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CHAPTER 1CHAPTER 1
OPERATIONS MANAGEMENT
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IntroductionIntroduction Operations system:The part of an organization
that produces the organization’s physical goods or services
Inputs (4Ms)•Man•Material•Machine•Method
Conversion Process
(Value Adding)
Outputs•Goods
•Services
Comparison:Actual vs desired
Adjustments
Needed?
•Measurement
•Money (Capital)
Monitor Output
Variation: Random,Assignable
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HISTORICAL OUTLINEHISTORICAL OUTLINE Historical development of Operations Management
1776 Specialisation of Labor in manufacturing Adam Smith
1832 Division of Labor by skill, assignment of jobs by skill
Charles Babbage
1900 Scientific management Frederick W Taylor
1900 Motion study of jobs Frank B Gilbreth
1901 Scheduling of jobs, machines Henry L. Gantt
1915 Economic lot sizes for inventory control F.W.Harris
1927 Human relations: Hawthorne studies Elton Mayo
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HISTORICAL OUTLINEHISTORICAL OUTLINE Historical development of Operations Management
1931 Statistical Quality Control W.A.Shewart
1935 Inspection sampling plans H.F.Dodge and H.G.Romig
1940 Operations Research P.M.S Blacket and others
1946 Digital computer John Mauchly and J.P.Eckert
1947 Linear programming Dantzig, Orchard-Hays and others
1950 Mathematical programming, non linear and stochastic processes
Charnes, cooper, raiffa and others
1951 Commercial digital computer Univac
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HISTORICAL OUTLINEHISTORICAL OUTLINE Historical development of Operations Management
1960 Organizational behavior Cummings, Porter and others
1970 Integrating operations into overall strategy, computer applications to manufacturing, MRP
Skinner, Orlicky and Wright
1980 Quality and productivity applications from Japan, robotics, CAD/CAM, Kaizen, 5S, Quality Circles, JIT
W.E.Deming and J. Juran, Taichi Ohno, Taguchi, Ishikawa
1990-2000
TQM- practices and awards, Malcolm Baldrige, EFQM, Deming etc
ISO 9000, QS, ISO 14000, BPR
TPM
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HISTORICAL OUTLINEHISTORICAL OUTLINE Historical development of Operations Management
2000 onwards
Six SigmaISO 9001:2000ISO/TS 16949Technology ManagementERP solutions, IT applications in Operations, Supply Chain ManagementAutomation in manufacturing and servicesCustomer focus and customer orientationTime compression, flexibility in operations
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TYPES OF MODELS IN POMTYPES OF MODELS IN POM
Verbal /Written. – For example, writing directions in words, Operating
procedures
Schematic.– For example, charts, diagrams, maps
Iconic Models – scaled physical replicas of objects/ process. – For example, Building Model, Bridge model, factory
model
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TYPES OF MODELS IN POMTYPES OF MODELS IN POM Mathematical Models – show functional relationship
among variables. The mathematical model helps in working out a large number of possible outcomes in a cost effective manner and then selecting the best solution under the circumstances.– Optimisation: Algorithm for problem solving– Heuristics – a way of using rules of thumb or defined
decision procedures to attack a problem. This way we reach a satisfactory solution quickly
Uncertainty of Outcomes
Expected value = Outcome * Probability of Outcome
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ECONOMIC ANALYSIS IN ECONOMIC ANALYSIS IN OPERATIONSOPERATIONS
Opportunity Costs: Returns that are lost or foregone as a result of selecting one alternative over another
Sunk Cost: Past expenditures that are irrelevant to current decision
Salvage Value: Income from selling an asset Depreciation: An accounting procedure to recover
expenditures for an asset over its lifetime Incremental Cash flows
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ECONOMIC ANALYSIS IN ECONOMIC ANALYSIS IN OPERATIONSOPERATIONS
Life of the Asset Life Cycle Cost Time value of Money
– Present Value = Future Value/(1+i)n
Break Even Point IRR Payback Period
– Payback period = Net Investment/Net Annual Income from investment
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STRATEGIC PERSPECTIVESTRATEGIC PERSPECTIVE
Strategic Perspective
INDUSTRY
Market & Competition
ORGANIZATION STRATEGY
Profit or Return
Source of Funds
oduct, Service Quality
OPERATIONS POLICY
Product Design Flexibility
Delivery Capability
Location of Facilities
Processing technology
Control Systems
MANAGING CONVERSION OPERATIONS
Quality, Productivity/Efficiency, Schedule/Delivery
Cost, Safety, Morale
RESULTS
Business Potential
Quality,
Cost Efficiency (low product price),
Dependability (reliable, timely delivery),
Flexibility (response to changes),
Productivity,
Safety,
Morale
Time – A Critical DimensionInformation
Feedback
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Operations PyramidOperations Pyramid Operations Pyramid
PROFIT
Quality Cost Delivery
Man Machine Material Method
Elimination of Waste Visual Management
5S (5S as a Habit)
Survival of Enterprise
Target
Elements
Foundation of all Improvements
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CHAPTER 2CHAPTER 2
OPERATIONS STRATEGIES
FORCOMPETITIVE
ADVANTAGE
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Quality ConceptQuality Concept Quality is external and internal customer
satisfaction. Quality is fitness for use. Quality is making what the customer wants so as to delight
the customer. It means near 100% accuracy in the first run.First time
right and Quality first attitude. Meeting standards. No rework No complaints or reprocessing requirement from the
customer Quality means pursuing what is ideal. Not making any
compromises.
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Quality ConceptQuality Concept Two components of Quality. Product features and freedom from deficiencies are the
main determinants of customer satisfaction. Product Features
– Performance– Reliability– Durability– Ease of use– Serviceability– Aesthetics– Availability of options and expandability– Reputation
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Quality ConceptQuality Concept Two components of Quality. Freedom from deficiencies. Product free of defects and errors at delivery, during use
and during servicing Sales, billing and other business processes free of errors. Freedom from deficiencies refers to quality of
conformance. Increasing the quality of conformance results in lower costs, fewer complaints and increased customer satisfaction.
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Productivity ConceptProductivity Concept Productivity = Output/Input Productivity of: Land …. How effectively land is used and returns on the
project capital investment may depend on Location, area Building ….. How effectively space is used depends on
effectiveness of Plant Layout Plant, Machinery, Tools …. Their productivity depends on
Precision, Quality, Cycle Time, Downtime. Materials : Low productivity because of more Wastage,
rejects, poor quality, unreliable vendors
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Productivity ConceptProductivity Concept Productivity = Output/Input Productivity of: People .. Productivity goes down because of idleness,
absenteeism, rework, misfit, lack of skill/training. Partial or factoral productivity; Outputs relative to one or
more inputs are partial measures of productivity Total factor productivity is the ratio of outputs to all inputs Productivity = Outputs/(Labor+Capital+materials+Energy) Output per labor… Labor productivity. Similarly for materials, energy, machine and so forth.
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Quality ConceptQuality Concept
Relationship between Quality, Productivity and CostCommon Concepts P C Q
Q P C
Reality Q P C
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Quality ConceptQuality Concept
Productivity goes down when quality improvement is planned through 100% inspection, screening, defect etc.
When quality is built in the process itself it results in productivity improvement.
Meaningless to raise productivity when defective products are being produced.
When Quality improves, Productivity increases because Waste is eliminated. However Capability should exist (example-typist)
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Quality ConceptQuality Concept
Factors/Effect of Poor Quality Internal Failures Rejections
– At Receipt– At Source
Rework– At receipt– At line/source
Loss of Contribution through Lost Production
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Quality ConceptQuality Concept
Factors/Effect of Poor QualityInternal Failures Reduction in Value because of Downgraded
products or servicesLow customer satisfaction resulting in loss
of market shareExcess material consumption provision due
to inadequate process.
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ExerciseExercise The manager of a cola bottling plant came to work early
on Friday, and checked labor efficiency figures: Mon 102% Tue 94% Wed 87% Thurs 96 hours worked and bottled 1025 cases. Standard labor output is 12.5 cases per hour. Plot
daily efficiency and comment on the productivity values with likely reasons for high/low productivity.
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ExerciseExercise For a 12 month period last year, ABC restaurant averaged
224 customers served each day: Hours are 8a.m to 11p.m spread over two shifts, and 6 employees make up the total staff with 3 persons in each shift.Performance has been as under:
• Customers Strength
Mon 264 6 regular Tue 232 4 people full time + 2 persons for 4 hours each Wed 220 6 regular + 2 casual Thurs 200 6 regular Fri 180 5 regular ( 1 absent). Will the result please the owner? What is the trend of labor
productivity? Likely reasons for low productivity?
