MODULE -IV

OPERATIONS AND MATERIALS MANAGEMENT

OPERATIONS MANAGEMENT: PRINCIPLES AND TYPES OF PLANT LAYOUT
Plant Layout: A technique of locating machines, processes, and plant services within the factory to
secure the greatest possible output of high quality at the lowest possible total cost of production

Type of plant layout:

1.Product or line layout: This type of layout is developed for product-
focused systems. In this type of layout only one product, or one type of
product, is produced in a given area. In the case of a product being
assembled, this type of layout is popularly known as an assembly line
layout. The work centers are organized in a sequence of appearance.
The raw material center at one end of the line and goes from one
operation to another rapidly with a minimum of work-in-process
storage and material handling
In manufacturing engineering, a product layout refers to a production
system where the workstations and equipment are located along
the line of production, as with assembly lines. Usually, a conveyor
moves work units along the line (not necessarily a geometric line, but
a set of interconnected workstations).
2.Process or Functional layout: This type of layout is developed for
process-focused systems. The processing units are organized by
functions into departments on the assumption that certain skills and
facilities are available in each department similar types of equipment
and operations are grouped, e.g., milling, foundry, drilling, plating, heat
treatment, etc. The use of process-focused systems is very wide in both
manufacturing and other service facilities such as hospitals, large
offices, municipal services, etc.
A process layout is a type of facility layout. Organizations often use
process layouts to design floor plans and arrange equipment for
maximized efficiency. Plants with a process layout may arrange
workstations, machinery, tools, and other equipment in groups
according to the functions they perform
3.Project or Fixed position Layout: This is the layout for project-type
systems in which the major component is kept at a fixed position and
all other materials, components, tools machines, work, etc. are brought,
and assembly or fabrication is carried out. This type of layout is now
not commonly used as the machines required for manufacturing are big
and complicated. The fixed position layout is used only when it is
difficult to move the major component and fabrication is to be carried
out. Ex: production of ships.
In a fixed-position layout, the project remains in one place, and
workers and equipment come to that one work area. Examples of
this type of project are a ship, a highway, a bridge, a house, and an
operating table in a hospital operating room.

4.Cellular or group layout: It is a special type of functional layout in

which the facilities are clubbed into cells. This is suitable for systems
designed to use the concepts, principles, and approaches of „group
technology‟. Such a layout offers the advantages of mass production
with a high degree of automation even if the numbers of products are a
more flexible requirement. In such a system the facilities are grouped
into cells that can perform a similar types of functions for a group of
products
An example of a cellular office design is an open office space in which
employees are arranged in small groups, or cells, that face each
other. Employees in a cellular office layout can typically work more
independently than those in a traditional office layout.
A grouping of equipment for performing a sequence of operations
on family of similar components or products has become all the
important

5.Job Shop Layout: It is a layout for a very general flexible system

that is processing job production, The preparation of such a layout is
dependent on the analysis of the possible populations of orders and is a
relatively, complex affair.
PRINCIPLES OF PLANT LAYOUT

Principles of plant layout:

Principle of integration: The best layout is one which integrates the
men, materials, machinery, supporting activities and any other such a
factors that results in the best compromise.
Principle of minimum movement: The number of movement of
workers and materials and the distance moved should be minimized.
The materials should be transported in bulk rather than in small
amounts.
Principle of smooth and continue flow: It states that bottlenecks,
congestion points and bulk tracking should be removed by proper line
balancing techniques.
Principle of cubic space: Space of a room, it the ceiling height is
also utilized, more materials can be accommodated in the same space.
Principle of satisfaction of safety: Working places-safe, well-
ventilated and free from dust, noise fumes, odors and other hazardous
conditions, help to increase the efficiency of the workers and improve
their morale.
Principle of flexibility: It means the best layout in one which can be
adopted and rearranged at a minimum cost with least inconvenience.

METHODS OF PRODUCTION
productivity: Definition: Productivity is defined as the rate at which
the goods and services are produced. It refers to the relationship
between the inputs and the output. It is calculated as a ratio between the
amount produced and the amount of resources (land, labor, capital,
technology etc.) used in the course of production in other words.

