achieve the goals of the project and preparing an effective plan
by considering the manpower, material, cost, and time, which will help to
complete the project smoothly.
9.2.2 Definitions related to project management
Project
A project is a temporary endeavour with a finite completion date undertaken
to create a unique product or service. Projects bring form or function to
ideas or needs.
A project is a set of activities which are networked and aimed towards
achieving a common goal. Upon completion of all the activities, the goals of
the project would have been achieved. A project is undertaken to achieve a
purpose. Some examples of projects are listed below:
Commissioning a new industrial unit
Construction of a house
Setting up of an office
Developing a technology
Launching a new product in the market
Management
Management is the technique of understanding the problems, needs, and
controlling the use of resources such as cost, time, manpower and
materials.
Project cycle
A project cycle consists of the various activities of operations, resources,
and the limitations imposed on them.
Process
A process is part of the project which consists of simple and routine
instructions to achieve a desired result of any activity of the project.
A process is responsible for bringing about the changes in the inputs fed to
the process and giving out the desired output.
Resource
The resource of a project refers to manpower, machinery, money, and
materials which are required in the project.
Scope
Scope of the project refers to the various parameters that affect the project
in its planning, formulation, and execution.
Project cost
Project cost is the budgeted expenditure of the project.
Project Classes and definitions
Project Classes and definitions are as depicted in the table 9.1 below
Table 9.1: Project Classes and definitions
1
http://en.wikipedia.org/wiki/Radar_chart,
Manipal University Jaipur B1627 Page No. 205
Production and Operations Management Unit 9
Remember
The dimensions of project management are Features, Quality, Cost,
Schedule, and Staff. They are dependent of one another.
The Kiviat graph is a useful tool in project management to compare the
relative flexibility of the parameters considered.
The project team is responsible for ensuring that the project upon
completion, shall deliver the gain in the business for which it is intended
for.
The project team has to properly coordinate with each other working on
different aspects of the project.
The team members are responsible for the completion of the project as
per the plans of the project.
Remember
Time, information sharing, processes, and structured planning are the
main characteristics of project mindset.
During project evaluation, the following nine criteria may be
considered important – relevance, state-of-the-art technical
methodologies, relevance to market, creativity, potential, project
management and work plan, and effort justification.
Project manager, customer, performing organisation, and sponsor are
the players of project management.
GANTT chart
“A GANTT chart is a graphical representation of the duration of tasks
against the progression of time.”
Source: http://www.ganttchart.com/
A Gantt chart as depicted in figure in 9.6 is a useful tool for planning and
scheduling projects as well as for monitoring and controlling the project
deliveries.
Along with a ‘milestone chart’, helps you to represent the planned bar
which indicates the deadlines and other significant events of the project.
Figure 9.7 representing progress bar and planned bar.
Fig. 9.7: GANTT Chart Representing Progress Bar and Planned Bar
structure and frequency are followed are decided at various stages. In case
of differences, the reasons behind the changes are analysed and the
deliverable in terms of cost, schedule, and effort are altered accordingly.
Planning tools
There are several planning tools which may prove useful for coordinating a
project successfully. In this section we will discuss each of these tools.
Project organisation and structure:
Identifying the key personnel
Identifying the business areas that are within the scope or directly
interface with the scope boundary
Listing the business areas in the ‘Business area’ column of the project
assignment worksheet
a. Project management team: A senior management team will be
accountable for the project. They identify project sponsor, client
representative, and technical representative. A project management
team consists of:
Stage managers who plan and manage the project on a day-to-day
basis for this stage.
Project coordinators such as client coordinator and technical
coordinator who define these coordination, control activities and
identify the suitable personnel to carry them out.
b. Key stakeholders: It is important to identify management level
personnel who are critical to the success of the project. The
responsibilities of the key stakeholders must be documented.
c. Stage teams: For each stage of project management life cycle,
appropriate personnel should be identified. After allocation of staff to the
stage, the team structure is defined and team leaders appointed. It is
important to document the time commitment and responsibilities to be
performed by the team members.
d. Key resources: Individuals assigned to a key resource role may work
towards gathering ‘Business key resources’ and ‘Technical key
resources’. They are project coordinators and team invitees.
Remember
A GANTT chart is a graphical representation of the duration of tasks
against the progression of time. Planning, scheduling, monitoring, and
controlling the project deliveries are represented graphically.
The planning tools which may prove useful for coordinating a project
successfully are project organisation and structure, project management
team, key stakeholders, stage teams, key resources, and determine
training requirements.
Planning
Initiating
Processes
Processes
Executing
Controlling
Processes
Processes
Closing
Processes
Case-let
The cost of an oil refinery facility usually runs into billions of dollars. The
budgeting for these enormous projects involves many complex
engineering and materials considerations. Fluor Corporation - a
multinational engineering, construction and project management firm in
the oil and gas sector - has recently bought an expensive risk
management solution from Palisade. The company project managers
feel the investment in risk management was necessary for them to deal
with the ‘billion dollar uncertainties’ in its estimates for clients.
9.7 Summary
Let us recapitulate the important concepts discussed in this unit:
A project is a set of activities which are networked and aimed towards
achieving a common goal.
Project management is the application of knowledge, skills, tools, and
techniques to project activities to meet project requirements
Project management can be considered to have five dimensions which
are necessary to be managed. The dimensions are Features, Quality,
Cost, Schedule, and Staff
Project management players are individuals and organisations who are
involved in the project
The entire process of a project may be considered to be made up on
number of sub process placed in different stage called the Work
Breakdown Structure (WBS).
Project management processes can be categorised under five process
groups – initiating processes, planning processes, executing processes,
controlling processes, and closing processes
9.8 Glossary
Customisation: to produce or make something according to a
customer's individual requirements
Multivariate data: Data having or involving more than one variable
9.10 Answers
Terminal Questions
1. Refer 9.2
2. Refer 9.2.2
3. Refer 9.3.3
4. Refer 9.4.6
5. Refer 9.5.1
6. Refer 9.5.2
Discussion Questions:
1. What special skills might be required for successful completion of IT
projects?
2. IT projects are geographically scattered but electronically connected all
through the duration of the project. Comment on the importance of
communication, coordination and documentation.
Reference:
Gaither. N, Frazier. G, Operations Management (9th Edition), South-
Western/Thomson Learning.
E-Reference:
http://www.cio.com/article/40342. Retrieved on 20, December 2011.
10.1 Introduction
In the previous unit you studied about project management and planning
process. You learnt the principles of project management and the essentials
of project management philosophy. In this unit you will learn the
implementation of projects.
Project managers have to keep in mind the various problems that may be
encountered during the project. Associated with the project could be the
risks that may deter the project processes. Careful monitoring and regular
supervision is required all through the project.
The important tasks of the project manager during the phase of analysis and
evaluation include:
Specification Requirements Analysis (SRA): SRA has to be
conducted to determine the essential requirements of a project in order
to achieve the target.
Feasibility study: Feasibility study has to be conducted to analyse
whether the project is technically, economically, and practically feasible
to be undertaken.
Trade-off analysis: Trade-off analysis has to be conducted to
understand and examine the various alternatives which could be
considered for solving the problem.
Estimation: Before starting a project, estimation has to be conducted on
the project cost, effort required for the project, and the functionality of
various processes in the project.
System design: According to the customer requirement, a general
system design has to be chosen to fulfil the requirements.
Project evaluation: The project has to be evaluated in terms of
expected profit, cost, and risks involved.
Marketing phase
A project proposal is prepared by a group of people including the project
manager. This proposal has to contain the strategies adopted to market the
product to the customers.
Design phase
Design phase involves the study of inputs and outputs of the various project
stages. Figure 10.2 depicts the study of inputs and outputs in design phase.
Inputs received consist of: project feasibility study, preliminary project
evaluation details, project proposal, and customer interviews.
Outputs produced consist of: system design specifications, functional
specifications of the project, design specifications of the project, and
project plan.
Execution phase
In execution phase, the project manager and the team members work on
the project objectives as per the plan. At every stage during the execution,
reports are prepared.
Control – inspecting, testing and delivery phase
During this phase, the project team works under the guidance of the project
manager. The project manager has to ensure that the team is implementing
the project designs accurately. The project has to be tracked or monitored
through its cost, manpower, and schedule. The project manager has to
ensure ways of managing the customer and marketing the future work, as
well as ways to perform quality control work.
Closure and post completion analysis phase
Upon satisfactory completion and delivery of the intended product or
service, the staff performance has to be evaluated. The project manager
has to document the lessons from the project. Reports on project feedback
get prepared and analysed. A project execution report is prepared.
Let us have a quick recap of what is involved in the above phases.
Analysis and evaluation phase: The preparation stage involves the
preparation and approval of project outline, project plan, and project
budget.
Assigning task to the team members: The next stage involves
selecting and briefing the project team about the proposals, followed by
Agenda for quality review: The project manager should create and
distribute a quality review agenda specifying the objectives,
products, logistics, roles, responsibilities, and time frames. This
increases the effectiveness of the review and also reduces the time
gap.