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CHAPTER 3CHAPTER 3
FORECASTING
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ForecastingForecasting Why Forecasting: Planning and Scheduling
Production Manpower Material Machines
Product Design Process Design Equipment/ Facilities Capacity Planning Control
Production, Inventory, Labour, Cost
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ForecastingForecasting Forecasting Horizon:
Type of Decision
Short Run
Long Run
Information Needs
Specific item demands
Aggregate demands
Strategic facilities
Present 5 years hence
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ForecastingForecasting Forecast: Using past data to determine future Prediction – subjective estimates of future, for example,
new drug for cancer. Independent demand items need forecasting. Dependent
items demand is derived from independent demand.
Time
Demand (Units)
Constant
SeasonalLinear
Characteristics of demand over time
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ForecastingForecasting
Time
Production demand (units)
High Noise
Low Noise
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Forecast ErrorForecast Error
When we evaluate different forecasting methods, we need a measure of effectiveness. Forecast error is the numeric difference of forecasted demand and actual demand. A forecast method yielding large errors is less desirable than one yielding smaller errors.
MAD – MEAN ABSOLUTE DEVIATION
A forecast error measure that is the average forecast error error without regard to direction; calculated as the sum of the absolute value of forecast error for all periods divided by the total number of periods evaluated.
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Forecast ErrorForecast Error
MAD – MEAN ABSOLUTE DEVIATION
MAD = sum of the absolute value of forecast error for all periods
Number of periods
n
= forecast errori
i=1
n
= forecasted demandi actual demandi i=1
where n is the number of periods.
n
n
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Forecast ErrorForecast Error
MAD expresses the absolute magnitude but not the direction of error .
BIAS Bias is a forecast measure that is the average of
forecast error with regard to direction and shows any tendency consistently to over- or under forecast; calculated as the sum of the actual forecast error for all periods divided by the total number of periods evaluated.
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Forecast ErrorForecast Error Bias Bias = sum of the algebraic value of forecast error for all periods
Number of periods n
= (forecast errori )
i=1 n
= (forecasted demandi actual demandi ) i=1 where n is the number of periods. Unlike MAD, Bias indicates the directional tendency of forecast errors. If
the forecast repeatedly overestimates actual demand, Bias will have a positive value; consistent underestimation will be indicated by a negative value
n
n
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ExerciseExercise
An ice cream parlour experienced the following demand for ice cream. The current forecasting procedure is to use last year’s corresponding weekly sales as this year’s forecast. Calculate MAD and Bias, and interpret results..
Week Forecasted demand (Kgs)
Actual Demand (Kgs)
March 1 210 200
March 8 235 260
March 15 225 215
March 22 270 300
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Forecasting Methods-QuantitativeForecasting Methods-Quantitative Simple Average SA = ( Di) /n Where Di =demand for period i, n= no. of periods. Simple Moving Average MA = ( Di) /m, Where Di = demand for period i, m= chosen no. of periods Weighted Moving Average WMA = Wt Dt
Where Dt = demand for period t, 0 Wt 1, and Wt =1 Exponential Smoothing Ft = Dt-1 +(1- ) Ft-1
Where t is the period and 0 1 Ft is the forecast of next period’s demand; Dt-1 is the actual
demand for most recent period; Ft-1 is the demand forecast for most recent period; is the exponential smoothing coefficient.
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Forecasting Methods-QuantitativeForecasting Methods-Quantitative
Exponential Smoothing Expanding, Ft = (1- )0 Dt-1 + (1- )1 Dt-2 + (1- )2 Dt-3
+ (1- )3 Dt-3 and so on
The weights (1- )0 , (1- )1 , (1- )2 become successively smaller and they follow the exponential curve.
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Regression AnalysisRegression Analysis A forecasting model in which from historical data,
a functional relationship is established between variables and then used to forecast dependent variable values.
Ft = a + bXt, where Ft is the forecast demand, and X is the independent variable, t is time period.
Using past demand figures Dt, the coefficients a and b are found as under:
b = [n ( Xt Dt)– ( Xt )( Dt )] [n( Xt 2)-( Xt )2
a= [ Dt –b Xt] /n
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ExerciseExercise
Demand for part no. 3710 was 200 in April, 50 in May and 150 in June. The forecast for April was 100 units. With a smoothing constant of 0.20, what is the forecast for July?
A small electronics company produces pocket calculators and records the demand monthly: Nov 45; Dec 57; Jan 60. Using 50 as the exponential smoothing forecast for Nov, and using a coefficient of 0.3, forecast Feb sales.
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ExerciseExercise Quarterly Advertising and Sales of company ABC is as
under.What is the forecast for sales for 11th quarter if advertising is expected to be Rs 11 lakhs?
Quarter Advertising (Rs 100,000) Sales (Rs million)
1 4 1
2 10 4
3 15 5
4 12 4
5 8 3
6 16 4
7 5 2
8 7 1
9 9 4
10 10 2
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Qualitative Methods in Qualitative Methods in ForecastingForecasting
Delphi Technique A qualitative forecasting technique in which a panel of experts
working separately and not meeting, arrive at a consensus through the summarizing of ideas by a skilled coordinator.
The experts with diverse backgrounds like physicist, economist, engineer, chemist may make up a panel.
The coordinator poses a question in writing to each expert on a panel. Each expert writes a brief prediction.
The coordinator brings the written predictions together, edits them, and summarises them.
On the basis of the summary, the coordinator writes a new set of questions and gives them to the experts. These are answered in writing. Again, the coordinator edits and summarises the answers, repeating the process until the coordinator is satisfied with the overall prediction synthesised from the experts.
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Qualitative Methods in Qualitative Methods in ForecastingForecasting
Nominal Grouping Technique Like the Delphi technique, the nominal group technique
involves a panel of experts. Unlike the Delphi technique, the nominal group technique affords opportunity for discussion among the experts.
Seven to ten experts are asked to sit around a table and the facilitator hands them copies of questions needing a forecast. Each expert writes down a list of ideas which the facilitator writes in a flip chart so that every one can see them. The experts give their ideas in a round robin manner.
The experts then discuss these ideas and thereafter rank the ideas in writing, according to priority. The group consensus is the mathematically derived outcome of the individual rankings.
The keys to the nominal group process are clearly identifying the question, allowing creativity, encouraging discussion, and ultimately ruling for consensus.
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Qualitative Methods in Qualitative Methods in ForecastingForecasting
Historical Data Makes analogies to the past in a judgmental manner Precursor Events What happens to product A also happens to B. What happens in developed countries happens to
developing countries with a lag. <Example> Cryogenics – low temperature science, led to
IQF technology No IQF technology in India > no frozen peas IQF used for frozen peas > this led to frozen tomatoes,
lady fingers, beans > frozen vegetables led to frozen fruits like mango pulp > frozen marine products, and so on.
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CHAPTER 4CHAPTER 4
DESIGNINGPRODUCTS, SERVICES
&PROCESSES
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DESIGNING PRODUCTS, SERVICES DESIGNING PRODUCTS, SERVICES AND PROCESSESAND PROCESSES
Product Life Cycle
Sales Volume
Start up
Rapid Growth
Maturity Decline
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DESIGNING PRODUCTS, SERVICES DESIGNING PRODUCTS, SERVICES AND PROCESSESAND PROCESSES
Product Life Cycle
Start up Rapid Growth
Maturity Decline
Product Variety
Great High Standardization
Volume Low High Volumes
Industry Structure
Small Competitors
Survivors
Form of Competition
Product Characteristics
Product Quality, Availability
Price & Dependability
Price
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DESIGNING PRODUCTS, SERVICES DESIGNING PRODUCTS, SERVICES AND PROCESSESAND PROCESSES
RESEARCH AND DEVELOPMENT
Screening
Economic Analysis
Development
Testing Commercial Use
Decay Curve Of New Product Ideas
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DESIGNING PRODUCTS, SERVICES AND DESIGNING PRODUCTS, SERVICES AND PROCESSESPROCESSES
Research and Development (R&D)– Basic Research (Knowledge oriented)– Applied Research (oriented to specific commercial use)– Development (converting research results into product)– Implementation (Pilot plant, models)
R&D Organization
Centralised Decentralised
Combination
Corporate Level
Division X Division Y
R&DCorporate Level
R&D Division X Division Y
R&D
Corporate LevelR&D
Division XDivision Y
R&DR&D
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Product Development ProcessProduct Development Process
NEEDS CONCEPT CONCEPT
Identify Product Design
DETAILED ENGINEERING
DESIGN
PRODUCTION PRODUCT PRODUCT USE
PROCESS EVALUATION AND
DESIGN & & IMPROVEMENT SUPPORT
DEVELOPMENT
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Product Development ProcessProduct Development Process
Detailed Engineering: For Product, Sub System, Components, Material, Size, Shape, etc.
