1. Project and Production Management
module 9:Tactical Decisions and Review
Back to main index exit continue
Project and Production Management
Module 9
Tactical Decisions and Review
Prof Arun Kanda & Prof S.G. Deshmukh,
Department of Mechanical Engineering,
Indian Institute of Technology, Delhi

2. MODULE 9: Tactical Decisions and Review
1.Basic Inventory Principles
2.Inventory Modeling
3.Material Requirements Planning
4.Job shop scheduling
5.Course Summary and Review
6. Illustrative Examples
7. Self Evaluation Quiz
8. Problems for Practice
9. Further exploration
Back to main index exit

3. 1. Basic Inventory Principles
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
1. Basic Inventory Principles

4. FUNCTIONS OF INVENTORIES
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
FUNCTIONS OF INVENTORIES
Inventories are Idle Resources maintained in various forms:
- Raw materials
Purchased & manufactured parts
Subassemblies
Finished products
Since inventories represent a sizable
investment in a logistic system, we must
be aware of the functions they perform

5. FIVE CATEGORIES OF STOCKS
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
FIVE CATEGORIES OF STOCKS
PIPELINE stock (in process stock, in transit stock)
CYCLE stocks (batch production owing to
- economies of scale
- technological requirements)
SEASONAL stocks ( time varying requirements of an item)
SAFETY stocks (supply and demand uncertainties,
lead time uncertainties)
Stocks held for OTHER REASONS (- decoupling stages of
production
- price, quantity discounts,
- speculation)

6. INVENTORY RELATED COSTS
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
INVENTORY RELATED COSTS
Procurement cost
Cost/order generally fixed
(not dependent on order qty)
Costs associated with existence of inventories
(supply exceeds demand)
Cost/unit/unit time
i C
(i = inventory carrying cost rate)
Costs associated with
stock outs
(demand exceeds supply)
(cost/unit) (cost/unit/unit time)

7. PROCUREMENT COSTS Procurement cost Cost of goods
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
PROCUREMENT COSTS
Procurement cost Cost of goods
Cost/order generally fixed Ordering cost
(not dependent on order qty)
- Administrative component
- Handling
- Transportation
- Inspection of arrivals

8. INVENTORY HOLDING COSTS
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
INVENTORY HOLDING COSTS
Costs associated with existence of inventories
(supply exceeds demand)
Cost/unit/unit time
i C
(i = inventory carrying cost rate)
- Storage and handling
- Interest on tied up capital
- Property taxes
- Insurance
- Spoilage
- Obsolescence
- Pilferage

9. SHORTAGE COSTS Costs associated with stock outs
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
SHORTAGE COSTS
Costs associated with stock outs
(demand exceeds supply)
(cost/unit) (cost/unit/unit time)
- Additional costs of special order
- Backorder, if possible
- Loss of customer goodwill
- Lost sales

10. SELECTIVE INVENTORY CONTROL
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
SELECTIVE INVENTORY CONTROL
In a large number there are
PARETO’s Law
significant few insignificant many
Typical organisations deal with a large variety of stocked items
(10,000 – 100,000 …is not uncommon)
Depending on rankings of
VALUE ((Annual demand X unit price))  ABC Analysis
(Always Better Control)
CRITICALITY (Vital, Essential, Desirable)  VED Analysis
USAGE FREQUENCY  FSN Analysis
(Fast moving, Slow moving, Non moving) A B C N S F V E D
Based on product characteristics, suitable policies can be chosen
USAGE FREQUENCY

11. ABC ANALYSIS 5-10% items account for about 75% value
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
ABC ANALYSIS 25 50 75 90
100 10
Percent of number of inventory items A B C
Percent of average inventory investment
5-10% items account for about 75% value
15-20% items account for about 15% value
Balance items account for about 10% value
(or A class ≥ 6 items average annual usage
C class ≤ 0.5 items average annual usage
B in between)
Where, Average Annual usage=

12. OBJECTIVE OF ABC ANALYSIS: Rationalization of Ordering Policies
EQUAL TREATMENT TO ALL
Item no.
Annual Consumption
Value (Rs.)
Number of Orders
Value per order
Average inventory 1 2 3
60,000
4,000
1,000 4
15,000
250
7500
500
125
Total Inventory: Rs. 8125
PREFERENTIAL TREATMENT on basis of ABC analysis 8
7,500
1,333
3750
667
Total Inventory Rs 4917
The optimum no of orders can be arrived at by using models of inventory control eg. EOQ
time
inventory
Annual cost Q*
Total cost
carriage
ordering
Q* =

13. DETERMINATION OF REORDER POINT
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
DETERMINATION OF REORDER POINT
Reorder point = Max. reasonable demand during lead time
= expected demand during lead time + safety stock
Prob. of stockout
Total demand in lead time xL
+ kL
kL
(usually pre specified by management)
K= 0; risk of shortage = 50% service level = 50%
K= 0; risk of shortage = 15.87% service level = 84.13%
K= 0; risk of shortage = 2.28% service level = 97.72%
K= 0; risk of shortage = 0.13% service level = 99.87%
Higher safety stock
A class items have relatively low service levels (0.8 or so)
Lower safety stocks
Tighter control & efficient expediting
B class items handled routinely with service levels of 0.95 or so
C class items should be present in ample supply, minimum records, controls, procedure very high service levels (0.95 to 0.98)