Conduct quality review: The quality review is conducted in a
structured and formal manner. Quality review focuses on product
development and its quality factors. The project members check
whether the review meets the prescribed quality standards.
Follow-up: Quality review complete product status is to be revised
from ‘In Progress’ to ‘Quality review Complete’. Actions planned are
strictly followed up to ensure conformity to the standards.
Review quality control procedures: The project members verify
that the quality objectives for each product are appropriate. They
also ensure that all participants are satisfied both with the process
and its outcome.
6. Progress control: The progress control of a project can be achieved by
considering the following aspects. Figure 10.5 depicts the phases of
progress control.
activities. They also serve the purpose of illustrating the various activities
and their inter dependence.
Historically, two types of network representations based on different
fundamental element have been in existence. They are PERT (Program
Evaluation and Review Technique and CPM (Critical Path Method).
Advantages of network diagrams
Networks generated provide valuable project documentation and
graphically point out various project activities
Applicable to a wide variety of projects and industries
Useful in monitoring not only schedules, but costs as well
Network diagrams like PERT and CPM show interdependencies and
precedence among the activities of a project
Benefits of PERT/CPM
Useful at many stages of project management
Mathematically simple
Uses graphical displays
Gives critical path and slack time
Provides project documentation
Useful in monitoring costs
10.3.3 Program Evaluation Review Technique (PERT) chart
A PERT chart is a project management tool. It is used to schedule,
organise, and coordinate tasks within a project.
PERT chart is a popular project management charting method. Using PERT
chart, the collection of series and parallel tasks performed in complex
projects can be represented as a network diagram. It represents the
activities and milestones of the project. Project network models represent
activities and milestones by arcs and nodes as depicted in figure 10.6 which
is an example of a PERT chart.
t o 4t m t p
tE: Expected time = t E
6
Case-let
A project consists of the 7 activities and the details of the activities are
listed in the table 10.1.
Table 10.1: Project Details
1-2 - 10 13 16
1-3 - 2 5 8
1-4 - 4 6 14
3-2 1-3 5 6 7
3-4 1-3 4 5 6
2-5 1-2, 3-2 10 11 18
Determine the project completion time, critical path, and find out the
probability of completing the project in 23 weeks by the variance
method.
Solution:
Based on the information given in the table on activities and their
predecessors the network is represented as depicted in the figure 10.8:
PERT chart.
1
3 5
SD V
The activities connecting the critical nodes with slack=0 are the critical
activities. Therefore the critical path is: 1 – 2 – 5
TS TE
z
sdcp
23 25
z 1.2
1.67
From normal distribution table,
Area corresponding to z = -1.2 is 11.5
Therefore the probability of completing the project in 23 weeks is 0.115,
which is very low.
c) Decide on the actions for the change: Present the change request,
alternative solutions and recommendation to the project management
team. The project management team is required to accept the
recommendation, choose an alternative solution, or request further
investigation. Based on this, a final action plan for the change is
selected.
d) Implement change: Once the project management approves a solution
for the change, make appropriate schedule and other project plan
adjustments to accommodate the change, communicate these to team
members, monitor progress, and execute quality control on the changes.
3. Risk prioritising: Rank the risks based on the probability and effects on
the project. For example, a high probability, high impact item will have
higher rank than a risk item with a medium probability and high impact.
4. Risk mitigation: Select the top few risk items for mitigation and tracking.
Refer to a list of commonly used risk mitigation steps for various risks
from the previous risk logs maintained by the project manager and
select suitable risk mitigation step. The risk mitigation steps must be
properly executed by incorporating them into the project schedule. In
addition to monitoring the progress of the planned risk mitigation steps,
periodically revisit the risk perception for the entire project. The results of
this review are reported in each milestone analysis report. To prepare
this report, make fresh risk analysis to determine whether the priorities
have changed.
Self Assessment Questions
State True or False
7. Risks are those events or conditions that may occur and whose
occurrence has a harmful or negative impact on a project. (True/False)
8. The risk mitigation step must be properly executed by incorporating
them into the project schedule. (True/False)
Effective closure
Ensure all deliverables are installed
Handover documentation
Stakeholder acceptance of deliverables
Post-implementation review/audit
Celebrate success
Project failure
Major Reasons for project failure
Incomplete, ambiguous, inconsistent specifications
Poor or no planning and/or estimating
No clear assignment of authority and responsibility
Not enough or wrong user involvement
Lack of adequate tools and techniques
Dependence on external sources (vendors, subcontractors)
High staff turnover or inadequate training
Why projects fail?
Most failures have been put down to:
Poor project specification
Unrealistic timescales
Timescales that are too long
Inappropriate staff
Failure to manage user expectations
Failure to manage the change required
Source: Gido and Clements. Successful Project Management. Vikas Publishing
House. New Delhi, 2003
10.7 Summary
Let us recapitulate the important concepts discussed in this unit:
Project managers have to keep in mind the various problems that may
be encountered during the project.
Feasibility study has to be conducted to analyse whether the project is
technically, economically, and practically feasible to be undertaken
The project has to be evaluated in terms of expected profit, cost, and
risks involved.
Controlling the changes in the project is possible through a proper
change management process and using necessary tools for controlling
the change
Risk management aims to identify the risks and then take actions to
minimise their effect on the project.
10.8 Glossary
Feasibility: something which is able to be done or put into effect or
something which is capable of being accomplished
Mitigation: to reduce or to make (something which is bad) less severe
or serious
Risk mitigation: A systematic reduction in the extent of exposure to a
risk or the likelihood of its occurrence
10.10 Answers
Terminal Questions
1. Refer 10.2.1
2. Refer 10.3.1
3. Refer 10.4.2
4. Refer 10.5
5. Refer 10.6
Reference:
11.1 Introduction
In the previous unit you learnt about project management, project monitoring
and control, risk management. In this unit, you will study about aggregate
planning. In any manufacturing or service organisation, it is necessary that a
broad plan is prepared for a specified period which indicates how the target
is reached. This plan tells how the planned output is reached and what
options are followed. Aggregate planning is the process of planning the
quantity and timing of output over the intermediate range (often 3 to 18
months) by adjusting the production rate, employment, inventory, and other
controllable variables. Aggregate planning links long-range and short-
range
Manipal University Jaipur B1627 Page No. 261
Production and Operations Management Unit 11
Material
Capacity
Components Requirements All work centres
requirements Plan
Plan
Manufacturing Manufacturing Individual
Shop floor schedule
operations operations machines
output, in some months there is shortage and when the output is above the
average there is surplus and build-up of inventory. However, wherever
possible excess output can be used to accumulate inventory and that
inventory be used to meet the above average demands other time periods.
No initial inventory is maintained. In case of shortages, some back orders
could be allowed under a level production, or inventory strategy. If
backorder is not allowed then the result is loss in sales.
Stable work-force strategy:
In this strategy, the work force is maintained at the same level on regular
time. Production output is varied either by overtime or by building up
inventory. However, if the demand falls then the production output is
decreased and some workers may become idle. Thus, using overtime and
idle time to meet demand would be a stable work-force strategy.
11.5.3 Mixed strategies
In mixed strategies, the aggregate planner has a wide variety of choices by
mixing two or more strategies. The number of mixed strategies in
alternative production plans is almost limitless. However, based on the
realities of the situation, the number of practical solutions is limited. These
can be evaluated on a trial-and-error basis to find which plan best satisfies
the requirements, taking cost, employment policies, etc. into account.
11.5.4 Mathematical Planning Models
Mathematical models attempt to refine or improve upon the trial-and-error
approaches. However, the solution generated may not be feasible and need
to be refined. A popular technique is the application of transportation
algorithm which is a special case of the linear-programming model. It views
the aggregate planning problem as the problem of allocating capacity
(supply) to meet forecast requirements (demand) where supply consists of
the inventory on hand and units that can be produced using regular time
(RT), overtime (OT), and subcontracting (SC), etc.
Demand consists of individual-period requirements plus any desired ending
inventory. Costs associated with producing units in the given period or
producing them and carrying them in inventory until a later period are
analysed. Cost is obtained, as in the standard transportation linear-
programming format and a least total cost solution.
drops off and quality also becomes a casualty. Overtime also implies the
increased overhead needed to keep a facility open. On the other hand,
when there is a period of decreased demand, the company must
somehow absorb workers’ idle time; usually a difficult process. Though
such options like plant shutdown, maintenance work and social events
are organised during such lean periods, they cannot be carried over a
long time.
d) Subcontracting: A firm can acquire temporary capacity by
subcontracting work during peak demand periods. Subcontracting,
however, has several pitfalls. First, it may be expensive; second, it risks
opening the client’s door to a competitor. Third, it is often hard to find the
perfect subcontract supplier, one who always delivers the quality product
on time. However, of late outsourcing has become a complete business
policy and cost of operations may be cited as the main reason. Thus, it is
possible to partly produce the items outside or completely procure from
outside. Depending on who is stronger and controlling the whole process
the subcontracting costs will vary and could be even low.
e) Using part-time workers: Part-time workers can fill unskilled labour
needs, especially in the service sector. This practice is common in
restaurants, retail stores, and supermarkets. There are many
organisations where part time workers sometimes called as ‘temps’ work
almost full time but with less compensation than that of a regular
employee. Again, the question of getting the right type of temporary
workers is a major issue and there are many agencies who specialise in
supplying temporary workers.