Design for Function Design for Reliability Design for Maintainability Design for Safety Design for Producibility (Cost & Volumes)
Final Design Output: Drawings, Documentation, Working Prototype
Production Process Design & Development: Best Production Process Material Planning and Procurement Plan for Storage, Distribution, Transport PPC, MIS, HR Systems
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Product Development ProcessProduct Development Process
Product Evaluation: Field Performance and Failure Technical Breakthroughs in Materials and Equipment
Product Use: Educate users on Applications Warranty and Repair Service Distribute Replacement Parts Upgrade Product with Design Improvements
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Design Factors: Reliability, Modular Design Design Factors: Reliability, Modular Design and Standardisationand Standardisation
Product Reliability: Probability that product will perform as intended for prescribed lifetime under
specified operating conditions.
Wear Out Failures
Initial Use Failures
Useful Performance Life
‘A’
Failure Rate
New Product Design is concerned with ‘A’. Reliability engineering determines least height (failure rate) and greatest length (useful performance life) based on financial, technical and consumer considerations.
Data is obtained from failure rate data based on test results and field use experience.
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ReliabilityReliability Reliability of assembly of components A and B if arranged in series, that is, if one
component fails the system fails.Reliability (assembly) = P( A ) * P( B )
Reliability of components A and B if arranged in parallel, that is, the system fails only if both components fail together.Reliability (assembly) = P (A) + P (B) – P ( A B)
Failure is performance below acceptable standard Failure Rate FR (%) =(No. of failures/ No. of units tested ) X 100 FR(N) = (No. of failures/No. of units hours of operating time), where FR(N) is number of
failures during a period of time. MTBF, i.e Mean Time between failures, is a popular measure of reliability. MTBF = No. of unit hours of operating time/ No. of failures = 1/ FR(N) Higher the MTBF, better is the reliability.
Tactics for improving reliability: Improving individual components reliability through better design, better sourcing of material
(purchase) Providing of redundancy Preventive Maintenance Increasing Repair Capabilities
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ReliabilityReliability
< Exercise> A product has 3 subcomponents A, B and C.
Failure of A can cause the failure of the product. Failure of either only B or C would not cause the failure of the product. However the product fails if both B and C fail simultaneously. The probabilities of A, B and C performing successfully are 0.95, 0.85 and 0.80. What is the reliability of the system?
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ReliabilityReliability < Exercise> Relectro Corporation produces a miniature electric motor
consisting of two critical components: coil and prime circuit. Relectro promises its customers a two year motor life with a probability of 0.98. Failure of any of these components renders the motor useless.
Engineers are considering redesigning and purchasing components from new vendors X and Y. The objective is to meet the customers requirement at minimum cost.
Data collected is shown in next slide. 1. Should the motor be redesigned? Why? 2. Recommend the vendor, and compute the reliability
and cost of the solution suggested by you.
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ReliabilityReliability
< Exercise> Data collected is as under: Components with
existing designUnit cost ($) Two year failure
probability
Coil 17.00 0.01
Prime Circuit 8.50 0.03
With new design and new vendors
Vendor
X
Vendor Y
Vendor X
Vendor
Y
Coil 16 21 0.01 0.005
Prime Circuit 12 15 0.02 0.001
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MaintainabilityMaintainability Maintainability refers to the ease with which the product can be put back into service again
after a breakdown. MTTR, i.e mean time to repair, is a measure of Maintainability.
Lower the MTTR, better is the maintainability.
Tactics for improving maintainability: Fault diagnostic must be quick Search time for tools etc. must reduce Access must be easy Design should be simple so that maintenance is easy Spares should be available Circuit diagrams, drawings, manuals should be available Training of repair personnel so that repair capability is enhanced Modular repair, so that module is replaced at the user end and detail component level repair is done later Standardisation of items, spares System and procedures for maintenance Incentives and motivation for maintenance personnel
Availability = (running or operating time) / (running time + downtime)
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Modular Design and StandardisationModular Design and StandardisationModular Design : Creation of products from some combination of basic, preexisting subsystems.For example, computers (monitors, RAM, hard disk, processor, video card, sound card, keyboard, printer etc.); modular furniture which can be self assembled and build in different sizes and designs depending on need from some basic modules.
Benefits:Easy to buildEasy to maintain Stabilise designSimplified inventory controlSimplified production and material planning
Standardisation For example, screws, nuts, bolts, motors etc.
Benefits:No need to re-design : buy standardSimplify PPC, material planningReduce components production: Buy standardReduce inventory
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Ways to Organise Process FlowsWays to Organise Process FlowsProject technology Job ShopBatch ProcessAssembly line – standardised products, high volumeContinuous process
FMS: Flexible Manufacturing SystemsComputer controlled process technology suitable for producing moderate variety of products in moderate volumes.
It consists of work stations – automation and programmable
Automated material handling for moving components
Robots for loading/unloading
Computer control system (for controlling machine tools, work stations, transfer of tooling and components)
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Characteristics of Process TechnologiesCharacteristics of Process Technologies
Comparison
Characteristic Project Job Shop Batch Assembly line Continuous
A.Equipment and Layout
Size varies small moderate large Very large
Flow No pattern No pattern Semi fixed rigid Inflexible, technologically oriented
Speed varies slow moderate fast Very fast
Rate of Change Very slow Slow medium medium fast Very fast
B. Work Force
Labour Intensiveness high Very high varies low Very low
Skill high high mixed low varies
Training Needs Very high high moderate low varies
C .Material & Information Control
Material Requirement varies Difficult to predict predictable predictable Easy to predict
Scheduling uncertain uncertain More certain More certain inflexible
Information Requirements
Very high high moderate moderate low
D.Challenges Estimating
Sequencing
Estimating, Fast response,labour utilization, debottlenecking
Set up reduction, balance stages, design procedure, response to diverse needs
Productivity, line balancing, adjust staffing levels
Avoiding downtime, timing expansion, cost minimization
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Computer Integrated Manufacturing (CIM)Computer Integrated Manufacturing (CIM) CIM Components:
– Manufacturing engineeringGroup TechnologyComputer Aided ManufacturingRobotics
– Factory ProductionRobotsCNC’s (machine tools)Automated material handlingQAProcess Control
– Engineering Design : CAD (Computer Aided Design)–Information Management
Database (routine system)PPCMISDecision support systemGroup TechnologyA way of organizing and using data for components that have similar properties and
manufacturing requirements.
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Learning Curve
Applications:
1.Determine work force size
2.Production planning and scheduling
3.Evaluating effect of changes in tasks/ alternatives and problem solving
Learning CurveLearning Curve
Labour Hours
Cumulative unit
Yi = k i b
Where yi = labour hours to produce the I ith unit,
K = labour hours to produce the 1st unit
And
B = index of learning
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CHAPTER 5CHAPTER 5
OPERATIONS CAPACITY
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OPERATIONS CAPACITYOPERATIONS CAPACITY Capacity:Maximum productive capability in volume of
output per unit time. Need for capacity planning When you decide to produce more to meet customer
demand. When you decide to add a new product. When you change your product mix. Measures of Capacity
– In units of tons, numbers (of cars)– In megawatts (for power plant)– In number of seats (airlines, educational institutions, restaurant)– In number of beds (hospitals, hotels)– In cubic feet of storage space (warehouse)
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OPERATIONS CAPACITYOPERATIONS CAPACITY Capacity affects: Cost efficiency of operations Scheduling of output Cost of maintaining facility Capacity build up requires investment Conduct investment analysis ROI, IRR, Payback, Break Even point Too much capacity requires ways to reduce
capacity- such as temporarily closing, selling. Capacity and Location
– Centralised in one place – Spread over different locations
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OPERATIONS CAPACITYOPERATIONS CAPACITY Capacity build up options: Step wise increase Increase in one go
Capacity
Time period(year)
Forecast of capacity requirement
Capacity
Time period(year)
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OPERATIONS CAPACITYOPERATIONS CAPACITY Short term shortfall in Capacity :
Capacity
Planned use of short term resources (overtime, subcontract etc)
Time period(year)
DemandShortfall in capacity
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OPERATIONS CAPACITYOPERATIONS CAPACITY
Production cost related to factory’s facility capacity.
