CHAPTER TWO

OPERATIONS STRATEGY & COMPETITIVENESS

2.1 INTRODUCTION TO OPERATIONS STRATEGY

An operations strategy is a strategy for the operations functions that is linked to the
business strategy and other functional strategy, leading to a consistence pattern of decision
making and competitive advantage for the firm.

An operations strategy consists of a sequence of decisions that, over time, enables a business
unit to achieve a desired operations structure, infrastructure, and set of specific capabilities in
support of the competitive priorities.

Operations strategy: Operations strategy is concerned with setting broad policies and plans
for using the resources of the firm to best support the firm’s long-term competitive
strategy. It has a long-term impact on the nature and characteristics of the organization. In
large measure, strategies affect the ability of an organization to compete.

Operations strategy concerns the pattern of strategic decisions and actions which set the role,
objectives and activities of the operation. The term ‘operations strategy’ sounds at first like a
contradiction. How can ‘operations’, a subject that is generally concerned with the day-to-day
creation and delivery of goods and services, be strategic? ‘Strategy’ is usually regarded as the
opposite of those day-to-day routine activities. But ‘operations’ is not the same as
‘operational’. ‘Operations’ are the resources that create products and services. ‘Operational’
is the opposite of strategic, meaning day-to-day and detailed. So, one can examine both the
operational and the strategic aspects of operations. It is also conventional to distinguish between
the ‘content’ and the ‘process’ of operations strategy.

The content of operations strategy is the specific decisions and actions which set the
operations role, objectives and activities. The process of operations strategy is the method that
is used to make the specific ‘content’ decisions. Nor is there universal agreement on how an
operations strategy should be described.

OPERATIONS COMPETITIVE DIMENSIONS

Given the choices customers face today, how do they decide which product or service to buy?
Different customers are attracted by different attributes. Some customers are interested
primarily in the cost of a product or service and, correspondingly, some companies attempt to
position themselves to offer the lowest prices. Companies must be competitive to sell their goods
and services in the market place. Business organizations compete with one another in variety of
ways i.e. by identifying operating priorities. The major competitive dimensions (operations
priorities) that form the competitive position of a firm include the following:

1. Cost: “Make the product or deliver the service cheap.” within every industry, there is
usually a segment of the market that buys strictly on the basis of low cost. To successfully
compete in this niche, a firm must be the low-cost producer, but even doing this not always
guarantee profitability and success.

2. Quality: “Make a great product or deliver a great service.” There are two characteristics of
a product or service that define quality: design quality and process quality. Design quality
relates to the set of feature the product or service contains. This relates directly to the
design of the product or service. The goal in establishing the proper level of design quality is
to focus on the requirements of the customer. Overdesigned products and service with too
many or inappropriate features will be viewed as prohibitively expensive. In comparison,
underdesigned products and services will lose customers to products that cost a little more
but are perceived by customers as offering greater value. Process quality is critical because
it relates directly to reliability of the product or service. Thus, the goal of process quality is
to produce defect-free product and service.

3. Delivery speed/timeliness: “Make the product or deliver the service quickly.” The elapsed
time between customers requesting products or services and receiving them. A company that
can offer an on- site repair service in only 1 or 2 hours has a significant advantage over a
competing firm that guarantees service only within 24 hours. The three delivery speed
priorities are:
a) Fast delivery time: delivery time is the elapsed time between receiving a customer
order and filling it. Sometime it is known as lead time.
b) On time delivery: measures the frequency in which delivery promise is met.
 c) Development speed: measures how quickly a new product is introduced covering
from idea generation to commercialization. It is important especially in the fashion
applied industry.
Delivery Reliability: “Deliver it when promised.” This dimension relate to the firm’s ability
to supply the product or service on or before a promised delivery due date.
4. Flexibility: the ability to respond to changes. The better a company as able to respond to
changes, the greater the competitive advantage over another company that is not able to
respond. Flexibility could be pursuing through value adding system. The two types of
flexibility priorities are:
i. Customization: the ability to satisfy the unique needs of each customer by changing a
product design.
ii. Volume flexibility: the ability to accelerate or decelerate the rate of production quickly to
handle fluctuations and demand.
Order Winners and Qualifiers: The Marketing – Operations Link
An interface between marketing and operations is necessary to provide a business with an
understanding of its market from both perspectives. Terry Hill, a professor at Oxford University,
has coined the terms order winner and order qualifier to describe marketing oriented dimensions
that key to competitive success.

Order Winner: An order winner is a criterion that differentiates the products or services of one
firm from another. Depending on the situation, the order winning criterion may be the cost of the
product (price), product quality and reliability, or any of the other dimensions. Order winners can
be defined as the characteristics of a firm that distinguish it from its competition so that it
is selected as the source of purchase.

Order qualifier: An order qualifier is a screening criterion that permits a firm’s products even
be considered as possible candidates for purchase. Order-qualifiers can be defined as the
minimum elements or characteristics that a firm or its products must have to even be
considered as a potential supplier or source.

In Europe, for example, the vast majority of companies today require that their vendors be ISO-
9000 certified. (This certification ensures that a firm has documented all of its processes.) Thus,
ISO-9000 certification is an order-qualifier in Europe. In contrast, most companies in Canada at
this time are not ISO-9000 certified. As a consequence, ISO-9000-certified companies in Canada
use their certification as an order-winner (that is, ISO-9000 certification distinguishes them as
being better than their competition).

It is important to remember that the order-winning and order-qualifying may change overtime.
Basically, when very few firms offer a specific characteristic, such as high quality,
customization, or outstanding service, that characteristic can be defined as an order-winner.
However, over time, as more and more firms begin to offer that same enhancement, the order-
winner becomes an order-qualifier. In other words, it becomes the minimum acceptable level for
all competitors. As a result, the customer uses some other new enhancement or characteristic to
make the final purchase.

Strategies: are plans for achieving goals. The organization strategy provides the overall direction
for the organization. It is broad in scope, covering the entire organization. Operations strategy is
narrower in scope, dealing primarily with the operations aspect of the organization.
Operations Strategy relates to products, processes, methods, operating resources quality, costs,
lead times, and scheduling.

DEVELOPING OPERATIONS STRATEGY

An operations strategy is a strategy for the operations functions that is linked to the business
strategy and other functional strategy, leading to a consistence pattern of decision making and
competitive advantage for the firm. An operations strategy consists of a sequence of decisions
that, over time, enables a business unit to achieve a desired operations structure, infrastructure,
and set of specific capabilities in support of the competitive priorities.
Elements of operations strategy
Mission: describes the purposes of the organization, the reason for its existence.
Objectives: As noted previously the objectives of operations are cost, quality, delivery and
flexibility. These objectives should be derived from the mission, and they constitute a
restatement of the mission in quantitative and measurable terms.
Policies: Policies should indicate how the operations objective will be achieved.
Distinctive competence: distinctive competence is something that operations do better than
anyone else, and are those especial attributes or abilities processed by organizations that
give it a competitive edge. That means something that is differentiated from its competitors.
Strategy can be considered to exist at three levels in an organization
a) Corporate strategy: defines what business the company pursues. Corporate level strategy is
the highest level of strategy. It sets the long-term direction and scope for the whole
organization. If the organization comprises more than one business unit, corporate level
strategy will be concerned with what those businesses should be, how resources (e.g. cash)
will be allocated between them, and how relationships between the various business units and
between the corporate centre and the business units should be managed. Organizations often
express their strategy in the form of a corporate mission or vision statement.
Key issues
F What businesses shall we be in?
F What businesses shall we acquire or divest?
F How do we allocate resources between businesses?
F What is the relationship between businesses?
F What is the relationship between the centre and the businesses?
b) Business strategy: follows from the corporate strategy and defines how a particular
business will compete or how to become better within industry. Business level strategy is
primarily concerned with how a particular business unit should compete within its industry,
and what its strategic aims and objectives should be. Depending upon the organization’s
corporate strategy and the relationship between the corporate centre and its business units, a
business unit’s strategy may be constrained by a lack of resources or strategic limitations
placed upon it by the centre. In single business organizations, business level strategy is
synonymous with corporate level strategy. It can be in the form of:
 Customer intimacy: This strategy requires excellent customer management process such as
relationship management and solution development. A customer intimate company builds
bonds with its customers. It knows the people to whom it sells and the product and services it
needs.
  Product leadership: Product leadership strategy would require a leading edge innovation
process that creates new products with best in class functionality and brings them to market
rapidly.
 Operational excellence strategy: this strategy emphasizes cost, quality, quickness of
operating process, excellent supplier relationships, and speed and efficiency supply and
distribution process.
c) Functional level strategy: The bottom level of strategy is that of the individual function
(operations, marketing, finance, etc.). These strategies are concerned with how each function
contributes to the business strategy, what their strategic objectives should be and how they
should manage their resources in pursuit of those objectives.

The two diametrically opposite business strategies are:

A. Product imitator (operational excellence) business strategy
This would be a typical of a mature, price sensitive market with standardized product. In this
case, the operations mission would emphasize cost as the dominant objective and operations
should strive to reduce costs through such polices as superior technology, low personnel cost,
low inventory levels, a high degree of integration, and quality assurance aimed at saving costs.

B. Product innovation and new product introduction (product leadership)

This strategy would typically be used in an emerging and possibly growing market where
advantages can be gained by bringing out superior-quality product in short amount of time. In
this case, operations would emphasize flexibility to rapidly and effectively introduce superior
new product as its mission.

Criteria for Evaluating an Operations Strategy

Consistency (is the strategy consistent…?)
F Between the operations strategy and the overall business strategy
F Between the operations strategy and the other functional strategies within the business
F Between the different decision areas of operations strategy
F Between the operations strategy and the business environment (resources available,
competitive behavior, governmental restraints, etc)
Contribution to competitive advantage (Does the strategy …?)
 F Enable operations to set priorities that enhance the competitive advantage
F Directing attention to opportunities that complement the business strategy
F Promoting clarity regarding the operations strategy throughout the business unit so its
potential can be fully realized
F Providing the operations capabilities that will be required by the business in the future

Model of the strategic role of operations

Hayes and Wheelwright’s four stage model is underpinned by their belief that an
organization’s operations can provide a source of competitive advantage. It can only do this
if the operations function is managed strategically. As such, they argue, all organizations should
aspire to reach the highest level possible, ultimately reaching stage 4. The four-stage models of
the strategic role of operations are discussed below.

Stage 1 Internally Neutral: The operations function is internally focused and reactive. They
are viewed as a ‘necessary evil’. The best that the organization hopes for is that operations
‘don’t screw up’. A stage 1 organization finds it impossible to manage its operations
strategically, as its operations performance objectives are continually changing between low
cost, increased flexibility, improved quality, etc. Because operations managers never have the
time to focus on a consistent set of objectives, a stage 1 organization is characterized by a
reactive approach to operations management. In such an organization, operations can never
provide a source of competitive advantage.

Stage 2 Externally Neutral: The operations function tries to be as good as the competition, or
to achieve parity with industry norms. Such an organization is likely to benchmark its
operations against its competitors, and adopt best practice in its industry so that it does not
hold the organization back.

A stage 2 organization manages its operations by seeking to emulate those of its competitors. It
is likely to copy the prevailing best practices of its industry, such as JIT (just-in-time), TQM
(total quality management), BPO (business process outsourcing) etc. However, as they always
adopt these techniques in the wake of industry leaders, they are never likely to have developed
the same level of expertise in their application. The best that such an approach can achieve is to
match the operations performance of its competitors. Although the combination of operations
practices adopted by a stage 2 organization may be considered by some as amounting to an
operations strategy in that they are consistent, they will not be overtly linked to business strategy.
Indeed, it may be that such an operations strategy is inappropriate for the organization’s business
strategy. In any event, a stage 2 organization’s operations cannot provide the basis for
competitive advantage.

Stage 3 Internally Supportive: The operations function seeks to provide credible support for
the organization’s business strategy. An operations strategy will be developed which will be
derived from, and support, the business strategy. The organization’s operations are likely to be
amongst the best in its industry.

A stage 3 organization has an operations strategy that is linked to and derived from its
business strategy. This means that its operations performance objectives are aligned with,
and supportive of, its business objectives, offering the possibility that operations can provide
the means of achieving a competitive advantage. The chances of achieving competitive
advantage will be considerably increased if the organization has adopted industry best practice in
its operations.

Stage 4 Externally Supportive: The operations function provides the basis of competitive
advantage for the organization, by setting the standard in their industry. The operations
function is likely to aim to be world class by seeking to emulate best practice wherever it is to
be found. Operations will be seen as the means of exceeding customer expectations by
delighting the customer. Operations will be managed proactively to drive the business strategy
of the organization.

A stage 4 organization is radically different to one at any of the other stages. A stage 4
organization uses its operations excellence as the basis for its business strategy – an
operations-based strategy. The operations of a stage 4 organization are at the forefront of
developments in best practice in that they set industry standards in ways that delight customers.
Thus, the organization’s operations enable it to retain its existing customers and attract new
ones. For an operations-based competitive advantage to be sustainable, the organization must
continually develop its operations, as any source of advantage is liable to be imitated by
competitors. To remain at stage 4, an organization needs to learn how to make the most of
its existing resources and competences to learn how to develop new capabilities. Recent
advances in the understanding of organizational performance have emphasized the importance of
path dependency (i.e. how organizations got to their present position), the dynamic nature of the
capabilities on which organizational success ultimately depends and the role of organizational
learning.

2.2 OPERATIONS STRATEGY IN MANUFACTURING

Operation strategy cannot be designed in vacuum. It must be linked vertically to the customer
and horizontally to other parts of the enterprise.

Developing a manufacturing strategy

The main objectives of manufacturing strategy development are:
F To translate required competitive dimensions (typically obtained from marketing) into
specific performance requirement for operations and
F To make the plan necessary to ensure that operations (and enterprise) capabilities are
sufficient to accomplish them. The steps for prioritizing these dimensions are as follows:
1. Segment the market according to the product group
2. Identify the product requirements, demand patters, and profit margin of each group.
3. Determine the order winners and order qualifiers for each group.
4. Convert order winners into specific performance requirements.
The process of achieving a satisfactory manufacturing segmentation that maintains focus is often
a matter of deciding which products or product groups fit together in the sense that they have
similar market performance characteristics or place similar demands on the manufacturing
system.

2.3 OPERATIONS STRATEGY IN SERVICES

Operations strategy in service firms is generally inseparable from the corporate strategy. For
most services, the service delivery system is the business, and hence any strategic decision must
include operations considerations.
 CHAPTER THREE
DESIGN OF THE OPERATION SYSTEM
3.1 PRODUCT AND SERVICE DESIGN
Why is Product design so important?
Good design satisfies customers, communicates the purpose of the product or service to its
market and brings financial rewards to the business. The objective of good design, whether of
products or services, is to satisfy customers by meeting their actual or anticipated needs and
expectations. This, in turn, enhances the competitiveness of the organization. Product and service
design, therefore, can be seen as starting and ending with the customer. So the design activity has
one overriding objective: to provide products, services and processes which will satisfy the
operation’s customers. Product designers try to achieve aesthetically pleasing designs which
meet or exceed customers’ expectations. They also try to design a product which performs well
and is reliable during its lifetime. Further, they should design the product so that it can be
manufactured easily and quickly. Similarly, service designers try to put together a service which
meets, or even exceeds, customer expectations. Yet at the same time the service must be within
the capabilities of the operation and be delivered at reasonable cost.

Using design throughout the business ultimately boosts the bottom line by helping create better
products and services that compete on value rather than price. Design helps businesses connect
strongly with their customers by anticipating their real needs. That in turn gives them the ability
to set themselves apart in increasingly tough markets. Furthermore, using design both to generate
new ideas and turn them into reality allows businesses to set the pace in their markets and even
create new ones rather than simply responding to the competition.

The essence of any organization is the products or services it offers. There is an obvious link
between the design of those products or services and the success of the organization that have
well-designed products or services. Firms that have well-designed products or services are more
likely to realize their goals than those with poorly designed products or services. Hence,
organizations have a vital stake in a good product and service design. This unit presents the
major aspects of product and services design and how the process to produce them is designed
and selected.

Product and service design plays a strategic role in the degree to which an organization is able to
achieve its goals. It is a major factor in customer satisfaction, product and service quality,
and production costs (price). Because product design is concerned with the functional (use) and
visual requirements necessary to meet the demands of the market place and at the sometime
achieve an acceptable rate of return. Decisions related to product designs have far reaching effect
on the future of an organization. Therefore, great care must be taken while designing a
product/service.