11.6.2 Demand options
The basic demand options are:
Influencing demand: When demand is low, a company can try to increase
demand through advertising, promotion, personal selling, and price cuts.
Airlines and hotels have long offered weekend discounts and off-season
rates; telephone companies charge less at night; some colleges give
discounts to senior citizens; and air conditioners are least expensive in
winter. However, even special advertising, promotions, selling, and pricing
are not always able to balance demand with production capacity.
Back ordering during high-demand periods: Back orders are orders for
goods or services that a firm accepts but is unable (either on purpose or by
chance) to fill at the moment. If customers are willing to wait without loss of
their goodwill or order, back ordering is a possible strategy. This is a good
strategy if the company’s products command a premium and the customers
are ready to wait. However, with choices available to customers, some firms
which practice back order have to take a risk as the approach often results
in loss of sales.
Counter-seasonal product and service mixing: A widely used active
smoothing technique among manufacturers is to develop a product mix of
counter-seasonal items. Examples include companies that make both
furnaces and air conditioners or lawn mowers and snow blowers. Here, the
idea is to produce products that are suited for each season based on the
demand and seasonal change. The company however has to have
adequate resources for both types of products. It is common to see a
company producing air conditioners, heaters, and air coolers, to maintain
the product demand during all seasons. However, companies that follow this
approach may find themselves involved in products or services beyond their
area of expertise or beyond their target market.
These eight options, along with their advantages and disadvantages, are
summarised and depicted in table 11.3 as given by Heizer and Render
(2008).
Table 11.3: Aggregate Planning Options: Advantages and Disadvantages
Option Advantages Disadvantages Some
Comments
Changing Changes in human Inventory holding Applies
inventory levels resources are costs may mainly to
gradual or none; increase. production,
no abrupt Shortages may not service
production result in lost sales operations.
changes
Varying workforce Avoids the costs of Hiring, layoff, and Used where
size by hiring or other alternatives. training costs may size of labor
layoffs be significant. pool is large.
Solution:
Stable workforce strategy or level strategy
The total demand is obtained by adding the monthly demands.
Hence total demand = 600 and average demand = 50.
Based on the production strategy average monthly production = 50
Because the demand is more than 50 in 6 months and less than 50 in
another 6 months, it is necessary to maintain inventory and meet the
demand through regular production and inventory. Whenever the actual
demand is less than the average demand, there will be excess production
and some units have to be carried out as inventory. These excess units are
pulled out of inventory whenever the production during a month is not
capable of meeting the actual demand. This assumes that the product
quality remains stable even though it is kept in the inventory. This is typically
the case of auto components and assemblies.
Aggregate planning problems are ideally suited for spreadsheet applications
like MS Excel, because we follow the tabular format for all the calculations.
January 45 0 50 5
February 31 5 50 24
March 40 24 50 34
April 55 34 50 29
May 66 29 50 13
June 50 13 50 13
July 40 13 50 23
August 30 23 50 43
September 47 43 50 46
October 65 46 50 31
November 70 31 50 11
December 61 11 50 0
Average
50 Total 272
Demand
We construct a Table showing the original data and add three columns. The
beginning inventory column shows the stock on hand at the beginning of the
month. If the company is carrying any stock from the previous period it is
reflected the column. The next column indicates the addition to the inventory
by virtue of the current month’s production.
Then the ending inventory is calculates as:
Ending inventory = (Beginning inventory + Current month’s production) –
Current month’s demand.
Because the company has decided to produce an average demand of 50
per month the production quantity added during every month is 50. Since
the demand is varying, less than 50 during January, February, March, and
again during July, August, and September, the quantity produced will be in
excess of demand and hence goes towards inventory. This quantity will be
utilised to meet the demand when more than 50 units are demanded during
a given month.
When we reach the end of the final period we find that the ending inventory
is zero. This is because the entire annual demand was spread over 12
months in an equal manner.
The inventory carried over from month to month attracts a price which is
called inventory carrying cost. This is usually given as Rs. per month per
unit.
Thus inventory cost = Rs. 4.00 per unit per month X 272 = Rs. 1088.00
Problem 2
Chase demand strategy
Consider the previous problem. The company decides to vary the workforce
according to the demand. On average the output per worker is 5000 units
per month. Fractions are rounded up. Whenever a worker is laid off there is
a cost of Rs. 5000.00 and whenever a worker is hired it costs Rs.6000.00 to
the company. To start with, there are 10 workers in the beginning of
January. Find the total cost of the plan.
Solution:
Table 11.6: Construction of table of inventory & workforce for example
problem 2
Demand in Workers Number in Number Number
Month
000's required the beginning hired laid-off
January 45 9 10 1
February 31 7 9 2
March 40 8 7 1
April 55 11 8 3
May 66 14 11 3
June 50 10 14 4
July 40 8 10 2
August 30 6 8 2
September 47 10 6 4
October 65 13 10 3
November 70 14 13 1
December 61 13 14 1
Total 15 12
11.10 Summary
Let us now summarise the key learning of this unit:
Aggregate planning is the process of planning the quantity and timing of
output over the intermediate range (often 3 to 18 months) by adjusting
the production rate, employment, inventory, and other controllable
variables.
Since the demand varies from period to period the aggregate plan helps
in arranging production resources to satisfy the demand by a
combination of strategies
While developing the aggregate plan it is assumed that the facilities are
fixed and cannot be expanded or contracted
11.11 Glossary
Master schedule: part of production planning which sets the quantity of
each end item to be completed in each week
Layoff: suspension or termination of employment (with or without notice)
by the employer or management
11.13 Answers
Terminal Questions
1. Refer section 11.1
2. Refer section 11.3
3. Refer section 11.4
4. Refer section 11.5.1
5. Refer section 11.5.4
6. Refer section 11.6.1
(Source: http://www.globalsuzuki.com/globalnews/2011/0315.html)
Discussion Questions:
1. How do you see the growth of company with respect to the changes in
Indian car market?
2. What strategies might have been followed by the company to develop
or market different models?
3. What kind of capacity strategy has been followed by the company?
References:
Jay, Heizer, & Barry, Render. Operations Management. 10th Ed.
Prentice Hall, USA.
Lee, J. Krajewski, & Ritzman, Larry, P. Operations Management:
Strategy and Analysis. 6th Ed. - New Delhi: Pearson Education Asia.
Russel, Roberta, S. & Taylor, Bernard, W. Operations Management:
Quality and Competitiveness in a Global Environment. 5th Ed. Wiley:
U.S.A.
Schroeder, Roger, G. (2009). Operations Management. 3rd Ed. Tata
McGraw Hill.
E-Reference:
http://www.globalsuzuki.com/globalnews/2011/0315.html. Retrieved on
12, January 2012.
12.1 Introduction
In the previous unit you learnt about aggregate planning, advantages of
aggregate planning and hierarchical planning system. In this unit, you will be
studying about Supply Chain Management (SCM). SCM is the term used to
describe the management of materials and information across the entire
supply chain, from supplier to component producers to final assemblers to
distribution (warehouses and retailers), and ultimately to the consumer. It
often includes the after-sales service and returns or recycling.
Objectives:
After studying this unit, you should be able to:
define supply chain management
identify the domain applications of SCM
explain the various views of SCM
recognise the inventory management in SCM
explain collaborative supply chain
The network design methods for the most part, provide normative models
for the more strategic decisions. These models typically cover the four major
decision areas described earlier and focus more on the design aspect of the
supply chain, the establishment of the network and the associated flows.
Rough cut methods on the other hand give guiding policies for the
operational decisions. These models typically assume a single site and add
supply chain characteristics to it, such as explicitly considering the sites’
relation to the others in the network.
Simulation method is a method by which a comprehensive supply chain
model can be analysed, considering both strategic and operational
elements. However, one can only evaluate the effectiveness of a pre-
specified policy rather than develop new ones. Let us discuss in detail the
three modelling approaches in this section.
1. Network design methods: As the name suggests, these methods
determine the location of production, stocking and sourcing facilities and
paths for the delivery. Such methods tend to be large scale, and are
used generally at the inception of the supply chain. The earliest work in
this area, although the term supply chain was not in vogue, was by
Geoffrion and Graves (1974). They introduced a multi commodity
logistics networks design model for optimising annualised finished
product flows from plants to the DCS and from DCS to the final
customers. Breitman and Lucas (1987) attempted to provide a
framework for a comprehensive model of a production distribution
system, Planets, that is used to decide what products to produce, where
and how to produce it, which markets to pursue and what resources to
use. Parts of this ambitious project were successfully implemented at
General Motors. These network design methods add value to the firm in
that they lay down the manufacturing and distribution strategies far into
the future.
2. Rough cut methods: These models deal with the more operational or
tactical decisions. The thrust or the rough cut models is the development
of inventory control policies, considering several levels or echelons
together. These models have come to be known as multi level or multi
echelon inventory control models. Current research in multi-echelon
goods and large quantities, but slower and less reliable. So, if you ship
by sea or rail, you have to plan further in advance and keep larger
inventories than you do if you ship by air.