Cost per unit of output
P1- P1
P1+
P1 =optimal rate of
output
P1- = machine, labour
underutilised
P1+ = higher cost by
Overtime, inadequate maintenance, excessive congestion
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OPERATIONS CAPACITYOPERATIONS CAPACITY
Steps to Capacity Planning
1. Assessing existing capacity
2. Forecasting capacity needs1. Using forecasting methods, market analysis, product life cycle,
technology etc
3. Identifying alternate ways to modify capacity
4. Evaluating alternatives (financial, economical, technological)
5. Selecting capacity alternative most suited to achieve strategic mission
6. Decide on plan for implementation
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OPERATIONS CAPACITYOPERATIONS CAPACITY Short term strategies for modifying capacity1. Inventories
2. Backlog –order booking excess of capacity and keep an order backlog file. For example, Maruti cars; service units
3. Employment levels- hire, layoff4. Work force utilization5. Employee training6. Process design7. Subcontracting8. Maintenance
Demand<Capacity
Demand>Capacity
Capacity
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OPERATIONS CAPACITYOPERATIONS CAPACITY Exercise
Annual demand for manufacturing unit: Units demanded 8000 10000 15000 20000 Probability 0.5 0.2 0.2 0.1 Revenues are Rs 35 per unit. Existing facilities annual fixed operating cost
= Rs 200,000. Variable manufacturing cost: Output 8000 10000 15000 20000 Variable cost/unit(Rs) 7.75 5.00 5.33 7.42 An expanded facility under consideration would require Rs 250000 fixed
operating cost annually. Variable cost would be Output 8000 10000 15000 20000 Variable cost/unit(Rs) 9.4 5.2 3.8 4.9 To maximize net earnings, which size facility should be selected?
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OPERATIONS CAPACITYOPERATIONS CAPACITY Decision Tree Analysis Decision Tree A diagram used to structure and analyze a decision
problem; a systematic, sequential laying out of decision points, alternatives and chance events.
Chance event An event leading potentially to several different outcomes,
only one of which will definitely occur; the decision maker has no control over which outcome will occur.
Alternatives
Chance Event Decision point
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OPERATIONS CAPACITYOPERATIONS CAPACITY Decision Tree Analysis Decision Tree
Don’t expand
Expand
Drop sales
Same level sales
p=0.2, sales up 50%
p=0.3, sales up 20%
p=0.5, sales up 10%
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OPERATIONS CAPACITYOPERATIONS CAPACITY Steps in decision tree analysis Tree diagramming
– Identify decision points and sequence– Identify alternative decisions– Identify chance events that occur after each decision– Develop tree diagram
Estimation– Estimate probability for each possible outcome of each chance event– Estimate financial consequences of each possible outcome and decision
alternative Evaluation and Selection
– Calculate expected value of each decision alternative– Select the decision alternative offering the most attractive expected value.
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OPERATIONS CAPACITYOPERATIONS CAPACITY Exercise
Z1
a
b
c
1
Z2
Z3D3
C2 Rs 210000
D1 Rs 180000
C1 Rs 140000
D2 Rs 200000
0.4
0.5
0.3 Rs 150000
0.20.4
0.3 Rs 70000
0.3
A
BC3
0.6
Rs 200000
Rs 100000
Rs 80000
Rs 60000Analyze the above decision tree. The costs are shown at the end of branches.
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MAKE OR BUY DECISIONMAKE OR BUY DECISION Quality considerations Quantity considerations Cost considerations Service considerations (assured supply of items to
production line) Availability of technical knowhow Save investment cost Short term overloads in capacity Speed of delivery Technical and management skills of vendor
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CHAPTER 6CHAPTER 6
LOCATING PRODUCTION
AND
SERVICE FACILITIES
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Plant LocationPlant Location
Revenues and cost(fixed and variable) are affected by facility location No site will be best in both revenue and cost. Trade off is necessary. Plant Location Decision is required when:
– New project– New product– Increase in capacity required– Change in resources(like cost of labor, raw materials, supporting
resources(subcontractors) may change)– Change in demand geographically (for example, North/South, East/West);
change in location for better service– Change in political and economic conditions
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Plant Location: Facility Location Plant Location: Facility Location PlanningPlanning
Preliminary Screening to identify feasible sites Critical Factors for screening: These factors are critical,
absolutely essential for a site. If not available, then that site should be rejected. For example, electricity for aluminium smelting, fertiliser units; water for photo films, chemical processing unit; ancillary support for automobile unit.
Objective factors: measurable factors which can be quantified.For example,power tariff, wage rate, cost of land
Subjective factors: qualitative factors which cannot be measured in numerical terms. For example, industrial relations situation, quality of manpower.
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Plant Location: Facility Location Plant Location: Facility Location PlanningPlanning
Factoral Analysis List all the site related factors:
– Nearness to market– Nearness to materials– Availability of materials in quality and quantity– Availability of utilities in quality and quantity, like electricity,air,gas,water etc.– Availability of labour in numbers, skill wise and quality– Transportation facilities and cost (rail,road,port(sea),ICD (dry port)– Land availability (clear title, area, flood history, price)– Drainage– Access to road, rail head– Local and state taxes (sales tax etc)– Government incentives, subsidies for backward areas
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Plant Location: Facility Location Plant Location: Facility Location PlanningPlanning
Site related factors (contd.)– Industrial Relations situation, law and order, goondaism, strikes, go slow– Work culture– Productivity of work force– Housing– Bankers– Social amenities-school,education,clubs,entertainment,medical facility– Community-trade and business,local market,associations– Availability and quality of professional manpower– Site feasibility-foe example, no high tension power line overhead, no religious
monument, no forest or protected area, no infringement of state/municipal/local authority bye-laws, agricultural land which cannot be converted to industrial use, problems in environment clearance etc.
81
Plant Location: Measures/Models for Plant Location: Measures/Models for Evaluation/AnalysisEvaluation/Analysis
Factoral Analysis LMi = CFM i * ( X * OFM i + (1- X) * SFM i)
Where LMi is the location measure index
CFM i is the critical measure for site i (CFM i = 0 or 1)
OFM i is the objective factor measure for site i (0 OFM i 1 , OFM i = 1
SFM i is the subjective factor measure for site i (0 SFM i =1, SFM i=1
X = objective factor decision weight ( 0 X 1)
(determined by mangement Committee, past data, Delphi method, etc)
Site with largest LMi is selected
Break Even Analysis (Effect of location on cost and revenues) Lower the BEP, better is the location
Vbe = (Fixed cost) / (Sales per unit – Variable cost per unit)
82
Plant Location: Measures/Models for Plant Location: Measures/Models for Evaluation/AnalysisEvaluation/Analysis
Simple Median Model Minimise Total Transportation Cost = C i Li Di
Where Li is the number of loads to be shipped between facility F i and the new plant
C i is the cost to move a load one distance unit from or to F i
Di is the distance units between facility F i and the new plant
= |x0 - xi | + | y0 - yi |
assuming loads movement on rectangular paths
Linear programming – Transportation problem A special LP formulation for determining how sources should ship resources to destinations so that
the total shipping costs are minimised.
Min TC = CijXij
Xij = number of resource units allocated from i to j
Cij is the cost of allocating one unit of resource from source i to destination j
83
Plant Location: ExercisePlant Location: Exercise Factoral Analysis: Exercise- Which is the best site?
Factor Weight %
Possible Sites(Points Allocated)
Noida Gurgaon Alwar Bhopal Baroda
Market 15 8 8 6 7 7
Sourcing Materials
10 8 8 5 6 8
Manpower Availability
10 9 9 5 6 8
Infrastructure 10 8 8 5 8 8
Labour problems
15 4 6 7 8 9
Cost of land 12 7 6 10 8 6
Cost of utilities
10 5 5 6 6 6
Freight cost 18 6 6 6 6 6
84
Plant Location: Measures/Models for Plant Location: Measures/Models for Evaluation/AnalysisEvaluation/Analysis
Break Even Analysis-Exercise-Find the best site
Site A Site B Site C
Selling Price per unit Rs 50 Rs 50 Rs 50
Fixed cost Rs 100,000 Rs 120,000 Rs 150,000
Variable cost per unit Rs 30 Rs 20 Rs 25
85
Plant Location: Measures/Models for Plant Location: Measures/Models for Evaluation/AnalysisEvaluation/Analysis
Median Model: Exercise Raw material supplies from F1 and F2 Finished goods to F3 and F4. Find location of new plant. Data is as under:
Existing Facility Loads Li Cost Ci Xi, Yi
F1 755 1 20, 30
F2 900 1 10, 40
F3 450 1 30, 50
F4 500 1 40, 60
86
Plant Location: Measures/Models for Plant Location: Measures/Models for Evaluation/AnalysisEvaluation/Analysis
Median Model: Exercise A site is sought for a temporary plant to supply cement to
three existing construction sites A, B and C. Find location of temporary plant. What total shipping cost
will result? Data is as under: Ci is cost to move one load one km.