14. POLICY IMPLICATIONS OF SELECTIVE INVENTORY CONTROL
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
POLICY IMPLICATIONS OF SELECTIVE INVENTORY CONTROL
ABC analysis
A class items need continuous rigourous control
(use of mathematical models justified)
B class items – relaxed control (periodic review)
C class items – simple rules of thumb
V class items call for a high level of service
E class items call for medium level of service
D class items call for tolerable level of service
jointly determine service levels
VED analysis
% risk
Of shortage
(min)
(max) 
ABC
VED
FSN analysis
Fast  most inventory models apply to this class
Slow ( spare parts etc)
Non – moving (dead stock) (optimal stock disposal rules)

15. A SAMPLE SET OF SERVICE LEVELS FOR DIFFERENT CATEGORIES OF ITEMS
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
A SAMPLE SET OF SERVICE LEVELS FOR
DIFFERENT CATEGORIES OF ITEMS V E D A
0.80
0.75
0.6 B
0.95
0.90
0.85 C
0.99
0.97
High cost of
stockout
decreasing
decreasing V E D A
0.7
0.6
0.5 B
0.9
0.8 C
0.95
0.85
Low cost of
stockout
decreasing
decreasing

16. OBJECTIVE OF INVENTORY MANAGEMENT SYSTEM
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
OBJECTIVE OF INVENTORY MANAGEMENT SYSTEM
An inventory system consists of a set of rules and procedures that allow
for routine decisions on when & how much to order of each item needed in the manufacturing or procurement process,
which call attention to the non-routine situations, the rules do not cover &
which provide managers with the necessary information to make these decisions effectively. 1 2 3
The objective of a well designed procedure should be the minimization of the costs incurred in the inventory system, attaining at the same time the customer service level specified by the company policies.

17. STRUCTURE OF A TYPICAL COMPUTERISED INVENTORY MANAGEMENT SYSTEM
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
STRUCTURE OF A TYPICAL COMPUTERISED
INVENTORY MANAGEMENT SYSTEM
Basic sub systems or modules:-
Transactions and file maintenance module
Decision rules module
System integrative module
System-management interaction and evaluation module

18. FILE MAINTENANCE MODULE
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
TRANSACTIONS AND
FILE MAINTENANCE MODULE
Book keeping of inventory control –
Entry, auditing, control and processing of inventory transactions
NECESSITY: Continuous updating to provide accurate information on
Available stock (on hand and on order)
Customer order status
Cost of items
Delivery lead times
Source of acquisition
Ordering restrictions …
DEVELOPMENT: mainly the area of data processing.

19. THE DECISION RULES MODULE
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
THE DECISION RULES MODULE
This is concerned with the fundamental components of inventory planning and control procedures aimed at answering when and how much to order of each item to maintain inventories at the right level.
A forward looking system should include forecasting capabilities safety stocks (to account for unavoidable in accuracies) decision rules are needed to guarantee some desired level of customer service.
ITEM
A-class
C-class
B-class
Use EOQ and continuous monitoring
Order in lots of 3 months demand if stock at hand is less than ROP
Order in lots of 6 months demand if stock on hand is less than ROP
EOQ, q* =

20. SYSTEM INTEGRATIVE MODULE
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
SYSTEM INTEGRATIVE MODULE
Decision rules Distinct inventory policies
The various items being controlled, depending on their inherent characteristics require specific degree of management attention and service levels that can be achieved by using some appropriate stock policy

21. SYSTEM MANAGEMENT INTERACTION AND EVALUATION MODULE
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
SYSTEM MANAGEMENT INTERACTION AND EVALUATION MODULE
Intended to provide management with such information as to permit evaluation
Evaluation of operating performance
Identify problem areas
Allow for management selection of policy variables (system parameters)

22. SUMMARY & CONCLUSIONS Omnipresence of inventories (‘necessary evil’)
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
SUMMARY & CONCLUSIONS
Omnipresence of inventories (‘necessary evil’)
Nature of inventory related costs
Principles of selective inventory management
ABC analysis
VED analysis
FSN analysis
Ordering rules and reorder point determination
Policy implications of selective inventory management
Features of a computerized inventory management system
Relevance ? – independent vs. dependent demand systems
MRP vs. conventional inventory management

23. 2. Inventory Modelling module 9:Tactical Decisions and Review
Back to main index exit back to module contents
2. Inventory Modelling

24. LOT SIZING When to order ? How much to order ? Decision variables are
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
LOT SIZING
When to order ?
How much to order ?
Reorder point
Lead time
Order qty., q
NO BACKLOGGING
PURCHASE
Inv. I
Decision variables are
Order quantity, q per lot
Maximum backorder level, b (in class III, IV)

25. LOT SIZING When to order ? How much to order ? Decision variables are
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
LOT SIZING
When to order ?
How much to order ?
PRODUCTION q
Inv. II
Decision variables are
Order quantity, q per lot
Maximum backorder level, b (in class III, IV)

26. LOT SIZING When to order ? How much to order ? Decision variables are
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
LOT SIZING
When to order ?
How much to order ? q b
BACKLOGGING
Inv.
III
Decision variables are
Order quantity, q per lot
Maximum backorder level, b (in class III, IV)

27. LOT SIZING When to order ? How much to order ? Decision variables are
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
LOT SIZING
When to order ?
How much to order ? b
Inv. IV
Decision variables are
Order quantity, q per lot
Maximum backorder level, b (in class III, IV)

