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Master of Business Administration - MBA Semester II

MB0044 Production & Operations Management - 4 Credits

(Book ID: B1133)

Assignment

Set- 1 (60 Marks)

Q1 Explain in brief the origins of Just In Time. Explain how JIT is implemented .

Ans: Just in Time (JIT) is a management philosophy aimed at eliminating waste andcontinuously improving quality. Credit for developing JIT as a management strategy goes to

Toyota. Toyota JIT manufacturing started in the aftermath ofWorld War II.Although the history of JIT traces back to Henry Ford who applied Just in Time principles to

manage inventory in the Ford Automobile Company during the early part of the 20th Century,the origins of the JIT as a management strategy traces to Taiichi Onho of the Toyota

Manufacturing Company. He developed Just in Time strategy as a means of competitive

advantage during the post World War II period in Japan.The post-World War II Japanese automobile industry faced a crisis of existence, and companies

such as Toyota looked to benchmark their thriving American counterparts. The productivity of

anAmerican car worker was nine times that of a Japanese car worker at that time, and Taiichi

Onho sought ways to reach such levels.Two pressing challenges however prevented Toyota from adopting the American way:

1. American car manufacturers made lots or a batch of a model or a component beforeswitching over to a new model or component. This system was not suited to the Japaneseconditions where a small market required manufacturing in small quantities.

2. The car pricing policy of US manufacturers was to charge a mark-up on the cost price. The

low demand in Japan led to price resistance. The need of the hour was thus to reduce

manufacturing costs to increase profits.To overcome these two challenges, Taiichi Onho identified waste as the primary evil. The

categories of waste identified included

overproduction

inventory or waste associated with keeping dead stock

time spent by workers waiting for materials to appear in the assembly line

time spend on transportation or movement

workers spending more time than necessary processing an item

waste associated with defective items

Taiichi Onho then sought to eliminate waste through the just-in-time philosophy, where itemsmoved through the production system only as and when needed.

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The Toyota production system is a technology of comprehensive production management the

Japanese invented a hundred years after opening up to the modern world. The basic idea of thissystem is to maintain a continuous flow of products in factories in order to flexibly adapt to

demand changes. The realisation of such production flow is called Just-in-time production,

which means producing only necessary units in a necessary quantity at a necessary time. As a

result, the excess inventories and the excess work-force will be naturally diminished, therebyachieving the purposes of increased productivity and cost reduction.

The basic principle of Just-in-time production is rational; that is, the Toyota production system

has been developed by steadily pursuing the orthodox way of production management. With therealisation of this concept, unnecessary intermediate and finished product inventories would be

eliminated. However, although cost reduction is the systems most important goal, it must

achieve three other sub-goals in order to achieve its primary objective. They include:1. Quantity control, which enables the system to adapt to daily and monthly fluctuations in

demand in terms of quantities and variety;

2. Quality assurance, which assures that each process will supply only good units to the

subsequent processes;

3. Respect-for-humanity, which must be cultivated while the system utilises the human resourceto attain its cost objectives.

It should be emphasised here that these three goals cannot exist independently or be achieved

independently without influencing each other or the primary goal of cost reduction. All goals are

output of the same system; with productivity as the ultimate purpose and guiding concept, theToyota production system strives to realise each of the goals for which it has been designed.

Before discussing the contents of the Toyota production system in detail, an overview of this

system is in order. The outputs or result side as well as the inputs or constituent side of the

production system are depicted.A continuous flow of production, or adapting to demand changes in quantities and variety, is

created byachieving two key concepts: Just-in-time and Autonamation. These two concepts are

the pillars of the Toyota production system. Just-in-time basically means to produce thenecessary units in the necessary quantities at the necessary time.

Autonamation (Jidoka in Japanese) may be loosely interpreted as autonomous defects control.

It supports Just-in-time by never allowing defective units from the preceding process to flow intoand disrupt a subsequent process. Two concepts also key to the Toyota production system

include Flexiblework force(Shojinka in Japanese) which means varying the number ofworkers to demand changes, and Creative thinking or inventive ideas (soikufu), or capitalisingon workers suggestions.

To realise these four concepts, Toyota has established the following systems and methods:

1. Kanban system to maintain Just-in-time production

2. Production smoothing method to adapt to demand changes3. Shortening of set-up time for reducing the production lead time

4. Standardisation ofoperations to attain line balancing5. Machine layout and the multi-function worker for flexible work force6. Improvement activities by small groups and the suggestion system to reduce the work forceand

increase the workers morale.

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7. Visual control system to achieve the Autonamation concept

8. Functional Management system to promote company-wide quality control.

Just-in-time production

The idea of producing the necessary units in the necessary quantities at the necessary time is

described by the short term Just-in-time. Just-in-time means, for example, that in the process ofassembling the parts to build a car, the necessary kind of sub-assemblies of the precedingprocesses should arrive at the product line at the time needed in the necessary quantities. If Just-in-time is realised in the entire firm, then unnecessary inventories in the factory will be

completely eliminated, making stores or warehouses unnecessary. The inventory carrying costs

will be diminished, and the ratio of capital turnover will be increased.However, to rely solely on the central planning approach which instructs the production

schedules to all processes simultaneously, it is very difficult to realise Just-in-time in all the

processes for a product like an automobile, which consists of thousands of parts. Therefore, in

Toyota system, it is necessary to look at the production flow conversely; in other words, thepeople of a certain process go to the preceding process to withdraw the necessary units in the

necessary quantities at the necessary time. Then what the preceding process has to do is produceonly enough quantities of units to replace those that have been withdrawn.

Q2.Bring out the historical background of Value Engineering. Elucidate three companies which have

incorporated VE with brief explanation.

Value Engineering

The amount of money available for our countrys defense is determined by the democratic processes by

which we govern ourselves. Defense budgets are affected by the threat from our adversaries, our

reaction to the threat, by the funds necessary for Government activities other than defense and finally

by our skill in managing the resources entrusted to us for defense. Efficient utilization of these allottedresources has been a major management objective for many years. The quickening pace of technological

advances and the increasing pressure of budgetary restraints have made it necessary to place even

more emphasis on economy and efficiency within the Department of Defense (DoD).

DoD policy is to use VE to make a significant contribution toward greater economy in developing,

acquiring, operating, and supporting the products necessary to fulfill its mission. The DoD VE program is

intended to foster the use of value-oriented techniques across the entire spectrum of DoD activities.

VE is a fundamental approach which challenges everything and takes nothing for granted, including the

necessity for a product or service. It is applicable to systems, equipment, facilities, procedures, methods,

software, and supplies. It may be successfully introduced at any point in the life cycle of the product

under consideration. The following are some of the areas in which VE has been applied in the

Department of Defence:

Construction.

Design or equipment modifications.

Equipment and logistics support.

Equipment maintenance.

Facilities, master plan, and concepts.

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Hardware.

Manufacturing processes.

Material handling and transportation.

Packaging, packing, and preservation.

Procedures and reports.

Procurement and reprocurement.

Publications and manuals.

Quality assurance and reliability.

Salvage, rejected, or excess material.

Site preparation and adaptation.

Software (computer) programs and flow charts.

Specifications and drawings.

Technical and logistics data.

Technical requirements.

Testing, test equipment, and procedures.

Tooling.

Training.

VE emerged from the industrial community. It has spread throughout private industry and within the

Department of Defense because of its ability to yield a large return on a relatively modest investment. It

is an additional management tool to gain the desired results within the constraints of time and cost. To

realize this potential, VE must be clearly understood and correctly applied. This Chapter provides the

perspective for the VE program in the Department of Defense.