The objectives of product and service design may vary from situation to situation. Generally,
however, the objectives/reasons are:
1. To introduce new or revised products or service to the market as quickly as possible;
2. To design product or service that have customer appeal;
3. To increase the level of customer satisfaction;
4. To reduce costs and;
5. To increase quality
In a competitive environment getting new or improved products or services to the market a
head of competitors gives an organization a competitive advantage that can lead to
increased profits as well increased market share and can create an image of the
organization as a leader.
Product design defines a product’s characteristics, such as its appearance, the materials it is
made of, its dimensions and tolerances, and its performance standards.
Service design defines the characteristics of a service, such as its physical elements, and the
esthetic and psychological benefits it provides.
Service design is different from product design in that we are designing both the service and the
entire service concept. As with a tangible product, the service concept is based on meeting
customer needs. The service design, however, adds to this the esthetic and psychological benefits
of the product. These are the service elements of the operation, such as promptness and
friendliness. They also include the feeling, image, and “feel-good” elements of the service.

PHASES OF PRODUCT DESIGN

The three major functions involved in product and service design are marketing, product
development and manufacturing. Marketing has the responsibility for suggesting ideas for new
product and for providing product specification for existing product lines. Product development
has the responsibility for moving the technical concept for the product to its final design and
manufacturing/operation function has the responsibility for selecting and/or configuring the
process by which the product is to be manufactured.

The product development activity provides the link between the customer needs and expectations
and the activity required to manufacturing the product. This will take you to the discussion of
new product design processes.

The design process begins with motivation for design. For a new business or a new product, the
motivation may be obvious to achieve the goals of the organization and realize new
opportunities. However, making them happen /utilized them is a demanding challenge. New
product development entails a complex set of activities that cut across most functions in
business. There are also specific external factors to consider, such as government
regulations, competitive pressures, customer needs, the appearance of new technologies etc.
Ultimately, the customer is the challenging force for product and service design.

STEPS IN PRODUCT DESIGN

Certain steps are common in the development of most product designs. They are the following:
1. IDEA DEVELOPMENT
For product designs and development the starting point is an idea. Ideas for new products and
services should be sought from a variety of sources including market research, customer view
points, the organization’s research and development (R&D) department and competitors. The
idea might come from a product manager who spends time with customers and has a sense of
what customers want. To remain competitive, companies must be innovative and bring out new
products regularly.
A. Ideas from Customers
The first sources of ideas are customers, the driving force in the design of products and services.
Marketing is a vital link between customers and product design. Market researchers collect
customer information by studying customer buying patterns and using tools such as customer
surveys and focus groups. Analyzing customer preferences is an ongoing process. Customer
preferences next year may be quite different from what they are today. For this reason, the
related process of forecasting future consumer preferences is important, though difficult.

B. Competitors as a source
Competitors are another source of ideas. A company learns by observing its competitors’
products and services and the success rate of these products and services. This includes looking
at product design, pricing strategy, and other aspects of the operation. Studying the practices of
companies considered “best in class” and comparing the performance of our company
against theirs is called benchmarking. We can benchmark against a company in a completely
different line of business and still learn from some aspect of that company’s operation.
Benchmarking is the process of studying the practices of companies considered “best in
class” and comparing your company’s performance against theirs.

Reverse Engineering is another way of using competitors’ ideas is to buy a competitor’s new
product and study its design features. Using a process called reverse engineering; a company’s
engineers carefully disassemble the product and analyze its parts and features. This approach was
used by the Ford Motor Company to design its Taurus model. Ford engineers disassembled and
studied many other car models, such as BMW and Toyota, and adapted and combined their best
features. Other sources of ideas are company’s R & D department, suppliers, the company’s
employees, and new technological developments.
2. PRODUCT SCREENING
After a product idea has been developed it needs to be evaluated to determine its likelihood of
success. This is called product screening. The company’s product screening team evaluates the
product design idea according to the needs of the major business functions. The screening
process consists of market analysis, economic analysis and technical analysis.
A. Market analysis
Market analysis consists of evaluating the product concept with potential customers through
interviews, focus groups and other data collection methods. The physical product may be tested
by supplying a sample for customer evaluation. The market analysis should identify whether
sufficient demand for the proposed product exists and its fit with the existing marketing
strategy.
B. Economic Analysis
Economic analysis consists of developing estimates of production and demand costs and
comparing them with estimates of demand. In order to perform the analysis requires an accurate
estimate demand as possible derived from statistical forecasts of industry sales and estimates of
market share in the sector of the product is competing in. These estimates will be based on a
predicted price range for the product which is compatible with the position of the new product in
the market. In order to assess the feasibility of the projected estimates of product cost in terms of
such factors as materials, equipment and personnel must be estimated. Techniques such
cost/benefit analysis, decision theory and accounting measures such as net present value (NPV)
and internal rate of return may be used to calculate the profitability of a product. Another tool
that can be used is the cost-volume-profit model that provides a simplified representation that
can be used to estimate the profit level generated by a product at a certain product volume.
C. Technical analysis
Technical analysis consists of determining whether technical capability to manufacture the
product. This covers such issues as ensuring materials are available to make the product to the
specification required, and ensuring the appropriate machinery and skills are available to work
with these materials. The technical analysis must take into account the target market and so the
product designers have to consider the costs of manufacturing and distributing the product in
order to ensure it can be sold at a competitive price.
3. PRELIMINARY DESIGN AND TESTING
Once a product idea has passed the screening stage, it is time to begin preliminary design and
testing. At this stage, design engineers translate general performance specifications into technical
specifications. Prototypes are built and tested. Changes are made based on test results and the
process of revising, rebuilding a prototype, and testing continues. For service companies this
may entail testing the offering on a small scale and working with customers to refine the service
offering.
4. FINAL DESIGN
Following extensive design testing the product moves to the final design stage. Few ideas will
reach the final pro duct selection stage. This is where final product specifications are drawn up.
The final specifications are then translated into specific processing instructions to manufacture
the product, which include selecting equipment, outlining jobs that need to be performed,
identifying specific materials needed and suppliers that will be used, and all the other aspects of
organizing the process of product production.
METHODS TO IMPROVE QUALITY OF DESIGN
A. Quality Function Deployment (QFD)
One approach to getting the voice of the customer in to the design specification of product is
QFD. This approach which uses inter functional teams from marketing, design engineering, and
manufacturing. The QFD process begins with studying and listening to customers determines the
characteristics of a superior product. Through market research the customers’ product needs and
preferences are defined and broken down into categories called customer requirements. A
customer survey and interview can be conducted to determine customer requirement about the
product, customers may also be asked to compare and rate the product of the company with
product of competitors in the industry. This process will help the company to determine the
important characteristics of the product to the customer and to evaluate the company's product
with others (competitors) the end and ultimate result is a better understanding and focus on
product characteristics that require improvement.
B. Value Analysis/ Value Engineering (VA/VE)
The purpose of value Analysis/Value engineering (VA/VE) is to simplify products and
processes. Its objective is to achieve equivalent or better performance at lower cost while
maintaining all functional requirements defined by customer; VA/VE does this by identifying
and eliminating unnecessary cost, reduced complexity of products, improvement of functional
aspect of the product, improved job design and safety, improved maintainability or serviceability
of the product. The term VA is more or less the same with the VE. The difference lies only on
the timing of them. Technically, VA deals with product already in production process and is
used to analyze product specifications and requirements as shown in production
developments and purchase requests. Typically, value engineering is considered as cost-
avoidance method. VE focus on pre-production design improvement. VE activities are
concerned with improvement of design and specifications at research, development, and
design stages of product development.

FACTORS TO CONSIDER IN PRODUCT DESIGN

Here are some factors that need to be considered during the product design stage.
I. Design for Manufacture
When we think of product design we generally first think of how to satisfy the customer.
However, we also need to consider how easy or difficult it is to manufacture the product.
Otherwise, we might have a great idea that is difficult or too costly to manufacture.
Design for manufacture (DFM) is a series of guidelines that we should follow to produce a
product easily and profitably. DFM guidelines focus on two issues:
F Design simplification means reducing the number of parts and features of the product
whenever possible. A simpler product is easier to make, costs less, and gives us higher
reliability.
F Design standardization refers to the use of common and interchangeable parts. By using
interchangeable parts we can make a greater variety of products with less inventory and
significantly lower cost and provide greater flexibility.
II. Concurrent Engineering
Concurrent engineering is an approach that brings many people together in the early phase of
product design in order to simultaneously design the product and the process. This type of
approach has been found to achieve a smooth transition from the design stage to actual
production in a shorter amount of development time with improved quality results.

The old approach to product and process design was to first have the designers of the idea come
up with the exact product characteristics. Once their design was complete they would pass it on
to operations who would then design the production lprocess needed to produce the product. This
was called the “over-the-wall” approach, because the designers would throw their design “over-
the-wall” to operations who then had to decide how to produce the product.

There are many problems with the old approach. First, it is very inefficient and costly. For
example, there may be certain aspects of the product that are not critical for product success but
are costly or difficult to manufacture, such as a dye color that is difficult to achieve. Since
manufacturing does not understand which features are not critical, it may develop an
unnecessarily costly production process with costs passed down to the customers. Because the
designers do not know the cost of the added feature, they may not have the opportunity to change
their design or may do so much later in the process, incurring additional costs. Concurrent
engineering allows everyone to work together so these problems do not occur.

A second problem is that the “over-the-wall” approach takes a longer amount of time than when
product and process design work together. When product and process design work together much
of the work is done in parallel rather than in sequence. In today’s markets, new product
introductions are expected to occur faster than ever.

The third problem is that the old approach does not create a team atmosphere, which is important
in today’s work environment. Rather, it creates an atmosphere where each function views its role
separately in a type of “us versus them” mentality. With the old approach, when the designers
were finished with the designs, they considered their job done. If there were problems, each
group blamed the other. With concurrent engineering the team is responsible for designing and
getting the product to market. Team members continue working together to resolve problems
with the product and improve the process.

STRATEGIES FOR NEW PRODUCT INTRODUCTION

There are three fundamentally different ways to introduce new products. These approaches are
called market pull, technology push and inter functional.

I. Market pull View

This is an approach when a firm begins product development with a market opportunity and
when uses whatever available technologies are required to satisfy the market need. The customer
needs are determined, and then the firm organizes the resources need to supply the customer. The
market will "pull" through the products that are made.
 II. Technology push view
In developing technology push products, a firm begins with a new proprietary technology and
looks for an appropriate market in which to apply this technology. The firm should follow a
technology based advantage by developing superior technologies and products. The products are
then pushed into the market and marketing job is to create demand for these superior products.
Since the products have superior technology, they will have a natural advantage in the market
and the customer will want to buy them.

III) Inter functional view

This view holds that the product should not only fit the market needs but have a technological
advantage as well. To accomplish this, all functions such as marketing, engineering and finance
should cooperate to design the new products needed by the firm. This approach is usually the
best, since it includes both market and technological considerations in the new product design,
but it is the most difficult to implement.

chapter 4 PROCESS SELECTION

So far we have discussed issues involved in product design. Though product design is very
important for a company, it cannot be done separately from the selection of the process. Among
the most important decisions made by operations managers are those involving the design and
improvement of the process for producing goods and services. These decisions include choice of
process and technology, analysis of flows through operations, and the associated value added in
operations. Process selection decisions determine the type of process used to make the product or
service. The considerations required for process selection include the volume of the product and
whether the product is standardized or customized. Generally speaking, high volume products
that are standardized will be made on an assembly line; while low volume customized products
will be made in a batch operation.

Process decisions are strategic in nature. They require a long term perspective and a great deal of
cross functional coordination, since marketing, finance, human resource, and operations issues
are all important. Process selection decisions tend to be capital intensive and cannot be easily
changed. Therefore, the firm is committed to the process choice and bound by these decisions for
years to come.

Types of Process classification

Two main types of process classifications are based on product flow characteristics and
classification by type of customer order.

PRODUCT-FLOW CHARACTERISTICS
In manufacturing, the product flow is the same as the flow of materials, since materials are being
converted into the product. In services, there might not be product flow, but there would be a
flow of customers or information.
All processes can be grouped into two broad categories: intermittent operations and continuous
operations. These two categories differ in almost every way. Once we understand these
differences we can easily identify organizations based on the category of process they use.
Dividing processes into two fundamental categories of operations is helpful in our understanding
of their general characteristics. To be more detailed, we can further divide each category
according to product volume and degree of product standardization as follows. Intermittent
operations can be divided into project processes and batch processes. Continuous operations
can be divided into line processes and continuous processes.
1. Intermittent Operations (Process-focused)
Intermittent operations are used to produce many different products with varying processing
requirements in lower volumes. Because different products have different processing needs,
there is no standard route that all products take through the facility. Instead, resources are
grouped by function and the product is routed to each resource as needed. Think about a health-
care facility. Each patient, “the product,” is routed to different departments as needed. One
patient may need to get an x-ray, go to the lab for blood work, and then go to the examining
room. Another patient may need to go to the examining room and then to physical therapy.

To be able to produce products with different processing requirements, intermittent operations

tend to be labor intensive rather than capital intensive. Workers need to be able to perform
different tasks depending on the processing needs of the products produced. Often we see skilled
and semiskilled workers in this environment with a fair amount of worker discretion in
performing their jobs. Workers need to be flexible and able to perform different tasks as needed
for the different products that are being produced. Equipment in this type of environment is more
general purpose to satisfy different processing requirements. Automation tends to be less
common, because automation is typically product specific. Given that many products are being
produced with different processing requirements, it is usually not cost efficient to invest in
automation for only one product type. Finally, the volume of goods produced is directly tied to
the number of customer orders.

Project processes
Project processes are used to make one-at-a-time products exactly to customer specifications.
These processes are used when there is high customization and low product volume, because
each product is different. Examples can be seen in construction, shipbuilding, medical
procedures, creation of artwork, custom tailoring, and interior design. With project processes the
customer is usually involved in deciding on the design of the product. The artistic baker you
hired to bake a wedding cake to your specifications uses a project process.

Batch processes
Batch processes are used to produce small quantities of products in groups or batches based on
customer orders or product specifications. The volumes of each product produced are still small
and there can still be a high degree of customization. The classes you are taking at the university
use a batch process.

Note that both project and batch processes have low product volumes and offer customization.
The difference is in the volume and degree of customization. Project processes are more extreme
cases of intermittent operations compared to batch processes.
2. Continuous Operations (product-focused)
Continuous operations are used to produce one or a few standardized products in high volume.
Resources are organized in a line flow to efficiently accommodate production of the product.
Note that in this environment it is possible to arrange resources in a line because there is only
one type of product. This is directly the opposite of what we find with intermittent operations.

To efficiently produce a large volume of one type of product these operations tend to be capital
intensive rather than labor intensive. An example is “mass production” operations, which usually
have much invested in their facilities and equipment to provide a high degree of product
consistency. Often these facilities rely on automation and technology to improve efficiency and
increase output rather than on labor skill. The volume produced is usually based on a forecast of
future demands rather than on direct customer orders.

Line processes
Line processes are designed to produce a large volume of a standardized product for mass
production. With line processes the product that is produced is made in high volume with little or
no customization.

Continuous processes
Continuous processes operate continually to produce a very high volume of a fully standardized
product. The products produced by continuous processes are usually in continual rather than
discrete units, such as liquid or gas. Also, these facilities are usually highly capital intensive and
automated.
Note that both line and continuous processes primarily produce large volumes of standardized
products. Again, the difference is in the volume and degree of standardization. Continuous
processes are more extreme cases of high volume and product standardization than are line
processes.

The most common differences between intermittent and continuous operations relate to two
dimensions: (1) the amount of product volume produced, and
(2) the degree of product standardization.
Product volume can range from making a single unique product one at a time to producing a
large number of products at the same time. Product standardization refers to a lack of variety in
a particular product. The type of operation used, including equipment and labor, is quite different
if a company produces one product at a time to customer specifications instead of mass
production of one standardized product.DE
Figure 3-1 Types of processes based on product volume and product standardization

P Low
Intermittent
r Project process
o
operations
d
u Batch process
c Continuous
t operations
Line process
s
t
a
n
d
a
r
d
Continuous
i
process
z
a
t
i High Low High
Product volume
Figure 3-1 positions these four process types along the diagonal to show the best process
strategies relative to product volume and product customization. Companies whose process
strategies do not fall along this diagonal may not have made the best process decisions. Bear in
mind, however, that not all companies fit into only one of these categories: a company may use
both batch and project processing to good advantage.

CLASSIFICATION BY TYPE OF CUSTOMER ORDER

Another critical process choice is whether the product is make-to- order or make-to-stock. There
are advantages and disadvantages to each type of process.