Existing Facility Loads Li Cost Ci Xi, Yi (km)
A 22 10 20, 10
B 43 10 10, 40
C 36 10 40, 20
87
Plant Location: Measures/Models for Plant Location: Measures/Models for Evaluation/AnalysisEvaluation/Analysis
Median Model: Exercise Find best location for a dairy processing center and
compute total cost. Transportation cost Rs 5 per km per 100 kgs..
Location Milk produced (in 100,000 Kgs)
Xi, Yi (km)
L1 200 20, 0
L2 300 0, 400
L3 800 140, 20
L4 200 360, 80
88
Plant Location: Measures/Models for Plant Location: Measures/Models for Evaluation/AnalysisEvaluation/Analysis
Median Model: Exercise Bubble Breweries has 2 distribution warehouses
on Bombay-Goa Highway. Warehouse A located at KM Zero, receives 3000 standard beer shipments annually from brewery.Warehouse B located at KM 1200 receives 1000 standard shipments annually from the brewery. What should be the best brewery location for minimizing annual transportation costs to warehouses?.
89
CHAPTER 7CHAPTER 7
LAYOUT
PLANNING
90
Plant LayoutPlant Layout Layout is physical location of departments, work centers,
equipments, in the conversion process; spatial arrangement of physical resources including utilities like piping, wiring, cabling, etc.
Layout has to be designed tailor made to operations, broadly categorised as:
– Intermittent operations : made to order, batch, low volume, labor intensive products, having more variety in product mix, using general purpose equipments, interrupted product flow and frequent schedule changes
– Continuous operations: standardised, high volume, capital intensive products, produce to stock/keep inventory, small variety product mix, special purpose equipment, and continuous product flow
91
Principles of Good Plant LayoutPrinciples of Good Plant Layout
Moving shortest possible distance (minimum man-hours/cost in man/material movement, high transportation efficiency); avoid backtracking
Adequate open space- for operators, materials, safe places, storage, work in progress, aisles, etc.; avoid congestion
Efficient space utilization Smooth production flow, follow the manufacturing process Flexibility for expansion Easy to manage/supervise Safety Environment, pollution control, effluent disposal Health Hygiene, illumination, ventilation Fulfillment of statutory requirements
92
Types of Plant LayoutTypes of Plant Layout
Process Oriented or Functional Layout: equipments are grouped together according to functional type
Product oriented or Line Layout : equipments are in line to provide a specialised sequence of tasks
Fixed layout: the arrangement of facilities so that product stays in one location: tools, equipments, workers are brought to it as needed (for example, ships, aircrafts)
Combination layout (product + process) Cellular layout: arrangement of facilities so that equipment
used to make similar parts or families of parts is grouped together
93
Types of Plant LayoutTypes of Plant Layout
Process Oriented or Functional LayoutAutomatics Milling Drills
Lathes Planers Heat treatment Shop
Inspection Grinders Assembly
Recei-
ving
Raw Material Store
Finished Goods Store
Shipping to customer
Suppliers
94
Types of Plant LayoutTypes of Plant Layout Product or Line Layout
Receipt
AB S
hip
CPart Line ‘C’
Fabrication Line ‘B’
Line ‘A’
Final Assembly Line
95
Cellular Plant LayoutCellular Plant Layout
Process Layout
A A
A
B
A
C C
D
B D
D
E
96
Cellular Plant LayoutCellular Plant Layout
Cellular Layout
A B
C
C
D
D
EA
97
Cellular Plant LayoutCellular Plant LayoutAdvantages
– Lower Work In Progress– Reduced Material Handling Cost– Shorter flow time in production– Fewer toolings, set up changes– Simplified planning (material, labor)– Overall cost is low, quality is better and delivery period is shorter
Disadvantages– Reduces flexibility– Reduces machine productivity as machines dedicated to cells may
not be used all the time
98
Comparison of Different Types of Plant LayoutComparison of Different Types of Plant LayoutLayout
Product Process Fixed
Product Standard,large volume,stable rate of output
Diversified product, varying volume
Made to order, low volume
Work Flow Sequential/linear, for each unit the same sequence
Variable flow. Different sequence
No flow. Equipment, men, brought to site
Human Skills Routine/repetitive Adaptable high skills High skills, flexibility
Production Planning and Control
Easy Complex Complex
Material Handling Automated Duplicate handling General equipment, heavy duty
Inventory Medium raw material and WIP
High raw material and WIP High inventories
Space Utilization Efficient Medium Medium
Capital Requirement Large specialised equipment General purpose General purpose, mobile
Product Cost High fixed cost but low unit cost
Low fixed cost but high unit cost
Low fixed cost but high unit cost
Behavioral Job dissatisfaction, routine, absenteeism, employee turnover
Managers skilled in inter group coordination
Managers skilled in project management
99
Shapes of Plant LayoutShapes of Plant Layout
Shape of Layout– Straight line– Oval shape, Circular– Zig Zag, S shape, L shape– U shape
Problem with straight line layout is that when the line becomes too long, then trouble in component supply and controlling line. Also when jigs must be returned to first stage of production.
Developing Layouts:– Use of templates: 2D cutouts of equipments,man etc– Load distance model
100
Shapes of Plant LayoutShapes of Plant Layout
Load Distance Model n n
Minimise cost C = ( Lij Dij)k
i=1 j=1
n=number of work centers
Lij = number of loads between work centers i and j
Dij = distance between work center i and j
K= cost to move load one distance unit
Computer Model –CRAFT: Computerised Relative Allocation of Facilities Techniques
101
Travel ChartTravel Chart
For material movement analysis, for relationship among activities. This helps in plant layout.
Example:
Casting Drilling Machining Welding Inspection Total
Casting 5 8 2 8 23
Drilling 2 8 10
Machining 3 2 5 10
Welding 6 6
Inspection
Total 8 10 4 27 49
49
102
Material Handling SystemMaterial Handling System
Principles of Material handling:
• Minimum Handling• Minimum movement time and distance• Move materials in lots than individual units• Use gravity• Avoid rehandling or backtracking of materials• Select proper material handling equipment for safety, efficiency,
flexibility• Design of container, pallet, drums to be economical and reduce transit
damages• Safety• Should not interfere with production flow• Standby against power failure• Proper maintenance
103
Material Handling SystemMaterial Handling System
Types of Material handling equipments:• Purpose
Lifting (crane, jib crane) Holding (gantry crane) Dropping Loading, unloading Positioning Moving Stacking etc
• Types Cranes Belt conveyors Roller conveyors Bucket conveyors Chutes Trucks,tractors,trailors Fork lifts, pallet trucks Trolleys Ropeways rails
104
Templates for LayoutTemplates for Layout
Use of templates, String Diagram
105
Templates for LayoutTemplates for Layout
Three Dimensional blocks
F
106
Modelling Product LayoutModelling Product Layout• Heuristic:A procedure in which a set of rules is
systematically applied-an algorithm Is capacity adequate?• Bottleneck operation- longest task time.• Cycle time- time elapsing between completed units
coming off an assembly line• Maximum daily output = Available Time/Cycle time
per unit• <Example> Flow line for making aluminum windows
1 2 3 4 5 6
A B C D E F G H
Stations
Tasks
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Modelling Product LayoutModelling Product Layout
Desired Minimum Daily Output Capacity-320 windows (8 hours working per day)Work Station
Preceding Work Station
Tasks Assigned Prede-cessor
Task Time (secs)
1 - A: Assemble frame None 70
2 1 B:Instal Rubber Moulding A 80
3 2 C:Insert frame screws
D;Instal frame latch
A
A
40
20
4 3 E:Instal frame handle
F:Instal Glass Pane
A
B,C
40
30
5 4 G:Cover frame screws C 50
6 5 H: Pack window frame unit
D,E,F,G 50
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Modelling Product LayoutModelling Product Layout
Longest time is at Station 2- 80 secs – bottleneck operation
Cycle time is 80 secsOutput = 8hrsX 60X 60/80 = 360 unitsRequired is 320 units daily. So capacity is
adequate. Is sequence of tasks feasible? Yes, it is, as the precedence requirements are
maintained.
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Modelling Product LayoutModelling Product Layout
Is the line efficient? Calculate idleness of man and machine. Idle time will
increase cost which ultimately may make the unit non competitive.