Historical background of value engineering

The VE concept is a by-product of material shortages during World War II. These shortages led to the

creation of innovative material and design alternatives. It DoD 4245.8-H, March 186.It was found that

the alternative approaches often worked as well, or better, and cost less. From this beginning an

analytical discipline evolved in private industry that was structured to challenge the proposed way of

designing and acquiring things and to systematically search for less costly alternatives.

In 157, the Navys Bureau of Ships became the first DoD activity to establish a formal VE activity. It was

called value engineering because it was staffed with general engineers, the most closely related

position description available at that time. Although no longer exclusively the province of engineers,

the term value engineering has persisted as the title of the program.

The Department of Defense established its VE program in 163. It continues to have two distinct

elements. The first is an in-house effort whereby VE is performed by DoD military and civilian personnel.

The second is the program that was created to stimulate contractors to perform VE and to develop and

submit value engineering change proposals (VECPs). Accepted VECPs change contract specifications,

purchase descriptions, or statements of work that impose costly, nonessential requirements. An

incentive is provided by giving the contractor a share in the savings that result from any approved

change proposals submitted by the contractor and approved by the Government. An alternative, the

program requirement clause, is used to pay a contractor for VE activities regardless of whether the

purpose is submission of VECPs or some other cost reduction purpose.

With some few exceptions, it has been mandatory since June 162 that VE provisions be included in most

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DoD contracts to encourage contractor participation and to realize the full benefits from cost reduction

opportunities and innovations.Prior to the development of the clause permitting contractors to share in

the savings, a contractor who submitted a cost reduction change had the amount of his contract

reduced by the total reduction. This usually reduced his profit by a proportional amount. There was,

therefore, no incentive to submit proposals to reduce cost. Now the VE clause allows a portion of the

saving accruing to the Government to be returned to the contractor.

Unfortunately, there are still some Government personnel who believe that the contractor is paid twice

or is unjustly rewarded. A close examination of the clauses, an understanding of the safeguards in the

acquisition process, and some familiarization with the reasons for unnecessary costs should serve to

correct this erroneous idea.

Cases of VE Success

A manufacturer of domestic water heaters conducted a VA analysis. It found that the customer

derived value from the cost efficiency and reliability of the product. In addition, the company found that

the largest source of failures resulted from internal moving parts that failed frequently. The VA exercise

resulted in a decrease in these moving parts (valves etc.) and a replacement of other problem items with

more cost-effective alternatives. The reliability of the product has resulted in no complaints from

customers and a reduction of moving parts to only three parts.

A lighting company has achieved savings of 6 times the costs of its value analysis exercises. One

product has achieved a 250% increase in sales over its predecessor. Now the company has trained over

15% of its workforce in VA techniques.

A small company producing cooling radiators for machinery, involved its suppliers in the redesign of

the existing product range with the result of a much better product and half the conversion costs of the

previous product sold to the market.

An office stationary company conducted a VA exercise on a range of paper stapling devices and hole

punching devices. The team found that the traditional designs had always incorporated metal as the

main material. After several exercises that looked at the way in which the products were used and also

the function required of the product, the company converted the product from metal to a plastic design

at a major cost saving.

Toy Company redesigned a model product, as a result of a VA exercise, and reduced the many different

metal fasteners with just one type creating a saving for the company and the supplier.

Q3.Explain the key elements of Quantitative modelling. What is work study and motion

study.

Quantitative modeling:Whenever we have to make decisions in management, we have two approaches to arrive at adecision. One approach is to consider the available facts, identify various options for action and

the likely consequences, and evaluate all the options based on the experiences we had and the gut

feeling as to what might happen and take a decision. In this approach, the quality of the decision

depends on the individuals knowledge, analytical capability, and judgment. However, thisapproach is useful when the matter concerned is small or personal in nature, as the consequences

are not very serious. If the decision involves complex issues, we choose the second approach.

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The second approach involves complex issues and complex decision makings skills. In this

approach, the factors of different fields have different impacts on the result. We try to quantifydata, devise some models for predicting the likely consequences, and some techniques to arrive

at decisions. Historical data guide us to formulate the relationships between the variables.

Uncertainties about the activities and results can be anticipated based on probabilities and

choices made.The approaches we choose depend on the type of situations. In the operations field, we need to

schedule various activities for completion of a job or project. The time for each activity is known

approximately or not exactly. At a particular stage, a number of activities have to be completedfor further progress. Delay in one of the activities creates shortage in the inventory of materials

which have arrived from another stream. Some materials or machines or men or all of them will

remain idle as they have not received the materials scheduled to be there. There are a number ofreasons which might cause imbalance in the production system. Imbalance in the system might

happen due to:

Rate of production

Absenteeism of workers

Breakdown of equipment Delayed arrival of material

Uncertain lead timesPlanning will have to be done with respect to resources allocated and products promised to avoid

this. We make models, apply quantitative techniques and try to conduct activities so that

minimum disruptions take place. The workforce that conducts activities have to be allocatedwork, trained, and motivated for improving the performance. We will go into detail about the

various aspects of the quantitative modeling and work-force management in the following pages.

Quantitative Models

In this section, we consider the different ways of solving problems, using quantitative approachand various other models. The business implications are wide, as solutions are used for decision

making in all aspects of business like:

Procurement of material

Allocating funds

Scheduling production

Carrying of inventory

The aim is to optimise all these, so that costs are reduced and profits are increased.Quantitative approach

Solving a problem using the quantitative approach involves three steps: defining the problem,

constructing a mathematical model, and testing the model and its solutions. (See figure 1)

Quantitative approach processesLet us discuss each step in brief and see how quantitative approach is helpful in solving

problems.1. Defining the problem: When a problem arises, we have to:

Determine the purpose of studying the problem

Consider the various factors such as Resources, Constraints, Uncertainties involving them,Costs involved, Time available, and Issues that have utmost importance.

After considering these, we have to determine which problem needs our attention, the factors that

affect it, and the interrelationships between them.

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2. Constructing a mathematical model: For constructing a mathematical model for the problem,

we follow certain steps. We:a. Reformulate the physical problem into a form which can be analysed.

b. Convert it into a model. The models play a vital role in engineering, science, and business.

c. Make models of dams, steel structure, chemical reactions, organisation structure, graphs

showing variation of share prices and others. Many of these are capable of being expressed interms of mathematical equations.

d. Solve the mathematical equations for solving the problem. Equations can be solved, if the

values of some variables are known or presumed.3. Testing the model and its solution: In business we do not have complete or reliable data most

of the times. We have formulated the equations with presumptions. So, we can verify whether

the solution we have obtained is acceptable by testing the solutions with the help of some knownoutcomes for known variables. This tests the model, as well as the presumptions we might have

made. We may have to change the model or the presumptions if, the results obtained are not

right.

Types of quantitative models

There are different quantitative models1. Linear Programming: Linear programming technique is often used for optimising a given

objective like: profit or revenue maximisation, or cost outgo minimisation. Distribution of theresources is the critical issue, when there are limited resources and they have to meet competing

demands.

2. Transportation Model: Transportation model is concerned with goods from manufacturingcentres or warehouses which have to be supplied to depots or retail outlets. The demand and

supply position of the places where they are required or produced and the cost of transportation

are considered in the model. We use this model to economise.

3. Assignment Model: Allocating jobs or persons to machines, awarding different projects tocontractors is done so that maximum returns occur or less expense are incurred. Hence, calls for

the use of this model.

4. Inventory Control Model: Inventory control model considers the:

- Frequency of placing orders- Quantities per order considering the cost of placing an order

-Number of pieces that are to be kept in reserve

- Rate of consumption- Lead time required for the supplier

- Costs involved in storage

We have different models which give solutions to optimisation depending upon the probabilitiesof patterns of consumption and supply.