1. Make-to-stock /MTS/
It is a process that produced standard products which are stored in finished goods inventory. The
product is delivered quickly to the customer from the finished goods inventory. MTS process can
provide faster service to customer from available stock and lower costs than a make-to-order
process. The MTS process is building products for inventory, and the jobs in process are not
identified for any particular customer. The MTS process has a standard product line specified by
the producer, not by the customer. The products are carried in inventory to immediately fulfill
customer demand. Everything in operations is keyed to producing inventory in advance of actual
demand in order to have the proper products in stock when customer calls. The critical
management tasks are forecasting, inventory management, and capacity planning.

The MTS process begins with the producer specifying the product. The customer then requests a
product from inventory. It is not available, a back order may be placed or the order can be lost to
the firm. In an MTS process customer orders cannot be identified during production.
Performance measures for a MTS process include the percentage of orders filled from inventory.
Other measurement are the length of time that it takes to replenish inventory, inventory turnover,
capacity utilization and the time it takes to fill a back order. The objective of MTS process is to
meet the desired service level at minimum cost.

In summary, the MTS process is keyed to replenishment of inventory with order fulfillment from
inventory and its process is measured by service level efficiency in replenishing inventory.
2. Maker-to-order/MTO/
The process is activated only in response to an actual order. Inventory (both work in process and
finished goods) is kept a minimum or no inventory. In the MTO order, individual orders can be
identified during production. As each order is made to the customer specification, the jobs in
process are actually associated with customers. The MTO process can have a wide range of order
specification and has higher flexibility for product customization.

In the MTO process, the cycle of production and order fulfillment begins with the customer
order. The key performance measures of a MTO process are the length of time it takes to design,
make, and deliver the product. This is often referred to as lead time. Another measure of
performance in MTO environment is the percentage of orders completed on time. This
percentage can be based on the delivery date the customer originally requested or the date that
was subsequently promised to the customer.

Summary, the MTO process is keyed to customer orders. An MTO process can provide higher
level of product variety and has greater flexibility for product customization. The MTO process
is measured by its response time to customers and the efficiency in meeting its customer orders.

Summary: Make-to-stock Vs make-to-order

Characteristics Make-to-stock Make-to-order
Product specified Customer-specified
Product Low variety High variety
Inexpensive Expensive
Objectives Balance inventory, capacity Manage delivery lead times
and service and capacity
Main operations problems Forecasting Delivery promises
Planning production Delivery time
Control of inventory
 3.2 STRATEGIC CAPACITY PLANNING
How many units of equipment do we need to achieve our production forecast? This is the
concept of capacity planning. Capacity can be defined as ability to produce certain output within
a specified time period or the rate of output that can be achieved from a process. The word
capacity normally defined in Business dictionary as “specific ability of an entity (person or
organization) or resource, measured in quantity and level of quality, over an extended period”
(Business Dictionary.com, 2011).
Capacity also refers to the limitation which the operating element is able to process; the amount
of services executed or tangible products produced. The vital elements and considerations
needed to be taken into account before-hand are what type of capacity – whether it’s equipment,
space or human skills – are needed, how much of it is required and the timeframe of when those
factors are to be accessible.
Strategic capacity planning is an approach for determining the overall capacity level of capital
intensive resources, including facilities, equipment, and overall labor force size.

Importance of Capacity Decisions

For a number of reasons, capacity decisions are among the most fundamental of all design
decisions that managers must make.
1) Capacity decisions have a real impact on the ability of the organizations to meet future
demands for products and services; capacity essentially limits the rate of output possible.
2) Capacity Decisions Affect Operating cost: Ideally, capacity and demand requirements will be
matched, which will tend to minimize operating costs. In practice, this is not always achieved
because actual demand either differs from expected demand or tends to vary (e.g. cyclically).
In such cases, a decision might be made to attempt to balance the costs of over and under
capacity.
3) Capacity is usually a major determinant of initial Cost. Typically, the greater the capacity of
a productive unit, the greater its cost. This does not necessarily imply a one for-one
relationship; larger units tend to cost proportionately less than smaller units.
4) Capacity decisions are often involve long-term commitment of resources and the fact that,
once they are implemented, it may be difficult or impossible to modify those decisions
without incurring major cost.
5) Capacity decisions can affect competitiveness: If a firm has excess capacity, or can quickly
add capacity, that fact may serve as barrier against entry by other firms.

Factors affecting capacity

Capacity is affected by both internal and external factors.
The external factor includes: government regulations (e.g. working hours, safety, pollution etc),
union agreement, and suppliers capabilities.
The internal factor includes: product and service design, personnel and jobs (worker training,
motivation learning job content and methods), plant lay out and process flow, equipment
capabilities and maintenance, materials management, quality control system, product mix
decision, and management capabilities.
Capacity Expansion timing strategies
How much to increase or decrease capacity and when, is a strategic choice. For manufacturing
firms, there are three major strategies for adding capacity: proactive, neutral and reactive. Each
has its weaknesses and strengths. Which strategy to adopt is dependent, to a large extent, on the
operating characteristics of the facility and the overall strategy of the firm?

a) Capacity lead strategy

A firm employs a capacity lead strategy when it intentionally invests capacity in advance of
demand to eliminate the chance of losing sales to competitors. The economic tradeoff requires
incremental profits from making those sales to exceed the incremental costs of operating below
full capacity. As an alternative, they may value its current customers so highly that it invests in
the extra capacity despite the cost to protect its customer-service reputation.
b) Capacity lag strategy
A Capacity lag strategy calls for expansion investments only after confirmation of rises in
demand in order to maintain high utilization rate. If a plant produces either a homogenous
commodity or a standard product that appeals to the customer based primarily on cost, then this
strategy will maximize profits by minimizing operating cost.
c) Capacity straddle strategy
A Capacity straddle strategy tries to keep abreast of growing demand by matching average
capacity to average demand. It calls for expansion only when managers expect that they can sell
at least some of the additional output, but before they know that they can sell it all.

Important Concepts of Capacity Decisions

Best operating level
The best operating level is the level of capacity for which the average unit cost is at a minimum.
Note that as we move down the unit cost curve for each plant size, we achieve economies of
scale until we reach the best operating level and then diseconomies of scale as we exceed this
point. This level of operation is shown in the figure below:

Average
cost/unit

Best operating level

Economies of Diseconomies
scale of sale

Volume
As we move down the curve, we achieve economies of scale until we reach the best operating
level and we encounter diseconomies of scale as we exceed this point. The upward swing of unit
cost as volume increases results from:
- using less efficient machines
- working overtimes
- increasing the cost of maintenance or
- using inexperienced or less skilled employees
Economics and diseconomies of scale
The basic notion is well known: as a plant gets larger and volume increases, the average per unit
of output drops because each succeeding unit absorbs parts of the fixed costs. Economics of scale
is a concept which state that the average unit cost of goods or services can be reduced by
increasing its output rate. There are four principal reasons for why economics of scale can drive
cost down when output increases:
 Fixed costs are spreads over more units: the fixed cost includes heating cost, debt services,
and management salaries. Depreciation of plant and equipment already owned is also a fixed cost
in the accounting sense. When the output rate increases, the average unit cost drops because
fixed costs are spread over more units.
 Construction costs are reduced: certain activities and expenses are required in building small
and large facilities alike: building permits, architects’ fees, rental of building equipment, and the
like. Industries such as breweries and oil refineries benefits from strong economics of scale
because of this phenomenon.
 Costs of purchased materials are cut: higher volume can reduce the cost of purchased
materials and services. They give a purchaser a better bargaining position and the opportunity to
take advantage of quantity discounts.
 Process advantages are found: high volume production provides many opportunities for cost
reduction. At a higher output rate, the process shifts towards a line process, with resources
dedicated to individual products. The benefits from dedicating resources to individual products
or services may includes spreading up the learning effects, lowering inventory, improving
process and job design, and reducing the number of changeovers.

Diseconomies of scale
At some point a facility can become so large that diseconomies of scale set in; that is, the
average cost per unit increases as the facility size increase the reason is that excessive size can
bring complexity, loss of focus, and inefficiencies that raise the average unit cost of a product or
services. There may be too many layers of employees and bureaucracy, and management loses
touch with employees and customers. The organization is less agile and loses the flexibility
needed to respond to changing demand. Many large companies become so involved in analysis
and planning that they innovate less and avoid risks. The result is that small companies
outperform corporate giants in numerous industries.
Learning (experience) curve
Learning (experience) curve theory has a wide range of application in the business world. In
manufacturing, it can be used to estimate the capacity requirement and the time for product
design. Learning curves can be applied to individuals or organizations. Individual learning is
improvement that results when people repeat a process and gain skill or efficiency from their
own experience. That is ‘practices make perfect’. Organizational learning results from practices
as well, but it will also come from changes in administration, equipment, and product design. In
organizational settings, we expect to see both kinds of learning occurring simultaneously and
often describe the combined effect with the single learning curve.

Generally, it is quite possible that initially the operator takes longer time to accomplish the job
as compared to the subsequent cycles when he would have acquired the necessary skill and feel
in ‘learning’ the job. Usually, this learning curve is hyperbolic in nature. Though the learning
curve concept is important one, it has not been given due consideration. Scholars feel it would be
unfair if learning phase is not accounted for while determine capacity requirement and time
standard.

Capacity focus
The concept of the focused factory holds that production facilities work best when they focus on
a fairly limited set of production objectives. This means that a firm should not expect to excel in
every aspect of manufacturing performance: cost, quality, flexibility, short lead time, and low
investment. Rather, it should select a limited set of tasks that contribute the most to corporate
objectives.
Capacity bottlenecks
It is an operation that has the lowest effective capacity of any operation in the process and thus
limits the systems output. True expansion of a process’s capacity occurs only when bottleneck
capacity is increased. The long term capacity bottlenecks can be expanded in various ways.
Investment can be made in new equipment; bottleneck’s capacity can also be expanded by
operating it more hours per week such as going from one shift operation to multiple shifts or
going from five work days per week to seven work days per week. Managers also might relieve
the bottle neck by redesigning the process.

Long term capacity expansion is not the only way to ease bottlenecks. Overtime, temporary or
part-time employees, or temporarily outsourcing or sharing during peak demand period are short
term options.

Capacity flexibility
Capacity flexibility means having the ability to rapidly increase or decrease production levels, or
to shift production capacity quickly from one product or service to another. Such flexibility is
achieved through:
 Flexible plants: perhaps the ultimate plant flexibility is the zero-changeover time plant.
Using movable equipment, knockdown walls, and easily accessible and re routable utilities e.g.
tents. Such a plant can adapt to change in real time.
 Flexible process: flexible processes are epitomized by flexible manufacturing systems on the
one hand and simple, easily set up equipment on the other hand. Both of these technological
approaches permit rapid low cost switching from one product line to the other, enabling what is
referred to as economics of scope. By definition, economics of scope exist when; multiple
products can be produced at a lower cost in combination than they can separately.
 Flexible workers: flexible workers have multiple skills and the ability to switch easily from
one kind of task to another. They required broader training than specialized workers and need
managers and staff support to facilitate quick changes in their work assignment.

Measures of capacity
No single capacity measure is applicable to all types of situations. For example, a retailer
measure capacity as annual sale dollars generated per square foot, a theater measure capacity as
number of seats, and a job shop measure capacity as number of machine hour.

Important terms used to measure the capacity are:

A. Design Capacity
Design capacity (peak capacity) is the maximum rate of output achieved under ideal condition.
Design capacity values are stared by the manufacturer of the equipment. It may and commonly
does include recognition of the need for routine maintenance but does not include recognition of
delays caused by factors like scheduling, conflicts, defective products, low quality material, or
change in product mix. In other words, manufacturers cannot anticipate the actual conditions of
use. Therefore, this level of capacity cannot to be achieved under the real situation.
B. Effective Capacity
Effective capacity is the maximum output that a process or firm can economically sustain under
normal conditions. It is the greatest level of output the firm can reasonably sustain by using
realistic employee work schedules and the equipment currently in place.

It is the maximum possible given predicted problems such as a product mix, problems in
scheduling and balancing operations, machine maintenance, quality factors, and so on. It also
includes lunch breaks, and coffee breaks. It is typically less than or equal to the design capacity.

C. Actual or Operating Capacity

Actual capacity is the actual output of a system at a given point in time. In other words, it is the
rate of output actually achieved. That is, the actual output produced in a real condition. It is even
less than effective capacity, for it is affected by unpredicted short range factors such as
equipment break down, absenteeism, shortage of raw materials, productivity, and other factors
that are outside the control of the operations manager.

These different measures of capacity are useful in defining two measures of system
effectiveness: efficiency and utilization.
 Capacity utilization: is the degree to which equipment, space or labor is currently being
used. It the ratio of capacity used during a fixed period of time to the available capacity
during that same time period.
Utilization is a measure relating design capacity to output. It is calculated as follows:
actual capacity ( ¿ capacity used )
Utilization= X 100 %
Designed capacity

actual out put
Efficiency= X 100 %
Effective capacity
 Rated capacity: when capacity is measured relative to equipment alone, the appropriate
measure is rated capacity. It is an engineering assignment of maximum annual output, assuming
continuous operations except for an allowance for normal maintenance, and repair downtime.
Rated capacity=designcapacity X effective capacity X efficiency
Rated capacity will always be less than or equal to effective capacity.
Design (peak )capacity >effective capacity >rated capacity
Example
If operated around the clock under ideal conditions, the fabrication department of an engine
manufacturer can make 100engines per day. Management believes that a maximum output rate
of only 45 engines per day can be sustained economically over a long period of time. Currently,
the department is producing 50 engines per day. What is the utilization of the department related
to designed capacity? And compute Efficiency?
Solutions
Given:actual output=50 , effective capacity=45 ,∧designed capacity=100 engine
Utilization=50/100 X 100 %=50 %
Efficiency=50 /45 X 100 %=111%
CAPACITY PLANNING DECISION
Capacity planning is central to long-term success of an organization. Too much capacity can be
as agonizing as too little capacity. The objective of capacity planning is to specify which level of
capacity will meet market demand in cost efficient way. Capacity planning is generally viewed
in three time duration:

Long range (greater than one year):- when productive resources take a long time to acquire or
dispose of. Example: building, equipment or facilities decisions. Long range planning requires
top management participation and approval.

Intermediate range: - monthly or quarterly plans for the next 6 to 18 months. Here capacity may
be varied by such alternatives as hiring part timer, layoff, minor equipment purchase and sub
contracting.

Short range: - less than one month. This is tied into the daily or weekly scheduling process and
involves making adjustment to eliminate the variance between planned output and actual output.
This includes alternatives such as overtime, personnel transfers, and alternative production
routings.

A Systematic Approach to Capacity Decisions

Although each situation somewhat different, a four step procedure generally can help managers
make sound capacity decisions. In describing this procedure, we assume that management has
already performed the preliminary step of determining existing capacity.
Step 1: Estimate future capacity requirements
The foundation for estimating long term capacity needs is forecasts of demand, productivity,
competition, and technological changes that extend well into the future. Unfortunately, the
farther ahead you look the more chance you have of making an inaccurate forecast.

The demand forecast has to be converted to a number that can be compared directly with the
capacity measure directly used. Suppose that capacity is expressed as the number of available
machines at an operation. When just, one product (services) is being processed, the number of
machines required, M, is (for single product).

F One type of product

'
Processinghours required for yea r sdemand
No . of machines required= one machine per year , after the desired c
Hours avaliable ¿

Dp
M= .
N [1−(c /100)]
Where , D=No . of unit (customer )forecast per year
p= processing time(¿ hours per unit ∨customer)
N=total number of hours per year during which the process operate
C=desired capacity cushion
F More than one type of product: n types of products
If multiple products or services are involved, extra time is needed to change over from one
product to the next. Set up time is the time required to change a machine from making one
product or service to making another.
Total setup time=D ¿
When there are multiple products (services)
No . of machines=processing∧set up hours required for year ’ s demand ,
Summed
products
Required all
one machine per year ,after deducting desired cushion ¿
Hrs available¿

M=
[ ( )]
Dp+
D
Q [ ( )]
S product 1+ Dp+
D
Q
S product 2+ …+ Dp+
D
Q [ ( )]
S product n

N (1−C)
Where ,Q=number of units∈ eachlot
S=set up time ( ¿ hours ) per lot
Note: Always round up the fractional part for the number of machines required.