Managing the chain: Once you have determined all the elements in the
supply chain, how do you manage the chain? There are three main paths in
the process: product flow, information flow, and financial flow. Figure 12.5
depicts managing the chain.
1. Product flow includes the movement of goods from a supplier to a
customer, as well as customer returns.
2. Information flow involves transmitting orders and updating the status of
delivery.
3. Financial flow consists of credit terms, payments and payment
schedules, plus consignment and title ownership.
Juggling these elements involves record-keeping, tracking, and analysis by
many departments. Supply chain softwares, especially large, integrated
packages, combine many different technologies to give a single view of
supply chain data that can be shared with others. SCM applications fall into
two main categories – planning applications and execution applications.
Planning applications determine the best way to route materials and the
quantities of goods needed at specific points. When such applications work
well, they make possible the Just-In-Time delivery of goods. Execution
applications track financial data, the physical status and flow of goods, and
ordering and delivery of materials.
A relatively new SCM option involves web based software with a browser
interface. Several major websites now offer auctions and other electronic
marketplaces for buying and selling goods and materials. Also, web-based
application service providers are now promising to provide part or all of the
SCM services for companies that rent their services.
SCM is so big that it can be difficult to plan the deployment of such a
system. Just remember, a chain connects one link to the next and an SCM
implementation can proceed similarly. Each added link brings more
efficiency.
When all the links are in place and when the information, goods, and
finances are flowing properly, the benefits are enormous. This is truly a case
in which the whole is greater than the sum of its parts.
Implementation of SCM: Implementation is in the form of various
interconnected functional blocks of an organisation through which a smooth
flow of the product development is possible. A list of few of such functions is
given as business processes, sales and marketing, logistics, financing,
purchasing, Customer Relationship Management (CRM), manufacturing
strategy, costing, demand planning, trade-off analysis, environmental
requirements, process stability, integrated supply, supplier management,
product design, suppliers, customers, and material specifications.
12.4.3 Definitions of SCM and ISCM
Supply chain is an integrated process where raw materials are transformed
into final products, then delivered to customers.
– Beamon (1999)
A system whose constituent parts include material supplies, production
facilities, distribution services and customer linked together by feed forward
flow of materials and feedback flow of information.
– Berry (1995)
An integrating process based on flawless delivery of basic and customised
services.
– Kalakota (2000)
Supply chain is a process of strategically managing the movement and
storage of materials, parts and finished inventory from suppliers through the
firm and on to the customers.
– Johnson (1995)
Manipal University Jaipur B1627 Page No. 293
Production and Operations Management Unit 12
Case-let 1
12.10 Summary
Let us recapitulate the important concepts discussed in this unit:
SCM is the term used to describe the management of materials and
information across the entire supply chain, from supplier to component
producers to final assemblers to distribution (warehouses and retailers),
and ultimately to the consumer
SCM lets an organisation get the right goods and services to the place
they are needed at the right time, in the proper quantity and at an
acceptable cost
Inventory refers to a detailed list of all the items in the stock
The supply chain involves several elements such as, location,
production, inventory, and transportation
The Bullwhip effect is the uncertainty caused from distorted information
flowing up and down the supply chain
12.11 Glossary
Economic Order Quantity: it is the order quantity that minimizes total
inventory holding costs and ordering costs
Just-In-Time: An inventory strategy companies employ to increase
efficiency and decrease waste by receiving goods only as they are
needed in the production process, thereby reducing inventory costs
Product differentiation: process of distinguishing a product or offering
from others, to make it more attractive
12.13 Answers
Terminal Questions
1. Refer 12.3
2. Refer 12.4.1 and 12.4.3
3. Refer 12.3.1
4. Refer 12.4.5
5. Refer 12.6
6. Refer 12.7
processing units, food retailers and food exporters). This helps eliminate or
prevent identified hazards or reduces them to acceptable levels. This trend
is slowly beginning to take shape with the efforts to integrate and
consolidate the supply chain in Indian food retailing.
The Codex, HACCP (Hazard Analysis Critical Control Point), ISO 22000,
Bar coding (adoption of EAN systems) and food-hygiene standards have
been increasingly adopted by the food processing units in India as
prerequisites for becoming a vendor for big retail chains.
FoodWorld
FoodWorld which is a pioneer in Indian organised retail business became
India’s first national chain of supermarkets. It was started as a division of
Spencer & Co., a part of the RPG Group, in May 1996, and opened its 1st
supermarket in Chennai. In August 1999, FoodWorld hived off as a separate
company with 51-49 percent joint venture between Spencer & Co. and Dairy
Farm International of the Jardine Matheson Group, a US $ 4.5 billion retail
giant. FoodWorld enjoys 62 percent of the organised retail market in cities in
where FoodWorld operates.
FoodWorld was a division of Spencer’s, the retailing company under RPG
Enterprises (RPG). RPG’s asset base was over 75 billion rupees in 1997.
RPG’s business interests spanned a variety of sectors including power,
tyres, agribusiness, telecommunications, retailing and others including
financial services. RPG got into retailing with the acquisition of Spencer’s &
Co. in 1989. It had a large number of partnerships with international
companies, which included Fortune 500 companies.
In late 1994, RPG Enterprises, decided to explore retailing as a new area of
business activity. Several retail formats were considered and food retailing
was seen as the most promising entry vehicle into the Indian market.
Spencer & Co. was chosen to spear head these retailing efforts. Spencer’s
entered into a partnership with Dairy Farm International Holdings, a
US$ 12 billion Australasian food retailer to initiate food retailing activities.
By the end of 1998, 19 FoodWorld stores had proliferated in three major
cities of Southern India, namely Chennai (six stores), Bangalore (eight
stores) and Hyderabad (five stores). FoodWorld executives believed that
given their self service oriented merchandising strategy, the ideal store size
was 4500 sq. ft. However, due to constraints on real estate and/or property
availability in the residential high streets, stores of smaller sizes were also
opened. Some of the larger stores had bakeries and fast food centres, with
a view to provide a pleasant shopping ambience and outstanding service.
Distribution/supply chain strategy
The key elements of FoodWorld’s distribution/supply chain strategy were as
follows:
1. Minimum suppliers to take advantage of economies of scale (in
purchasing and supply logistics), reduced overheads and control
requirements, and easier vendor development.
2. Creation of regional hubs with three regional offices (Chennai,
Bangalore and Hyderabad) to address the state-wise requirements. This
facilitated over 90 percent central distribution. The remaining 10 percent
(mostly perishable items like fruits and vegetables, bakery etc.) were
supplied direct to store.
3. Replenishment frequency was about desired servicing of stores from the
warehouses was daily, while the supply frequency for any specific SKU
was twice a week. The desired ordering and servicing frequency from
suppliers to the warehouses was weekly. Hardware and general
merchandise items were treated as exceptions, to be indented and
ordered as required.
4. Sourcing with minimum intermediaries with the idea to source from as
‘upstream’ as possible in the supply chain, in order to reduce losses and
increase margins.
The chain for dry groceries like rice, dal, sugar, and spices was very long,
often with six or seven links from the farmer to the retailer. FoodWorld had
to an extent managed to integrate two of these links in buying directly from
the miller. It provided the consumer with a pre-weighted, pre-cleaned and
‘trust-marked’ standard product, at prices that were no greater than the local
grocer. Consumer’s positive response is attested by the fact that 20% of
FoodWorld’s throughput is dry groceries under the ‘FoodWorld’ brand.
Manufacturers of branded products had also responded well to jointly
managing the chain to provide greater value to the consumer. Initiatives like
the centralised servicing of FoodWorld by Hindustan Lever, the creation of a
‘special accounts manager’ in the Proctor and Gamble marketing/sales
hierarchy, and the launching of new products/variants from FoodWorld,
Manipal University Jaipur B1627 Page No. 306
Production and Operations Management Unit 12
were all pointers to the fact that the FMCG distribution system, geared to
servicing the needs of 5 million small shops, had begun to adapt itself to the
needs of the modern retailer.
Challenges and constraints
Organised retail food stores face competition from emerging value-based
formats and from independent modern stores who provide a better value
proposition. Investments made in areas like IT, back end administration, and
customer relationship management, do not provide immediate returns.
Unorganised sector has started getting organised –‘Bombay Bazaar’ and ‘E-
foodmart’ have also been formed which are aggregations of the local grocer.
Challenges in the area of infrastructure, supply chain, warehousing, and
local legislation are still prevalent. Key concerns are as follows:
Supply chain structuring
Inventory planning and replenishment management
Warehouse management
Customer order fulfilment
Logistics - temperature controlled
Total kilometre run per month
Perishable tonnage handled per month
The organised food chain is slowly consolidating and moving towards
becoming a major industry. Foodworld, although not able to maintain its
dominance is making all efforts to improve the service and sustaining its
position.
Discussion Questions:
1. What are the real issues in food supply chains?
2. How have the food retail chains penetrated rural areas?
3. What are the reasons for food world’s growth and success?
4. Should food retail chains be controlled by government?
References:
Ajaiy K Gupta. Food Retail and Branding In India. Retrieved November 9,
2009, from International Showcase of Food Sector
B Banerjee, G. R. Foodworld C: The Road Ahead.