5. Waiting Line Models: Queues are formed when the rate of service is at a variance with the

rate of arrival. They are formed when the rate of production is less at particular points compared

to the previous ones. Sometimes we see multiple service points and a single queue are formed forfeeding them. Number of items which includes the following is studied with some special

techniques.

- People to be serviced- Rate of service

- Type of queue discipline that is intended to be followed

- Policy of priority

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- Tolerable amounts of waiting

- Others6. Simulation Models: Simulation models are used when we will not be able to formulate

mathematical models. So, we develop a model which resembles a real life situation. Based on

this pattern, we predict and plan our procurement, production, delivery and other actions.

7. PERT (Project Evaluation and Review Technique) and CPM (Critical Path Method)Models: When projects are undertaken with a number of activities, some happens in sequence,

with gaps of weeks or months and some happens simultaneously. It is important to estimate the

time required for completion of the project. A lot of coordination is needed while supplying theresources. It is also equally important to identify the bottlenecks and smoothen resources so that

time schedules are maintained. Delayed completion may entail penalties. In this model, we adopt

special methods to make the system efficient.

Quantitative modelsWork studyWe say that work study is being conducted when analysis of work methods is conducted during

the period when a job is done on a machine or equipment. The study helps in designing theoptimum work method and standardization of the work method. This study enables the methodsengineer to search for better methods for higher utilization of man and machine andaccomplishment of higher productivity. The study gives an opportunity to the workmen to learn

the process of study thus making them able to offer suggestions for improved methods. This

encourages workmen participation and they can be permitted to make changes and report theadvantages that can be derived from those. This course is in alignment with the principle of

continuous improvement and helps the organization in the long run. Reward systems may be

implemented for recognizing contributions from the workmen.

Work study comprises of work measurement and method study. Work measurement focuses onthe time element of work, while method study focuses on the methods deployed and

development of better methods.

Work measurementWork measurement can be defined as a systematic application of various techniques that are

designed to establish the content of work involved in performing a specific task.

The task is performed by a qualified worker. With this we arrive at the standard time for a task.This will be used to fix performance rating of other workers. It forms the basis of incentives,

promotion, and training for workmen and assessment of capacity for the plant. Hence, training

the workers is very important. (See figure 3)

ILO defines a qualified worker as one who is accepted as having the necessary physicalattributes, possessing the required intelligence and education, and having acquired the necessary

skill and knowledge to carry out the work in hand to satisfactory standards of safety, quantity,

and quality.

Training workersMethods studyMethod study focus is on studying the method currently being used and developing a new

method of performing the task in a better way. Operation Flow charts, Motion Charts, Flow

Process charts, which are the elements of the task, are studied to find the purpose of eachactivity, the sequence in which they are done, and the effect of these on the work. The study may

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help in changing some of them and even eliminate some of them to effect improvements. The

new method should result in saving of time, reduced motions, and simpler activities.Work Study (Time and Motion Study)

According to the ILO Hand Book, it is a term used to embrace the techniques of method study

and work measurement, which are employed to ensure the best possible use of human and

material resources in carrying out a specified activity.Work study consists of as already mentioned in the above definition of two steps

Method study (motion study)

Work measurement (time study)According to the British Standards Institute, work study is a generic term for those techniques,

particularly method study and work measurement, which are used in examination of human work

in all its contexts and which lead systematically to the investigation of all factors which affect theefficiency and economy of the situation being renewed, in order to effect improvement.

What is Work Study?

Organized common sense

10% technique and 0% psychology

Objectives of Work StudyTo assist the management to obtain the optimum use of the human and material resources

available to the organization for the accomplishment of the work for which, it is engaged.How to Optimize?

Effective use of plant and equipment

Effective use of human effort

Evaluation of human work to make it more convenient

Principles of Work Study

Being an instrument of progressive management responsibility for its use, the conviction of itsvalue and the drive to apply it must come from the top echelons of the management.

As it is bound to affect the jobs of many people in the organization, these people must be made

aware of the objectives and the need of the exercise.

Method study must precede work measurement.

The two steps of work study are very much distinct in spite of being interdependent. Method

study is the process wherein existing and proposed ways of doing a work are systematicallyexamined so as to develop and apply better methods of doing the same. Work measurement is

the technique of establishment of time standards for a qualified worker to perform a specific job

at a defined level of performance.

Areas of Application of Method study

Improved layout of office, working areas of factories

Improved design of plant and equipments

Improved use of materials, plant, equipments and manpower

Most effective handling of materials

Improved flow of work

Standardization of methods and procedures

Improved safety standards

Better working conditions

Steps in Method Study (SREDIM)1. SelectSelect the work to be studied. It involves taking account of economic, technical and

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human considerations.

2. RecordRecord all the relevant facts of the present (or proposed) method by directobservation.

3. ExamineExamine the facts critically in sequence, using special critical examination sheets.

4. DevelopDevelop the best method, i.e., the most practical, economic and effective method,

under prevailing circumstances.5. InstallInstall that method as standard practice.

6. MaintainMaintain that standard practice by regular routine checks

Q4.What is Rapid Prototyping? Explain the difference between automated flow line and

automated assembly line with examples.

Ans Rapid Prototyping

Rapid Prototyping (RP) can be defined as a group of techniques used to quickly fabricate a scalemodel of a part or assembly using three-dimensional computer aided design (CAD) data. What is

commonly considered to be the first RP technique, Stereolithography, was developed by 3D

Systems of Valencia, CA, USA. The company was founded in 1986, and since then, a number of

different RP techniques have become available.Rapid Prototyping has also been referred to as solid free-form manufacturing; computer

automated manufacturing, and layered manufacturing. RP has obvious use as a vehicle for

visualization. In addition, RP models can be used for testing, such as when an airfoil shape is putinto a wind tunnel. RP models can be used to create male models for tooling, such as silicone

rubber molds and investment casts. In some cases, the RP part can be the final part, but typically

the RP material is not strong or accurate enough. When the RP material is suitable, highly

convoluted shapes (including parts nested within parts) can be produced because of the nature ofRP.

There is a multitude of experimental RP methodologies either in development or used by small

groups of individuals. This section will focus on RP techniques that are currently commerciallyavailable, including Stereolithography (SLA), Selective Laser Sintering (SLS), Laminated

Object Manufacturing (LOM), Fused Deposition Modeling (FDM), Solid Ground Curing

(SGC), and Ink Jet printing techniques.The reasons of Rapid Prototyping are

To increase effective communication.

To decrease development time.

To decrease costly mistakes.

To minimize sustaining engineering changes.

To extend product lifetime by adding necessary features and eliminating redundant features

early in the design.

Rapid Prototyping decreases development time by allowing corrections to a product to be madeearly in the process. By giving engineering, manufacturing, marketing, and purchasing a look at

the product early in the design process, mistakes can be corrected and changes can be made

while they are still inexpensive. The trends in manufacturing industries continue to emphasizethe following:

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Increasing number of variants of products.

Increasing product complexity.

Decreasing product lifetime before obsolescence.

Decreasing delivery time.