Step2: Identify gaps

A capacity gap is any differences (positive or negatives) between projected demand and current
capacity. Identifying gaps requires use of the correct capacity measures. Complications arise
when multiple operations and several resource inputs are involved. Expanding the capacity of
some operations may increase over all capacity. However if one operation is a bottle neck,
capacity can be expanded only if the capacity of the bottlenecked operation is expanded. Bottle
neck is any resource whose capacity is less than the demand placed up on it.

Step3: Develop alternatives

After determining capacity gap, the next logical step is to develop alternative plans to cope with
projected gaps. One alternative, called the base case, is to do nothing and simply lose orders
from any demand that exceeds current capacity. Other alternative are various timing and sizing
options for adding new capacity. Additional possibilities includes: expanding at a different
locations and using short term options such as overtime, temporary workers, and subcontracting.

Step4: Evaluate the alternatives

In this step, the managers evaluate each alternative, both quantitatively and qualitatively.
Qualitative concerns: qualitatively the manager has to look at how each alternative fits the
overall capacity strategy and other aspects of the business not covered by the financial analysis.
Of particular concerns might be uncertainties about demand, competitive reaction, technological
change, and cost estimate. Some of these factors cannot be quantified and has to be assessed on
the bases of judgment and experience. Others can be quantified, and the managers can analyze
each alternative by using different assumptions about the future. One set of assumption could
represent a worst case, where demand is less, competition is greater, and construction costs are
higher than expected. Another set of assumption could represent the most optimistic view of the
future. These types of what-if analysis allow the manager to get an idea of each alternative’s
implications before making a final choice.

Quantitative concerns: quantitatively, the manager estimates the changes in cash flows for each
alternative over the forecasted time horizon compared to the base case. Cash flow is the different
between the flows of funds in to and out of an organizations over a period of time, including
revenues, costs, and changes in assets and liabilities.

Step5: Finally, based on the evaluation results, the manager must make the choice
Selecting a capacity alternative which is the most suited to achieve strategic mission.

Following these steps, organization should design the right capacity, that is, the capacity best
matches with the demands of the product. However, there are several reasons why the production
capacity to be provided does not necessarily equal the amount of products and services expected
to be demanded. First enough capital and other resources may not be economically available to
satisfy all of the demand. Secondly, because of the uncertainty of forecasts and the need to link
production capacity to operations strategy interns of competitive priorities, a capacity cushion
may be provided. A capacity cushion is an additional amount of production capacity added onto
the expected demand to allow;
 1. Extra capacity in case of more demand than expected occurs
2. The ability to satisfy demand during peak demand seasons.
3. Lower production costs; production facilities operated to close to capacity experience
higher costs.
4. Product and volume flexibility responding to customers’ needs for different products and
high volumes is possible because of the extra capacity.

TOOLS FOR CAPACITY PLANNING

An organization needs to examine alternatives for future capacity from a number of different
perspectives. Most obvious are economic considerations. Such as; will an alternative be
economically feasible? How much will it cost? How soon can we have it? What will the
operating and maintenance costs be? What will its useful life be? Will it be compatible with
present personnel and present operations?

Long term capacity planning requires demand forecasts for an extended period of time.
Unfortunately, forecast accuracy declines as the forecasting horizon lengthens. In addition, in
anticipating what competitors will do increases the uncertainty of demand forecasts. Finally,
demand during any period of time is not evenly distributed; peaks and valleys of demand may
(and often do) occur within the time period. These realities necessitate the use of capacity
cushion.

A number of techniques are useful for evaluating capacity alternatives from an economic
standpoint. Some of the more common are cost-volume analysis (Break-even analysis), financial
analysis, decision theory, and waiting line analysis. In this section, only cost volume analysis
(break-even analysis), waiting line and decision tree are discussed.
1. Break-Even Analysis
Though different tactics can be used to adjust demand to existing facilities, the strategic issue is,
of course, how to have facility of the correct size. Break-even analysis may help with that
decision.

Breakeven can aid capacity decisions by identifying the processes with the lowest total cost for
the volume expected. The objective of break-even analysis is to find the point, in dollars and
units, at which cots equal revenues-which is the break-even point. Break-even analysis requires
an estimation of fixed costs, variable cost, and revenue.

Fixed costs are costs that continue even if no units are produced such as depreciation, taxes, debt
and mortgage payments where as variable costs are those that vary with the volume of units
produced. The major components of variable costs are labour and materials and other costs such
as the portion of the utilities that varies with volume.

Another element in break-even analysis is the revenue function that begins at the origin and
proceeds upward to the right increasing by the selling price of each unit. Where the revenue
function crosses the total cost line is the break-even point, with a profit corridor to the right and a
loss corridor to the left. Break-even analysis assumes that costs and revenue increase in direct
proportion to the volume of units being produced. However, neither fixed costs nor variable costs
(nor, for that matter, the revenue function) need be a straight line.

To utilize the concept of breakeven analysis for capacity planning decision, we first define our
goal such as a profit level, and then work back to determine the size of facility to be owned so
that its production capacity can effectively lead to the production level required (i.e., quantity) to
achieve a goal

2. Waiting line models

Waiting line models often are useful in capacity planning. Waiting line tend to develop in front
of a work centre, such as an airport ticket counter, a machine centre , or a central computer. The
reason is that the arrival time between jobs or customers vary and the processing time may vary
from one customer to the next. Waiting line model use probability distribution to provide
estimate average customer delay time, average length of waiting lines, and utilization of the work
centre. Managers can use this information to choose the most cost effective capacity, balancing
customer services and the cost of adding capacity.
3. Decision trees
Decision tree is a tree like diagram that depicts alternatives and their possible outcomes. This
tool can be used to evaluate alternative capacities and enable managers make appropriate
decisions. A decision tree can be particularly valuable for evaluating different capacity
expansion alternatives when demand is uncertain and sequential decisions are involved. A
decision tree is a systematic model of the sequence of steps in a problem and the conditions and
consequences of each step.

chapter 5 FACILITY LOCATION & LAYOUT

3.2.1 FACILITY LOCATION
The choice of location for business organization is an important issue in the design of the
production system. Where should a plant or service facility be located? This is a top question on
the strategic agendas of contemporary manufacturing and service firms, particularly in this age of
global markets and global production. Globalization allows companies greater flexibility in their
location choices. However, in practice, the question of location is very much linked to two
competitive imperative.
1. The need to produce close to the customer due to time based competition and shipment costs.
2. The need to locate near the appropriate resource pool to take advantage of low costs.
Location decision is an integral part of the strategic planning process of every organization.
Although it might appear that location decision are mostly one-time problem pertaining to new
organization, the fact is that existing organization often have a bigger stake in these kinds of
decisions than new organization. In other words, location problems are common to new and
existing businesses.
Facility location decisions are, strategic, long term and non repetitive in nature. Without sound
and careful location planning in the beginning itself, the new facility may pose continuous
operating disadvantages, for the future operations. Location decisions are based on a host of
factors; some are subjective, qualitative, and intangible while some others are objectives,
quantitative and tangible.

The Need for location Decisions

Existing organizations become involved in location decision for a variety of reasons. The
following are some of the reasons for such decisions (other than the need for greater capacity).
1. Opportunity for expanding market share
From such as banks, fast food chains, supermarkets, and retail stores view location as part of
marketing strategy, and they look for locations that will help them to expand their markets.
Basically, the location decisions in those cases reflect additional new location to existing
suppliers.
2. Business growth in demand
A similar situation occurs when an organization experiences a growth in demand for its products
or service that cannot be satisfied by expansion at an existing location. The addition of a new
location to complement an existing system is often a realistic alternative.
3. Depletion of Basic resources
Some firms become presented with location decision because of the depletion of basic inputs.
For example fishing and logging operations are forced to relocate due to the temporarily
exhaustions of fish or forest at a given location. Mining and petroleum organization face the
same sort of situation, although usually over a longer time horizon.
4. Shift in Market /demand
If the demand for the product does not exist in the existing location, it is a good reason to
consider and find out a better location.
5. Operating Costs
Cost of doing business in a particular location reaches a point where other locations begin to look
more attractive. In this case, the company may shift to a cost effective location.
6. Merge of companies
Merger of companies changes the ownership titles and may require change in management and
operation of the merging firms, and then leading to location decisions.
7. Introduction of new product.
This may require to a new resource, labour or material which may not exist in the existing
location. Therefore, firms make a location decision to produce a sell their new product.

Characteristics of location decision

1. Location decisions entail a long-term commitment, which makes mistakes difficult to
overcome. In addition, location decision often has an impact on operating costs both fixed
and variables and revenues as well as an operation. Example, a poor choice of location might
result in excessive transportation cost, shortage of qualified labour, loss of competitive
advantage, shortage of raw materials and location of customer (operation problem).
2. Location decision requires the selection of location from a number of acceptable location
instead of identifying the “One best” location. If one site is clearly superior to all others in all
respects, the location decision is an easy one. However, several site candidates, each with its
strengths and weaknesses emerge as good choice and the location decision becomes a trade
off decision.
3. Location decision involves four options that mangers can consider in location planning.
These are:
A. Expanding an existing facility: These options can be attractive if there is adequate
room for expansion, especially if the location has desirable features that are not readily
available elsewhere. Expansion costs are often less than those of other alternatives.
B. Adding new location: Another option is to add new location while retaining existing
ones, as it is done in many retail operations. The advantage of this option are: it
draws /attracts customers who are already looking for an existing business, and used as
a defensive strategy designed to maintain a market share or prevent competitors from
entering a market.
C. Shutting down: The third option is to shut down at one location and move to another.
An organization must weigh the cost of a move and the resulting benefits against the
costs and benefits and remaining in an existing location. This option is considered when
market shifts, exhaustion of raw materials and the cost of operation often cause firms to
seriously consider this option.
D. Doing nothing: If a detailed analysis of potential locations fails to uncover benefits that
make one of the previous three alternatives attractive, a firm may decide to maintain a
status of at least for the time being.

The Location Decision Hierarchy and Factors that Affect Location Decision
There are four location decision hierarchies:
i. Global- international considerations
It is the highest level in the location decision hierarchy. Decision makers who are considering
expanding in to a new country must consider macroeconomic, demographic, and political issues
of long term significance. They must consider international trade issues, such as
 International trade issues (currency exchange risk, balance of trade, quotas, tariffs etc .)
 Market access issues (such as free trade agreement, consumer sentiment towards imported
goods)
 Labor issues ( availability, wages, skill and training, and regulations)
 Political concerns (stability of current regime, risk of asset nationalization, local owner ship
laws etc.)
 Cultural issues (compatibility of business practices and products with local culture)
 Legal issues(environmental regulations, accounting &reporting requirements etc)

ii. Regional considerations

Once the decision has been made to locate a facility in a particular country, decision makers
must choose a region based on regional issues like:
 Supply issues (availability of material inputs): select the region endowed with abundant or
sufficient inputs.
 proximity to market: select the region which is near to the major market if product is
perishable, fragile, if the product needs large transportation space, transportation cost is
expensive, and if further processing increases the volume, bulk, fragility and perish ability.
 proximity to material: a possible reason to select regions which is near resources includes:
when further processing reduces the bulk (e.g. sugar processing), perish ability (e.g.,
freezing, canning, pasteurizing etc)
 Transportation facility: transformation facilities are essential for the economic operations of
production systems. Operations manager must study the characteristics of the new materials
and finished products in regard to their transportation (water, railroad, road, pipelines, and air
line transport) need and search for the location (region) that provides facilities of
transportation with a reasonable cost.
 Business Climate: select the region with favorable climate which is important in order to
acquire and maintain productive work forces. Certain industries such as agricultural business
require specific climatic conditions.

iii. Community considerations

Choice of community depends on the following factors:
 Community attitudes: in order to ensure the long term existences in that community, it is
mandatory to win the interest, enthusiasms, and cooperation of the society. Otherwise, poor
relation with community will result in putting the survival of the organization under question
mark. So select the community with positive attitudes towards the company.
 Community government and financial incentives: it is important to assess the current situation
and attempt to predict the future situations in regard to the policies of local government. In
general stable, competent, honest, and cooperative government officials are great asset to a
newly located company. Local government may be evaluated in terms of financial incentives
they offer, taxation polices, peace and securities etc.
 Community facilities: is concerned with the availability of schools, churches, medical
facilities, residential housings, recreational opportunities, highways etc.

iv. Site considerations

After identifying the community in the already selected region, the final step in location selection
decision is to screen out the best site out of the possible ones. The followings are the basic
factors that influence site selection.
 Size and cost of the site: while selecting exact site, consider the size of the site and its cost
(building and construction costs). Generally, the size of the site must be large enough to
satisfy requirements such as employees parking requirement & future expansion plans and
the cost of the land must be reasonable.
 Drainage and soil condition: poor drainage leads to accumulations of water around the plant
which may be harmful for some organization. Similarly, if the load bearing capacity of the
soil is low, it will be difficult to establish sound building foundations.
 Land development cost: cost related to excavation, grading, filling, construction of road,
sidings, etc must also be taken in to consideration while selecting the site.
 Utilities: selection of site is influenced by cost of acquiring and using utilities like electricity,
natural gas, water as well as disposal facilities. For example all enterprises need safe and
 pure water. Some organizations like breweries need water even with some extra ordinary
quality. So select the site which is better furnished with utilities.
 Access concerns: select the site which is easily accessible for customers, suppliers, utilities
and other concerned bodies.
Methods of evaluating potential locations

We have seen that a variety of factors are important to decision makers at each level of the
location decision hierarchy. What is their importance and which factor is most important? The
answers to these questions vary from one decision to the next; there may be no precise answer.
But, as shown below, there are some methods (both qualitative and quantitative) which are used
to evaluate and compare potential site locations.

i. Factor rating method

It is a general approach that is useful for evaluating a given alternative and comparing
alternatives. Rating the factors according to their general importance can help decision makers to
avoid placing too much emphasis on the wrong factors. Multiple factor rating system can be used
to compare the attractiveness of several locations on the basis of more than one criterion. Factor
rating system is probably one of the most widely used location selection techniques because they
can be combine very diverse issues in to an easy –to-understand format. At the same time, it is
important to recognize the fact that although the end result from this type of analysis is a
quantitative number, factor rating systems are used to evaluate both qualitative and quantitative
factors. Another reason that the factor–rating system approach is so popular is that it is relatively
simple to use, requiring only six steps.
 Identify the specific criteria/factors to be considered in selecting a site.
 Assign a weight to each factor indicating its importance relative to all of the other
factors that are being considered. Typically weight sum to 1
 Select a common scale for rating each factor (for example 1-100)
 Rate (score) each potential location on each of the factors.
 Multiply each factor’s score by the weight assigned to that factor
 Sum up the weighted scores for all of the factors and select that location with the highest
total score.
Illustration
To illustrate the factor rating system, consider the following site selection problem. Three
potential sites have been identified. Management has decided to use the following criteria and
has assigned the following weights to each of them based up on their relative importance. The
three locations are then rated on each of these factors and a total score for each location is
calculated as follows:
Location rating 1 to 100,
Factor/criteria Locations (max score 100) Weighted score
Weight A B C A B C
1. Convenient 0.15 80 70 60 12.0 10.5 9
2. Parking facilities 0.20 72 76 92 14.4 15.2 18.4
3. Display area 0.18 88 90 90 15.84 16.2 16.2
4. Shopper traffic 0.27 94 86 80 25.38 23.22 21.6
5. Operating costs 0.10 98 90 82 9.8 9 8.2
6. Neighborhood 0.10 96 85 75 9.6 8.5 7.5
Sum 1.00 87.02 79.92 73.6
Decision: - Location A is better because it results in a highest score.

ii. Location break even analysis

This method is the use of cost-volume-profit analysis to make an economic comparison of
location alternatives. By identifying fixed and variable costs and grouping them for each
location, we can determine which one provides the lowest cost. Location break-even analysis can
be done mathematically or graphically. The graphic approach has the advantage of providing the
range of volume over which each location is preferable.
The three steps to the location breakeven analysis are:
i. Determine the fixed cost and the variable cost associated with each location alternative.
ii. Plot the total-cost line for all location alternatives on the same graph.
iii. Select the location that has the lowest total cost for the expected level of output.
Assumptions of this method are:
 Fixed costs are constant for the range of probable output.
 Variable costs are linear for the range of probable output.
 The required level of output can be closely estimated.
 Only one product is involved.
Exercise
The location of a tractor factory in site A will result in certain annual fixed costs, variable costs
and revenue. The figure would be different for site B and C. The quantity is 5,000 and the fixed
and variable costs for three potential locations are given below.
Site FC variable cost/unit
A 10,000 60
B 30,000 40
C 90,000 20
Required
a. Which location is best?
b. Which site is best for expected demand of 2000 units if price per unit is 75, 68 &80 for
site A, B, &C respectively?

iii. Centre of gravity method

This method is a quantitative method for determining the optimal site for a facility based up on
minimizing total distribution cost. The first step in the centre of gravity method is to locate each
of the existing retail operations on the X and Y coordinate grid map. The purpose of the gird map
is to establish relative distance between the sites. The centre of gravity or the site for distribution
facility is then found by calculating the X and Y coordinate that result in minimizing the
distribution costs among all facilities. To determine the site the following formula can be used.
 dixVi diyVi
Cx= Cy=
Vi Vi
Where, Cx is X coordinate of the centre of gravity
CY =Y Coordinate of the centre of gravity
Dix=X Coordinate of the ith location
Diy=Y Coordinates of the ith location
Vi = volume of goods transported to the ith location

chapter 6 FACILITY LAYOUT

Facility layout refers to an optimum arrangement of different facilities including man,
machinery, equipment, materials, etc. within the factory building in such a manner so as to have
quickest flow of material at the lowest cost and with the least amount of handling in processing
the product from the receipt of material to the shipment of the finished product. Facility layout
can also be defined as a decision about the physical arrangement of anything that consumes
spaces: person or group of people, a teller window, a machine, a work bench or work station, a
department, storage room, a stair way or aisle and so on.