And also defined productivity as human efforts to produce more and

more with less and fewer inputs of resources as a result of which the
benefits of production are distributed among maximum number of
people.
Method of Production:

Job production: In this system, goods are produced according to the

orders with this method, individual requirements of the consumers can
be met. Each job order stands alone and is not likely to be repeated.
This type of production has a lot of flexibility in operation and hence
general purpose machines are required. Factories adopting this type of
production, are generally small in size.
Advantages:
1. It is the only method, which can meet the individual requirement.
2. There is no managerial problem, because of the very less number of
workers, and small size of concern.
3. Such type of production requires less money and is easy to start.
Disadvantages:
1. There is no scope for continuous production and demand
2. As the purchase of raw materials is less, hence cost of raw materials
per unit will be slightly more. 3. For handling different type of jobs,
only skilled and intelligent workers are needed, thus labour cost
increases.
2. Batch production: This type of production is generally adopted in
medium size enterprises. Batch production is in between job production
and mass production. Batch production is bigger in scale than job
production. While it is smaller than that mass production, batch
production requires more machines than job production and fewer
machines than mass production.
Advantages:
1. While comparing with mass production it requires less capital
2. Compared with job production, it is more advantageous
commercially.
3. If demand for one product decrease, then production, for another
product may be increased, thus the risk of loss is very less.
Disadvantages:
1. Compared with mass production cost of scales and advertisement per
unit is more
2. Raw materials to be purchased are in less quantity than that in mass
production; therefore, it is slightly costlier than that of mass production
because less quantity discount is available.
Mass production: This method of production is used by concerns
where manufacturing is carried on continuously in anticipation of
demand though the demand for the product may not be uniform
throughout the year.
In mass production, simplification and standardization of products are
made with the help of specialized (one purpose) machines, and articles
of standardized nature can easily and economically be produced on a
large scale.
There is a small difference between mass production and continuous
production. This is mainly in the kind of product and its relation to the
plant. In mass production plants and equipment are flexible enough to
deal with other products, involving the same production process.
Whereas in continuous or process production only standardized
products in a sequence are produced. In this method layout and
requirement of additional tools and equipment.
Advantages: 1. A smooth flow of materials from one workstation to
the next in logical order.
2. Since the work from one process is fed directly into the next, small
in-process inventories result
3. Total production time per unit short
4. Simple production planning control systems are possible
5. Little skill is usually required by operations at the production line;
hence training is simple, short and inexpensive.
Disadvantages:
1. A breakdown of one machine may lead to a complete stoppage of the line that
follows the machine. Hence maintenance and repair is a challenging job.
2. Since the product dictates the layout, changes in product design may require
major changes in the layout.
3. Generally high investments are required owing to the specialized nature of the
machines and their possible duplication in the line.