Rapid Prototyping improves product development by enabling better communication in a

concurrent engineering environment.Methodology of Rapid Prototyping

The basic methodology for all current rapid prototyping techniques can be summarized as

follows:

1. A CAD model is constructed, then converted to STL format. The resolution can be set tominimize stair stepping.

2. The RP machine processes the .STL file by creating sliced layers of the model.

3. The first layer of the physical model is created. The model is then lowered by the thickness of

the next layer, and the process is repeated until completion of the model.4. model and any supports are removed. The surface of the model is then finished and cleaned

An automated flow line (AFL) applies equipment for production where parts follow the samepath to have their operations in sequence. Unlike other flexible manufacturing systems, the flowline often operates in a synchronous mode. Thereby, by considering the design of a flow linecontrol system, attention can be given to the control protocol that can address the interactions

between equipment. Historically, the control protocol has been developed in a relatively complex

form. In this paper, we propose a systematic approach for designing an AFL control system froma simple protocol. Pertaining to the part transfer this protocol includes four patterns, whose

combinations are capable of demonstrating the lines control down to the equipment level. Since

the entire line may not be short and its processes may not be similar, there could exist several

control sections corresponding to different portions of the line. A modified hierarchical controlarchitecture is selected. This proposed control system development approach has been applied to

a color monitor tube (CMT) factory.

Assembly line: industrial arrangement of machines, equipment, and workers for continuous flowof work pieces in mass-production operations.

An assembly line is designed by determining the sequences of operations for manufacture of

each product component as well as the final product. Each movement of material is made assimple and short as possible with no cross flow or backtracking. Work assignments, numbers of

machines, and production rates are programmed so that all operations performed along the line

are compatible.

An automotive assembly line starts with a bare chassis; components are attached successively asthe growing assemblage moves along a conveyor. Parts are matched into subassemblies on

feeder lines that intersect the main line to deliver body parts, engines, and other assemblies. As

the units move past, each worker along the line performs a specific function. Each part and tool

is delivered to its point of use in synchronization with the line. A number of different assembliesare on the line simultaneously, but an intricate system of scheduling and control ensures that the

appropriate body type and colour, trim, engine, and optional equipment arrive together to make

the desired combinations.Automated assembly lines consist entirely of machines run by machines. In such continuous-

process industries as petroleum refining and chemical manufacture and in many modern

automobile-engine plants, assembly lines are completely mechanized and consist almost entirely

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of automatic, self-regulating equipment.

Most products, however, are still assembled by hand because many component parts are noteasily handled by a simple mechanism. The number of products automatically assembled is

steadily increasing but at a low rate because a product must be designed for automatic assembly

and must be accurately and consistently manufactured. Expensive and somewhat inflexible,

automatic assembly machines are economical only if run at very high outputs. However, thedevelopment of versatile automatic machinery and industrial robots is increasing the flexibility

of fully automated assembly operations.

Industrial arrangement of machines, equipment, and workers for continuous flow of work piecesin mass-production operations. An assembly line is designed by determining the sequences of

operations for manufacture of each component as well as the final product. Each movement of

material is made as simple and short as possible, with no cross flow or backtracking. Workassignments, numbers of machines, and production rates are programmed so that all operations

performed along the line are compatible. Automated assembly lines consist entirely of machines

run by other machines and are used in such continuous-process industries as petroleum refining

and chemical manufacture and in many modern automobile-engine plants

Q5. List different methods for selecting a suitable plant location

and explain any two.

ANSThe influence the location of a plant with reference to thermal and nuclear power plant.

BUSINESS LOCATIONWhy do firms locate where they do? There is no single answerdifferent firms choose their locations

for different reasons. Key determinates of a location decision are a firm's factors of production. Forexample, a firm that spends a large portion of total costs on unskilled labor will be drawn to locationswhere labor is relatively inexpensive. A firm with large energy demands will give more weight tolocations where energy is relatively inexpensive. In general, firms choose locations they believe willallow them to maximize net revenues: if demand for goods and services is held roughly constant, thenrevenue maximization is approximated by cost minimization.

The typical categories that describe a firm's production function are:

Labor. Labor is often and increasingly the most important factor of production. Other things equal,firms want productivity, in other words, labor output per dollar. Productivity can decrease if certaintypes of labor are in short supply, which increases the costs by requiring either more pay to acquirethe labor that is available, the recruiting of labor from other areas, or the use of the less productivelabor that is available locally. Land. Demand for land depends on the type of firm. Manufacturing firms need more space and

tend to prefer suburban locations where land is relatively less expensive and less difficult to develop.Warehousing and distribution firms need to locate close to interstate highways. Local Infrastructure. An important role of government is to increase economic capacity by

improving quality and efficiency of infrastructure and facilities, such as roads, bridges, water andsewer systems, airport and cargo facilities, energy systems, and telecommunications. @@@@@

Access to Markets. Though part of infrastructure, transportation merits special attention. Firmsneed to move their product, either goods or services, to the market, and they rely on access todifferent modes of transportation to do this. While transportation has become relatively inexpensivecompared to other inputs, and transportation costs have become a less important location factor,

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access to transportation is still critical. That long-run trend, however, could shift because ofdecreasing funds to highway construction, increasing congestion, and increasing energy prices. Materials. Firms producing goods, and even firms producing services, need various materials to

develop products that they can sell. Some firms need natural resources: a manufacturing sector likelumber needs trees. Or, farther down the line, firms may need intermediate materials: for example,dimensioned lumber Entrepreneurship. This input to production may be thought of as good management, or even more

broadly as a spirit of innovation, optimism, and ambition that distinguishes one firm from anothereven though most of their other factor inputs may be quite similar.The supply, cost, and quality of any of these factors obviously depend on market factors: on

conditions of supply and demand locally, nationally, and even globally.

But they also depend on public policy. In general, public policy can affect them through: Regulation. Regulations protect the health and safety of acommunity, and help maintain the quality of life. However, simplified bureaucracies and

straightforward regulations can help firms react quickly in a competitive marketplace.@@@@@ Taxes. Firms tend to seek locations where they can optimize their after-tax profits. But tax rates

are not a primary location factor, they matter only after corporations have made decisions on labor,transportation, raw materials, and capital costs. Within a region, production factors are likely to besimilar, so differences in tax levels across communities are more important in the location decisionthan are differences in tax levels between regions.

Financial incentives. Governments offer firms incentives toencourage growth. Generally, economic research has shown that most types of incentives have had

little significant effect on firm location between regions. However, for manufacturing industries withsignificant equipment costs, property or investment tax credit or abatement incentives can play asignificant role in location decisions. Incentives are more effective at redirecting growth within aregion than they are at providing a competitive advantage between regions.Firms locate in a city because of the presence of factors other than direct factors of production.

These indirect factors include agglomerative economies, also known industry clusters, locationamenities, and innovative capacity. Industry Clusters. Firms tend to locate in areas where there is already a concentration of firms like

their own. The theory works in practice because firms realize operational savings and have access to alarge pool of skilled labor when they congregate in a single location.

Quality of Life. A region that features many quality amenities, such as good weather, recreational

opportunities, culture, low crime, good schools, and a clean environment attracts people simplybecause it is a nice place to be. A region's quality of life attracts skilled workers, and if the amenitieslure enough potential workers to the region, the excess labor supply pushes their wages down so thatfirms can find skilled labor for a relatively low cost. Innovative capacity. Increasing evidence suggests that a culture promoting innovation, creativity,

flexibility, and adaptability will be essential to keeping MANY cities economically vital andinternationally competitive. Innovation is particularly important in industries that require an educatedworkforce. High-tech companies need to have access to new ideas typically associated with auniversity or research institute. Government can be a key part of a community's innovative culture,

through the provision of services and regulation of development and business activities that areresponsive to the changing needs of business.@@@@@===================================

LOCATION SELECTION TECHNIQUESMANUFACTURING.

