production and operations

1

CHAPTER 1CHAPTER 1

OPERATIONS MANAGEMENT

2

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

3

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

4


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

5


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

6


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

7

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

8

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

9

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

10

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

11

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

12

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

13

CHAPTER 2CHAPTER 2

OPERATIONS STRATEGIES

FORCOMPETITIVE

ADVANTAGE

14

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.

15

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

16

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.

17

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

18

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.

19

Quality ConceptQuality Concept

Relationship between Quality, Productivity and CostCommon Concepts P C Q

Q P C

Reality Q P C

20


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)

21


Factors/Effect of Poor Quality Internal Failures Rejections

– At Receipt– At Source

Rework– At receipt– At line/source

Loss of Contribution through Lost Production

22


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.

23

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.

24

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?

25

CHAPTER 3CHAPTER 3

FORECASTING

26

ForecastingForecasting Why Forecasting: Planning and Scheduling

Production Manpower Material Machines

Product Design Process Design Equipment/ Facilities Capacity Planning Control

Production, Inventory, Labour, Cost

27

ForecastingForecasting Forecasting Horizon:

Type of Decision

Short Run

Long Run

Information Needs

Specific item demands

Aggregate demands

Strategic facilities

Present 5 years hence

28

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

29

ForecastingForecasting

Time

Production demand (units)

High Noise

Low Noise

30

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.

31


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

32


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.

33

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

34

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

35

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.

36

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.

37

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

38

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.

39

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

40

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.

41


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.

42


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.

43

CHAPTER 4CHAPTER 4

DESIGNINGPRODUCTS, SERVICES

&PROCESSES

44

DESIGNING PRODUCTS, SERVICES DESIGNING PRODUCTS, SERVICES AND PROCESSESAND PROCESSES

Product Life Cycle

Sales Volume

Start up

Rapid Growth

Maturity Decline

45


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

46


RESEARCH AND DEVELOPMENT

Screening

Economic Analysis

Development

Testing Commercial Use

Decay Curve Of New Product Ideas

47

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

48

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

49


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

50


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

51

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.

52

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

53

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?

54

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.

55

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

56

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)

57

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

58

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)

59

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

60

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.

61

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

62

CHAPTER 5CHAPTER 5

OPERATIONS CAPACITY

63

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)

64

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

65

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)

66

OPERATIONS CAPACITYOPERATIONS CAPACITY Short term shortfall in Capacity :

Capacity

Planned use of short term resources (overtime, subcontract etc)

Time period(year)

DemandShortfall in capacity

67

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

68

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

69

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

70

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?

71

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

72

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%

73

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.

74

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.

75

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

76

CHAPTER 6CHAPTER 6

LOCATING PRODUCTION

AND

SERVICE FACILITIES

77

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

78

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.

79


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

80


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


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


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


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


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


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


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

107

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

108


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.

109


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


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


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.

112

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.

113


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


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 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


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


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


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


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


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


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


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


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


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


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


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


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


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


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.

153

Selective Inventory ControlSelective Inventory Control ABC Analysis

Cumulative Percentage of Items

Cumulative Consumption Value in Percentage

20 40 100

A

BC

154

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

155

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

156

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

157

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

158

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)

159

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

160


MATERIAL REQUIREMENTS

PLANNING

161

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?

162

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.

163

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.

164


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

165

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.

166


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

167

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

168

Materials OrganizationMaterials Organization

Can organize by specialisation of buying function.

Purchase

Electricals

Forgings

Castings

Pumps

169

Materials OrganizationMaterials Organization

Can decentralise by location or unit wise.

Unit 2 (Noida)

Unit 3(Chennai)

Unit 4 (Hyderabad)

Unit 1 (Mumbai)

GM Materials

170

Materials PlanningMaterials Planning Material Plan

Production Program

Sales Forecast

MaterialPlan

Feedback and Review

171

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

172

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)

173

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

174

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

175

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

50

production and operations

Documents