Since a layout once implemented it cannot be easily changed and costs of such changes are
substantial, the facilities layout is a strategic decision. A poor layout will result in continuous
losses in terms of higher efforts for material handling, more scrap and rework, poor space
utilization etc. Hence, need to analyze and design a sound plant layout can hardly be
overemphasized. It is a crucial function that has to be performed both at the time of initial design
and of any facility, and during its growth, development and diversification.

The objective of facility layout is to allow workers and equipments to operate most effectively
through appropriate arrangement of resources. In general, the inputs to the layout decision are as
follows:
F Specification of the objectives and corresponding criteria to be used to evaluate the design.
The amount of space required, and the distance that must be traveled between elements in the
layout, are common basic criteria.
F Estimates of product or service demand on the system.
F Processing requirements in terms of number of operations and amount of flow between the
elements in the layout.
F Space requirements for the elements in the layout.
F Space availability within the facility itself, or if this is a new facility, possible building
configurations.
Objectives of Facility layout
The overall objective in designing a layout is to provide a smooth work flow and control;
reducing cost of material through the factory or uncomplicated pattern for both consumers and
workers in a service organization. Specific objectives of layout decision in service and
manufacturing operations are outlined in the following section.
1. For manufacturing firm
 -Provide enough production capacity
-Minimize material handling cost and effort
-Minimize labour requirements
-Provide a smooth flow of materials and product
-Maximize the use of available space
-Provide for volume and product flexibility and avoid bottleneck operations and contested
areas
-Minimize health hazards
-Maximize the uses of machine tools.
-Provide communication opportunities for employees by positioning equipment and
processes appropriately
-Maximize output
-Minimize supervisory and control requirements
-Ease of maintenance
-Provide space for personal – care needs and others
2. For service operations layout serves the following purposes
-provide for customer comfort and convenience
-allow attractive display
-reduce travel of personnel and customers
-provide for private in work areas
-promote communication
-provide for stock rotation for shelf life
Principles of Plant Layout
1. Principle of integration: A good layout is one that integrates men, materials, machines and
supporting services and others in order to get the optimum utilization of resources and
maximum effectiveness.
2. Principle of minimum distance: This principle is concerned with the minimum travel (or
movement) of man and materials. The facilities should be arranged such that, the total
distance travelled by the men and materials should be minimum and as far as possible
straight line movement should be preferred.
3. Principle of cubic space utilization: The good layout is one that utilizes both horizontal and
vertical space. It is not only enough if only the floor space is utilized optimally but the third
dimension, i.e., the height is also to be utilized effectively.
4. Principle of flow: A good layout is one that makes the materials to move in forward
direction towards the completion stage, i.e., there should not be any backtracking.
5. Principle of maximum flexibility: The good layout is one that can be altered without much
cost and time, i.e., future requirements should be taken into account while designing the
present layout.
6. Principle of safety, security and satisfaction: A good layout is one that gives due
consideration to workers safety and satisfaction and safeguards the plant and machinery
against fire, theft, etc.
7. Principle of minimum handling: A good layout is one that reduces the material handling to
the minimum.
TYPES OF LAYOUT
The choice of layout type depends largely on process choices. Different layouts present
managerial challenges, as well as different opportunities to satisfy unmet customer needs. There
are three basic types (process layout, product layout, and fixed-position layout) and one hybrid
type (group technology or cellular layout). In the following section we will see three basic type
of layout along with their advantages and disadvantages.
i. Process layout
A process layout also called a job-shop or functional layout. In this Layout, machines are
grouped according to similar functions into machine centers. Process layout is designed to
process items or provide services that involve a variety of processing requirements. With a job
process, which is best for low volume with high variety production, the operations manager must
organize resources (employees and equipments) around the process. Process layout group
departments/workstations according to functions or type of activities performed. Thus, all the
resources that perform similar tasks are located together, so that materials can be routed through
the resources in any order.

Generally, process layout consists of functional groupings of machines or labors that do similar
works. For example, all drilling presses may be grouped together in one department and all
milling machine in another (see the following figure). Depending on their processing
requirements, parts may be moved to in different sequences among departments.

Drilling grinding painting

Sanding
Milling assembling

Advantages: Process layout provides the following benefits

a. Lower initial capital investment in machines and equipments. There is high degree of
machine utilization, as a machine is not blocked for a single product.
b. The overhead costs are relatively low
c. Systems are not vulnerable to equipment failure. That means breakdown of one machine does
not result in complete work stoppage
d. It is easy to avoid machine interference
e. Because of its flexibility, process layout is less vulnerable to changes in product mix or
design. Since it is flexible, idle equipment is usually available to replace machines that are
temporarily out of service.
f. Diversity of jobs offers more satisfaction to workers.
g. It is possible to use individual incentive systems.
Disadvantages: Process layout suffers from following drawbacks
a. Material handling costs are high due to backtracking and products may be moved frequently
between departments.
b. More skilled labour is required resulting in higher cost.
c. Routing and scheduling is continual challenges because the level and type of work is highly
variable
d. Job complexity often reduces the span of supervision and results in higher supervisory costs
than with product layout.
e. Work in progress inventory is high needing greater storage space
f. Processing rates tends to be slower (time gap or lag in production is higher)
g. Productive time is lost in changing from one product or services to another.
h. More frequent inspection is needed which results in costly supervision
Suitability: Process layout is adopted when
a. Products are not standardized
b. Quantity produced is small
c. There are frequent changes in design and style of product
d. Machines are very expensive
Thus, process layout or functional layout is suitable for job order production involving non-
repetitive processes and customer specifications and non-standardized products, e.g. tailoring,
light and heavy engineering products, made to order furniture industries, jewelry, etc
ii. Product layout
A product layout also called a flow-shop or line layout. Under this, machines and equipments are
arranged in one line depending upon the sequence of operations required for the product. The
materials move from one workstation to another sequentially without any backtracking or
deviation. Therefore materials are fed into the first machine and finished goods travel
automatically from machine to machine, the output of one machine becoming input of the next.
The raw material moves very fast from one workstation to other stations with a minimum work
in progress storage and material handling.

With line/continuous process, which are best for repetitive or continuous production, the
operation managers dedicate resources to individual products or tasks. This strategy is achieved
by product layout. In which work stations or departments are arranged in a linear path. In this
case, resources are arranged around the products route rather than shared across many products.
That is, equipments are arranged based on the sequence of operation, and products are move in a
continuous path from one department to the next. It is common in high volume type of
operations where products are standardized. Continuous flow (mass production) processing
arrangements are usually organized by product layout. An example of product layout is wine
making which uses layout of this type as shown below.

Mixing aging

Bottling
Shipping packing capping
Advantages: Product layout provides the following benefits:
a. Faster processing rates due to mechanized fixed path material handling equipment and the
machine pacing of the production rates.
b. Low unit cost due to high volume: the high cost of specialized machine is spread over many
units.
c. Low cost of material handling, due to straight and short route and absence of backtracking
d. Lesser investment in inventory and work in progress
e. Smooth and uninterrupted operations
f. Less congestion of work in the process
g. Routing and scheduling are established in the initial design of the system; they do not require
much attention once the system is operating.
Disadvantages: Product layout suffers from following drawbacks:
a. High initial capital investment in special purpose machine
b. Heavy overhead charges
c. Breakdown of one machine will hamper the whole production process
d. Difficult to avoid machine interference like excessive noise, vibration etc.
e. Lesser flexibility as specially laid out for particular product.
f. The jobs on production lines may provide little satisfaction to workers due to the high level
of division of labor and the monotony that usually results.
g. Difficulty of applying individual based incentive plans since the work is machine paced.

Suitability: Product layout is useful under following conditions:

a. Mass production of standardized products
b. Simple and repetitive manufacturing process
c. Operation time for different process is more or less equal
d. Reasonably stable demand for the product
e. Continuous supply of materials
Therefore, the manufacturing units involving continuous manufacturing process, producing
standardized products continuously on the firm’s own specifications and in anticipation of sales
would prefer product layout e.g. chemicals, sugar, paper, rubber, refineries, cement, automobiles,
food processing and electronics etc.
iii. Fixed position layout
In this type of layout, the major product being produced is fixed at one location. Equipment
labour and components are moved to that location. All facilities are brought and arranged around
one work center. The construction of large items, such as heavy machine tools, airplanes,
buildings, power plants, dams and the like is usually accomplished in a fixed place. Rather than
moving the item from one work centre to another, tools and components are brought to one place
for assembly. Therefore, in a fixed positional layout, the item being worked on remains
stationary, and workers, materials, and equipments are moved about as needed. This is in marked
contrast to product and process layouts. Almost always the nature of the product dictates this
kind of arrangements: weight, size, bulk, or some other factor makes it undesirable or extremely
difficult to move the product.

Advantages: Fixed position layout provides the following benefits

 a. It saves time and cost involved on the movement of work from one workstation to another.
b. The layout is flexible as change in job design and operation sequence can be easily
incorporated.
c. It is more economical when several orders in different stages of progress are being
executed simultaneously.
d. Adjustments can be made to meet shortage of materials or absence of workers by
changing the sequence of operations.
Disadvantages: Fixed position layout has the following drawbacks
a. Production period being very long, capital investment is very heavy.
b. As several operations are often carried out simultaneously, there is possibility of
confusion and conflicts among different workgroups.
c. Very large space is required for storage of material and equipment near the product.
For example, lack of storage space can present significant problems at a construction site
in crowded urban locations.
Because of the many divers activity carried out on large projects and because of the wide range
of skills required, special efforts are needed to coordinate the activities, and the span of control
can be quite narrow. For this reasons the administrative burden is much higher than it would be
under either of the other layout types. Fixed position layouts are widely used for farming,
firefighting, road building, home building, remodeling and repair, and drilling for oil. In each
case, compelling reasons bring workers, materials and equipments to the project’s location
instead of the other way around.

Suitability: The fixed position layout is followed in following conditions

a. Manufacture of bulky and heavy products such as locomotives, ships, boilers, generators,
wagon building, aircraft manufacturing, etc.
b. Construction of building, flyovers, dams.
c. Hospital, the medicines, doctors and nurses are taken to the patient (product).
iv. Group Technology (cellular) layout
There is a trend now to bring an element of flexibility into manufacturing system as regards to
variation in batch sizes and sequence of operations. A group technology (cellular) layout groups
dissimilar machines into work centers (or cells) to work on products that have similar shapes and
processing requirements. Group technology (GT) layouts are now widely used in metal
fabricating, computer chip manufacture, and assembly work. A group technology (GT) layout is
similar to a process layout in that cells are designed to perform a specific set of processes, and it
is similar to a product layout in that the cells are dedicated to a limited range of products. (Group
technology also refers to the parts classification and coding system used to specify machine types
that go into a cell.)

Group technology (GT) is the analysis and comparisons of items to group them into families
with similar characteristics. GT can be used to develop a hybrid between pure process layout and
pure flow line (product) layout. This technique is very useful for companies that produce variety
of parts in small batches to enable them to take advantage and economics of flow line layout.
A group layout is possible where an item is being made in different types and sizes. Here
machinery is arranged in a process layout but the process grouping is then arranged in a sequence
to manufacture various types and sizes of products. It is to be noted that the sequence of
operations remains same with the variety of products and sizes.

Advantages of Group Technology Layout

Group Technology layout can increase—
Component standardization and rationalization.
Reliability of estimates.
Effective machine operation and productivity.
Customer service.
It can decrease the—
Paper work and overall production time.
Work-in-progress and work movement.
Overall cost.
Limitations of Group Technology Layout
This type of layout may not be feasible for all situations. If the product mix is completely
dissimilar, then we may not have meaningful cell formation.

DESIGNING PRODUCT LAYOUT:

LINE BALANCING
Line balancing is a procedure that can be used to optimize the assignment of tasks to work
centers. The goal of line balancing is to obtain task groupings that represent approximately equal
time requirements. This minimizes the idle time along the line and results in a high utilization of
labor and equipment. Idle time occurs if task times are not equal among workstations; some
stations are capable of producing at higher rate than others. The fast station will experience
periodic waits for the output from slower stations or else be forced in to idleness to avoid
buildups of work between stations.

Lines that are perfectly balanced will have a smooth flow of work as activities along the line are
synchronized to achieve maximum utilization of labor and equipment. The major obstacle of
attaining a perfectly balanced line is the difficulty of forming tasks bundles that have the same
duration. There are different causes for this difficulty.
a. It may not be feasible to combine certain activities in to the same bundle, either because of
differences in equipment requirements or because the activities are not compatible.
b. The differences among elemental tasks lengths cannot always be overcome by grouping
tasks.
c. An inability to perfectly balance a line is that a required technological sequence may prohibit
otherwise desirable task combinations. Consider a series of three operations that have
duration of two minutes, four minutes, and two minutes as shown in the following diagram.
Ideally, the first and the third operations could be combined at one workstation and have a
total time equal to that of the second operation. However, it may not be possible to combine
the first and the third operations. In the case of an automatic car wash, scrubbing and drying
 operations could not realistically, be combined at the same workstation due to the need to
rinse cars between the two operations.
Scrubbing rinsing drying
2minutes 4minutes 2minutes

In real world, line balancing procedures are very complex and the procedures are heuristics.
Line balancing heuristics do not guarantee optimal task assignments.

Terminologies in line balancing

Desired output: the rate of output that is expected to be attained during operating time
Operating time: total available time during specific period that used for operation
Cycle time: is the maximum time allowed for work on a unit at each work station
Task: is an element of work. E.g. grasping pen, positioning it on a paper, and writing.
Task length: the amount of time required to complete a single task
Precedence relationship: orders in which the tasks must be performed in the process
Assignment rule: is rule by which individual tasks are going to be assigned to the work station
Work station: a physical location where a particular set of tasks is performed
Work centre: a physical location where two or more identical work stations are located
Productive time per hour: the number of minutes in each hour that a work stations is working on the
average.
Assignment rules
An assignment rule is a heuristic that establishes the bases for choosing an elemental task for
assignment to a work station. There are five rules
longest task first: assigning the task with the longest time first
shortest task first: assigning the task with the shortest time first
most number following: assigning the tasks with the largest number of followers first
least number following: assigning the tasks with the least number subsequent tasks first
Ranked positional weight: assign the tasks whose sum of task times of each following task is
longest.
Steps in assembly line balancing
Step1. Draw the precedence diagram: The diagram consists of circles and arrows. Circle
represents individual tasks and arrow indicates the order of task performance.
Step2. Find the required cycle time (C) using the formula:
Operatingtime per day (OT )
C=
Desired output ∈unit ( D)

Step3. Find the theoretical minimum number of workstations ( Nt ) using the formula:

Nt=
∑ of task×(T ) = T
Cycle time(C ) C
Step4. Select primary rule by which tasks are to be assigned to work station, and a Secondary
rule to break ties.
Step5. Assign the task to work centers. The general rule is, assign tasks, one at a time, to the first
work station until the sum of the task times is equal to the cycle time or no other tasks are
feasible because of time or sequence restrictions. Repeat the process for work station 2,
workstation 3 and so on until all tasks are assigned.
Step6. Evaluate the efficiency of the balance derived using the formula:

Efficiency=
∑ of task×(T )
Actual number of workstation(Na)X cycle time(C )
Balance delay (in percent) = 100 – efficiency
Idle time=(number of workstation X cycle time)– summation of task׿
Step7. If efficiency is unsatisfactory, rebalance using different decision rule.