28. ANALYSIS BROAD APPRAOCH
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
ANALYSIS
BROAD APPRAOCH
(1) Identify the cost components in each cycle (of length t)
(2) Express costs in terms of decisions variables
(order qty, q and backorder level, b)
(3) Develop annual cost by multiplying (1) by number of cycles/year
(4) Optimize to find q*, b*
Carrying cost
Shortage cost
Set up or order cost

29. VARIATIONS IN THE LOT-SIZE FORMULE
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
VARIATIONS IN THE LOT-SIZE FORMULE
WITHOUT BACKLOGGING
C = unit cost (Rs/piece)
C1 = i X C = carrying cost (Rs/unit/time)
C2 = shortage/backlogging cost (Rs/unit/time)
C3 = order cost (Rs/order)

30. VARIATIONS IN THE LOT-SIZE FORMULE
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
VARIATIONS IN THE LOT-SIZE FORMULE
C = unit cost (Rs/piece)
C1 = i X C = carrying cost (Rs/unit/time)
C2 = shortage/backlogging cost (Rs/unit/time)
C3 = order cost (Rs/order)

31. VARIATIONS IN THE LOT-SIZE FORMULE
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
VARIATIONS IN THE LOT-SIZE FORMULE
WITH BACKLOGGING b
C = unit cost (Rs/piece)
C1 = i X C = carrying cost (Rs/unit/time)
C2 = shortage/backlogging cost (Rs/unit/time)
C3 = order cost (Rs/order)

32. VARIATIONS IN THE LOT-SIZE FORMULE
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
VARIATIONS IN THE LOT-SIZE FORMULE b
C = unit cost (Rs/piece)
C1 = i X C = carrying cost (Rs/unit/time)
C2 = shortage/backlogging cost (Rs/unit/time)
C3 = order cost (Rs/order)

33. CLASSICAL LOT-SIZE SYSTEM
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
ASSUMPTIONS in
CLASSICAL LOT-SIZE SYSTEM
Demand fixed at constant rate of d units/unit time
Replenishments made when inventory reaches zero level so that no shortages occur.
Fixed lot size q.
Infinite replenishment rate
Lead time is known
The unit carrying cost, c, is constant Rs/unit/unit time.
The replenishment cost, C3 is constant Rs/Order.

34. SENSITIVITY STUDIES ON CLASSICAL LOT-SIZE MODEL
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
SENSITIVITY STUDIES ON CLASSICAL LOT-SIZE MODEL TC
Total cost
Avg. Inventory = q/2
Carrying cost
TCmin
Inv.
Level
ANNUAL COSTS q
Order cost q* q1 q2
LOT SIZE q
Sensitivity Q = bq*, b > 0 b
0.5
0.8
0.9
1.0
1.1
1.2
1.5
2.0
TC/TCmin
1.250
1.025
1.006
1.000
1.005
1.017
1.083
1.29

35. EOQ WITH QUANTITY DISCOUNTS
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
EOQ WITH QUANTITY DISCOUNTS
Total annual cost =
Annual usage
Example
Annual demand = 5000 parts
Order cost = Rs 49
Inventory carrying cost = Re 1 per part/year
Discount schedule
Order quantity
Unit cost/part
0 – 999
1000 – 2499
2500 – over
Rs 5
Rs 4.85
Rs 4.75

36. TOTAL ANNUAL COSTS for THREE ORDERING POLICIES
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
TOTAL ANNUAL COSTS for THREE ORDERING POLICIES
ORDER QTY.
ANNUAL HOLDING COST
ANNUAL
ORDER COST
PURCHASE COST
TOTAL
700
1000
2500
350
500
1250
245 98
25,000
24,250
23,750
25,700
24,995
25,098
ANNUAL
COSTS q
700
2500
25,700
TAC(Rs 5)
1000
TAC(Rs 4.85)
TAC(Rs 4.75)
25,098
24,995
OPERATING AT A LOT-SIZE of 1000 rather than EOQ of 700 is WARRANTED HERE

37. AN EXAMPLE ILLUSTRATING SHIFT OF EOQs
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
AN EXAMPLE ILLUSTRATING SHIFT OF EOQs
100 and over
Re 1
D = 250/yr
C3 = Rs 5/order
i = 20%
ANNUAL
COSTS q
EOQ=79
112
100
IN THIS CASE A LOT SIZE OF 112 RESULTS IN MINIMUM COST

38. DETERMINISTIC SINGLE ITEM MODEL
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
DETERMINISTIC SINGLE ITEM MODEL t1 t2 tp t3 t4 t
Imax -b
Rate of fall, d
Rate of rise p-d
NOTATION
d = demand rate (units per unit time)
P = production rate (unit per unit time)
Q = order/production quantity
T = cycle length
B = maximum backorder level permitted
Imax = maximum on-hand inventory level
C = unit item cost
C1 = inventory carrying cost in Rs/unit/unit time = iC
C2 = shortage cost in Rs/unit/unit time (back logged demand)
C2 = shortage cost/unit short independent of time (lost sales)
C3 = set up cost per order/batch

39. Time to produce a lot, tp = q/p max. inventory, Imax =
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
Cycle time t = q/d
Time to produce a lot, tp = q/p
max. inventory, Imax =
t1 = time for backorder b to be cleared once production starts
t2 = time for inventory level to build up from zero to Imax
t3 = time for inventory level to drop to zero from Imax at constant demand, d
t4 = time for backlog b to buildup at a demand rate, d