Work Study: Work study is one of the most important management techniques
which is employed to improve the activities in production. The main objective of
the work-study is to assist the management in the optimum use of human and
material resources. Definition: Work study refers to the method study and work
measurement, which are used to examine human work in all its contexts by
systematically investigating all factors affecting its efficiency and economy to
bring forth the desired improvement.
BASIC PROCEDURE INVOLVED IN METHOD STUDY AND
WORK-STUDY
Method Study: Definition: The systematic recording and critical
examination of existing and proposed ways of doing work, as a means
of developing and applying easier and more effective methods and
reducing cost it is also called motion study.
A time and motion study is the analysis of the exact motions required
by a person to complete a task, as well as the time required to do
so. Once this information has been collected, the analyst devises a more
efficient approach by stripping away certain actions and replacing
others.
The main aim of this study is to eliminate unproductive and
unnecessary movements so as to ensure timely completion of work.
The main aim is to find one best method of doing the job or perform a
task.
Work Measurement:
Definition: Work measurement is the application of techniques
designed to establish time for a qualified worker to carry out a specified
job at a defined level of performance. Work study has two parts,
Method Study and Work Measurement. Method study deals with the
techniques of analyzing the way to do a given job better, Work
Measurement seeks to measure the time required to perform the job.
MATERIALS MANAGEMENT:
Definition of Materials: Materials refer to inputs into the production
process, most of which are embodied in the finished goods being
manufactured. It may be raw materials, work-in-progress, finished
goods, spare parts, and components, operating supplies such as
lubricating oil, cleaning materials, and others, required for maintenance
and repairs.
Definition of Material Management: Material management deals
with controlling and regulating the flow of materials in relation to
changes in variables like demand, prices, availability, quality, delivery
schedules, etc.
Objects of materials management:
1. Minimization of materials cost s
2. To reduce inventory for use in the production process and to develop
high inventory turnover ratios.
3. To procure materials of desired quality when required, at the lowest
possible overall cost of the country. 4. To reduce paperwork procedures
in order to minimize delays in procuring materials.
5. To note changes in market conditions and other factors affecting
the concern.
The purchase, receive, transport, store materials efficiently
7. To reduce cost, through simplification, standardization, value
analysis etc.
8. To conduct studies in new areas e.g., equality consumption and cost
of materials so as to minimize cost of product
Function of Materials Management:
1. Materials planning and programming
2. Purchasing materials inspection of materials
3. Inspection of Materials
4. Classification, codification and standardization in stores
5. Storage of materials
6. Issuing of materials
7. Maintained of proper inventory records
8. Materials receiving
 Objectives of Materials
Management Primary and
secondary
Primary Objectives:
1. Low price: If the materials department succeeds in reducing
the price of items it buys, it contributes in not only to reducing
the operating cost but also to enhancing the profits. Keeping
inventories low in relation to sales, it ensures that less capital is
tied up in inventories. This increases the efficiency with which
the capital of the company is utilized resulting in a higher return
on investment. Storage and carrying costs are also lower.
2. Reduction in Real Cost: Efficient and economical handling
of materials and storage lowers the acquisition and possession
cost resulting in a reduction in the real cost.
 3. Regular Supply: Continuity of supply of materials is
essential for eliminating the disruption in the production
process. In the absence of a regular supply of materials,
production costs go up.
4. Procurement of Quality Materials:
The materials department is responsible for ensuring quat quality
of materials from outside suppliers. Therefore, quality becomes
the single most objective in the procurement of materials.

5. Efficient handling of Materials: Effective material control

techniques help the efficient handling of materials resulting in
the lowering of production costs.

II. Secondary Objectives:

1. Reciprocity:

The purchase of raw materials from the organizations/customers by

the concern and in turn, the sale of finished products to the above
customers is known as reciprocity. It serves the twin purpose of
increasing purchasing as well as sales.

2. New Developments:
The staff of the materials department deals regularly with the
suppliers responsible for new developments in material handling.
These developments can be successfully applied in material handling
and management.

3. Make or Buy Decisions:

The material manager with regular reviews of the cost and
availability of materials can safely conclude whether the material is
to be purchased or developed in the organization itself.

4. Assistance to the Production department:

By supplying standardized materials or components to the
production department, quality products can be assured. It is helpful
in imparting economic knowledge in bringing about the desired
improvement in the product.

5. Co-operation with other departments:

Successful management of the materials department contributes to
the success of every other department in the organization. At the
same time, the success of the materials department depends on how
successful it is in getting the cooperation of the staff of the other
departments.

NEED FOR INVENTORY CONTROL:

Inventory: It is defined as a comprehensive list of movable items

which are required for manufacturing the products and maintaining the
plant facilities in working conditions.