Balancing the Line Line balancing problem is assigning tasks among workers
in the assembly line stations so that performance times are made as equal as possible.
Longest Operation Time (LOT) Rule: A line balancing heuristic that gives top assignment priority to the task that has longest operation time.
110
Modelling Product LayoutModelling Product Layout
Balancing the Line: Six Steps 1. Define tasks 2. Identify precedence relationships 3. Calculate minimum number of stations required
to produce desired output 4. Apply the LOT rule to assign tasks to each
station 5. Evaluate effectiveness and efficiency 6. Seek further improvement
111
Modelling Product LayoutModelling Product Layout
Balancing the Line: Window frame assembly example Find minimum number of stations: Min. no.stations = Total processing time/Cycle time Time required = sum of total time of tasks= Sum of time
for A to H tasks= 380 seconds If cycle time is 90 secs, minimum no. of stations= 380/90=
4.22 I.e 5 stations. If cycle time is 80 secs, no. of stations = 380/80 =5 Actual layout may need more because of precedence
requirements. Initial layout uses 6 work stations.
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Modelling Product LayoutModelling Product Layout Balancing the Line: Window frame assembly example LOT 1: assign first the task that takes the most time
to the first station. Maintain precedence requirements.
LOT 2: After assigning a task, determine how much time the station has left to contribute (Time minus Task Times)
LOT 3: If the station can contribute more time, assign it a task requiring as much time as possible. Maintain precedence relationship. Else return to LOT 1 and continue until all the tasks have been assigned to stations.
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Modelling Product LayoutModelling Product Layout
Balancing the Line: Window frame assembly example
Solution for 90 sec cycle time:5 work stations: AD B CG EF HEfficiency=(380/450) * 100 = 84.4%Initial 6 work stations, efficiency was
(380/540)*100= 70.4 %.Find the solution for 80 second cycle time.
114
CHAPTER 8CHAPTER 8
JOB DESIGN, PRODUCTION AND
OPERATIONS STANDARDS, AND
WORK MEASUREMENT
115
Job DesignJob Design
Concept Task or Activity. Example:Tighten nut
Job,that is,group of tasks.Example:Repetitive tightening of nut and placing assembly on tray constitutes a job in motor assembly
Department,that is,group of jobs.Example:motor assembly department
Function of an organization.Example: motor assembly is the production function of an organization that finances, markets and produces washing machines
116
Job DesignJob Design
In job design, method analysis is used,that is,establishing the proper method for getting the job done.
After establishing method and standardising it, work measurement is done.
Doing work measurement without method study, and then redesigning constitutes wasted effort.
117
Job DesignJob Design
Job Design follows planning and design of product, process and equipment. It involves activities that specify the content of each job and determine how work is distributed within the organization.It also takes into account the skill set and specialization of labor.
Method Analysis Aids– Operation chart-graphic tool to analyse and time elementary
motions of LH and RH(example:Reach, Grasp, Lift, Position, Release) in performing routine, repetitive, short cycle tasks
– Activity Chart: man machine chart, to identify idle time, analyse and time actions of worker and machine
– Flow process charts: to analyse and categorise interstation activities so that the flow of the product throughout the overall production process is represented
118
Job DesignJob Design Operation Chart (Two Hand Operation Chart):Assemble
nut and bolt.Can you improve the situation? <Existing Situation>
Left Hand Right Hand
Reach for nut Idle D
Grasp nut O Idle D
Move towards bolt Idle D
Hold nut Reach for bolt
Hold nut Grasp bolt O
Hold nut Move towards nut
Hold nut Hold bolt
Assemble nut and bolt O Hold assembly
Idle D Inspect
Idle D Release assembly
119
Man Machine
Unload job Idle
Clean job Idle
Clean machine Idle
Inspect job Idle
Put aside job Idle
Pick new job Idle
Load job Idle
Start machine Idle
Idle Machine running
Man Machine Activity Chart
Time(Cum.)
1
3
4
14
15
16
17.8
18
30
<Example: Machining a casting>Not drawn to scale. Can you improve the situation? Time is in mins.
Working
Idle
% working
M/C 40
Man 60
Total cycle time 30 mins
120
Flow Chart
R.M Store
Cut O
Machining O
O Weld
O Paint O Fabricate
F.G Stores
D
D
D
D
121
Job DesignJob Design
Symbols used in charting: point of origination O Operation Storage Transportation Inspection D Delay Principles of Motion Economy Use the human body the way it works best
– Use natural rhythm of movement– Symmetrical movement and opposite movement of arms starting and ending at
same time– Neither hand should be idle– Eye contacts should be few and grouped together– Minimise number of motions– Minimise degree of precision and control
122
Job DesignJob Design Principles of Motion Economy Arrange the workplace to assist performance
– Definite place for all tools and materials– Tools,materials located close to point of use
Use mechanical devices to reduce human effort– Vises and clamps to hold work precisely– Guides to assist in positioning work without close operator attention– Controls and foot operated devices can relieve hands of work
Use gravity Work Study
– Method Study– Work Measurement
Work Study: Examination of work systematically investigating factors which affect efficiency in order to effect improvement.
123
Job DesignJob Design
Method Study 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 costs.
Critical Examination Questioning technique of ‘Make Ready’, ‘Do’, ‘Put Away’ activities.
One should ask a series of primary and secondary questions Purpose What is done? Why? Eliminate unnecessary parts
– What Else? What should?
Place Where is it done? Why? Combine wherever possible– Where else?Where should?
Sequence When is it done? Why? Rearrange/change sequence– When else?When it should?
Person Who is doing? Why? Simplify the operation– Who else? Who should?
Means How is it done? Why?– How else?How should it be done?
124
Job DesignJob Design
Work Measurement Work Measurement is the application of techniques designed to establish time
for a qualified worker to carry out a specified job at a designed level of performance.
Techniques:– Time Study– Work Sampling– Synthesis from standard data– Pre-determined motion time systems
Time Study– Selecting job:new job,change material or method,incentive,plant
utilisation/bottleneck operation study, excessive cost– Qualified representative worker:has physical attributes, intelligence,education,skill
and knowledge to carry work to satisfactory standards of safety,quality,quantity– Obtaining, recording all information about job, operator, surrounding conditions.– Checking method– Breaking job into elements– Timing– Rating
125
Job DesignJob Design
From Time Study to Standard Time Time study requires a study board, time study sheet and time
measuring device. Time can be measured using Stop Watch method and Video Camera method.
Stop watch method can use snap back method and continuous time method
Observed Time OT Normal Time (NT) = OT X Rating Standard Time = NT + Allowances Allowances: Male Female Constant: Personal needs 5% 7%
Basic Fatigue 4% 4%
126
Job DesignJob Design
From Time Study to Standard Time Allowances: Male Female Variable additions to basic fatigue allowance
– Standing 2% 4%– Abnormal position(bending/lying) varies 0~7%– Weight/force (eg. 10Kg) 3% 4%
varies 0~18%
– Light conditions varies 0~5%– Air conditions varies 0~15%– Visual strain varies 0~5%
– Aural strain varies 0~5%– Mental strain varies 1~8%– Monotony mental varies 0~4%– Monotony physical varies 0~5%– Special allowances
Start up Shut down Set up Tool change
127
Job DesignJob Design
Work Sampling Work Sampling is a technique in which a large number of instantaneous
observations are made over a period of time of a group of machines, processes or workers.
S*p = 2 * p(1-p)/N
where S is the accuracy, N is the number of observations, p is the percentage working or idle time, and confidence level is 95.4%.
Predetermine Motion Time Systems (PMTS). This is used to build up standard time for manual work, based on time standards available for basic human motions.One of the techniques under PMTS is Method Time Measurement (MTM). MTM analyses basic human motions and measures time in TMU (Time measurement unit: 1 TMU = 0.0006 mins or 0.00001 hrs)
No. of observations Total %
Machine Running 5 62
Machine stopped 3 38
128
Job DesignJob Design
Procedure of Work Study
Basic Step Method Study Work Measurement
1 Select jobs for study
2 Record
Various charts, Diagrams, Movement analysis
3 Examine (critical examination, 5W1H)
4 Develop
5 Measure(stop watch, PMTS,Work sampling, etc.)
6 Define
7 Instal
8 Maintain
9 Charts: Operation Process Chart/Outline process chart
Flow Process chart
Two Handed process charts
Multple Activity Chart
Travel chart, flow Diagram, String Diagram
129
CHAPTER 10CHAPTER 10
SCHEDULING SYSTEMS AND AGGREGATE
PLANNING FOR PRODUCTION AND
SERVICES
130
Production Planning and ControlProduction Planning and Control
PPC concerns with volume and timing of outputs; matching of resources namely materials, manpower and equipments to meet desired output as per schedule; utilization of operations capacity to the maximum and balancing outputs with capacity; maintaining cost effectiveness and meeting customer’s schedule deadlines.