40. COSTS/CYCLE During (t2 + t3) there is inventory and carrying costs
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
COSTS/CYCLE t1 t2 t3 t4
During (t2 + t3) there is inventory and
carrying costs
= ½ Imax (t2 + t3) c1
During ( t1 + t4) there is shortage cost = ½ b (t1 + t4) C2 + C’2 b
Ordering / replenishment cost per cycle = C3
Notice that

41. AVERAGE ANNUAL COSTS K (q, b)
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
AVERAGE ANNUAL COSTS K (q, b)
K (b, q) =
Substituting for t, (t1 + t4), (t2 + t3) & Imax in terms of q, b we obtain
K (b, q) =

42. module 9:Tactical Decisions and Review
Back to main index exit back to module contents
OPTIMAL RESULTS
Annual cost is K (b, q)
The solution of these simultaneous equations yields the optimum values q* and b* as follows:
and

43. FAST vs SLOW MOVING ITEMS
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
FAST vs SLOW MOVING ITEMS
Slow moving items
Low level of demand
Frequent periods of no usage
Thresholds difficult to define [ depend on item nature]
Likely to be between units/yr
Peterson & Silver (1979) recommend classifying items according to demand over the replenishment lead time:
An expected lead time demand of 10 units or larger puts the item in the fast mover’s class, while an expected lead time demand of less than 10 units defines a slow mover

44. module 9:Tactical Decisions and Review
Back to main index exit back to module contents
CONTINUOUS (PERPETUAL) REVIEW SYSTEM WITH REPLENISHMENT ORDER QTY. Q AND REORDER LEVEL R
Amt. of inventory on hand
Reorder level, R
Safety stock (s s)
Avg. lead time usage (U)
Amt. used during Lead time U1 U2 U3 Q
LT1
LT2
LT3
Order qty, Q
Time

45. COMPUTATIONS FOR R U = Lead time demand LT = Lead time (working days)
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
COMPUTATIONS FOR R
U = Lead time demand
LT = Lead time (working days)
D = daily demand Z
Probability of stockout
Z is obtained from the NORMAL TABLES based on
A pre specified stockout probability, P
Optimal stockout frequency based on costs of shortage and carrying inventory
either or

46. EXAMPLE (p305, ch. 10) Per unit holding cost = Re 1/yr
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
EXAMPLE (p305, ch. 10)
Per unit holding cost = Re 1/yr
Ordering policy : 4 times a yr
Pre specified service level : 1 stockout/3 yrs
SQ/yr = 0.33
LEAD Times from SUPPLIER
Order
placed
1/7
2/3
3/16
4/6
5/2
6/2
Order received
1/18
2/21
4/20
4/28
5/20
6/23
Lead times
Calendar days
Working days 11 7 18 12 35 25 22 16 14 21 15
Month/
day

47. EXAMPLE (p305, ch. 10) (contd.) LT = 7 + 12 +25 + 16 + 14 + 15
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
EXAMPLE (p305, ch. 10)
(contd.)
LT = 6
= days
Var (LT) = (7 – 14.83)2 + (12 – 14.83)2 + …
6 -1
= (day)2
Similar data on demands for last six months yield
d = 40 units/day
Var (d) = 30 (units/day)2

48. EXAMPLE (contd.) Units demanded per lead time Units per lead time
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
EXAMPLE (contd.)
Units demanded per lead time
Units per lead time
Desired SO/yr = 0.33 (as stated earlier)
Order cycles/yr = 4 (given) = n
P = desired probability of stockout per order cycle Z
0.083
From tables Z = 1.39
SS = 1.39 (237.5) = 330.1
R = = 923.4

49. IMPROVING RELIABILITY OF LEAD TIME
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
IMPROVING RELIABILITY OF LEAD TIME
If var (LT) = 0
Then var (U) = 30 X = 444.9
u = 444.9 = units per lead time
(compared to the original 237.5)
Safety stock = 1.39 (21.09) = 29 ( compared to 330 earlier)
R = 622 (compared to 923 earlier)
Inventory lowered by 301 units
Annul savings = Rs 1 X 301 = Rs 301
Thus it is worthwhile to improve reliability of lead time

50. OPTIMAL STOCKOUT FREQUENCY AND IMPLIED BACKORDER COSTS
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
OPTIMAL STOCKOUT FREQUENCY AND IMPLIED BACKORDER COSTS
Cost of shortage X Optimal SO/yr = Inventory carrying cost
Shortage cost = Rs 10
 optimal SO/yr = 1/10 = 0.10
P* = SO/yr = 0.01 = 0.025 n 4
Z = 1.96 (from normal tables)
 R* = (237.5) = =
For R = 926
SO/yr = C1/shortage cost
0.33 = 1/shortage cost
CB = 1/0.33 = Rs 3 (implied shortage cost)

51. INVENTORY CONTROL POLICIES
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
INVENTORY CONTROL POLICIES
CONTINUOUS REVIEW SYSTEMS
(S, Q) policy – when available inventory reaches level s, order Q
(s, S) policy – when available inventory becomes equal to or less than s, order upto level S
PERIODIC REVIEW SYSTEMS
(nQ, s, R) policy – If at a review time the available inv. < s, an amt. nQ is ordered (n=1,2,3) n is such that after the order is placed, the avail. Inv. Reaches a level in (s, s+Q)
(S, R) policy – At each review time a sufficient qty. is ordered to bring the level of ave. inv. upto S.
(s, S, R) policy – If at a review time, the available inv. < s a sufficient qty. is ordered to bring level upto S, otherwise no order is placed
Available inventory = inventory on hand + amount on order Units back ordered