Several techniques exist that can be used as part of a location strategy to determine the merits ofprospective sites. Location strategists often divide assessment of prospective locations into macroanalysis and micro analysis. Macro analysis encompasses the evaluation of different regions andcommunities, whereas micro analysis includes the evaluation of particular sites. The main macroanalysis techniques are factor-rating systems, linear programming, and center of gravity.Factor-rating systems are among the most commonly used techniques for choosing a location,because they analyze diverse factors in an easily comprehensible manner. Factor-rating systemssimply consist of a weighted list of the factors a company considers the most important and a range of

values for each factor (see Table 1). A company can rate each site with a value from the range basedon the costs and benefits offered by the alternative locations, and multiply this value by the

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appropriate weight. These numbers are then summed to get an overall "factor rating." Then acompany can compare the overall ratings of alternative sites. This technique enables a company tochoose a location systematically based on the best rating.

Table 1Sample Factor-Rating SystemFactor Rating (1-100) Weight Factor-Rating

Energy availability 60 .3 18Labor availability 80 .2 16Transportation 40 .2 8Supplies 90 .1 9Taxes and regulations 70 .1 7Infrastructure 70 .1 7Overall Factor-Rating 65Linear programming provides a method for evaluating the cost of prospective locations within aproduction/distribution network. This technique uses a matrix of production facilities and warehousesthat shows the unit shipping costs from a manufacturing location designated by a variable, such as X,to prospective destinations, such as warehouses designated by other variables E, F, and G and thetotal amount of goods the prospective manufacturer, X, could produce. Other prospectivemanufacturing locations and the same information for each are also included in the matrix. Aftercomputing the total costs for each prospective location, a company can determine which one has

lower total costs in terms of the entire production/distribution network.The center of gravity method is useful for identifying an individual location by considering existinglocations, the distances between them, and the volume of products to be shipped. Companies use thismethod mostly for locating distribution warehouses. To use this technique, companies plot theirexisting locations on a grid with a coordinate system (the particular coordinate system used does notmatter). The idea behind this technique is to identify the relative distances between locations. Afterthe existing locations are placed on the grid, the center of gravity is determined by calculating the Xand Y coordinates that would have the lowest transportation costs.SERVICES.Since service businesses generally must maintain a number of sites to remain close to customers, the

location selected should be close to the targeted segment of the market. The market also caninfluence the number of new locations, as well as their size and features.A simple technique for determining service locations is to establish a set of minimum criteria foropening new outlets. These criteria should be developed so that the locations selected have strong

chances of success. A company could assess the potential of prospective locations based on primarycriteria such as:

The population of the community should more than 100,000. The annual per capita income should be more than $35,000.After selecting locations that satisfy these criteria, a company might further evaluate the potentiallocations based on a set of criteria that considers the location's industrialization, person/car ratio,labor availability, population density, and infrastructure.TRENDS IN LOCATION STRATEGYGlobalization and technology have been the biggest drivers of change in the location decision process

over the last thirty years. Location activity has been very high in recent decades as a result oftechnology improvements, economic growth, international expansion and globalization, and corporaterestructuring, mergers and acquisitions.The top five location factors for global companies are costs, infrastructure, labor characteristics,government and political issues, and economy. Key sub-factors are the availability and quality of the

labor force, the quality and reliability of modes of transportation, the quality and reliability of utilities,wage rates, worker motivation, telecommunication systems, record of government stability, andindustrial relations laws. Other sub-factorsprotection of patents, availability of managementresources and specific skills, and system and integration costsare of increasing importance.Whereas wages and the industrial relations environment are significant factors in multinationallocation decisions, by far the main determinant is the host country market size. Furthermore, globaleconomic considerations have become paramount in location strategy as companies contemplate theadvantages afforded by various locations in terms of positioning in international markets and against

competitors.When companies seek new sites they generally strive to keep operating and start-up costs low, and so

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they often choose locations in collaboration with economic development groups to achieve these goals.Companies also now expect to move into new facilities more quickly than in the past, so they tend tofocus more on leasing facilities than purchasing land and building new facilities. Also, by leasingfacilities, companies can relocate every few years if the market requires it.Technology, especially communications technology, has not only been a driver of change, but hasfacilitated the site selection process. Managers can obtain initial information on alternative locationsvia the Internet and promotional software. Site selections agencies increasingly use geographical

information system (GIS) technology, and e-mail has become a dominant mode of communication inlocation research and negotiation.Location databases have enabled companies to do initial screening themselves, hence reducing theirneed to rely on economic developers to providing only very specific information and details onlocationssuch as commuting patterns and workforce characteristics.Telecommunications technology has created the "virtual office" of employees working from remotelocations. The growth of the virtual office has impacted location strategy in that some companies nolonger need as much workspace because many employees work from remote sites. When theseemployees need to work at the office, they can call and reserve office space for themselves. Thedecrease in facility size can lead to millions of dollars worth of savings each year, while increasingproductivity.

THE OTHER FACTORS ARE ---INCLUDING

ECONOMIC [ E ] / NON ECONOMIC [ NE ] FACTORS

1.SHIPPING / TRANSPORTATION COSTS. [E]2.LAND AVAILABLE FOR EXPANSION.[E]3.PROXMITY OF SUPPLIERS [E]4.ACCESS TO MARKETS [E]

5.AREA IDENTIFIED WITH YOUR INDUSTRY.[NE]6.SUPPLY OF TRAINED LABOR [E]7.FAVOURABLE WAGE RATES [E]

8.PRESERVATION OF THE ENVIRONMENT [ NE ]

9.OPPORTUNITY TO EMPLOY MINORITY GROUP [ NE ]10.PERSONAL PREFERENCES OF TOP MANAGEMENT [NE ]

11.TAX ADVANATGES [ E ]12.AVAILABLE FACILITIES AT LOW INITIAL COST [E ]

13.LOCAL CRIME RATE [NE]14.UNION ACTIVITY [NE ]15.COMMUNITY'S ATTITUDE TOWARDS [NE ]

INDICATES THE FACTORS STRONGLYAPPLICABLE FOR NUCLEAR / THERMAL PLANTS.

Q6. Explain Jurans Quality Trilogy and Crosbys absolutes of quality. List out thepillars of Total Productive Maintenance.

Jurans quality triology

Juran uses his famous Universal Breakthrough Sequence to implement quality programmes.The universal breakthrough sequences are:

Proof of need: There should be a compelling need to make changes.

Project identification: Here what is to be changed is identified. Specific projects with timeframes and the resource allocation are decided.

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Top management commitment: Commitment of the top management is to assign peopleand fix responsibilities to complete the project

Diagnostic journey: Each team will determine whether the problems result from systemiccauses or are random or are deliberately caused. Root causes are ascertained with utmostcertainty.

Remedial action: This is the stage when changes are introduced. Inspection, testing, andvalidation are also included at this point.

Holding on to the gains: The above steps result in beneficiary results. Having records or allactions and consequences will help in further improvements. The actions that result in thebenefits derived should be the norm for establishing standards.

Juran has categorised cost of quality into four categories:

1. Failure costs - Internal: These are costs of rejections, repairs in terms of materials, labour,machine time and loss of morale.

2. Failure costs - External: These are costs of replacement, on-site rework including spareparts and expenses of the personnel, warranty costs and loss of goodwill.

3. Appraisal costs: These are costs of inspection, including maintenance of records,certification, segregation costs, and others.

4. Prevention costs: Prevention cost is the sequence of three sets of activities, QualityPlanning, Quality Control, and Quality Improvement, forming the triology to achieve TotalQuality Management.

Jurans argument says that:

customers and develops processes to meet them. The processes are also planned to meetthem.

raw material, spare parts, labour, machine maintenance, training, warehousing, inspectionprocedures, packaging, and others. All these have to follow standards and control exercises tomake sure that mistake do not occur often and that if mistakes do occur then they are correctedat the source.

culture alive. Newer methodswill be found, some operations can be eliminated, improved technology available. In short, asexperience is gained things can always be done better. It is for the management to take the

initiative and encourage the employees to be on the lookout for opportunities for improvement.