FoodWorld, Case from ECCH.
E-References:
http://www-personal.umich.edu/.Retrieved on 12, January 2012.
www.chillibreeze.com/articles_various/Food-Retail-industry.Retrieved on
12, January 2012.
http://www.on-line-foods.com/tech_paper/Ajay_Gupta.pdf. Retrieved on
12, January 2012.
stdwww.iimahd.ernet.in. Retrieved on 12, January 2012.
www.slideshare.net. Retrieved on 12, January 2012.
http://www.supplychainonline.com/.Retrieved on 12, January 2012.
13.1 Introduction
In the previous unit, we have dealt with the concepts of supply chain
management, domain applications, views on supply chain, bullwhip effect in
SCM, collaborative supply chain, inventory management in supply chain,
and financial supply chain. In this unit, we will deal with the purpose of
operations scheduling, factors considered while scheduling, scheduling
activity under PPC, scheduling strategies, scheduling guidelines,
approaches to scheduling, scheduling methodology, and scheduling in
services.
describe how it achieves the rate of output and maintain the finished
goods inventory to levels predetermined and meet the marketing
requirements.
Forward scheduling
End of operations Delivery due date
Work forward
Opns 01 02 03 04 05 06 07 08 (Finished Goods Inventory
Days: 2 5 6 9 11 13 15 17 (three days left for delivery)
Backward Scheduling:
Start of Operations (start late by three days) Delivery due date
End of operations
Operations 01 02 03 04 05 06 07 08 FGI
Days: 2 5 6 9 11 13 15 17
Work backward
Job Machine 1 2 3 4 5 6 7 8 9 10 11
X(4) Sheet
work-1
X(4) Solder
Y(5) Braze
Z(6) Sheet
work-2
F(3) Solder
Fig. 13.3: Progress chart
Jobs are shown in Column one and the work completed on a particular days
in the progress chart above, is shown
As against 4 days of sheet metal work-1 of X component, the operation has
completed up to 3.5 days, and hence there is half a day work pending on
that day.
a) Job X requires half day of change over on 5th day-shown as Black
square and then, soldering operation is continued for next four days.
b) Job Y Brazing continued for five days and as on this day it is as per
schedule, i.e., it has taken 5 days to complete as scheduled.
c) Since component X requires half day for completion before component
Z starts its operation on the sheet metal machine, six days required for
this Z will take completion date to 10.5 days.
d) Soldering operation on component F has already taken half a day extra
for completion (3.5 days instead of 3 days).
This is how the progress charts shows the present day status of the job on
hand, jobs completion, jobs within the schedules, and jobs outside the
schedule.
c) Schedule boards
Shop floor personnel need to know the information as to how they are
processing components in production and this can be reflected in a simple
schedule board inside the production shops. Content of these boards are
updated daily by the progress department. The boards contain simple bar
graphs to represent the actual status of components/products.
d) Computer graphics
Computer graphics and reports have replaced the mechanical boards and
charts. With the help of computers, PPC keep track of hundreds of items
and can revise the schedules.
13.8.2 Priority decision rules
A priority decision rules shown below are the systematic procedures for
assigning priorities to waiting jobs, and determining the sequence in which
jobs are required to be processed.
The major criteria for applying rules are set up costs, idle time of machine
and labor, in-process inventory, percentage of jobs that are late, average
number of jobs waiting in queue, average time to complete job, and
standard deviation of time to complete job.
Classifications of priority decision rules
A. Single-criteria rules
B. Combined criteria rules (Johnson’s rule)
C. Critical ratio scheduling
D. Index method of scheduling
E. Critical path method
Let us now discuss these classifications in detail.
A) Single-criteria rules
Here the jobs are assigned to the production division by considering single
and important criteria. These criteria’s are:
First come first served (the job that comes first is served by scheduling
first)
Earliest due date (here the job with the earliest due date is processed)
Least slack available for production (here priority is given to the waiting
job whose slack time is least. Slack time is calculated as the difference
of the length of time remaining until the job is due and the length of its
operation time. For example, if a job requires 6 days and time left is 8
days, then the slack for that job is 2 days.)
Shortest processing time (job requires least of shortest time is
processed first)
Longest processing time (job that requires the longest time is processed
first)
Preferred customer order (priority to orders coming from favorite
customers)
Random selection (Jobs are selected at random and purely a chance for
any job)
Illustration - 4
The illustration below details how the above said priority rules are applied
while scheduling. It also explains the different methods available for PPC
department.
Five jobs are to be processed at a Fabricating unit. The processing time in
days and the due date in days are given below.
Table 13.1: Data for illustration 4
Job A B C D E
Processing time in days 8 21 18 13 15
Due date in days 10 24 22 16 16
Determine:
a) The sequence of job according to the shortest processing time
b) Calculate total completion time
c) Calculate mean flow time or average completion time
d) Calculate average number of jobs in the system each day
e) Calculate average lateness
Solution
a) The sequence as is ABCDE, where as the sequence with the shortest
flow time is ADECB
6
2) The next shortest time is for job 4 on machine A. So place job as early
as possible.
4 6
3) The next shortest time is a tie between 1 and 5 (both 5 hours). Select
any one. Place job 1 as early as possible among the remaining jobs.
4 1 6
4) The next shortest time from the tie above is 5; therefore place it as late
as possible among the remaining slots.
4 1 5 6
5) The next shortest time for job 3 on machine A (7 hours), place it as early
as possible among the remaining slots.
4 1 3 5 6
6) The last remaining job is 2 goes to the vacant slot.
4 1 3 2 5 6
Hence the best sequence for scheduling jobs is 4, 1, 3, 2, 5, 6.
C) Critical ratio scheduling
This establishes and maintains priority among jobs.
Critical ratio greater than one means the job can be completed ahead of
schedule, equal to unity means the job needs close watch, and less than
unity means special measures are to be taken to complete the job on due
date. Here, a quantity called as the critical ratio is calculated for each job
and the jobs with lower critical ratios are given priority to be processed first.
Critical Ratio = Time remaining for due date of the job/Time needed to
complete the job.
Illustration - 6
In the following table, four jobs are shown with its operation time, due dates,
number of operations remaining, and shop remaining time. Calculate the CR
sequence schedule.
Table 13.5: Data for illustration 6
Time Number of
Operating Shop time Answer
Job remaining operations
time (hrs) remaining CR
due days remaining
1 5 14 8 9 1.55
2 10 11 2 10 1.1
3 8 20 10 17 1.176
4 14 8 6 11 0.72
Answer:
Using CR to schedule, CR = [time remaining to due date]/shop time
remaining CR for first reading =14/9 = 1.55. Similar calculation and readings
are filled in the CR column. Arranging sequence is the lowest CR first and
then ascending order and hence sequence of job loading is 4, 2, 3, 1.
D) Index method of scheduling
This assigns job to the best machine until its capacity is exhausted and then
remaining jobs are assigned to the next best machine, etc. Here, the jobs
are assigned to the best work centre till it is fully loaded to capacity and the
remaining jobs are assigned to the next best if processing time is the
criterion. If the jobs can be processed in different work centres, “indices” are
calculated for the different likely process time with the lowest index time
of 1.0.
Illustration - 7
Solve the following shop loading problem by using index method.
Table 13.6: Data for illustration 7
Job WC-1 WC-2 WC-3 WC-4
A 10 9 8 12
B 3 4 5 2
C 25 20 14 16
D 7 9 10 9
E 18 14 16 25
No. of days available 20 20 20 20
The following table 13.6 shows the indices. The days corresponding to a job
assigned is with bold letter and underlined. Bold number and underlined is
the minimum number of days in each centre.
Table 13.7: Indices for illustration 7
WC1 WC2 WC3 WC4
Days Index Days Index Days Index Days Index
A 10 1.25 9 1.13 8 1.00 12 1.5
B 3 1.5 4 2.00 5 2.5 2 1.00
C 25 1.78 20 1.42 14 1.00 16 1.14
D 7 1.00 9 1.28 10 1.42 9 1.28
E 18 1.28 14 1.00 16 1.14 25 1.78
No of 20 20 20 20
Days
Days 7 14 22 2
assign
Indices are decided as: Job A has a minimum processing time of 8 days at
centre 3, and hence, this index is 1.00, i. e., the processing times of 10, 9,
and 12 at centres at 1, 2, and 4 are divided by 8 to find out the indices. This
procedure is followed for all jobs and their indices are indicated in the
column.
Assignment of the jobs to work centres based on the index equal to 1 is as
follows:
Table 13.8: Assignment of the jobs to work centres for illustration 7
Jobs A B C D E
Work centre assigned 1 4 3 1 2
[Additional Job of C can be assigned to work centre 4 as sufficient time
available]
E) Critical path method
It is used for scheduling large and unique projects in which the relationship
between the activities is quite intricate. The method overcomes the
deficiencies of Gantt chart.
Here a network of work centres and processing routes of each job is drawn
graphically. PERT/CPM charts are made to identify the critical path.