52.  Stock Avg. demand during avg. lead time (buffer)
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
Lead time
Reorder point
Avg.
Lead time consumption
Reserve stock
Safety stock
Demand uncertainties
Lead time uncertainties 
Stock
Avg. demand during avg. lead time (buffer)
Variations in demand during avg. lead time, depending on service level (reserve stock)
Avg. demand during delivery delays (safety stock)
Avg. demand for maximum delay
Probability of delay

53. EXAMPLE For the following data work out the costs under both
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
EXAMPLE
For the following data work out the costs under both
A continuous review, fixed order qty (Q system)
A periodic review, variable order qty (P system)
Avg. annual demand = 20,000 units
Std. deviation of demand per week = 50 units
Unit price = Rs 10
Ordering cost = Rs 100
Inventory carrying cost rate = 20%
Avg. lead time = 4 weeks
Max. delay = 3 week
Probability of delay = 0.31
Service level = 95% (prob. Of stockout during lead time = 5%)

54. Q system module 9:Tactical Decisions and Review
Back to main index exit back to module contents
Q system
time S
2062
Stock level
Q = 1414
Lead time = 4 weeks
1.64 
Mean, 
0.95

55. P system 3 weeks  Total inv. Cost = 1733 + 1154 = Rs 2887
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
P system
Can be rounded off to either 3 or 4 weeks depending on cost consideration
3 weeks
 Total inv. Cost = = Rs 2887

56. P system 4 weeks  Total inv. Cost = 1300 + 1154 = Rs 2840
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
P system
4 weeks
 Total inv. Cost = = Rs 2840
 Review period is 4 weeks
Desired inventory level = Buffer + Reserve + safety = 3668

57. SAFETY STOCK DETERMINATION
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
SAFETY STOCK DETERMINATION
Issues
What is the optimal level of protection ?
How often do we tolerate running out of stock ?
Tradeoff between holding costs & shortages
2) What reorder level should we set to achieve to achieve this theoretically optimal protection ?
Practical question answered through statistics.
Chosen reorder level
Distribution of lead time demand
Prob. Of stockout

58. SUMMARY The EOQ formula with sensitivity analysis was discussed
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
SUMMARY
The EOQ formula with sensitivity analysis was discussed
Many variations of the lot size formula with and without backlogging for purchase and production situations were considered
Quantity discounts were explored
The P & Q policies for inventory control were compared
Safety stock determination in inventory systems was considered

59. 3. Material Requirements Planning
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
3. Material Requirements Planning

60. RAW MATERIALS & COMPONENTS USED IN THE END PRODUCTS
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
WHAT MRP DOES ?
MASTER SCHEDULE
FOR END ITEMS
MRP
DETAILED SCHEDULE FOR
RAW MATERIALS & COMPONENTS
USED IN THE END PRODUCTS
Dependent demand
lumpy

61. INDEPENDENT VS DEPENDENT DEMAND
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
INDEPENDENT VS DEPENDENT DEMAND
Independent Demand:
Demand unrelated to demand of other products (end products, spare parts)
Usually forecast
Conventional inventory control (EOQ, Wagner/Whitin) applicable.

62. INDEPENDENT VS DEPENDENT DEMAND
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
INDEPENDENT VS DEPENDENT DEMAND .
Dependent Demand:
Demand directly related to demand of some other product (components, raw materials, subassemblies)
Requirements derived from delivery schedule of end items.
MRP is the appropriate tool for planning & control of manufacture inventories
raw materials
WIP
Component parts
Subassemblies

63. LUMPY DEMAND CONTINUOUS DEMAND Assumed in economic lot size formula
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
LUMPY DEMAND
TIME
Avg.
rate of
demand
Inv.
LEVEL
CONTINUOUS DEMAND
Assumed in economic lot size formula
LUMPY DEMAND
TYPICAL OF MRP APPLICATIONS
(raw materials, components sub-assemblies consumed in Large increments corresponding to a certain batch of final product)
TIME
Inv.
LEVEL t1 t2 t3 t4 t5 t6

64. LEAD TIMES Ordering Lead Time: (for purchased parts)
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
LEAD TIMES
Ordering Lead Time:
(for purchased parts)
Initiation of purchase requisition
Receipt of item from vendor
(off shelf / fabricate)
Manufacturing Lead Time:
Place order
Item delivered
Process part through sequence of machines as given on route sheet (operation + non-productive times)
In MRP, lead times are used to determine starting dates for assembling final products and subassemblies, for producing component parts, and for ordering raw materials.

65. INPUTS TO MRP The master production schedule and other order data.
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
The master production schedule and other order data.
The bill of materials file. (The product structure)
The inventory record file.
INPUTS TO MRP

66. COMMON USE ITEMS C1 C2 C3 Cn P1 P2 P3 PN
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
COMMON USE ITEMS C1 C2 C3 Cn P1 P2 P3 PN
BASIC RAW MATERIAL
COMPONENTS
PRODUCTS
MRP collects the common use items from different products to effect economics in ordering the raw materials and manufacturing the components/sub assemblies

67. STRUCTURE OF AN MRP SYSTEM
Back to main index exit back to module contents
Gross &
Net requirements
report
Capacity vs
Load report
Shop floor
Planning
Production Order
Status & exceptions
Service
Parts
requirements
Sales
forecasts
Customer
orders
Inventory
transactions
Master
Production
schedule
Engg.
changes
Record
file
MRP
PROCESSOR
Bill of
Materials
OUT PUT
REPORTS …

68. TYPICAL INFORMATION IN MPS:
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
MASTER PRODUCTION SCHEDULE
Week no 6 7 8 9 10
Product P1 50
100
Product P2 70 80 25
Etc.
TYPICAL INFORMATION IN MPS:
(a) What end products are to be produced?
(b) How many of each product to be produced?
(c) When the products are to be ready for shipment?
Demand for individual component Parts (for repair and service)
Firms customer orders
Forecasted demand
DEMAND
Often excluded from MPS, since it does not include end product demand.