What do we do if a task time is greater than cycle time?

For example, if the assembly line contains a task whose task times is 30 seconds and cycle time
is 25 seconds, how do we deal with this task?
There are several ways that we may be able to accommodate the 30 second task in a 25-second
cycle time.
 Split the task: can we split the task so that complete units are processed in two work station?
 Share the task: can the task somehow be shared so an adjacent work station does part of the
work? This differs from the split task in the first option because the adjacent station acts to
assist, not to do some units containing the entire task.
 Use parallel work station it may be necessary to assign the task to two work stations that
would appear in parallel.
 Use a more skilled worker: because this task exceeds the cycle time a faster worker may be
able to meet the extra minutes required.
 Work over time and lastly, if possible redesign the product to reduce the task time slightly.

Exercise
The desired daily output for an assembly line is 360 units. This assembly line will operate 450
minutes per day. The following table contains information on this product’s task times and
precedence relationships:
Task Task Time (Seconds) Immediate Predecessor
A 30 —
B 35 A
C 30 A
D 35 B
E 15 C
F 65 C
G 40 E, F
H 25 D, G
Required
a. Draw the precedence diagram.
b. What is the workstation cycle time?
c. Balance this line using the largest number of following tasks. Use the longest task time as
a secondary criterion.
 d. What is the efficiency of your line balance?
3.3 JOB DESIGN AND WORK MEASUREMENT
The operations manager uses job design techniques to structure the work so that it will meet both
the physical and behavioral needs of the human worker. Work measurement methods are used to
determine the most efficient means of performing a given task, as well as to set reasonable
standards for performing it. People are motivated by many things, only one of which is financial
reward. Operations managers can structure such rewards not only to motivate consistently high
performance but also to reinforce the most important aspects of the job.

3.3.1 JOB DESIGN DECISIONS

Job design may be defined as the function of specifying the work activities of an individual or
group in an organizational setting. Its objective is to develop job structures that meet the
requirements of the organization and its technology and that satisfy the jobholder’s personal and
individual requirements.

The following figure summarizes the decisions involved.

Who What Where When Why How

Mental and Tasks to be Geographic Time of day; Organizational Methods of
the physical performed location of time of for the job; performance
characteristics the occurrence in objectives and and
of the work organization; the work motivation of motivation
force location of flow the worker
work areas

Ultimate job
structure
Work measurement and Standards

Approaches to Job Design

There is no one best way to design any job. Different situations call for different arrangements of
job characteristics. However, literatures are identified two general approaches. These are
traditional/rational and modern/behavioral approach.

Traditional or rational approach

This approach entails fitting people to jobs. It is based on the assumption that people will
gradually adjust and adapt to any work situation. Thus, employee attitude towards the job are
ignored, and jobs are designed to produce maximum economic and technological efficiency. The
approach uses the principles of scientific management.

Work simplification or specialization

The term specialization describes jobs that have a very narrow scope assumes that work can be
broken into simple, repetitive tasks that maximize efficiency. The rationale for specialization is
the ability to concentrate one’s efforts and thereby become proficient in some aspect of a product
or service.

The advantage of the highly specialized jobs is that they yield high productivity and low unit
costs. However, many of the jobs can be described as monotonous and are the source of
dissatisfaction among industrial workers today. Thus, it is important to understand that
specialization of labor is the two-edged sword of job design. On one hand, specialization has
made possible high-speed, low-cost production, and from a materialistic standpoint, it has greatly
enhanced our standard of living. On the other hand, extreme specialization often has serious
adverse effects on workers, which in turn are passed on to management. In essence, the problem
is to determine how much specialization is enough.

Behavioral Approach in Job Design

This approach assumes that people are underutilized at work and that they desire more challenge
and responsibility. It involves fitting jobs to people. The employee attitudes play an important
role in determining how jobs should be designed. Within this approach there are different
techniques such as job rotation, job enlargement and job enrichment.
Job rotation is the process of rotating workers among different narrowly defined tasks without
disrupting the flow of work. Rather than performing only one job, workers are trained and given
the opportunity to perform two or more separate jobs on a rotating basis. By rotating employees
from job to job, managers believe they can stimulate interest and motivation, while providing
employees with a broader perspective of the organization.
Job enlargement involves putting more variety into a worker’s job by combining specialized
tasks of comparable difficulty. It is the horizontal expansion of a worker’s job. Job enlargement
generally entails adjusting a specialized job to make it more interesting to the job holder. A job is
said to be enlarged horizontally if the worker performs a greater number or variety of tasks.
Horizontal job enlargement is intended to counteract oversimplification and to permit the worker
to perform a “whole unit of work.”
Job enrichment is an approach to job design that emphasis on upgrading the job in order to
increase significantly the potential for growth, achievement, responsibility and recognition. It is
the vertical expansion of a worker’s job. It increases job depth, the degree to which individuals
can plan and control the work involved in their jobs. A job is said to be enlarged vertically if the
worker is involved in planning, organizing, and inspecting his or her own work. Job enrichment
(also termed vertical enlargement) attempts to broaden workers’ influence in the transformation
process by giving them certain managerial powers over their own activities. Today, common
practice is to apply both horizontal and vertical enlargement to a given job and refer to the total
approach as job enrichment.

The organizational benefits of job enrichment occur in both quality and productivity. Quality in
particular improves dramatically because when individuals are responsible for their work output,
they take ownership of it and simply do a better job. Also, because they have a broader
understanding of the work process, they are more likely to catch errors and make corrections
than if the job is narrowly focused. Productivity improvements also occur from job enrichment,
but they are not as predictable or as large as the improvements in quality. The reason is that
enriched work invariably contains a mix of tasks that (for manual labor) causes interruptions in
rhythm and different motions when switching from one task to the next. Such is not the case for
specialized jobs.

The job enrichment effort of the job design is guided by the job characteristics theory/model. Job
characteristics theory states that employees will be more motivated to work and more satisfied
with their jobs to the extent that jobs contain certain core characteristics. These core job
characteristics create the conditions that allow employees to experience critical physiological
states that are related to beneficial work outcomes, including high work motivation. The strength
of linkage among job characteristics, psychological states, and work outcomes is determined by
the intensity of the individual employee’s need for growth. These core job characteristics are:
Task variety: refers to the degree to which the job requires the person to do different activities
and involves the use of a number of different skills, abilities and talents. An attempt must be
made to provide an optimal variety of tasks within each job. Too much variety can be inefficient
for training and frustrating for the employee. Too little variety can lead to boredom and fatigue.
The optimal level is one that allows the employee to rest from a high level of attention or effort
while working on another task or, conversely, to stretch after periods of routine activity.
Task identity: refers to the degree to which a person can do the job from beginning to end with
a visible outcome. Sets of tasks should be separated from other sets of tasks by some clear
boundary. Whenever possible, a group or individual employee should have responsibility for a
set of tasks that is clearly defined, visible, and meaningful. In this way, work is seen as important
by the group or individual undertaking it, and others understand and respect its significance.
Task significance: refers to the degree to which the job has a significant impact on others (both
inside and outside the organization)
Task autonomy: the amount of freedom, independence, and discretion the employee has in area
such as scheduling the work, making decisions, and determining how to do the job. Employees
should be able to exercise some control over their work. Areas of discretion and decision making
should be available to them.
Feedback: refers to the degree to which the job provides the employee with clear and direct
information about job outcomes and performance. There should be some means for informing
employees quickly when they have achieved their targets. Fast feedback aids the learning
process. Ideally, employees should have some responsibility for setting their own standards of
quantity and quality.

3.5.2 WORK MEASUREMENT AND STANDARDS

Operations managers are interested in how long it takes to create an output or outcome, or
equivalently, how much can be produced over a certain length of time. Work measurement is a
systematic procedure for the analysis of work and determination of times required to perform key
tasks in processes. Work measurement leads to the development of labor and equipment time
standards that are used for
- estimating work-force and equipment capacity
- establishing budgets
- determining what new work procedures will cost
- evaluating time and cost trade-offs among process design alternatives
- establishing wage-incentive systems
- monitoring and evaluating employee performance and productivity, and
- Providing accurate information for scheduling and sequencing. Without accurate time
standards it is impossible to perform these tasks.
The fundamental purpose of work measurement is to set time standards for a job. Such
standards are necessary for four reasons:
1. To schedule work and allocate capacity: All scheduling approaches require some estimate of
how much time it takes to do the work being scheduled.
2. To provide an objective basis for motivating the workforce and measuring workers’
performance: Measured standards are particularly critical where output based incentive plans
are employed.
3. To bid for new contracts and to evaluate performance on existing ones: Questions such as
“Can we do it?” and “How are we doing?” presume the existence of standards.
4. To provide benchmarks for improvement: In addition to internal evaluation, benchmarking
teams regularly compare work standards in their company with those of similar jobs in other
organizations.
Work measurement is the process of creating labor standards based on the judgment of skilled
observers. Managers often use informal methods to arrive at labor standards. They can develop
simple estimates of the time required for activities or the number of employees needed for a job
on the basis of experience and judgment. Properly set labor standards represent the amount of
time that it should take an average employee to perform specific job activities under normal
conditions. Labor/work standards techniques are set in the following ways. The choice of
techniques depends on the level of detail desired and the nature of the work itself.
1. Historical experience: work standards can be estimated based on historical experience, that
is, how many labor hours were required to do a task last time it was performed. Historical
standards have the advantage of being relatively easy and inexpensive to obtain. They are
usually available from employee time cards or production records. However, they are not
objective, we do not know their accuracy, whether they represent a reasonable or a poor work
pace, and whether unusual occurrences are included.
2. Time studies: Highly detailed, repetitive work usually calls for time study analysis. A time
study procedure involves timing a sample of worker’s performance and using it as a basis for
setting a standard time.
The general approach to time study can be described as follows.
Step 1: Selecting Work Elements (define the task to be studied): Each work element should
have definite starting and stopping points to facilitate taking stopwatch readings. The work
elements selected should correspond to a standard work method that has been running smoothly
for a period of time in a standard work environment. Incidental operations not normally involved
in the task should be identified and separated from the repetitive work.
Step 2: Timing the Elements: After the work elements have been identified, the analyst times a
worker trained in the work method to get an initial set of observations. The analyst may use
either the continuous method, recording the stopwatch reading for each work element upon its
completion, or the snap-back method, resetting the stopwatch to zero upon completion of each
work element. For the latter method, the analyst uses two watches, one for recording the previous
work element and the other for timing the current work element.

If the sample data include a single, isolated time that differs greatly from other times recorded
for the same element, the analyst should investigate the cause of the variation. Time for an
“irregular occurrence,” such as a dropped tool or a machine failure, should not be included in
calculating the average time for the work element. The average observed time based only on
representative times is called the select time (ṫ). Irregular occurrences can be covered in the
allowances.
Step 3: Decide how many times to measure the task: refers to the number of cycles or samples
needed. Typically, those who use the time study method to set standards want an average time
estimate that is very close to the true long-range average most of the time.
Step 4: Setting the Standard: The final step is to set the standard. To do so, the analyst first
determines the normal time for each work element by judging the pace of the observed worker.
The analyst must assess not only whether the worker’s pace is above or below average but also a
performance rating factor (RF) that describes how much above or below average the worker’s
performance is on each work element. This adjustment to the total normal time provides for
allowances such as personal needs, an avoidable work delays and work fatigue.
Normal time = average observed cycle time X performance rating factor
Standard time = total normal time divided by 1- allowance factor
Example: The time study of work operation yielded an average observed cycle time of 4
minutes. The analyst rated the observed worker at 85%. This means the worker performed at
85% of normal when study was made. The firm uses a 13% allowance factor. Compute the
standard time.
Solution
Average observed time = 4 minutes
Normal time = average observe cycle time X rating factor
= 4 X 0.85 = 3.4 minutes
Standard time = normal time/1- allowance factor
= 3.4/1-0.13
= 3.9 minutes
3. Work sampling
When work is infrequent or entails a long cycle time, work sampling is the tool of choice. As the
name suggests, work sampling involves observing a portion or sample of the work activity. It
requires the random observations to record the activity that a work is performing. The results are
primarily used to determine how employees allocate their times among various activities. The
knowledge of allocation may lead to the staffing change, reassignment of duties, estimates of
activity cost, and the setting of delays allowances for labor standards.
 CHAPTER 7
QUALITY MANAGEMENT AND CONTROL
5.1 MEANING AND NATURE OF QUALITY
Different meaning could be attached to the word quality under different circumstances. The word
quality does not mean the quality of manufactured product only. It may refer to the quality of the
process (i.e. men, material, and machines) and even that of management. Where the quality
manufactured product referred as or defined as “Quality of product as the degree in which it
fulfills the requirement of the customer. It is not absolute but it judged or realized by comparing
it with some standards”.

Quality begins with the design of a product in accordance with the customer specification further
it involved the established measurement standards, the use of proper material, selection of
suitable manufacturing process etc., quality is a relative term and it is generally used with
reference to the end use of the product.
Crosby defined as “Quality is conformance to requirement or specifications”.
Juran defined as “Quality is fitness for use”. “The Quality of a product or service is the
fitness of that product or service for meeting or exceeding its intended use as required by the
customer.”

While quality management is cross functional in nature and involves the entire organization,
operations have special responsibility to produce a quality product for the customer. This
requires the cooperation of the entire organization and careful attention to management and
control of quality.

Quality can be defined in a number of different ways.

In an article entitled “what does product quality really mean?” David Garvin, discuss five
approaches to define quality:
F He state that a common notion of quality is that it is synonymous with ‘superiority’ or
‘innate excellence’. From this view point, quality cannot be precisely defined but can only be
recognized through experience.
F The second view point is that quality is precise and measurable concept and that differences
in quality reflect differences in quantity of some product attributes. For instance, high quality
 ice cream has high butterfat content. According to this approach, quality can be ranked based
on the amounts of the desired attributes they possess. (Product based view)
F The third view is that quality is determined by what a customer wants and is willing to pay.
According to this view the goods and services that best satisfy individual consumer’s unique
needs or wants are regarded as having the highest quality. Thus, quality can be defined as
fitness for intended use, or in other words, how well the product performs its intended
functions. (user based view)
F The fourth definition of quality arises from the unique perspective of manufacturing
operations. In this setting quality is associated with engineering and manufacturing practices;
hence, the perspective of quality is synonymous with conformance to specification. Quality
conformance can be defined as, how well manufacturing is able to meet design specification.
(manufacturing view)
F Finally the value based approach to quality defines it in terms of cost and price. In this sense,
a quality product is one that provides a predetermined level of performance at an acceptable
price or provide conformance to design specification at an acceptable cost. (Value based
approach)
In considering all these approaches to quality, it is clear that the meaning of quality depends on
one’s view point and places in the organization. Thus different definitions are needed. More over
it is necessary to shift one’s perspective of quality as products move from their design stage to
market. All of the viewpoints just presented are necessary in order to result in an overall quality
product.
Quality Assurance Vs Strategic Approach
Quality Assurance is concerned with the entire range of production, beginning with product
or service design, continuing through the transformation process and extended to service
after delivery. It emphasis on finding and correcting defects before reaching market.
Strategic approach is proactive, focusing on preventive mistakes from occurring. Greater
emphasis on customer satisfaction
Dimensions of Quality
- Performance: main characteristics of the product or services.
- Aesthetics: appearance, feel, smell, taste
- Special feature: extra characteristics.
- Conformance: how well a product or service corresponds to the customer's expectation
- Safety: risk of injury or harm
- Reliability: consistency of performance.
- Durability: the useful life of the product or service.
- Perceived quality: indirect evaluation of quality (e.g. reputation)
- Service after sale: handling of complaints or checking on customer satisfaction.
Dimension of Quality: Service
- Time and timeliness: How long a customer waits for service, and is it completed on time?
- Completeness: is everything customer asked for provided?
- Courtesy: involves politeness, respect, consideration, and friendliness of contact personal
(including receptionists, telephone operators, etc). How are customers treated by employees?
E.g. Are catalogue phone operators nice and are their voices pleasant?
- Consistency: Is the same level of service provided to each customer each time?
- Accessibility and convenience: -involves approachability and ease of contact.
- How easy is it to obtain service?
- Does a service representative answer your calls quickly?
- Accuracy: is the service performed right every time?
- Responsiveness: how well does the company reach to unusual situation?
5.2. OVERVIEW OF TQM
Total Quality Management is a philosophy that involves each and every individual in an
organization in a continual effort to improve quality and achieve customer satisfaction. Total
quality management (TQM) is an integrated organizational effort designed to improve quality at
every level.
The TQM Approach
TQM is not called philosophy for nothing. It is that common viewpoint as well as attitude shared
by the whole organization that helps the organization achieves its prime objective of increase in
revenue as well as a continuous relationship with the customer, by providing a quality based
service which fulfills the customer’s needs and requirements. Avert
If we apply the TQM approach we can identify the role played by various departments and
interfaces of the organization. These roles at the functional and departmental levels if not in line
with the organizational strategy would not allow the organization to pursue TQM.
The Evolution of Total Quality Management (TQM)
The concept of quality has existed for many years, though its meaning has changed and evolved
over time. In the early twentieth century, quality management meant inspecting products to
ensure that they met specifications. In the 1940s, during World War II, quality became more
statistical in nature. Statistical sampling techniques were used to evaluate quality, and quality
control charts were used to monitor the production process. In the 1960s, with the help of so-
called “quality gurus,” the concept took on a broader meaning. Quality began to be viewed as
something that encompassed the entire organization, not only the production process. Since all
functions were responsible for product quality and all shared the costs of poor quality, quality
was seen as a concept that affected the entire organization.