Appointments
Here the customer is specified with the time of services. The advantage is
that the service is customised and utilisation of the capacity will be high. The
individual customer needs are satisfied. Service activities are determined
and planned for the customer. For example, surgery in hospitals.
13.10 Summary
Let us summarise the key learnings of this unit:
PPC focus on operation control through the process of scheduling.
Scheduling helps in operational controls in manufacturing and service
systems. The factors that greatly influence scheduling are the number of
jobs, the number of machines as well as the complexity of the machining
operations in the line.
There are two types of approaches to scheduling. They are forward
scheduling and backward scheduling. These are used to ensure that the
lead time for manufacture is kept to a minimum and the products are
supplied to the customers as quickly as possible.
The scheduling methodology adopted as well as its complexity differ
from production shop to shop and also in the systems like job shops,
process shops, mass production lines, fully automated plants, etc. There
are many types of scheduling and the methodologies used in production.
Specific methods used depend on the type of industry, organisation,
products, and level of sophistication required in the production.
The scheduling methodology can be classified as charts and boards
(Gantt load and progress chart, scheduled boards, and computer
graphics) and priority decision rules like single and double criteria rules,
critical ratio scheduling, index method, and critical path method. Each
one of these has its own specific applications and PPC will decide based
on the type of scheduling required to accomplish the job with the
minimum time possible, thus saving costly machine hours.
Workforce scheduling reflects the staffing plan into a specific work
schedule for each employee. Scheduling should ensure proper loading
of jobs based on the skills available within the workforce.
13.11 Glossary
Critical path: The critical path is the path which has the largest amount of
time associated with the activities and this represents the minimum time
13.13 Answers
Reference:
Frazier, G., & Gaither, N. (2002). Operations Management. South-
Western/Thomson Learning.
Ronald, E. J., & Everett, A. E. (2009). Production And Operations
Management: Concepts, Models And Behavior. Phi Learning
E-Reference:
www.enotes.com. Retrieved on 18, January 2012.
www.som.umass.edu. Retrieved on 22, January 2012.
14.1 Introduction
In the previous unit, we dealt with the purpose of operations scheduling,
factors considered while scheduling, scheduling activity under PPC,
scheduling strategies, guidelines and methodology, approaches to
scheduling, and scheduling in services. In this unit, we will deal with the
concepts of value engineering and value analysis, the relevance of value
engineering in modern manufacturing, the process of value analysis, the
approaches and aim of value engineering, providing value to the customers,
and the main benefits of the application of value engineering.
Value engineering and/or value analysis has gained importance in today’s
manufacturing field because of the necessity of making all components as
economically as possible. Every unnecessary component and every
unwanted operation have to be eliminated for economising. Materials may
have to be changed and tolerances in manufacturing have to be relaxed
because value can be created in terms of reduced volume, increased
strength, or longer service. Involving the supplier and utilising their
knowledge and experience are crucial for the company’s success.
Let us learn about value engineering in this unit.
Manipal University Jaipur B1627 Page No. 331
Production and Operations Management Unit 14
Objectives:
After studying this unit, you should be able to:
define value engineering and/or value analysis
recognise the importance of value engineering/value analysis for a
manufacturing concern
describe the involvement of suppliers in realising the advantages of
value analysis
recognise that design changes can affect the usage and utility of the
product and at the same time, reduce the cost
explain how customers will be benefited by value engineering and bring
us increased volumes of business
Example 1
Let us consider a component which needs a
round brass rod as raw material of diameter
21.5mm. The component has to perform
seven operations: cutting, drilling,
chamfering, boring, milling, plating, and
polishing.
Value analysis considers all aspects of each of these and investigates
whether any of them can be substituted by another material, a different
size, a different tool, a different machine, a different cut sequence, a
different tool for an operation, a different chemical, a different
concentration, a different voltage, shorter time or processing.
For the above example, studies can be conducted to verify whether any
operation can be eliminated. Simplification of processes reduces the cost of
manufacturing. Every piece of material and the process should add value to
the product so as to render the best performance. Thus, there is an
opportunity at every stage of the manufacturing and delivery process to find
the alternatives which will increase the functionality or reduce the cost in
terms of material, process, and time. It also includes analysing the methods
used and the tools and equipments involved.
The different aspects of value engineering can be encapsulated into a
sequence of steps known as a ‘Job Plan’. Value engineering in any
organisations helps to identify:
The problem or situation that needs to be changed/improved
All that is good about the existing situation
The improvements required in the situation
The functions to be performed
The ways of performing each function
The best ways among the selected functions
The steps to be followed to implement the function
The person who executes the function
It should be remembered that we are not seeking a cost reduction sacrificing
quality. It has been found that there will be an improvement in quality when
systematic value analysis principles are employed.
Remember
Value engineering or value analysis is a methodology by which we try to
find substitutes for a product or an operation. It finds alternatives for
increasing the functionality or reducing the cost in terms of material,
process, and time by simplification, variety reduction, and parts reduction.
may be given to each of them. Considered with the cost of the part and the
weight, each function gets a value attached to it. Table 14.2 depicts a brief
about the key questions, techniques, and tasks that need to be performed in
step 2.
Table 14.2: Analysis and Valuation of Functions
Phase Analysis and valuation of functions
Objective Analyse function and costs
Key What is the worth of the basic function?
questions What is the worth of secondary functions?
What are high cost areas?
Can any function be eliminated?
Techniques Evaluate by comparison
Put costs on specifications and requirements
Put costs on key tolerances and finishes
Put costs on key standards
Tasks Analyse costs
Analyse functions
Evaluate value of function/cost
Evaluate project potential
Select specific study areas
Step 3: Idea Generation and Evaluation of Substitutes
Having collected the data and analysed them and knowing the relative
importance of the functions, the next step is to identify the material or
process that is amenable to the application of value engineering. Since
there are a number of factors to be considered and to break away from the
conventional thinking, brain storming is preferred. Ideas are allowed to be
submitted to the group for discussion. A few of them will turn out to be worth
more detailed evaluation. Debates about suitability or disadvantage of any
particular change envisaged are conducted. Facts are analysed and
consensus arrived as to what can be attempted. Many times, the existing
material or process will be ideal and nothing needs to be done. But a
discussion and decision about this confirms that the maximum value is
being derived. Table 14.3 depicts a brief about the key questions,
techniques, and tasks that need to be performed in step 3.
Remember
The process of value engineering can be divided into:
1. Data Gathering
2. Analysis and valuation of functions
3. Idea generation and evaluation of substitutes
4. Implementation and regularisation
Case-let 1
The concept of value engineering originated in 1947 in
General Electricals Corporation (GEC) when a
substitute for asbestos for flooring had to be found.
Specialised dealers could provide an equally good
‘material’ at a lesser price.
Initially, the practitioners were the people in charge of purchasing who
tried to locate a substitute material which would be equally good, if not
better, at a lower price. This is the first and basic approach to value
engineering. As the concept percolated to the manufacturing
departments, the engineers applied the same principles and found that
they could use alternate materials which were cheaper giving the same
performance. It was also found that dimensions and tolerances could be
altered without affecting the performance of the part or the product. The
investigations took them on the path of eliminating some operations. The
focus was on the value of each bit of material and each operation. This
approach led to the design stage.
14.5.1 Pre-sourcing
The process of involving suppliers from the design stage is called pre-
sourcing.
As an extension of the internal processes where a higher value is sought to
be realised for the same cost, suppliers of materials and services are
involved at the design stage. Suppliers are in a position to provide
suggestions for design changes that will help making the operations more
efficient. Their inputs will help in ensuring higher quality at lower costs.
Sometimes, suppliers are given total responsibility for design, procurement
of materials, processing, quality, and deliveries as per schedules. If a group
of them act in coordination, a number of parts that go in for assembly get
sourced, so that, guaranteed supplies are assured. The cost effectiveness
of such arrangements is considerable. This procedure of involving suppliers
from the design stage is called pre-sourcing.
However, careful analysis of the systems followed by the supplier and their
robustness in terms of capacity, capability, and commitment is compulsory.
14.5.2 Supplier evaluation and certification
To ensure reliable supplies, firms adopt procedures for supplier evaluation
and certification. Evaluation is done for the processes and quality assurance
measures. It will be necessary to augment their equipment, training
programmes, and inspection methods and instruments. At first hand,
assessment by a team should look into the following facilities which are part
of the manufacturing system:
Material procurement procedures
Inspection and issue procedures
Production planning and control systems
Quality control methods
Process of design and evaluation
Management Information Systems
Labour relations and compensation systems
Culture of productivity and quality
You will note that the above process tries to bring the environment of the
supplier organisation as close to the firm’s. The result is that, we will be able
to treat the supplier as our partner and this enhances the involvement and
cooperation and the resultant synergy produces quality.
14.7 Benefits
The main benefits of the application of VE are:
Cost reduction
Overall cost consciousness
A culture of effecting savings across organisation
Streamlining of administration and creation of transparency in all
dealings even with outsiders
Development of reliable suppliers
Case-let 2
In implementation of VA, Ashok Leyland changed the
gear material from phosphor bronze to a less
expensive cast iron and eliminated frequent field
complaint of gear seizure in trucks.