69. BILL OF MATERIALS (BOM) FILE
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
BILL OF MATERIALS (BOM) FILE
Level 0
(product) C1 C2 C3 C4 C5 C6 S1 S2 P1
(1)
(2)
(4)
Level 1
(sub-assemblies)
Level 2
(raw materials)
Sub assembly S1 is the PARENT of components C1, C2 & C3. Any engg. Changes affecting product structure must be fed to BOM file.

70. INVENTORY RECORD FILE Accurate current data on inventory status
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
INVENTORY RECORD FILE
Accurate current data on inventory status
Generally computerized (item master file)
Lead times must be established in inventory Record file
Ordering
Lead time
Purchasing
records
Process
Route
sheets
Manufacturing
Lead time
INVENTORY TRANSACTIONS (issue, arrivals, order placement/realization) MUST BE KEPT CURRENT

71. PRODUCT STRUCTURE FOR PRODUCTS P1 & P2 Initial inventory status for M4
INPUTS FOR MRP EXAMPLE C1 C2 C3 C4 C5 C6 S1 S2 P1
(1)
(2)
(4) C7 C8 S3 S4 P2 M4
PRODUCT STRUCTURE FOR PRODUCTS P1 & P2
Master
Production
Schedule 25 80 70 P2
100 50 P1 10 9 8 7 6
Week
Initial inventory status for M4
Lead times (in weeks)
PLANNED ORDER RELEASES
NET REQUIREMENTS 90
ON HAND 40
SCHEDULED RECEIPTS
GROSS REQUIREMENTS
ITEM RAW MATERIAL M4 6 5 4 3 2 1
PERIOD 50
Assembly
Manufacturing
Ordering
P1 = 1
P2 = 1
S2 = 1
S3 = 1
C4 = 2
M4 = 3

72. BASIC MRP LOGIC Input MPS, BOM, Inventory Status, Lead times
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
BASIC MRP LOGIC
Input MPS, BOM, Inventory Status, Lead times
Do Parts Explosion
Offset requirements by lead times
Netting of requirements from Gross by considering availabilities
Lot sizing of net requirements for procurement or production

73. module 9:Tactical Decisions and Review
Back to main index exit back to module contents
PERIOD 1 2 3 4 5 6 7 8 9 10
ITEM PRODUCT P1 50
100
GROSS REQUIREMENTS
SCHEDULED RECEIPTS
ON HAND
NET REQUIREMENTS
PLANNED ORDER RELEASES
ITEM PRODUCT P2 70 80 25

74. module 9:Tactical Decisions and Review
Back to main index exit back to module contents
PERIOD 1 2 3 4 5 6 7 8 9 10
ITEM SUB ASSEMBLY S2
100
200
GROSS REQUIREMENTS
SCHEDULED RECEIPTS
ON HAND
NET REQUIREMENTS
PLANNED ORDER RELEASES
ITEM SUB ASSEMBLY S3 70 80 25

75. module 9:Tactical Decisions and Review
Back to main index exit back to module contents
PERIOD 1 2 3 4 5 6 7 8 9 10
ITEM COMPONENT C4 70
280 25
400
GROSS REQUIREMENTS
SCHEDULED RECEIPTS
ON HAND
NET REQUIREMENTS
PLANNED ORDER RELEASES
ITEM RAW MATERIAL M4 40 50 90 20
-20
260

76. MRP OUTPUT REPORTS Primary Outputs:
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
MRP OUTPUT REPORTS
Primary Outputs:
Order release notice, to place orders that have been planned by the MRP system
Reports showing planned orders to be released in future periods.
Rescheduling notices, indicating changes in due dates for open orders.
Cancellation notices, including cancellation of open orders because of changes in the master schedule
Reports on inventory status.

77. MRP OUTPUT REPORTS Secondary Outputs
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
MRP OUTPUT REPORTS
Secondary Outputs
Performance reports of various types – costs, item usage, actual vs planned lead times and other measures of performance.
Exceptions reports showing – deviations from schedule, overdue orders, scrap, and so on.
Inventory forecasts indicating projected inventory levels (both aggregate inventory as well as item inventory) in future periods.

78. BENEFITS OF MRP Reduction in inventory (30-50% in WIP)
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
BENEFITS OF MRP
Reduction in inventory (30-50% in WIP)
Improved customer service (late orders reduced by 90%)
Quicker response to changes in demand and master schedule.
Greater productivity
Reduced set up and product changeover costs
Better machine utilization
Increased sales and reductions in sales price.