Crosbys absolutes of qualityLike Deming, Crosby also lays emphasis on top management commitment and responsibility fordesigning the system so that defects are not inevitable. He urged that there be no restriction onspending for achieving quality. In the long run, maintaining quality is more economical thancompromising on its achievement. His absolutes can be listed as under:

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-conformance and as indices

processes that create problems

Crosby also has given 14 points similar to those of Deming. His approach emphasises onmeasurement of quality, increasing awareness, corrective action, error cause removal andcontinuously reinforcing the system, so that advantages derived are not lost over time. Heopined that the quality management regimen should improve the overall health of theorganisation and prescribed a vaccine. The ingredients are:

1) Integrity: Honesty and commitment help in producing everything right first time, every time2) Communication: Flow of information between departments, suppliers, customers helps inidentifying opportunities

3) Systems and operations: These should bring in a quality environment so that nobody iscomfortable with anything less than the best

Total Productive Maintenance (TPM)

Maintenance is a function in any operations system. Maintenance keeps the equipments ingood condition. Generally equipments deteriorate because usage causes wear to the partsintroducing inaccuracies on the products made on them. When the deterioration producescomponents which exceed the permitted deviations rendering them unacceptable, maintenanceis undertaken to bring back the machine to produce acceptable components. Sometimes thefailure is sudden and serious and the equipment stops working. Disruption of production andemergency repair work are costly and schedules are missed causing delays in supplies and

consequent losses. These breakdowns occur because the equipment was carrying hiddendefects which were not apparent. All these are attended to by the maintenance department.Historical records indicate the probability of failures over different periods thus enabling us toplan to attend to them. With progress in automation, we have costly equipments. We have flowlines and any one machine breaking down causes a series of machines to be idle. So, we haveto move towards zero breakdowns like we want to move towards zero defects by implementingTQM tools.TPM puts the responsibility of maintenance where it belongs to and the operator who uses theequipment. It is a companywide activity which involves all the people. The main thrust iseliminating all break downs. The focus is on the operating personnel because they would knowabout malfunctioning earlier and more than anybody else. They work on the machine and areaware of the slightest variations that occur and thus should be able to plan to remove the cause

before it becomes serious. So every planned maintenance activity reduces the probability of abreakdown. Ownership of the operation and machine increases the commitment of theworkmen. Autonomy is the starting point for learning and excellence. The worker can suggestbetter ways of improving quality, productivity, and design. This helps in continuousimprovement. Team work and participation improves the quality culture. The principles of 5Sthe housekeeping activities which improve efficiency at workplace is considered a measurablestandard to aid the implementation of TPM even in the office rooms.

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Master of Business Administration - MBA Semester II

MB0044 Production & Operations Management - 4 Credits

(Book ID: B1133)

Assignment

Set- 2 (60 Marks)

Q1.

Sketch the business process model and define the terms. Differentiate

between Explain Logical Process Modelling and Physical Process

Modelling.

Ans

Business process modeling (BPM) refers to the modeling of activities performed within an

organization. Typically, an activity is viewed as aworkflowor process composed of

events, activities, gateways and (sometimes) other elements. More precisely a businessprocess [can be defined] as a collection of related, structured activities or tasks that

produce a specific service or product (serve a particular goal) for a particular customer or

customers However, business process modeling is also used in other areas, e.g. in

government organization such as the US department of defense or for defining researchworkflows ine-scienceenvironments.

Business process modeling (BPM) in systems engineering and software engineering is theactivity of representing processes of an enterprise, so that the current process may be

analyzed and improved. In other words, BPM is often related to (business) reengineering

and even more substantialchange management.

We can distinguish between three main types of processes and we also attempt to relate

these to educational examples.

1. Management processes, e.g. organizational governance, conducting a large researchproject or a training program.

2. Operational processes, e.g. plan and conduct a research project, define and enact a

pedagogical scenario.3. Supporting processes, e.g. technical support (network, file servers, e-mail, etc.) or human

resource management (authors, experts, tutors, etc.)

LOGICAL PROCESS MODELLING

Logical process modeling is the representation of putting together all the

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activities of business process in details and making a representation of them.

The initial data collected need to be arrange in a logical manner so that, links

are made between nodes for making for the workflow smooth. The steps to

be followed to make the work smoother are given below:

1. Capture relevant data in detail to be acted upon.2. Establish controls and limit access to the data during processes

execution

3. Determine which task in the process is to be done and also the

subsequent task in that process.

4. Make sure that all the relevant data is available for all the tasks.

5. Make the relevant and appropriate data available for that task.

6. Establish a mechanism to indicate acceptance of the results after

every task or process. This is to have an assurance that flow is going

ahead with accomplishments in the desired path.Some of these activities may occur in a sequential order whereas, some of

them run parallel. There may even be circular paths, like re-work loops.

Complexities arise when the processes activities are not connected together.

Logical processes model consists of only the business activities and shows

the connectivity among them. The process model is a representation of the

business activities different from the technology dependent ones. Thus, we

have a model that is singularly structured only for business activities.

Computer programmes are also present in the total system. This allows the

business oriented executives to be in control of the inputs, processes andoutputs. The logical process model improves, control on the access to data.

It also indentifies, who is in possession of data at different nodes in the

dataflow network that has been structured.

A few of the logical modeling formats are given below.

1. Process Descriptions with task sequences and data addresses.

2. Flow chart with various activities and relationships

3. Flow diagrams

4. Function hierarchies

5. Function dependency diagramEvery business activity, when considered as a logical process model, can be

represented by a diagram, it can be decomposed and meaningful names can

be given to the details. Verb and noun form combinations can be used to

describe at each level. Nouns give the name of the activity uniquely and are

used for the entire model meaning the same activity.

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Closure and post completion analysis phase

Analysis and evaluation phase

This is the initial phase of any project. In this phase information is collected from thecustomer pertaining to the project and the requirements are analyzed. The entireproject has to be planned and it should be done in a strategic manner. The project

manager conducts the analysis of the problem and submits a detailed report to the topproject justification, details on what the problem is a method of solving the problem,list of the objectives to be achieved, project budget and the success rate of completing

the project. The report must also contain information and the project feasibility, and

the risks involved in the project.

Project management life cycle is the integrated part of management. It is attach with

project responsibility or failure of a project.

The important tasks of the project manager during the phase of analysis and

evaluation include:

pecification Requirements Analysis (SRA): It has to be conducted to determine theessential requirements of a project in order to achieve the target.

easibilitystudy: To analyze whether the project is technically, economically andpractically feasible to be undertaken.rade off analysis: To understand and examine the various alternatives which could beconsidered.

stimation: To estimate the project cost, effort requires for the project and functionality

of various process in the project.ystem design: Choose a general design that can fusil the requirements.

roject evolution: Evaluate the project in terms of expected profit, cost and risksinvolved marketing phase.

Marketing phaseA project proposal is prepared by a group of people including the project manager.

This proposal has to contain the strategies adopted to market the product to thecustomers.

Design phase

This phase involves the study of inputs and outputs of the various project stages.

Execution phase

In this phase the project manager and the team membersworkon the projectobjectives as per the plan. At every stage during the execution reports are prepared.

Control Inspecting, Testing and Delivery phase during this phase

The project team works under the guidance of the project manager. The project

manager has to ensure that the team working under his, implements the project

designs accurately. The project manager has to ensure ways of managing thecustomer, marketing the future work, perform quality control work.