The meaning of quality for businesses changed dramatically in the late 1970s. Before then
quality was still viewed as something that needed to be inspected and corrected. However, in the
1970s and 1980s many U.S. industries lost market share to foreign competition. In the auto
industry, manufacturers such as Toyota and Honda became major players. In the consumer goods
market, companies such as Toshiba and Sony led the way. These foreign competitors were
producing lower-priced products with considerably higher quality.

To survive, companies had to make major changes in their quality programs. Many hired
consultants and instituted quality training programs for their employees. A new concept of
quality was emerging. One result is that quality began to have a strategic meaning. Today,
successful companies understand that quality provides a competitive advantage. They put the
customer first and define quality as meeting or exceeding customer expectations.

Since the 1970s, competition based on quality has grown in importance and has generated
tremendous interest, concern, and enthusiasm. Companies in every line of business are focusing
on improving quality in order to be more competitive. In many industries quality excellence has
become a standard for doing business. Companies that do not meet this standard simply will not
survive. As you will see later in the chapter, the importance of quality is demonstrated by
national quality awards and quality certifications that are coveted by businesses.

The term used for today’s new concept of quality is total quality management or TQM. Figure
presents a timeline of the old and new concepts of quality. You can see that the old concept is
 reactive, designed to correct quality problems after they occur. The new concept is proactive,
designed to build quality into the product and process design.
Time Early 1900s 1940s 1960s 1980s and Beyond
FOCUS Inspection Statistical Organizational Customer driven quality
Sampling quality focus

Old Concept of Quality: New Concept of Quality:

Inspect for quality after production Build quality into the process. Identify
and correct causes of quality problems.
Figure 5-1 Timeline showing the differences between old and new concepts of quality
COST OF QUALITY
A new idea in the quality area is to calculate and control the cost of quality. The cost of quality
may be divided in to two components: control cost and failure cost. The control costs are related
to activities which remove defects in the production stream. This can be done in two ways: by
prevention and by appraisal.

A. Control cost
i. The prevention cost
Prevention costs are costs associated with preventing defects before they happen. Such costs
include:
F Cost of providing quality engineering, and quality planning services for ensuring correct
specifications of materials, use of right methods and process, preparing company standards,
preparing sampling procedures and so on.
F Information Costs: Costs of acquiring and maintaining data related to quality and
development of reports on quality performance.
F Cost involved with training and retraining of operators, supervisors and other staffs.
F Cost of research and development efforts, so as to maintain high quality products.
F The cost of redesigning the process to remove the cause of poor quality.
F Cost incurred in the organization of quality circles and other techniques with the objectives
of creating interests and involvements of workers and staffs in their work motivate them and
high quality of work life. These activities occur prior to production and are aimed at
preventing defects before they occur.
ii. The appraisal (inspection)
Appraisal costs are costs incurred in assessing the level of quality attended by the operating
system. Appraisal helps management identify quality problem. Such costs include:
 Cost of testing or inspecting incoming raw materials, including the cost of their movement
for the purpose of inspection testing at regular interval
 Cost of providing and maintaining laboratory services for the purpose of inspection
 Cost of process control test or stage inspection.
 Cost of product inspection, such as mechanical testing, non destructive testing, cost of
carrying out field trials etc.
 Cost of maintenance and calibration of test and inspection equipment and apparatus at
regular interval.
 Expenditure incurred in vendor rating when any of the materials required for the product are
procured from outside sources.
B. Failure Cost
The failure costs are incurred either during the production process (internal) or after the
production is shipped (external).
i. The internal failure
Internal failure costs result from defects that are discovered during the production of a product
or services. Such costs include:
 Cost of scrap or rejections produced which cannot be passed on to, or which will not be
accepted by the customer and which becomes a total cost. It will include the cost of power
and various in process materials spent in producing the rejection.
 Cost of rework or corrective operations, in case of such items which have not been passed
during inspection but which can be made acceptable after certain rework or repair such as
welding, brazing, pressing, filling, re-heat treatment, rough machining etc.
 Cost involved in fault investigation, trouble –shootings, defect analysis. It may also entail
cost of re-examination, and testing, test methods, change of material specification or method
of production etc.
 Loss in capacity of production because of the rejection produced.
ii. The external failure cost
External failure costs arise when a defect is discovered after the customer has received defective
products or services. Such costs include product:
 Loss of future orders to the company owing to loss in its prestige caused by high rejection or
poor performance in services. The customer may even withhold payments and the relation
may be impaired which may be difficult to improve again. The customers may permanently
withdraw placing order.
 Cost involved in attending to customers complaints and providing customer services,
including warranty charges (the cost of refund, repair, or replace), returned merchandises
(cost related to returning goods to sellers including transportation), losses of taxes and duties,
allowance (cost of concession), complaints (the cost of setting customer complaints) and the
like.
 Litigation costs which include not only legal fees but also the time and effort of employees
who must appear for the company in court.
The total cost of quality can thus be expressed as the sum of the following cost:
Total cost=control cost + failure cost , that is
(Prevention cost+ appraisal cost)+(internal failure cost +ext ernal failure cost )

The total cost of quality can be minimized by observing the relationship between the cost of
quality and degree of conformance. When the degree of conformance is very high (low defects)
the cost of failure are low but the cost of control are quite high. When the degree of conformance
is low (high defect) the opposite situation exist. Good quality management requires the proper
balance between appraisal and prevention costs, so that total control costs are at the minimum.

5.3 Continuous Improvement

Because of advances in process capability, nonconformity prevention eventually loses its appeals
as focus quality improvement efforts. The ability to satisfy customer’s requirement today,
however, does not imply an ability to satisfy customer’s expectation in the future, because
customer expectation change over time. Nor does the fact that, a process is capable of producing
without non conformities means it cannot be improved. Finally, processes that are not improving
may be eroding.
For all these reasons, the focus of quality improvement efforts may eventually shift from
prevention to ongoing and continuous improvement. Focusing on ongoing improvement is a
way of preparing to meet customer’s future expectations, whether it can be anticipated or not.
Even when future customer’s expectations are unpredicted and unforeseeable, a focus on
continual improvement can lead to the development of capabilities that will prepare a firm to
meet new expectations. Ongoing, continuous improvement of processes requires a company to
establish a climate in which everyone focuses on delighting the customers. Thus, the tools and
methods that are used to foster ongoing improvement are meant not just for quality professional,
but for everyone. They are most useful in the context of an organization wide focus on customer
satisfaction consistent with four commitment of total quality management.

5.4 Statistical Quality Controls

One of the cornerstones of quality control is the use of statistical methods to determine how
much inspection to use. Statistical quality controls are the general category of statistical
tools used to evaluate organizational quality. In many case a great deal can be saved by taking
a sample rather than making 100 percent inspection. In other cases there is no alternative but to
take a sample. For example, destructive testing. Two distinct types of statistical methods are
available: acceptance sampling and process control. Consider each in the following discussion.
i. Acceptance sampling
Applies to group inspection where a decision to accept or reject a lot of materials is made on the
basis of random sample drawn from the lot. This type of inspection is frequently used for
incoming raw materials or for finished goods prior to shipment.

Generally it can be defined as taking one or more samples at random from a lot of items,
inspecting each of the items in the sample (s) and deciding – on the basis of inspection result-
whether to accept or reject the entire lot. This type of inspection can be used by the customers
to ensure that quality standards are met prior to shipments. Acceptance sampling is used in
preference to 100% inspection where ever the cost of inspection is high in relation to the cost of
passing defective items to the customer.

In a single acceptance sampling, one sample is taken from a lot and the decision whether to
accept or reject the lot is made after the sample is inspected and compared with standards.
 Formally, we let: n= sample size, c= acceptance number, x= number of defective units found in
the sample. For single sampling, the decision rule whether to accept or reject the lot after
inspecting the sample is as follows:
If x  c, accept the lot
If xc, reject the lot
For example, suppose we have a lot of 10,000 items and we decided to take a random sample of
100 items (n=100). We inspect the 100 items and find 3 defectives(x=3). Assume the acceptance
number in this case is 2(c=2). Since the number of defective units in the sample exceeds the
acceptance number, the lot of 10,000 units will be rejected. Note that very good lots or very bad
lots will usually require only one sample and lots of medium quality may require two or more
samples to reach a decision.
ii. Process quality control system
No two products or services are exactly alike because the processes used to produce them
contain many sources of variation, even if the processes are working as intended. For example,
the time required to process a credit card application varies because of the load on the credit
department, the financial background of the applicant, and the skill & attitude of the
employees. Nothing can be done to eliminate variation in process output completely, but
management can investigate the cause of variation. Generally, the source of variation can be
common or random causes of variation and assignable causes.
a. Common causes of variation
Common causes of variation are purely random, unidentifiable sources of variation that are
unavoidable with the current process. No matter how perfectly the process is designed, there
will be some variability in quality characteristics from one unit to the next. For example, a
machine filling cereal boxes will not deposit exactly the same weight in each boxes; the amount
filled will vary around some average figure. The aim of process control is to find the range of
natural variation of the process and to then ensure that production stays within this range.
Natural variation is usually under the state of control.
b. Assignable causes
The second category of variation is assignable sources of variation also called special cases
includes any abnormal variations which are not usually found in a state of control. Assignable
causes of variation are any variation causing factor that can be identified and eliminated.
Assignable causes that results abnormal variation may include: lax (careless) procedures,
untrained operators, improper machine maintenance. The first job of process control
manager is to seek out these sources of unnecessary variation and bring the process under
statistical control, where the remaining variation is due to random causes.

A process can be brought to a state of control and can be maintained in this state through the use
of quality control charts –also called process chart or control chart. In the control chart shown
below the Y axis represents the quality characteristics which is being controlled while the X axis
represent time or particular sample taken from the process. The center line of the chart is the
average quality characteristic being measured. The upper control limit represents the maximum
acceptable random variations and the lower control limit indicates the minimum acceptable
random variation when a state of control exists. Generally speaking, the upper and lower control
limits are set at + three standard deviations from the mean. If normal probability distribution is
assumed, these control limits will include 99.7 % of the random variations observed.
Process control chart
Stop the process.
Look for assignable cause

Average +3 upper control limits (UCL)

SD

Quality central line (CL)

Measurement
Average

Average -3 SD lower control limits (LCL) stop the process.

Look for assignable

After a process has been brought to steady state operation, periodic samples are taken and plotted
on the control chart. When the measurement falls within the control limits, the process is
continued. If the measurement falls outside the control limits, the process is stopped and a search
is made for an assignable causes. Through this procedure, the process is maintained in a constant
state of statistical control and there is only natural variation in the processes output.

Quality measures: to detect abnormal variation, inspectors must be able to measure quality
characteristics. Quality can be evaluated in two ways. One way is to measure variables i.e.
product or service characteristics such as weight, length, volume or time that can be measured.
Another way to evaluate quality is to measure attributes- i.e. product or service characteristics
that can be quickly counted for acceptable quality. Generally, quality can be measured for
control charts by attributes or by variables.

a. Process control with attribute measures: using P charts

The P chart is commonly used control chart for attributes. The quality characteristic is counted
rather than measured and the entire item or service can be declared good or defective. For
example in the bank industry, the attributed counted might be the number of incorrect financial
statements sent. The method involves selecting a random sample, inspecting each item in it, and
calculating the sample proportion defective -which is the number of defective units (p) divided by
the sample size (n). Sampling for P- charts involves yes- no decisions: the item or service either
‘is’ or “is not’ defective. The underling statistical distribution is based on the binomial
distribution. However, for large sample size the normal distribution provides a good
approximation to it.

To get the center line and control limits of the ‘P’ control chart, we take a large number of
samples of ‘n’ units each. The P value is computed for each sample and then averaged over all
samples to yield a value –p. This value of –p is used as the centre line, since it represents the best
available estimate of the true average percent defective. We also use the value of –p to compute
upper and lower control limits. To construct the P chart, calculate:
P=the ∑ of all sample no . of sample .
UCL= p+ 3 √ ((P(1−P)))/(n)

LCL= p−3 √ (P (1−P))¿/(n)¿

In this case, the process’s standard deviation is the quantity under the square root sign. We are
adding and subtracting three standard deviations from the mean to get the control limits. After
the p control charts is constructed with this center line and lower control limits, samples of the
process being controlled are taken and plotted on the chart i.e. the observed values of ‘p’ are
plotted on the chart, one for each sample. If the sample percentage falls within the control limits,
no action is taken. If the sample percentage falls outside the control limits, the process is stopped
and a search for an assignable cause (material, operator, or machine) is made. After the
assignable cause is found and corrected – or, in a very rare case, no assignable cause is found-the
process is restored to operating condition and production is resumed.

Example: suppose samples of 200 cards are taken from a key punch operation at 2 hours
intervals to control the keypunch process. The percentage of cards in error for the past 10
samples is found to be 0.7, 1.2, 1.6, 2.0, 1.0, 0.8, 1.8, 1.5, 0.9, and 1.2 percent. Is the process out
of control?

The average of these sample percentages yields a –p=1.27 percent or 0.0127 (sum of all samples
divided by sample number i.e.10) which is the centre line of the control chart. The upper and
lower control limits are:

UCL=0.0127+3
√ 0.0127 (1−0.0127)
200
=0.0364

LC L=0.0127−3
√ 0.0127(1−0.0127)
200
=−0.0110

When the LCL is negative, it is rounded up to 0 because a negative percentage is impossible.

Thus we have the following charts.

3.64 UCL
*
*
* * CL
1.27 * *
* * *
0 * LCL

Since all sample points are found to be in the control, these 10 samples can be used to establish
the centre line and control limits.

Example:-The operations manager of the booking services department ABC bank is concerned
about the number of wrong customer account numbers recorded by the ABC bank’s personnel.
Each week a random sample of 2500 deposit is taken, and the number of incorrect account
numbers is recorded. The results for the past 12 weeks are shown in the following table. Is the
process out of control?
 Sam Wr Sampl Wrong
ple ong e No. account
No. acc No.
oun
t
No.

1 15 7 24

2 12 8 7

3 19 9 10

4 2 1 17
0

5 19 1 15
1

6 4 1 3
2

Total 147

CHAPTER 8
OPERATIONS PLANNING & CONTROL
4.1 Introduction
Planning is an integral part of a manager’s job. If uncertainties cloud the planning horizon, it can
be quite difficult for a manager to plan effectively. Firms plan their manufacturing and service
operations activities at various levels and operate these as a system. Based on time dimension
planning can be long range, medium range and short range.

4.1. Aggregate production planning

Aggregate plan: statement of a company’s production rates, workforce levels, and inventory
holding based on estimates of customer requirements and capacity limitations.
Production plan: a manufacturing firm’s aggregate plan, which generally focuses on production
rate and inventory holdings. It determines the quantity and timing of production for the
immediate future. Aggregate planning is an intermediate term planning decision. It is the
process of planning the quantity and timing of output over the intermediate time horizon (3
months to one year). Within this range, the physical facilities are assumed to be fixed for the
planning period. Therefore, fluctuations in demand must be met by varying labor and inventory
schedule. Aggregate planning seeks the best combination to minimize costs.

APP is the process of planning the quantity and timing of production over an intermediate range
by adjusting production rate, improvement and inventory. It is also translating annual and
quarterly business plan into labor and production output plans for the intermediate term. The
objective is to minimize the cost of resources required to meet demand over that period. The aim
of aggregate planning is to get over all output levels in the near to medium future in the face
fluctuating or uncertain demand. As a result of aggregate planning decisions and policies should
be made concerning over time, hiring, layoff, subcontracting, and inventory levels. Aggregate
planning determines not only the output levels planned but also appropriate resource input to be
used. Aggregation on the supply side is by product families and on the demand side by groups of
customers.