79. AN IMPROVED ORDERING METHOD
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
EVOLUTION OF MRP
Improved computational efficiency of computers
AN IMPROVED ORDERING METHOD
PRIORITY PLANNING
CLOSED LOOP MRP
MRP II 
Unrealistic M/c schedules, ignoring plant capacities
Not only plans priorities but provides feedback to executing the priority plan
(Links functions
Capacity planning
Inventory management
Shop floor control
MRP)
Manufacturing Resource
Planning
Links up the closed loop MRP system with the financial systems of the company

80. FOR CLASSES OF MRP USERS
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
FOR CLASSES OF MRP USERS
Class A (most advanced)
Uses closed loop MRP
Integrated System has MRP, Capacity planning, shop floor, control, vendor scheduling etc.
MRP system used to help plan sales, engg, production, purchasing, etc
No shortage lists of override the production schedules.
System has MRP, capacity planning shop floor control, but no vendor scheduling
Used as a production control system
Needs help from shortage list
Inventory higher than need be
Class B

81. FOR CLASSES OF MRP USERS
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
FOR CLASSES OF MRP USERS
Class C
System used for inventory Ordering rather than scheduling
Scheduling by shortage list
Master schedule over loaded
MRP working in the data processing department only
Inventory records are poor
Master schedule, if it exists at all is overstated and mismanaged
Relies on shortage list & expediting rather than MRP
Class D (beginner)

82. ADDITIONAL FUNCTIONS OF MRP II
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
ADDITIONAL FUNCTIONS OF MRP II
IT IS AN OPERATIONAL & FINANCIAL SYSTEM
Company wide, Sales, Production, Engineering, inventories, cash flows
All operating data expressed in money terms
IT IS A SIMULATOR
“What if” questions
Simulate probable outcomes of alternative production plans and management decisions.

83. SUMMARY Dependent vs Independent Demand
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
SUMMARY
Dependent vs Independent Demand
MRP is useful for planning requirements of components and parts knowing end item demand
Major inputs to MRP include Master Production Schedule, BOM, Inventory and Lead Times
The MRP logic goes through Explosion, Offsetting, Netting and Lot sizing

84. module 9:Tactical Decisions and Review
Back to main index exit back to module contents
SUMMARY (Contd)
Major benefits of MRP include improved planning, lesser inventories, shorter lead times
However MRP does not integrate cost functions in different departments
MRPII (Manufacturing Resource Planning)
links the financial functions across the organization

85. 4. Job Shop Scheduling module 9:Tactical Decisions and Review
Back to main index exit back to module contents
4. Job Shop Scheduling

86. NATURE OF JOB PRODUCTION
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
NATURE OF JOB PRODUCTION
Variety of jobs produced
Both nature and demand of jobs is unpredictable
Consists of general purpose machines
Each job depending on its technological requirements, demands processing on machines in a certain order
Jobs queue before machines or there may be idle machines

87. OBJECTIVES IN JOB SHOP SCHEDULING
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
OBJECTIVES IN JOB SHOP SCHEDULING
Minimize total processing time or makespan
Minimize mean flow time
Minimize idle time of machines
Minimize mean lateness/earliness
Minimize mean tardiness
Minimize number of tardy jobs
Minimize mean queue time
Minimize the number of jobs in the system

88. COMPLEXITY OF THE PROBLEM
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
COMPLEXITY OF THE PROBLEM
With n jobs to be processed on m machines the number of possible sequences is (n!)m n 5 10 15 20 m 2 4
(n!)m
14400
1,73x1026
3.8x1060
8.5x1091

89. PRELIMINARY DEFINITIONS
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
PRELIMINARY DEFINITIONS
A job shop is characterised by
No of jobs (n)
Number of Machines (m)
Pattern of arrival of jobs (static/dynamic)
Objective of scheduling(minimise inventory, makespan, maximum tardiness, lateness…)
Sequencing rule (FCFS, LIFO, SPT, LPT, EDD ...)

90. DEFINITIONS-I Waiting time, wi Processing time, ti Completion time ,Ci
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
DEFINITIONS-I
Waiting time, wi
Processing time, ti
Completion
time ,Ci
Job arrival
time, ai
Start of
processing
Flow time, Fi = wi + ti = Ci - ai = Time job spends
on the shop floor, waiting and being processed

91. DEFINITIONS II Due Date, di Job arrival time, ti Start of Processing
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
DEFINITIONS II
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
Due Date, di
Job arrival
time, ti
Start of
Processing
Completion
time, Ci
Job lateness, Li = Ci- di (could be positive or negative)
Job earliness, Ei = max (0, -Li)
Job tardiness, Ti = max (0, Li)

92. N/1 PROBLEM All sequences for the n/1 problem have the same makespan
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
N/1 PROBLEM
All sequences for the n/1 problem have the same makespan
Therefore other objectives are relevant
mean flowtime
average inventory
mean lateness
mean completion time

93. RELATIONSHIP BETWEEN F AND OTHER VARIABLES
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
RELATIONSHIP BETWEEN F AND OTHER VARIABLES
Fi = Ci -ai = wi + ti
Li = Ci - di
From these equations it is easy to see that a sequence that minimises mean F also simultaneously minimises
mean Completion times
mean Waiting times
mean Lateness

94. INVENTORY VARIATION FOR AN ARBITRARY N/1 SEQUENCE
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
INVENTORY VARIATION FOR AN ARBITRARY N/1 SEQUENCE
Avg inventory = [nt1+ (n-1)t2 + … 1 tn]/T
Avg inventory I = Area /T
Summing horizontal strips:
Area = F1 + F2 + … +Fn
= n avg Flow time
Thus
T(avg inventory) = n (avg flow time)
Inventory n
n-1
n-2 2 1
Job under process (Total Time T)
n-1 n