Closure and post completion analysis phaseUpon satisfactory completion and delivery of the intended product or service the staff

performance has to be evaluated. PM has to document the lessons from the project.

Prepare the reports on project feedback analysis followed by the project executionreport.

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Q3.

Define industries best practices? Explain any one popular industry best

practise followed by all companies.

Ans Each industry would have developed over years or decades. During this development

materials would have changed and processes would have changed. As all products or

services are meant to serve needs of the customers, they undergo continuous changes both

in shapes and features.

Materials and methods go on improving incessantly because of the research that is

conducted. The companies that were at the front innovate to stay in business as new

entrants would beadopting the latest techniques that the pioneers had taken decades to

establish. So, the various firms in any industry would end up adopting almost similar

methods of getting an output required. Such practices would get refined to a great extentgiving rise to what we call industry best practices. These tend to get stabilised or changed

owing to the development of new equipments which are designed.

A manufacturer, with an eye on growing markets, demands for higher quality and reduced

prices. Competition benefits those who can use all these to their advantage. Industry best

practices open up the field for benchmarking by companies which need to improve their

performance Pragmatic bench marking

Pragmatic bench markingis a method of measuring a companys processes, methods, and

procedures; in a way that all functions in great detail.

Benchmarking is used to understand how these got into the system and what circumstances

brought them about. It is a learning process, with a view to find out whether some of the

reasons have changed and to bring in new processes for improvement. The metrics that

could be used are the:

Number of pieces per hour

Cost per unit

Number of breakdowns per week

Customer alienation during a week Return on investment

Number of returns from customers in a month

Inventory turnover

Many others

The figures obtained from the above determine the efficiency of the organisation. To keep

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focused, many organisations, especially the large ones, select a few processes for purposes

of benchmarking. This helps in ensuring constant and deep attention to those aspects which

are to be dealt with.

The following are the types of benchmarking considered by various firms.

Process BenchmarkingBusiness Process

Financial Benchmarking

Performance Benchmarking

Product Benchmarking

Strategic Benchmarking

Functional Benchmarking

Tools like Pareto Analysis are used to make the choice or choices from among many

aspects in any one of the above categories.

Example of Pareto Analysis

Planning, Analysis, Integration, and Action are the four steps recognised in the process of

benchmarking. The select criteria are compared with the performance parameters of the

company which is considered the best in the industry. Targets are set and activities are

conducted to reach them. Let us discuss in detail, about the steps which are necessary forconducting a benchmarking operation.

1. Planning: Planning determines the process, service or the product to be benchmarked

on which metrics are assigned for collection of data.

2. Analysis: Analysed data gives inputs for comparison with the target companys

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performance on the parameter benchmark on which data was collected. Measuring gaps

helps in identifying the process which should be improved for reaching the benchmark.

3. Integration: Resources are required across all functions to achieve the target needs.

Integration involves putting together resources like people, equipments, and

communication, so that, progress is unhindered and all activities reach their logical

conclusions without loss of initiative or time.

4. Action: When changes are needed, actions have to be planned according to the steps

earlier stated. Teams are provided with necessary leadership, authority, and supporting

facilities to enable them to complete all activities within the time frame set for the purpose.

Since benchmarking is done in specific areas, it is necessary to maintain the focus, and

implement actions without losing initiative, so that, results become demonstrable.

A systematic approach to waste reduction is explained using Alan Robinsons 5W2H

method. 5W2H method is the modified version of Goal The Famous 5W1H method.

It is necessary to set achievable targets keeping in view the availability of resources,

technology, and to spread awareness about the importance of what is attempted, and how

success improves the image of the company. This approach is recommended by the Total

Quality Management (TQM) guru Edwards Deming. His expression is make them

proud.

This approach can be called pragmatic, because building up knowledge based analysis

of data, and achieving the targets, set the tone of continuous improvement, and move theorganisation towards excellence, which was the reason we started benchmarking. Many

times benchmarking is done internally. When an enterprise has a number of plants, and

some of them adopt similar processes, it is likely that one group may have developed

techniques and methodologies of doing them better than others. Internal benchmarking is

resorted to as a measure of identifying strengths in the organisation. By internal

benchmarking, knowledge, and skills are shared and complemented taking the organisation

to a leadership position.

Q4.

Explain PMIS. What is Key Success Factor (KSF), Explain with example.

ANS. PMIS (PROJECT MANAGEMENT INFORMATION SYSTEM)

An information system is mainly aimed at providing the management at different

levels with information related to the system of the organization. It helps in maintaining

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are wary of turnkey operations. One way to quell any "down the road" fears is to havethis part of the infrastructure accounted for. Make contact with businesses which helpadvertise businesses, ship products, supply copy paper and any other stock theowner might require. Obtain discounts from as many as possible

Q5.

Explain the seven principles of supply chain management. Take an

example of any product in the market and explain Bullwhip effect.

Ans

Seven principles of SCM are:

1. Group customer by needs: Effective SCM groups customers by distinct service

needs, regardless of industry and then tailors services to those particular segments.

2. Customize the logisticsnetwork: In designing their logistics network, companies

need to focus on the service requirement and profit potential of the customer

segments identified.

3. Listen to signals of market demand and plan accordingly: Sales and

operations planners must monitor the entire supply chain to detect early warning

signals of changing customer demand and needs. This demand driven approach leads

to more consistent forecast and optimal resource allocation.

4. Differentiate the product closer to the customer: Companies today no longer

can afford to stockpile inventory to compensate for possible forecasting errors.

Instead, they need to postpone product differentiation in the manufacturing process

closer to actual consumer demand. This strategy allows the supply chain to respond

quickly and cost effectively to changes in customer needs.

5. Strategically manage the sources of supply: By working closely with their key

suppliers to reduce the overall costs of owning materials and services, SCM maximizes

profit margins both for themselves and their suppliers.

6. Develop a supply chain wide technology strategy: As one of the cornerstones

of successful SCM, information technology must be able to support multiple levels of

decision making. It also should afford a clear view and ability to measure the flow of

products, services, and information.

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7Adopt channel spanning performance measures: Excellent supply chain

performance measurementsystemsdo more than just monitor internal functions.

They apply performance criteria to every link in the supply chain criteria that

embrace both service and financial metrics.

BULLWHIP EFFECT IN SCM

An organization will always have up and downs. It is necessary that the managers of

the organization keep track of the market conditions and analyze the changes. They

must take decisions on the resources and make necessary changes within the

organization to meet the market demands. Failing to do so may results in wild swings

in the orders. This may adversely affect the functioning of the organization resulting in

lack of coordination and trust among supply chain members. The changes may affect

the information and may led to demand amplification in the supply chain. The

Bullwhip effect is the uncertainty caused from distorted information flowing up and

down the supply chain. This has its affect on almost all the industries, poses a risk tofirms that experience large variations in demand, and also those firm which are

dependent on suppliers, distributors and retailers. A bullwhip effect may arise

because of:

Increase in the lead time of the project due to increase in variability of

demand

Increase in the stocks to accommodate the increase demand arising out of

complicated demand models and forecasting techniques.

Reduced service levels in the organization.

Inefficient allocation of resources.

Increased transportation cost.

How to prevent it ?

Bullwhip effect may be avoided by one or more of the following measures:

Avoid multiple demand forecasting.

Breaking the single order into number of batches of orders.

Stabilize the prices, avoid the risk involved in overstocking by maintaining a proper

stock

Reduce the variability and uncertainty in point of sale (POS) and sharinginformation

Reduce the lead time in the stages of the project

Always keep analyzing the past figures and track current and future levels of

requirement.