Inventory Control: The systematic location, storage, and recording of

goods in such a way the desired degree of service can be made to the
operating shops at the minimum ultimate cost.
Objectives of Inventory Control:

To support the production departments with materials of the right

quality in the right quantity, at the right time and the right price, and
from the right supplier

2. To minimize investments in the materials by ensuring economies of

storage and ordering costs

3. To avoid the accumulation of work in the process

4. To ensure economy of costs by processing economic order quantities

5. To maintain adequate inventories at the required sales outlets to

meet the market needs promptly, thus avoiding both excessive stocks
or shortages at any given time

6. To contribute directly to the overall profitability of the enterprise

 ABC ANALYSIS

ABC Analysis: ABC analysis is a technique of controlling inventories based on their value

and quantities. It is more remembered as an analysis for „Always Better Control‟ of

inventory. Here all items of the inventory are listed in the order of descending values,
showing quantity held and their corresponding value. Then, the inventory is divided into

three categories A, B and C based on their respective values.

In materials management, ABC analysis is an inventory categorization technique. ABC

analysis divides an inventory into three categories—

"A items" with very tight control and accurate records,

"B items" with less tightly controlled and good records, and

"C items" with the simplest controls possible and minimal records.
Item A:

a) These are subjected to strict inventory control and are given highly
secured areas in terms of storage

b) These goods have a better forecast for sales

c) These are also the items that require frequent reorders on a daily or a
weekly basis

d) They are kept as a priority item and efforts are made to avoid
unavailability or stock-out of these items

Item B:

a) These items are not as important as items under section A or as trivial

as items categorized under C

b) The important thing to note is that since these items lie in between A and
C, they are monitored for potential inclusion towards category A or in a
contrary situation towards category C

Item C:

a) These items are manufactured less often and follow the policy of having
only one of its item on hand or in some cases they are reordered when a
purchase is actually made

b) Since these are low demand goods with a comparatively higher risk of
cost in terms of excessive inventory, it is an ideal situation for these items
to stock-out after each purchase
c) The questions managers find themselves dealing with when it comes to
items in category C is not how many units to keep in stock but rather
whether it is even needed to have to these items in store at all.

Economic Order Quantity (EOQ):

Economic Order Quantity (EOQ): Economic order quantity is defined that quantity of

materials, which can be ordered at one time to minimize the cost of ordering and carrying the

stocks. In other words, it refers to size of each order that keeps the total cost low.

Inventory costs: The inventory costs can be classified into two categories,
 1) Inventory ordering cost

2) Inventory carrying cost

Ordering Quantity

Inventory Ordering Costs (Co): The cost refers to the cost incurred to procure the
materials, particularly in large organizations, these costs are significant. This is also called

procurement cost.

Definition: It is the cost of placing an order from a vendor. This includes all costs incurred

from calling for a quotation to the point at which the item is taken into stock. Ex: Receiving

quotations, Processing purchase requisition, receiving materials and then inspecting them,

Following up and expediting purchase orders, Processing seller’s invoice.

Ordering cost, or inventory ordering cost, is the cost company spends to acquire
the inventory from supplier to warehouse. This cost does not include inventory
purchase price, but refers to the cost spend to transport the material from supplier’s
warehouse to our warehouse.

Inventory Carrying cost: Carrying cost which are also known as holding costs are
the costs incurred in maintaining the stores in the firm. They are based on average inventory
and consist of: Ex: Storage cost includes: Rent for storage facilities, Salary of person and

related storage expenses, Cost of insurance, Cost of capital.

Determine EOQ:

Step1:

Total Ordering cost per year = No. of orders placed per year X ordering cost per order

= (A/S) x O

A = Annual demand

S = Size of each order (units per order)

O = Ordering cost per order

Step2:

Total Carrying cost per year = Average inventory level X Carrying cost per year

= (S/2) x C

A = Annual demand

S = Size of each order (units per order)

C = Carrying cost per unit

Step3: EOQ is one where the total ordering is equal to the total carrying cost.

AS×O=S2×C

2AO = S 2 × C
S2=2AO/C

Where S is the Economic order quantity, A is the annual demand in units, O is the

ordering cost per order and C is the carrying cost per unit

EOQ PROBLEMS: Ex: A biscuit manufacturing company buys a lot bags of 10,000 bags

wheat per annum. The cost per bag is Rs.500 and ordering cost is Rs.400. The inventory

carrying cost is estimated at 10% of the price of the wheat determine EOQ and number of

orders required per year.