PPC is planning production, fixing route/sequence, scheduling (start and end timings) and follow up.
Planning function includes planning, loading, routing, scheduling, process planning, material planning, tool planning, demand forecasting, inventory planning
Control function includes coordinating entire production, sales, stores, link to all functions, progressing, follow up, expediting, material control, inventory control, ensuring production targets, delivery deadlines, capacity utilization.
131
Production Planning and ControlProduction Planning and Control Coverage of PPC
Business Plan
Aggregate Output Planning
Output Planning
Capacity Planning
Aggregate Capacity Planning
Master Production Scheduling
Rough cut capacity planning
Material Requirement Planning
Detailed capacity planning
Loading
Sequencing
Detailed scheduling
Expediting
Shop floor control
Short term capacity control
132
Production Planning and ControlProduction Planning and Control Business Plan:Overall business level for next 12 months
expressed in money value for various product groups Product group:set of products that share common blocks of
capacity in manufacturing process Aggregate production output planning: determines demand
side of firm’s activities, output levels of product groups on weekly/monthly basis, to support business plan
Aggregate capacity planning:process of testing feasibility of aggregate output plans and evaluating overall capacity utilization.
Capacity and Output must be in balance
133
Production Planning and ControlProduction Planning and Control Master production Schedule: shows week by week how many of each
product must be produced according to customer orders and demand forecasts. This is a more detailed level of planning and disaggregates the product groups into individual products.
Rough cut capacity planning (also called resource requirements planning) is process of testing feasibility of MPS in terms of capacity. To check if MPS causes overload of any work center/machine/deptt making MPS unworkable. Check generally applied to bottleneck facilities.
MRP shows time phased requirements for releasing materials and receiving materials for implementing MPS.
Shop floor control: coordinates weekly and daily activities that get jobs done
Loading: the cumulative amount of work currently assigned to a work center for future processing
134
Production Planning and ControlProduction Planning and Control Routing: the processing steps of stages needed to create a
product or do a job Sequencing:this stage establishes priorities for jobs in
queues (waiting lines) at work centers Detailed scheduling: determines start times, finish times,
for all jobs at each work center Expediting: tracking a job’s progress and taking special
actions to move it through the facility
PPC
I.E
Production
Maintenance
H.RDistribution/Despatch
Marketing
Quality StoresPurchase Material Planning
Utilities
135
Production Planning and ControlProduction Planning and Control
Aggregate Production Scheduling
Time
Cumulative Demand
Cumulative Demand
Alternative 1
Alternative 2
Alternative1: constant production rate; constant work force.Results in inventory build up during lean period which feeds demand during peak period.Benefit is no shortage, demand met.Demerit is inventory build up.
Alternative 2: producing as per demand.No inventory cost.Demand met.Cost of adjusting work force.
Output of aggregate planning is to develop master schedule which describes no. of units to be produced and work force levels in each period.
136
Production Planning and ControlProduction Planning and Control
PPC in mass production: assembly line should not stop; line should run balanced.
PPC in batch production: decision on lot/batch size; reduction of set up time; control of WIP
PPC in job shop: sequencing, process planning, machine and manpower loading. Most challenging.
PPC prepares the Route card, job card or Work Order, process planning, make or buy decisions, material planning based on BOM and MPS, and specifies the machine/processing time, operation to be done in which machine and in what sequence.
137
Production Planning and ControlProduction Planning and Control
Operation and Route Sheet/Card
Ref. OPERATION AND ROUTE SHEET Date
Component/Job. No. Drawing No.
Name of Job Quantity
Material Delivery by
Routing Operation Tools Accessories
Set up time
Operation Time
Total time
138
Production Planning and ControlProduction Planning and Control Line of Balance
– Used to study progress of jobs at regular intervals, to compare actual progress versus plan and to take countermeasures where progress is tardy, to meet the delivery commitments
Scheduling– External factors affecting scheduling
Customer demand Delivery requirements Inventory with dealers
– Internal factors Stock of finished goods Total processing time Availability of material Availability of capacity(machines, manpower) Economical lot size Subcontractors available
139
Fabricate Final Assembly Test
ShipAssemble
Assemble
10 9 8 7 6 5 4 3 2 1 0Lead Time
Stages I II III IV V VI VII
Process Plan
Line of Balance
Cumulative production
Months Progress steps
Cumulative production
Review period
140
Production Planning and ControlProduction Planning and Control Scheduling procedure From aggregate plan, master schedule is prepared. This gives overall schedule Detailed schedules for each day and for each hour are also prepared for each
facility. Scheduling charts
Gantt chart
Section Week 1 Week 2 Week 3 Week 4
A
B
C
141
Production Planning and ControlProduction Planning and Control
Some sequencing rules (for setting priority of job processing)– First come first served basis– Earliest due date– Shortest processing time– Least slack (slack is defined as the difference of length of time remaining from due
date and length of its operation time)
Waiting jobs in FCFS sequence
Processing time (days)
Flow time (days)
Due date(in days from now)
A 4 4 6
B 17 21 20
C 14 35 18
D 9 44 12
E 11 55 12
Exercise:draw Gantt chart for schedule.
142
Production Planning and ControlProduction Planning and Control
For the previous situation, find: Total completion time Average flow time (flow time is processing time + waiting
time). This would be sum of flow times of all jobs divided by number of jobs.
Average number of jobs in the system each day (waiting or being processed)
Average job lateness Then find the same parameters and draw the Gantt chart
for sequencing using shortest processing time rule and compare the two rules
143
Production Planning and ControlProduction Planning and Control
Next Best Rule A priority rule that gives top priority to the waiting job
whose set up cost is least Exercise (matrix of set up cost is given: find the best
schedule)
Predecessor job
Successor Job
A B C D E
A 0 29 20 18 24
B 0 0 14 19 15
C 0 35 0 37 26
D 0 15 10 0 10
E 0 18 16 40 0
144
Production Planning and ControlProduction Planning and Control Processing n Jobs through 2 machines (S.M.Johnson rule) Select the shortest processing time job. If it lies in the first machine, schedule
it first. If in the second machine, schedule it last. Continue the process till all the jobs are covered. Then draw the Gantt chart showing the schedule and idle time in the two
machines Exercise: schedule the jobs below to get the least idle time and minimum
completion time.Each job is processed in order A first and then B
Job Machine A (hours) Machine B (hours)
1 5 2
2 1 6
3 9 7
4 3 8
5 10 4
145
CHAPTER 12CHAPTER 12
INVENTORY
146
Inventory ControlInventory Control Why Inventory? To meet random demand variations, seasonal demand. Maintain smooth production flow Decouple operations- create buffer Prevent stockouts (missed delivery, lost sales, dissatisfied
customer, production loss) Prevent overstock (blocked capital, opportunity loss) Take benefit of bulk purchase, and economic lot sizes (for
both production and purchase) Take advantage against price increase Better service to customers, provide more variety
147
Inventory ControlInventory Control Inventory Model
Safety Stock
Max Demand Usage
Average UsageRe-order Point
Reorder levelQ
Lead TimeReorder point depends on:
•Usage during lead time
•Safety stock
Consumption
Production
Inventory
Time
Q
148
Total Cost
Cost
Quantity Q
EOQ
Inventory Carrying Cost= (Q/2) *I *c
Ordering Cost=(R/Q) * Co
R=Annual demand/Requirement, c = unit cost in Rs, I= annual inventory carrying cost in percentage of total cost, Co = cost per order
EOQ = SQRT(2RCo/Ic)Total minimum cost = (EOQ/2)*I*c + (R/EOQ)*Co +c*R
149
Inventory ControlInventory Control Ordering cost CoOrdering cost Co comprises of: Purchasing department expenses, receiving expenses, billing
expenses, inspection expenses, follow up, secretarial etc. Find the total of such expenses, divide by the number of
orders handled during a year and get the value of Co. Carrying cost (I)Carrying cost (I) comprises of: Stores management expenses, interest on blocked capital,
insurance, obsolescence, pilferage, material handling, stores rentals etc.
Find the total of such expenses, divide by the average inventory during the year and get the value of I as a percentage of average inventory investment.