Enhance the operational efficiency and outsourcing logistics to a capable and

efficient agency

Example of one product the effect Bullwhip theory.

The Beer GameThe beer game was developed at MIT by the Systems Dynamic Group in the 1960s. The

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game

involves a simple production/distribution system for a single brand of beer. There are

three

players in the game including a retailer, a wholesaler, and a marketing director at the

brewery.

Each player's goal is to maximize profit.A truck driver delivers beer once each week to the retailer. Then the retailer places an

order with

the trucker who returns the order to the wholesaler. There's a four week lag between

ordering and

receiving the beer.

The retailer and wholesaler do not communicate directly. The retailer sells hundreds of

products

and the wholesaler distributes many products to a large number of customers.

The following represents the results of a typical beer game:-

3.1 The Retailer

Week 1: Lover's Beer is not very popular but the retailer sells four cases per week on

average.

Because the lead time is four weeks, the retailer attempts to keep twelve cases in the

store by

ordering four cases each Monday when the trucker makes a delivery.

Week 2: The retailer's sales of Lover's beer doubles to eight cases, so on Monday, he

orders 8

cases.

Week 3: The retailer sells 8 cases. The trucker delivers four cases. To be safe, the retailer

decides

to order 12 cases of Lover's beer.Week 4: The retailer learns from some of his younger customers that a music video

appearing on

TV shows a group singing "I'll take on last sip of Lover's beer and run into the sun." The

retailer

assumes that this explains the increased demand for the product. The trucker delivers 5

cases.

The retailer is nearly sold out, so he orders 16 cases.

Week 5: The retailer sells the last case, but receives 7 cases. All 7 cases are sold by the

end of

the week. So again on Monday the retailer orders 16 cases.Week 6: Customers are looking for Lover's beer. Some put their names on a list to be

called

when the beer comes in. The trucker delivers only 6 cases and all are sold by the

weekend. The

retailer orders another 16 cases.

Week 7: The trucker delivers 7 cases. The retailer is frustrated, but orders another 16

cases.

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Week 8: The trucker delivers 5 cases and tells the retailer the beer is backlogged. The

retailer is

really getting irritated with the wholesaler, but orders 24 cases.

3.2 The Wholesaler

The wholesaler distributes many brands of beer to a large number of retailers, but he is

the onlydistributor of Lover's beer. The wholesaler orders 4 truckloads from the brewery truck

driver

each week and receives the beer after a 4 week lag. The wholesaler's policy is to keep 12

truckloads in inventory on a continuous basis.

Week 6: By week 6 the wholesaler is out of Lover's beer and responds by ordering 30

truckloads

from the brewery.

Week 8: By the 8th week most stores are ordering 3 or 4 times more Lovers' beer than

their

regular amounts.

_________________________________________________________________________

_____

_________________________________________________________________________

_______

Week 9: The wholesaler orders more Lover's beer, but gets only 6 truckloads.

Week 10: Only 8 truckloads are delivered, so the wholesaler orders 40.

Week 11: Only 12 truckloads are received, and there are 77 truckloads in backlog, so the

wholesaler orders 40 more truckloads.

Week 12: The wholesaler orders 60 more truckloads of Lover's beer. It appears that the

beer is

becoming more popular from week to week.Week 13: There is still a huge backlog.

Weeks 14-15: The wholesaler receives larger shipments from the brewery, but orders

from

retailers begin to drop off.

Week 16: The trucker delivers 55 truckloads from the brewery, but the wholesaler gets

zero

orders from retailers. So he stops ordering from the brewery.

Week 17: The wholesaler receives another 60 truckloads. Retailers order zero. The

wholesaler

orders zero.The brewery keeps sending beer.

3.3 The Brewery

The brewery is small but has a reputation for producing high quality beer. Lover's beer is

only

one of several products produced at the brewery.

Week 6: New orders come in for 40 gross. It takes two weeks to brew the beer.

Week 14: Orders continue to come in and the brewery has not been able to catch up on

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the

backlogged orders. The marketing manager begins to wonder how much bonus he will

get for

increasing sales so dramatically.

Week 16: The brewery catches up on the backlog, but orders begin to drop off.

Week 18: By week 18 there are no new orders for Lover's beer.Week 19: The brewery has 100 gross of Lover's beer in stock, but no orders. So the

brewery

stops producing Lover's beer.

Weeks 20-23. No orders.

At this point all the players blame each other for the excess inventory. Conversations with

wholesale and retailer reveal an inventory of 93 cases at the retailer and 220 truckloads

at the

wholesaler. The marketing manager figures it will take the wholesaler a year to sell the

Lover's

beer he has in stock. The retailers must be the problem. The retailer explains that

demand

increased from 4 cases per week to 8 cases. The wholesaler and marketing manager think

demand mushroomed after that, and then fell off, but the retailer explains that didn't

happen.

Demand stayed at 8 cases per week. Since he didn't get the beer he ordered, he kept

ordering

more in an attempt to keep up with the demand. The marketing manager plans his

resignation.

3.4 Lessons from the Beer Game

1. The structure of a system influences behavior. Systems cause their own problems, not

externalforces or individual errors.

2. Human systems include the way in which people make decisions.

_________________________________________________________________________

_____

_________________________________________________________________________

_______

3. People tend to focus on their own decisions and ignore how these decisions affect

others.

3.5 Lessons Related to the Learning Disabilities

1. People do not understand how their actions affect others.2. So they tend to blame each other for problems.

3. Becoming proactive causes more problems.

4. The problems build gradually, so people don't realize there is a problem until its too

late.

5. People don't learn from their experience because the effects of their actions occur

somewhere

else in the system.

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Stock variability amplification in a supply chain due to Bullwhip Effect

Q6.

Time taken by three machines on five jobs in a factory is tabulated

below in table below. Find out the optimal sequence to be followed to

minimise the idle time taken by the jobs on the machines.

Job Machine 1(M1)

Machine 2(M2)

Machine 3(M3)

A 6 8 7

B 4 5 3

C 5 5 7

D 3 4 6

E 4 3 4

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Sequence of MA

Job Machine 1

(M1)

Machine 3

(M4)

A 6 4

B 4 6

C 5 3

D 3 2

E 4 7

Using Johnsons algorithm, the job order sequence obtained is:

MA =

The time taken (TA) by sequence MA is now calculated as shown in table

Time taken (TA) by sequence MA

Time-in Time-

out

Time-in Time-

out

Time-in Time-

outB 0 4 4 9 9 12

E 4 8 9 12 12 16

A 8 14 14 22 22 29

C 14 19 22 27 31 36

D 19 22 27 31 36 42

JOB

Machine 1 Machine 2 Machine 3

The time taken (TA) to complete the sequence obtained above is 42.

The job order sequence of machines (1, 2) and (3, 4), that is, MB can be derived with the help

of the following table

B E A C D

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Job M1+M2+M3 M2+M3+M4

A 21 19

B 12 14

C 17 15

D 13 12

E 11 14

Using the Johnsons algorithm, the job order sequence obtained is:

MC =

The time taken (TC) by sequence MC is now calculated as shown in table

Time taken (TC) by sequence MC

Time-in Time-

out

Time-in Time-

out

Time-in Time-

out

E 0 4 4 7 7 11

B 4 8 8 13 13 16

A 8 14 14 22 22 29

C 14 19 22 27 29 36

D 19 22 27 31 36 42

JOB

Processing Time

Machine 1 Machine 2 Machine 3

The time taken (TC) to complete the sequence obtained above is 44.

Thus, we get values: TA = 42, TB = 37, and TC = 42.

From the three values, TB is the minimum. Therefore, the optimal sequence for the given 5

jobs under the 3 machines is MB.

E B A C D

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