Solution:

Annual demand (A) = 10,000 bags

Ordering cost per order (O) = Rs.400

Carrying cost per unit (C) = 10% of Cost price

= 0.10 x 500 = Rs.50/-

EOQ =√2AO/C

2𝑋10,000𝑋400
√ /50

√16,000

EOQ = 400 bags

The number of orders to be placed during the year = ANNUALDEMAND(UNITS) /EOQ

10,000 /400 = 25 ORDERS

In the above case, the company has to place 25 orders to optimize its ordering and carrying
costs.
Purchasing: It deals with investment, overheads dealing with other
and also result in server losses mass production industries that requires
large purchasing for a continues flow of materials, demand for an
efficient purchase decision. It implies procurement of raw materials
machinery, service etc. needed for production and maintenance of the
concern. It has several benefits in terms of reduced costs, higher
inventory turnover, buying the materials at the best prices, turnover,
buying the materials at the best prices, continues supplies, reduced lead
time and so on

Purchasing process: The following are the logical steps in the

purchasing process:

1. Requisitioning purchases

2. Exploring sources of supply

3. Issuing of tenders and obtaining quotations

4. Opening of tenders and quotations and preparation of comparative

statement

5. Negotiating over the purchase price and terms of supply

6. Placing purchase order

7. Receiving of materials along with the invoice

8. Checking inward invoice

9. Inspecting and testing materials

10. Forwarding the materials to stores

11. Checking invoice and passing of bills for payments

Stores Management: It deals with planning, coordination and control

of various activities pertaining or effective efficient and economic
storage and store keeping.

Store: Generally, un worked material is known as store Storage: The

store room is the place where stores are housed

Storage: Storage is meant holding in custody all kinds of stores and

materials semiprocessed and fully processed products.

Store Keeping: It may be defined as that aspect of materials control

concerned with physical storage of goods

Stores Records:

Material requisition note: Whenever the materials are required by a

department/section, this form has to be filled in. This note provides
information about the job number, description of the items required in
terms of number. The head of the department/section should authorize
it. Whenever the materials are issued, the receiving person should sign
the note. This is to be entered in the materials issued record, which is
to be signed by the storekeeper. Purchase order: The purchasing
officer will release the purchase order. The following is the format of a
purchase order. Here, we find Vivek enterprises placing a purchase
order on Business Solutions Ltd., for the following materials. The terms
and conditions of the purchase order such as delivery, payment, and
other have to be mentioned clearly.
 Invoice: Invoice is a statement sent by the seller to the buyer
mentioning the particulars of the goods supplied, net amount payable
for the goods, and the

terms and conditions governing the sale. It is very important document

because it shows the net amount payable by the buyer after all the
discounts and the taxes, if any.

Goods received note: The goods received note furnishes the

particulars of the suppliers, purchase order number, purchase
requisition number, and the job for which the goods are received. These
details are to be certified by a competent authority. On this basis, the
accounts department initiates the process of payment for the goods
received.

Goods returned note: Sometimes, a part or whole of the goods

received may not be of acceptable quality, and hence, these have to be
returned to the supplier. In this context, the goods received note is
prepared. This is also called the „debit note‟ because the suppliers or
creditors‟ account has to be debited by the amount mentioned in this
debit note for the goods returned.

Stores ledger account: This is maintained to provide the details of the

quantity, price and amount of the receipts, issues, and balance of stocks
on a day-to-day basis. At any given time, the physical quantity of stocks
should match with the balance as per the stores ledger account. A
separate account is maintained for each type of the material in the
stores. It should necessarily mention the method such as FIFO or LIFO,
followed to value the issues of stocks. It is a valuable tool for the
costing department in exercising stores control. It facilitates the
valuation of stock from time to time.

Bin card: Bin card is the slip or tag attached to the bin where the goods
are stocked. Whenever the materials are received or issued, an entry is
made on the bin card. The purpose of bin card is to reveal the particulars
of the quantities received, issued, and available as on a given date at a
glance. Where separate bins are maintained for each item of the store,
each bin will have a tag hung to it