Main purpose of aggregate planning is to Specify the optimal combination of production rate,
work force level, and inventory on hand. Aggregate planning is necessary in production and
operations management because:
1. It facilitates fully loaded facilities and minimizes overloading and under loading, thus
keeping production cost low.
2. It provides adequate production capacity to meet expected aggregate demand
3. It facilitates the orderly and systematic transition of production capacity to meet the peaks
and valleys of expected customer demand and;
4. In times of scarce production resources, it enhances the probability of getting the most output
for the amount of resources available.

AGGREGATE PRODUCTION PLANNING STRATEGIES

Managers often combine reactive (workforce adjustment, anticipation of inventory, workforce
utilization, vacation schedules, subcontractors and backlog, backorder and stocks) and aggressive
(complementary products, and creative pricing) alternatives in various ways to arrive at an
acceptable aggregate plan.
Chase strategy: a strategy that matches demand during the planning horizon by varying either
the workforce level or the output rate. When a chase strategy uses the first method, varying the
workforce level to match demand, it relies on just one reactive alternative-workforce variation.
This chase strategy has the advantage of no inventory investment, overtime, or under-time.
However it has some drawback, including the expense of continually adjusting workforce levels,
the potential alienation (hostility) of the workforce, and the loss of productivity and quality
because of constant change in the workforce.

The second chase strategy, varying the output rate to match demand, opens up additional
reactive alternatives beyond changing the workforce level. Sometimes called the utilization
strategy, the extent and timing of the workforce’s utilization is changed through overtime, under-
time and vacation are taken. Subcontracting, including temporary help during the peak season, is
another way of matching demand.

Level strategy: a strategy that maintains a constant workforce level or constant output rate
during the planning horizon. When a level strategy used the first method, maintaining a constant
workforce level, it might consist of not hiring or laying off workers (except at the beginning of
the planning horizon), building up anticipation inventories to absorb seasonal demand
fluctuations, using under-time in slack periods and overtime up to contracted limits for peak
periods.

When level strategy uses the second method, maintaining a constant output rate, it allows hiring
and layoffs in addition to other alternatives of first level strategy. The key to identifying a level
strategy is whether the workforce or output rate is constant.

Mixed strategy: Strategies that consider and implements a full range of receive alternatives and
goes beyond a “Pure” chase or level strategy. Whether management chooses a pure strategy or
some mix the strategy should reflect the organizations environment and planning objectives.

Proper Strategy is selected based on:

1) how much of each production resource is available
2) How much capacity is provided by each type of resource? The amount of resource required
to produce a single unit of a particular product or service allows the translation of demand
into production capacity plans.
3) At what step in production we determine capacity /labour hour available, or machine hour
available
4) How much does it cost to scale capacity up or down cost of hiring, laying off, recalling/

The Aggregate Production Process

Determining demand requirements: the first step in planning process is to determine the
demand requirements for each period of planning horizon. The planner can derive future
requirements for finished goods from backlog (for make to order operations) or from forecasts
for product families made to stock (for make to stock operations).

Identifying alternatives, constraints, and costs: the second step is to identify the alternatives,
constraints, and costs for the plan. Constraints represent the physical limitations or managerial
policies associated with the aggregate plan. Typically, many plans can satisfy specific set of
constraints. The planner usually considers several types of costs when preparing aggregate plans:
 Regular time costs (wages health insurance, dental care, social security, and retirement funds
pay for vacation, holidays, and certain other types of absence).
 Overtime costs:
 Hiring and layoff costs
 Inventory holding costs
 Backorder and stock out costs

Preparing an acceptable plan: developing an acceptable plan is alternative process i.e. plan
may need to go through several revisions and adjustments. A prospective, or tentative plan is
developed to start. The plan must then be checked against constraints and evaluated in terms of
strategic objectives.

Implementing and updating the plan: the final step is implementing and updating the final
plan. Implementation requires the comment of manager in all functional areas. The planning
committee may recommend changes in the plan during implementation or updating to balance
conflicting objectives better. Acceptance of the plan does not necessarily mean that everyone is
in total agreement, but it does imply that everyone will work to achieve it.

MATERIALS REQUIREMENTS PLANNING (MRP)

MRP is a means for determining the number of parts, components, and materials needed to
produce a product. It provides time scheduling information specifying when each of the
materials, parts and components should be ordered or produced. The basic purposes of MRP are
to control inventory levels, assign operating priorities for items, and plan capacity to load the
production system. The theme of MRP is “getting the right materials to the right place at the
right time.”
BASIC MRP CONCEPTS
Independent demand: It exists when a demand for a particular item is unrelated to a demand for
other item or when it is not a function of demand of other inventory item. Independent demands
are not derivable or calculable from the demand of something else hence they must be forecast.

Dependent demand: It is defined as dependent if the demand of an item is directly related to, or
derived from the demand of another item or product. In dependant demand, the need for any one
item is a direct result of the need for some other item, usually a higher level item of which it is
part. In concept, dependent demand is relatively straight forward computational problem. Needed
quantities dependant demand items are simply computed based on the number needed each
higher level item in which it is used. MRP is the appropriate technique for determining quantities
of dependent demand item. For example, if an automobile company plans to produce 50 cars per
day, then obviously it will need 200 wheels and tires (plus spares). The number of wheels and
tires needed is dependent on the production level and is not derived separately. The demand for
car is independent.
Inputs to MRP
MRP is a processor which processes inputs (relating data) to give a time phased detailed
schedule for raw materials and components. An MRP system has three major inputs:-
A. Master Production Schedule (MPS)
One of the three principal inputs of MRP system, the master production schedule, is a list of
what end products are to be produced, how many of each product is to be produced, and when
the products are to be ready for shipment. It is a driving input which an MRP system depends for
its real effectiveness and usefulness because it is the determinant of future load, inventory
investment, production, and delivery service. The MPS is derived from the aggregate schedule.
Lead time: In purchasing systems, lead time is the time between recognition of need for an order
and receiving it. In production systems, it is the order, wait, move, queue, setup and runtimes for
each component produced.
Cumulative lead time: The sum of the lead times that sequential phases of a process require
from ordering of parts or raw materials to completion of final assembly.

B. Bill of materials (BOM)

Computation of the raw material and component requirements for end products listed in the
master schedule is done by the product structure. The product structure is specified by the bill of
materials, which is a structured list of all the component parts, assemblies and subassemblies that
make up each product. A file which lists all assemblies together is the bill-of-materials file.
Product structure tree is a visual depiction of the requirement in a BOM, where all components
are listed by levels. Also a bill of material file identifies the specific materials used to make each
item and the correct quantities of each.
Level 0 Table

Level 1 Leg assembly (1) Top (1)

L 2 Short rails (2) Long rails (2) Legs (4)

Figure: product structure for product table
For example leg assembly contains two of short nails and two of long nails. The other
information contained in the bill-of-material file are the part number, child parent numbers, the
date each child is to become effective or to be removed from use in the bill (effective date
control for schedule engineering changes), dropout and yield percentages, shop floor delivery
destination, and engineering revision level.

C. Inventory records File (IRF) /Item Master File/

One of the three primary inputs in MRP is inventory record file. It includes information on the
status of each item by time period. It contains data such as the number of units on hand and on
order. It comprises the individual item inventory records containing the status data required for
the determination of net requirements. This file is kept update by the position of inventory
transactions which reflect the various inventory events taking place.

Material Requirement Planning Process

Gross requirement (GR): it is the total amount required for a particular item. These
requirements can be from external customer demand and also from demand calculated due to
manufacturing requirements. GR is the projected needs for raw materials, components,
subassemblies, or finished goods by the end of the period shown. Gross requirement comes from
the master schedule (for end items) or from the combined needs of other items. But in MRP it is
the quantity of item that will have to be disbursed, i.e. issued to support a parent order (or
orders), rather than the total quantity of the end product.

Scheduled receipts (SR): represents the orders that have already been released and that are
scheduled to arrive as of the beginning of the period. Once the paper work on an order has been
released, what was prior to that event a planned order now becomes a scheduled receipt.
Projected available balance (PAB): it is the amount of inventory that is expected as of the
beginning of a period.
This can be calculated as follows:
PABt = PABt-1 - GR t-1 + SR t-1 + POR t-1 – safety Stock
On hand or available: the expected amount of inventory that will be on hand at the beginning
of each time period.
Net requirements: is the amount needed when the projected available balance plus the schedule
receipts in a period are not sufficient to cover the gross requirements.
Planned order receipt (POR) is the amount of an order that is required to meet a net
requirement in the period. It is the quantity expected to be received by the beginning of the
period in which it is shown under lot-for-lot (lot4lot) ordering, this quantity will equal net
requirements. That is, under lot4lot ordering one can ask his supplier the exact quantity of the
item needed for a particular time. Hence, the order size may vary depending on the requirement.
Under lot-sizing ordering, this quantity may exceed net requirements. Any excess is added to
available inventory in the next time period for simplicity, although in reality, it would be
available in that period. Under lot-sizing ordering a buyer cannot vary the order size depending
on the requirements. Thus, each time equal quantity of item is ordered.

Planned order release (POR) is the planned order receipt offset by the lead time. This amount
generates GR at the next level in the assembly or production chain.
Generally, the MRP processing takes the end item requirements specified by the MPS and
“explodes” them into time phased requirements for parts, assemblies, components, and raw
materials using the BOM and IRF offset by lead time.

EXERCISE: One unit of A is made of two units of B, three units of C and two units of D. B is
composed of one units of E and two units of F. C is made of two units of F and one units of D. E
is made of two units of D. Items A, C, D and F have one week lead time; B and E have lead
times of 2 weeks. Item C has an on-hand (beginning) inventory of 15; D has on-hand inventory
of 50; all other items have zero beginning inventory. We have schedule to receive 20 units of
item E in week two; there are no other scheduled receipts.
Required
(A) Construct BOM ( product structure tree)
(B) Prepare MRP table for each item; if 20 units of A are required in week 8.

chapter 9 OPERATIONS SCHEDULING

Scheduling is the processes of determining the starting and completion times to jobs. It is the
determination of when labor, equipment and facilities are needed to produce a product or provide
a service. Scheduling is a time table for performing activities, using resources, or allocating
facilities. Generally, a schedule specifies the timing and sequence of production.

Schedule must be realistic; that is it must be capable of being achieved within the capacity
limitations of the manufacturing facilities. Scheduling should be clearly differentiated from
aggregate planning. The purpose of scheduling is to ensure that available capacity is efficiently
and effectively used to achieve the organization’s objectives. The purpose of aggregate planning
is to determine the resources (labor, equipment, space etc.) that should be acquired for
scheduling. Often several jobs might be processed at one or more work stations. Typically a
variety of tasks can be performed at each work station which make effective scheduling a must
rather than an alternative. Sequencing & loading should be considered during scheduling
activity.

Sequencing: sequencing is concerned with developing an exact order (or sequence) of job
processing. It is the determination of the order in which jobs are processed. One of the oldest
sequencing methods is the Gant chart. Gant chart is a bar chart that shows a job’s progress graphically or
compares actual against planed performance.

Loading: is the assignment of work to specific resources/ machines. It is simply the process of
assigning work to individual workers or machine. Loading can be: finite loading, infinite
loading, backward loading and forewarn (caution) loading.

Scheduling system can be either finite or infinite loading.

Loading refers to the assignment of jobs to processing (work) centers.
 Finite loading: refers to loading activities with regard to capacity. Tasks are never loaded
beyond capacity. Moreover, a finite loading approach actually schedules in detail each
resource using the setup and runtime required for each order. In this case, the system
determines exactly what will be done by each resource at every moment during the working
day. If an operation is delayed due to a part or parts shortage, the order will sit in queue and
wait until the part is available from a preceding operation.
 Infinite loading: loading activity without regard to capacity. Moreover, infinite loading
occurs when work is assigned to a work center simply based on what is needed over time. No
consideration given directly to whether sufficient capacity at the resources required to
complete the work, nor is actual sequence of the work as done by each resource in the work
center considered.
Scheduling systems can also be generated forward or backward scheduling in time.
Backward loading begins with the due date for each job and loads the processing time
requirements against each work centre by proceeding back ward in time. The purpose of back
ward loading is to calculate the capacity required in each work centre for each time period.

Forward loading begins with the present date and loads jobs forwards in time. The processing
time is accumulated against each work centre, assuming infinite capacity. The purpose of
forewarned loading is to determine the approximate completion date of each job and the capacity
required in each time period.

Objectives of scheduling
 To meet the due date
 To minimize job lateness
 To minimize the lead time or setup time
 To minimize wok-in-process inventory
 To maximize resource utilization
 To provide the best customer service possible
 Making the most efficient use of the people, equipments and facilities available to the
organization.
Scheduling in manufacturing
Scheduling in manufacturing is the process of assigning priorities to manufacturing orders and
allocating workloads to a specific work centers. Scheduling is challenging if the task variety is
high. This is a case particularly for the job shop scheduling. In the following discussion, we will
concentrate on scheduling issues for job shop production.

Job shop scheduling

For job shop production scheduling decision can be quite complex. What makes scheduling so
difficult in a job shop is the variety of jobs (customer orders) that are processed, each with
distinctive routing & processing requirement. In a pure job shop, there are several jobs to be
processed, each of which may have different routing among department or machines in the shop.
In designing a scheduling and control system for a high variety of activities, sequencing and
prioritizing should be emphasized.

Priority rules for allocating jobs to machine - sequencing

As discussed above, sequencing is prioritizing jobs that have been assigned to limited resources.
Sequencing is simple if work centers are lightly loaded and need the same processing time. But if
work centers are heavily loaded there will be longer waiting time and idle time. In this case to
minimize the waiting and idle time, we must prioritize the tasks by using priority rules.
Priority rules are the criteria by which the sequence of jobs is determined. The process of
determine which job is started first on a particular machine or work centre is known as priority
sequencing rules. Some of the most common priority rules for sequencing jobs are:
 First come, first served (FCFS): orders are run in the order that they arrive in the department
i.e. the oldest first rule.
 Shortest processing time (SPT): run the job with the shortest completion time first i.e.
shortest operating time first.
 Earliest due date first (due date): run the job with earliest due date first. Thus, a job that is
due tomorrow has a higher priority than the job that is due next week or next month.
 Critical ratio (CR): this is calculated as the difference between the due date and the current
date divided by the work remaining. Orders with the smallest CR are run first. In the CR rule,
jobs are sequenced from lowest CR to highest CR. Those with a CR less than one are
considered behind schedule and need to be expedited. And CR greater than one implies that
the job is ahead schedule and can be de-expedite.
CR = due date – today’s date = time remaining
Total shop time remaining lead time remaining
Performance measures of job shop scheduling
From the operations manager’s perspectives, identifying performance measures to be used in
selecting a schedule is important. If the overall goals of the organizations are to be achieved the
schedule should reflect managerially acceptable performance measure. The following describes
the most common performance measure used in operation schedule.
 Job flow time: refers to time a job spends in the shop. It is the sum of the moving time
between operations, waiting time for machines or work orders, process time (including set
up), and delays resulting from machine breakdowns, component unavailability and the like.
The objective here is to minimize the average flow time.
Flow time = waiting time + processing time
Average flow time = (sum of total flow time) (no of job processed)
 Make span time: refers to time to process a set of jobs. It is the total amount of time required
to complete a group of job. It is the length of time between the start of the first job in the
group and the completion of the last job in the group. The general objective is to minimize
the make span time. Generally, make span time =processing time of each job
 Tardiness (past due): refers to the amount by which completion time exceeds the due date of
a job. If a job is completed before its due date, tardiness is zero. The objective is to minimize
the number of tardy jobs.
Tardiness=  past due, & (Average tardiness = times past due total no. of jobs)
 Utilization = total processing time total flow time

SCHEDULING IN SERVICES
Scheduling is also important in service organizations. For example nurses must be scheduled in
hospital, and truck must be scheduled for deliveries for furniture distributors. One important
distinction between manufacturing and services that affects scheduling is that service operations
cannot create inventories to buffer demand uncertainties. A second distinction is that in service
operations demand often is less predictable; customers may decide on the spur of the moment
that they need a hamburger, a hair cut or a plumbing repair. Thus capacity, often in the form of
employees is crucial for service providers. In this section we discuss various ways in which
schedule systems can facilitate the capacity management of service providers.