Case-let 3
T.V. Sundaram Iyenger & Sons (TVS) Limited is one of the
largest automobile distribution companies in India.
During the mid 1940s to 1960s, TVS, based in Madurai, was ranked as the best
bus transportation system in India. It could manage to run the fleets for about
96% of the time.
TVS used the VE approach to restore the mobility of buses that had broken
down. They stocked their garage with some critical assemblies of a bus.
Whenever a part or an assembly failed of a bus, they replaced it immediately
with a new one, thus restoring mobility within a couple of hours.
When compared to the traditional method, this approach has gained much more
benefits to the company. It helped to save time, reduce cost, and to become
efficient, quicker, and competitive.
Case-let 4
4 Hospital & Health Network in Pennsylvania approached Strategic Value
Analysis (SVA) solutions to find a right solution in reducing their non-salary
expenses. Strategic Value Analysis in Healthcare (SVAH) took it as a challenge
to determine any non-salary opportunities of the Health Network system.
SVAH, with their systematic approach, analysed each and every part of the
Hospital Network and came out with the solution. The solution was to implement
teaching healthcare organisations and give advanced tools, training, strategies,
and tactics. This solution was very helpful to manage and control 4 Hospital &
Health Network non-salary expenses more successfully.
4 Hospital & Health Network were convinced with the solution and implemented
SVAH’s Strategic Value Analysis System and e-Value Analysis Software. To
enhance the Health Network’s value management, SVAH provided three months
of consulting, coaching, and facilitation services. SVAH’s Strategic Value
Analysis System has improved the Health Network’s strategic plan and trained
the Health Network’s value team leaders, team members, and coordinators. The
e-value software helped to manage the members and the process of the 4
Hospital & Health Network.
Finally, after 3 months of successful completion of the Health Network’s value
management program, 4 Hospital & Health Network could manage to save 2.3
million dollars in non-salary expenses.
(Source: http://www.strategicva.com/)
Case-let 5
A cosmetic company came across the case of an empty packet of a
cream tube. A customer raised a complaint on that company, stating that
there was no cream tube in the packed box.
When the complaint came to the notice of the company officials, the
authorities isolated the problem to the assembly line engineers. The
management asked engineers to solve the problem. Engineers worked
hard and found a solution for the problem. They devised a high-resolution
X-ray machine which would help to monitor all the packed boxes that
pass through the assembly line. Though, the X-ray devise was costly,
management compromised to buy the devise. Management felt that the
devise would help them to avoid such unforeseen errors.
Engineers ordered the floor managers to fix the X-ray machines at the
assembly line to ensure all packaged boxes have cream tube in it before
delivering to the delivery department. Also, two employees were
appointed to check the flow line and to maintain the record of the empty
boxes.
When the two employees were working on it, one of them got a better
solution for the problem. He thought that his idea would solve the
problem much better and it involves less costly equipment. The idea was
to place a strong industrial electric fan near to the assembly line, which
would blow off the empty boxes passing through the line, if any, thereby
ensuring zero errors.
When his idea was placed in front of the management he was awarded
for his intellectual skills.
Here are a few companies that implemented value engineering for providing
value to their customers.
Example 2
Modi Xerox designed the VE-d low cost copier
1025 ST, which uses a single tray. The advantage
of the new design is that it is easy to operate and
the cost is also very low.
14.8 Summary
Let us recapitulate the important concepts discussed in this unit:
Value Engineering (VE) or value analysis is a methodology by which we
try to minimise the cost and improve the revenue of a product or an
operation
Value engineering process calls for a deep study of a product and the
purpose for which it is used
Value analysis looks at the manufacturing activities with a view to make
the components simpler, processes faster, and the products better
The process of value analysis can be divided into the following four
steps: Data gathering, Analysis and valuation of functions, Idea
generation and evaluation of substitutes, Implementation and regulation
14.9 Glossary
Returns on Investment: performance measure used to evaluate the
efficiency of an investment
Lead time: time between the initiation of a process and its completion
14.11 Answers
Terminal Questions
1. Refer to 14.2
2. Refer to 14.2 and 14.7
3. Refer to 14.4
4. Refer to 14.5
References:
Evans J. R., Collier D. A., Operations Management: Concepts,
Techniques and Applications. (2007). South Western- Cengage
Learning.
E-Reference:
http://www.strategicva.com/.Retrieved on 12, January 2012.
Unit 15 Just-In-Time
Structure:
15.1 Introduction
Objectives
15.2 Characteristics of JIT
Concept of ‘5S’
15.3 Key Processes to Eliminate Waste
Kanban for material flow
High quality production
Small and uniform workloads
Suppliers as partners
Flexible workforce and training
Total productive maintenance
15.4 Implementation of JIT
Pre-requisites for implementation
Shop floor control
Purchasing
Vendor-managed inventory
15.5 JIT Inventory and Supply Chains
15.6 Summary
15.7 Glossary
15.8 Terminal Questions
15.9 Answers
15.10 Case Study
15.1 Introduction
In the previous unit, we have dealt with the concepts of value engineering
and value analysis, the relevance of value engineering in modern
manufacturing, the process of value analysis, the approaches and aim of
value engineering, providing value to the customers, and the main benefits
of the application of value engineering. In this unit, we will deal with the
characteristics of JIT, key processes to eliminate waste, implementation of
JIT, and JIT inventory and supply chains.
Toyota Motor Corporation, with annual sales of over 9 million cars and
trucks, is the largest vehicle manufacturer in the world. Two techniques,
just-In-Time (JIT) and the Toyota Production System (TPS), have been
instrumental in this post-world war II growth. Toyota, with a wide range of
vehicles, competes head-to-head with successful and long-established
companies in Europe and the U.S. Taiichi Ohno, the former vice president of
Toyota, created the basic framework for the world’s most discussed systems
for improving productivity, JIT and TPS.
Just-In-Time (JIT) is an approach of continuous and forced problem solving
via a focus on throughput and reduced inventory. The Toyota Production
System (TPS), with its emphasis on continuous improvement, respect for
people, and standard work practices, is particularly suited for assembly
lines.
Just-In-Time (JIT) manufacturing is a process by which companies don't
keep excess inventory; instead, they manufacture a product as an order
comes in. It is a management philosophy of continuous and forced problem
solving.
The objective of JIT manufacturing system is to:
Eliminate waste, that is, minimise the amount of equipment, materials,
parts, space, and worker’s time, which adds great value to the product
Increase productivity
JIT means making what the market demands when it is needed. It
incorporates the generic elements of lean systems. Lean production
supplies customers with exactly what the customer wants, when the
customer wants, without waste, and through continuous improvement.
Deploying JIT results in decrease of inventories and increases the overall
efficiencies. Decreasing inventory allows reducing wastes which, in turn,
results in saving lots of money. There are many advantages of JIT. They are
as follows:
Increases the work productivity
Reduces operating costs
Improves performance and throughput
Improves quality
Improves deliveries
Increases flexibility and innovativeness
In this unit, you will know more about JIT, its key elements, the processes of
eliminating waste, the applications, the process of implementing, and its
failures and successes.
Objectives:
After studying this unit, you should be able to:
identify the key elements of JIT
explain the key processes to eliminate wastes according to JIT
recognise the key business practices and applications of JIT
explain how JIT is implemented
recognise how organisations fail or succeed by implementing JIT
Waiting time – Wastage of time happens when goods are not moving or
being processed. The operator, the machine, or the part will either be
not working or be worked upon. The duration of waiting can be said to
be unproductive and may create more serious consequences.
Movement – Any unnecessary movement is a waste of energy; it
causes blockages, disrupting movements, and delaying the flow of other
items creating delays.
Effort – The people who work do not make a study as to how the
products on which they are making are utilised and do not realise the
purpose for which they are made. This lack of education will lead to
waste of resources. Finally, they end up in shortage of resources when
needed.
Defective products – The defective products lead to a tremendous loss
to the company. This is because they use up the same equipments,
workmen, and the time that would be used to make good products.
Thus, defective products use up resources and result in losses.
The containers used in the material flow are designed to hold specific
components in certain numbers. Kanban system is a physical control
system which uses cards and containers, that is, materials must not be
removed without posting a card at the receiving post.
Advantages of Kanban processes are listed below:
The orders are controlled and triggered from defined locations
Inventory costs and Work In Progress (WIP) are reduced
The control of stock in the inventory will be improved
The lead time to deliver is reduced
The process demand can be visualised
The process of deviation escalation and rectification of root cause of the
deviations in production can be improved
15.3.2 High quality production
JIT production is meant for products which are repetitive in nature. The
system has its origin in providing a solution to a manufacturing process,
where the finished product is obtained by a number of parts that get
assembled. The problems in such situations will be to keep the arrival of
parts, components, and sub-assemblies so that no shortages will occur
during production. Therefore, it becomes vital that all parts are of high
quality, so that the assembly does not get held up.
For JIT to be successful, the inventories have to be kept to the minimum
and every component produced must represent the highest quality. It is
relevant to mention Taguchi’s insistence on achieving the target value to
realise quality. The permitted tolerances do not ensure high quality.