150
Exercise: Inventory ControlExercise: Inventory Control Problem 1 Item A annual consumption: 730 units Ordering cost Rs 150 Carrying cost: 30% of average inventory investment Unit cost: Rs 120 Delivery lead time: 5 days Find the optimal ordering quantity and reorder point. In case a discount of 5% is offered if the order quantity is
150 units or more, what will be your purchase quantity decision?
(Take 365 days in a year for calculations.)
151
Exercise: Inventory ControlExercise: Inventory Control Problem 2 Item A annual demand: 200 units Cost of placing order Rs 240 Inventory Carrying charge: 20% Price upto 49 units: Rs 290 Price 50 to 99 units: Rs 285 Price 100 or more units: Rs 280 Determine the optimal ordering quantity and total cost.
152
Selective Inventory ControlSelective Inventory Control Prioritising items; separating the vital few from the trivial
many, using the Pareto principle.Few items (about20%) responsible for about 80% of the problems.
1. ABC Analysis:based on annual consumption value in money terms.
2. VED Analysis: for maintenance spares and other similar items classified according to their importance ranked as Vital, Essential and Desirable.
3. SDE Analysis: from procurement angle. Ranking items as Scarce, Difficult and Easy to obtain.
4. FSN or FSD Analysis: based on material movement/rate of consumption. Priritised as fast, Slow and Non Moving items or Dead items. Used to clear inventory of deadwood.
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Selective Inventory ControlSelective Inventory Control ABC Analysis
Cumulative Percentage of Items
Cumulative Consumption Value in Percentage
20 40 100
A
BC
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ABC ANALYSISABC ANALYSIS Managerial Intervention
A Items B Items C Items
Strict physical control Moderate control Loose control
Very low stock levels including safety stock (1 day to a week)
Low stocks ( 1 to 3 months)
High stocks: > 3 months
Very frequent ordering (daily/ weekly)
Maybe once in one to three months
More than three months
Strong MIS-daily/ weekly control reports.
Hourly control, follow up and expediting
Monthly reports.
Periodic follow up.
Quarterly reports.
Follow up in exceptional cases.
Vendor development critical
Moderate Not critical
Management control by senior executives
Middle level Lower level
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Stores SystemStores System ReceiptReceipt MRN or GRN or GIN or MIN (Material receipt) Rejection memo note Material excess short supply note Arrange QC check Insurance claims StockingStocking Storage system- identification, coding, racks, facilities etc Storage method- closed store, open store Storage keeping – single bin, double bin Storage protection- against theft, damage, pilferage, deterioration
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Stores SystemStores System IssueIssue In-house Outside suppliers Store AccountingStore Accounting LIFO FIFO Weighted Average Stock verificationStock verification Bin card balance with physical quantity Inventory controlInventory control Stock levels, reorder levels Selective inventory control Minimize cost
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Stores SystemStores System Initiate purchasing to avoid stockouts Optimal utilization of storage space Record keeping – incoming material, outgoing material Reporting – high stocks, discrepancies, excess consumption Housekeeping, cleanliness and orderliness to reduce search
and retrieval time
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PurchasingPurchasing Items of PurchasingItems of Purchasing: Raw Materials, components, consumable stores and
supplies,office supplies, spares, tools, machines and equipments. Objectives of Purchasing:Objectives of Purchasing: To procure materials at minimum cost To ensure continuous flow of production To develop sources of supply To maintain good buyer seller relationship Business ethics Purchasing principlesPurchasing principles Right quality, Right Quantity, Right Place, Right Source, Right Price,
Right Delivery(Time)
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PurchasingPurchasing Purchase ProcedurePurchase Procedure Recognition of need of the user: purchase requisition or
indent; bill of materials. This is the starting point of purchase.
Selection of supplier
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CHAPTER 14CHAPTER 14
MATERIAL REQUIREMENTS
PLANNING
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Materials ManagementMaterials Management IMPORTANCE OF MATERIALS MANAGEMENT Sales Rs 10 million
Materials Rs 6 millionLabour Rs 1 millionOverheads Rs 2 million
Profits Rs 1 million If one is given the responsibility to increase profits by 30% i.e. by Rs
0.3 million, there are following options :1) Increase sales volume by 30% by making substantial increase in marketing efforts.2) Reduce material cost by 5%3) Reduce labour cost by 30%4) Reduce overheads by 15%
Which option will you take?
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Materials ManagementMaterials Management
IMPORTANCE OF MATERIALS MANAGEMENT
Also ROI =(Profit/Sales) X Sales/(Fixed Assets+Current
Assets) Current Assets are predominantly materials.Lower the
current assets, higher is the ROI. Fixed Assets constitute capital already sunk and the only
scope for improving the return on investment lies in the efficient management of materials which constitute the bulk of the current assets.
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Materials ManagementMaterials ManagementINTEGRATED MATERIALS FUNCTION
Materials management function is to plan, control, organise, coordinate, source, purchase, transport, store and control the materials in an optimum manner so as to provide a pre decided service to the customer in terms of quality and schedule at the minimum cost.
Materials Management brings together under one manager all the planning, organising, and control activities associated with the flow of materials into and through an organisation. Physical distribution is even broader , encompassing managing materials flow into the organisation as well as managing materials storage and transportation flow out as finished products.
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Materials ManagementMaterials Management
Functions of Materials Management
Material Planning
Purchasing Vendor Development
Stores Management
Material Control Inventory Control
Waste Reduction
Standardisation
Variety Reduction
Value engineering
Transportation
Material handling
Disposal of Scrap Surplus and Obsolete Material
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Materials ManagementMaterials ManagementSome of the above functions have conflicting interest. For example, Purchase would like to buy in large quantities to avail quantity discount and save on ordering cost as well as time. The Finance function is worried over blocked capital because of inventories. While production wants large inventory support so that production goes unhampered and does not stop on account of material shortages.As the above functions can be conflicting and inter related, there is a need to have an integrated set up so the top materials executive can exercise control and coordinate with an over view that ensures optimal utilisation of the company’s resources.
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Materials ManagementMaterials Management
The advantages of integration are : • Better accountability - through centralisation of
authority and responsibility.• Cost Reduction• Elimination of waste• Better inventory planning• Faster inventory turnover• Meeting delivery deadlines through material
availability• Higher productivity and higher profits• Better communication and better coordination• Adaptability to computerisation
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Materials OrganizationMaterials OrganizationManaging Director
Director or GM Materials
Vendor Development
PurchasingStores-Receipt, Stock, Issue
Material Planning
Inventory Control
Imports
Excise
Transport/ Shipment, Despatch
Standardization, Codification, Variety
Reduction
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Materials OrganizationMaterials Organization
Can organize by specialisation of buying function.
Purchase
Electricals
Forgings
Castings
Pumps
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Materials OrganizationMaterials Organization
Can decentralise by location or unit wise.
Unit 2 (Noida)
Unit 3(Chennai)
Unit 4 (Hyderabad)
Unit 1 (Mumbai)
GM Materials
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Materials PlanningMaterials Planning Material Plan
Production Program
Sales Forecast
MaterialPlan
Feedback and Review
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Materials PlanningMaterials Planning Material Plan
Qty of Material to be purchased
Inventory norms/ targets
MaterialRequirement
Inventory of material on hand
Forecast of price/ rates
Variance control & Reporting
Actual purchases
Purchase Budget
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Bill of MaterialsBill of Materials BOM
Chair (1) Level 0
Finished Product
Frame (1) Back cushion (1)
Seatcushion (1)
Woodend (2)
Crosspiece (4)
Level 1
Subassembly
Tube (3) Webbing (3) Foam (0.55)
Fabric (0.7)
Wood (2.2)Foam (0.45)Level 2
Raw Material
Fabric (1.4) Fabric (0.6) Wood (0.5)
Fastener(4)
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Bill of MaterialsBill of Materials For example, the above BOM means for 1 unit of
chair one needs 2.7 units of fabric, or for 100 units of chair , 27 units of fabric are required .
The techniques for estimating material requirements are :
1. Sales Forecasting 2. Past consumption analysis 3. Bill of materials explosion
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MRP: Material Requirement PlanningMRP: Material Requirement Planning
Components of MRP Master Production schedule (MPS) Bill of Materials (BOM)
Inventory Status File MRP Processing Logic
A
B C
D E
End Product
Components
Components
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MRP Processing LogicMRP Processing Logic Gross Requirements less Inventory = Planned Order Receipts Based on lead time for supply, the schedule for Planned
Order Release is worked out. <Example> Lead Time 1 week.
Week 1 Week 2 Week 3 Week 4
Gross Requirement 400 500
Scheduled Receipts 100 150
Available for next period (Inventory)
Net requirement 250 350
Planned order receipts 250 350
Planned order release 250 350
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