Manipal University Jaipur B1627 Page No. 355
Production and Operations Management Unit 15
If the technology they have is superior, if the equipments they use are
optimal and the workforce is efficient, the benefits would increase for them
at a cost to the organisation.
If there are a number of suppliers, the organisations would exploit the
situation and decrease the cost by choosing the one who charges the least.
With this exploitative environment, there are some disadvantages to the
organisation, such as:
Commitment to meet the organisation needs is less
Giving the benefit of their learning to the organisation has fewer chances
Transferring organisation knowledge to the suppliers for improved
service would be absent
Likelihood of quality suffers
As explained earlier, to be able to implement JIT, we need to change
schedules quite often either delaying or hastening the production of some
items almost on a daily basis, if not hourly. The main concern in such
situations will be a build up of inventory or stock out positions. Problems of
communication add to the difficulties. The following ways will ensure
cooperation of the suppliers and timely delivery of supplies with good
quality:
Treating suppliers as a part of the organisation’s business and sharing
information
Providing technical and financial assistance
Seeking supplier’s help in improving process
Building up rapport between the employees of the supplier organisation
Assuring business
Many times, the supplier, owing to his or her specialised operations, may
contribute to the organisation’s productivity. Quality enhancement
programmes can be implemented simultaneously for faster and better
results.
15.3.5 Flexible workforce and training
Flexible workforce consists of workmen who are capable of performing
many tasks. It may be at their specified workstations or at other workstations
where the skills required may be quite different from those which they use
You will observe that when the above requirements are met, we achieve JIT
to a very close extent.
15.4.2 Shop floor control
Realistic planning and scheduling takes the frequency with which setups
have to be changed to manage the material flow without building up
inventories into consideration and leads to JIT manufacturing.
SMED (Single-Minute Exchange of Die) gives flexibility for production
process. Advocated by Shigeo Shingo, SMED method calls for designing,
making fixtures, and tooling which are instrumental in changing setups so
that, changes are to be effected within a minute. In other words, this helps in
reducing the setup time on the machines when changeover of products
takes place. The de-clamping and clamping elements should be made for
this purpose. Some of these operations are carried outside the machine
without stopping the machine.
Application of Kanban, wherever suitable, is another mechanism for
controlling the flow of material. Maintenance of machines and periodic shop
floor inspection is necessary. Verifying whether the processes are delivering
components within the tolerances specified is needed.
15.4.3 Purchasing
The essence of JIT purchasing lies in treating the purchaser as a participant
in your activities. Cooperative relationship leads to the development of the
supplier who understands the company’s requirements and in situations
where he or she confronts any difficulty, he or she should be in a position to
approach the company for its solution. Being open and trusting helps the
organisations to identify the problems and go to the source which is like
implementing TQM.
Every problem or discovery of a defect is considered an opportunity in which
the supplier and the company together get a deeper understanding of the
problem, and the solutions will not only solve that problem but also the ones
that were hidden. It is also the practice of many companies who procure a
large number of parts manufactured from their vendors to have supplies
made to the assembly in specific quantities to meet the needs just in time.
Self-certification by the vendor is resorted to ensure quality of the material.
The actual users are given autonomy to demand from the supplier, the
quantities required as well as the time of its need. Any change in demand is
conveyed and complied. This requires cooperation and trust between the
supplier and the customer. This is how JIT purchases work.
15.4.4 Vendor-managed inventory
The very purpose of JIT is to reduce inventory at all places in the supply
chain. Inventory is considered a waste because inventory is created by
using materials, machines, and efforts of persons. All of these are resources
which have already been used up and that portion of it which is not
consumed and sent up the value chain causes a drag in the system.
However, inventories are inevitable because uncertainties exist at every
stage, making it necessary to provide a buffer so that demands do not go
unfilled. The challenge is to keep it to the minimum. To make this happen,
the calculations involving the following are necessary:
Forecasts of the market demand
Capacities of the equipments
Worker absenteeism
Supplier’s lead times
Quality of the produced components
Each of these will have many factors which affect them. JIT depends upon
the accurate assessment of them and based on the decisions taken,
activities are initiated. These should result in holding materials as small as
the number of components or products as feasible to maintain the flow of
material without disruption. Many companies make their suppliers hold their
inventories and request them to make timely supplies. This may be done at
a cost. The most important requirement for a successful vendor-managed
inventory system is a good communication system.
Case-let 1
Anode Electronics produces different kinds of electronic products like
TVs and tape recorders. Since the world market of electronics was
moving towards high variety of products and the delivery of the orders
was getting shorter, the top managers of Anode Electronics were under
great pressure to increase the competitive position of the company in the
market. One of the executive managers of Anode Electronics suggested
implementing a system called JIT with the hope that inventory levels
would be reduced and quality production would increase.
The main aspect in introducing the JIT manufacturing system in a
company is to educate the staff about JIT. Four middle level managers
were asked to attend a seminar conducted by a company called
Electrode Combinations who have already implemented this system, so
that they could explain the whole company about JIT manufacturing
system. A group of managers, one from each department, were a part of
the team who discussed what is to be done and how to implement JIT in
their company. According to their discussions, the following 5 activities
were called the 5 JIT principles:
Classify materials on the shop floor based on its usefulness
Place the value-added materials in handy positions
Clean up the non-value-added materials
Maintain the factory in a good looking shape
Let the employees in the company have good habits and follow the
rules
With these activities, the working environment in Anode Electronics was
improved and the safety, quality, and productivity were increased. As the
JIT system was newly implemented in Anode Electronics, the company
started continuously improving the quality of the products.
The managers of each department formed an improvement committee to
look after the implementation of JIT in the different areas of the company,
especially the shop floor. All necessary materials were posted with a ‘red
card’ and deposited for further rework. Thus, all materials have been
identified in terms of their names, places, quantities, etc. The concept of
visual management, which is management simply by eye sight, has been
strongly motivated and encouraged.
Tremendous resistance from suppliers and workers was faced during the
early stage of developing the JIT system. High level commitments of top
manager, determination of pushing JIT system and supplier’s
involvement have helped to achieve JIT material flow. With this, the
Anode Electronics Company has laid down a solid foundation for the JIT
system so that the production system can be operated smoothly to
improve safety, quality, and productivity over the years. The quality and
productivity problems ‘under the water’ have shown up and have been
solved.
A major success in the implementation of JIT system showed the
reduction in the amount of inventory and workers. Inventory level has
been reduced by 63%, parts inventory has been reduced by 50%, and
the number of workers has been reduced from 1020 to 865 during the
past four years. The growth rate of the company has increased by 5%
every year.
Self Assessment Questions
1. Break downs generally occur as the symptoms are neglected. (True /
False)
2. The very purpose of JIT is to reduce inventory at all places in the
supply chain. (True/False)
Production scheduling
Inspection
Distribution
Retailing
These are the subjects of study and management. Note that information
flows along with the materials and is the content for collection,
dissemination, analysis, and decision making. The purpose is to measure
the value that gets added and the costs involved in the progression. One of
the factors that add cost and not value is the hold-ups that occur along the
path. This is the inventory cost.
Forecasting determines the quantities to be produced at specified intervals
of time. All other functions get initiated and the managers concerned try to
derive maximum value at the least cost. So, production scheduling is
meticulously done taking into consideration all the uncertainties. The better
the information the manager has, better the analysis and more efficient the
implementation and greater the value added for lesser cost.
The ideal situation, which JIT envisages, is that there should not be any
bottlenecks and no extra material lying at any of the points in the supply
chain. Different companies adopt different strategies depending on the
following:
Products
Type of outsourcing they are able to develop and manage
Extent of reach they have for customers
Competition they face
Managing the supply chain efficiently helps in achieving JIT completely or as
much of it as possible.
Self Assessment Questions
3. The supply chain creates a _______ along its path.
4. There should no bottlenecks and no extra martial lying at any of the
points in the ________.
15.6 Summary
Let us recapitulate the important concepts discussed in this unit:
JIT is a system that lays emphasis in achieving cost efficiencies by the
principles of waste reduction.
JIT depends on the pull system of supply, manufacture, and delivery to
reduce inventory stage.
JIT requires the use of a flexible force to overcome production hold ups,
even with lesser number of workers.
JIT is possible only when parts and products are of high quality so that
all those produced are fit for use.
Total productive maintenance is one of the essential requirements for
JIT.
Economy of movement is necessary ensuring smooth throughput which
helps in reducing inventory.
Cooperation of suppliers is vital for the success of JIT and they help in
managing inventories.
Information flow is an inseparable activity of the supply and its efficient
management is the basis for successful implementation of JIT.
15.7 Glossary
Procurement: acquisition of goods or services
Kanban: system for visualizing work, making it flow, reducing waste,
and maximizing customer value; it is a means to achieve Just-in-time
(JIT) production.
15.9 Answers
Discussion Questions:
1. If you are Mr. Ikebuchi, What will you do?
2. What does this experience tell you about just–in–time?
3. What actions will you have to take to handle such cases in the future?
th
(Source: Render and Heizer, Operations Management, 9 Edition, Prentice Hall,
USA.)
References:
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