95. SPT vs LPT LPT maximizes n what SPT minimises LPT SPT T
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
SPT vs LPT
LPT maximizes
what SPT minimises n
LPT
SPT T

96. module 9:Tactical Decisions and Review
Back to main index exit back to module contents
SPT RULE
Thus the rule that minimizes mean flow time also minimises the mean inventory
It is seen that the SPT (Shortest Processing Time Rule) minimises
mean inventory
mean flow time
mean waiting time
mean completion time
mean lateness

97. AN EXAMPLE Six jobs with processing times
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
AN EXAMPLE
Six jobs with processing times
4, 8 5, 9, 2 and 6 respectively
Due dates 10, 8, 12, 15, 9 and 20 respectively
Solution
The SPT sequence is 5(2), 1(4), 3(5), 6(6), 2(8) , 4(9)

98. module 9:Tactical Decisions and Review
Back to main index exit back to module contents
EXAMPLE (Contd)
The SPT sequence is 5(2), 1(4), 3(5), 6(6), 2(8) , 4(9)
Completion (Flow Times) are
2, 6, 11, 17, 25, 34
Due Dates are job (due date)
5(9), 1(10), 3(12), 6(20), 2(8) , 4(15)
Lateness values are
-7, -4, -1, -3, 17, 19

99. RESULTS SPT sequence: 5 1 3 6 2 4 Mean Flow time: 95/6 =15.833
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
RESULTS
SPT sequence:
Mean Flow time: 95/6 =15.833
Average Inventory : (6*95)/(6*34)= 2.794
Mean Lateness: 21/6 =3.5
Mean Tardiness: 36/6 =6
Mean Earliness: 15/6 =2.5

100. EXAMPLE 2 Task Processing time Due date Slack time 1 5 15 10 2 8 3 6 9
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
EXAMPLE 2
Task
Processing time
Due date
Slack time 1 5 15 10 2 8 3 6 9 4 25 22 20 14 40 26 7 45 38 50 47

101. module 9:Tactical Decisions and Review
Back to main index exit back to module contents
Rule
Objective
Mean Flow Time
Weighted Mean Flow time
Mean Lateness
Maximum Tardiness
No of Tardy jobs
Mean Tardiness
SPT
MFT,AVG INV,
23.9
29.0
-3.6 22 4
7.8
WSPT
WMFT
27.0
27.5
-0.5 36
10.6
EDD
Max job lateness/tardiness
32.0
31.7
4.5 9 6
5. 0
Hodgson
No of tardy jobs
29.1
29.9
1.6 2
9.0
SLACK
Mean tardiness (heuristic)
32.1
31,1
4.6
5,0

102. n/2 PROBLEM n job 2 machine Flowshop
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
n/2 PROBLEM
n job 2 machine
Flowshop
Different sequences now have different completion times (makespan)
Therefore unlike the n/1 problem minimizing the makespan is a legitimate objective
Johnson’s Rule is commonly used to solve the problem A B

103. AN EXAMPLE Time on M/c A Time on M/c B Job1 10 2 Job2 5 7 Job3 4 Job 4
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
AN EXAMPLE
Time on M/c A
Time on M/c B
Job1 10 2
Job2 5 7
Job3 4
Job 4 12 8
Job 5 9 6

104. JOHNSON’S SEQUENCE module 9:Tactical Decisions and Review M/c A M/c B
Back to main index exit back to module contents
JOHNSON’S SEQUENCE
M/c A
M/c B

105. n/3 FLOWSHOP M/c A M/c B M/c C 1 10 4 5 2 12 6 3 8 9 7 14
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
n/3 FLOWSHOP
M/c A
M/c B
M/c C 1 10 4 5 2 12 6 3 8 9 7 14
Notion of dominance

106. module 9:Tactical Decisions and Review
Back to main index exit back to module contents
n/3 FLOWSHOP
M/c A
M/c B C 1 10 8 6 2 4 9 3 5
When Dominance does not exist

107. COMPUTATIONS M/c A+B M/c B+C 1 2 3 4 5
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
COMPUTATIONS
M/c A+B
M/c B+C 1 2 3 4 5

108. COMPUTATIONS M/c A+B M/c B+C 1 2 3 4 5
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
COMPUTATIONS
M/c A+B
M/c B+C 1 2 3 4 5

109. 2/m/JJOBSHOP module 9:Tactical Decisions and Review
Back to main index exit back to module contents
2/m/JJOBSHOP

110. PRACTICAL SOLUTIONS TO JOBSHOP TRAINING
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
PRACTICAL SOLUTIONS TO JOBSHOP TRAINING
Priority Dispatching Rules
FCFS
SPT
EDD
SLACK
RANDOM
LRPT (Least Remaining Processing Time)
S/OPR (Min Ratio oof job slack time to the number of operations remaining
LCFS
DS (Least Dynamic Slack)
DS/PT Minimum ratio of Dynamic Slack to remaining Processing Time

111. SUMMARY AND CONCLUSIONS
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
SUMMARY AND CONCLUSIONS
The complexity of Job Shop Scheduling
n/1 problem
n/2 flow shop problem
n/ 3 problem
2/m/job shop
General job shops
Simulation

112. 5. Course Summary and Review
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
5. Course Summary and Review

113. PROJCT MANAGEMENT (CONTENTS)
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
PROJCT MANAGEMENT (CONTENTS)
A. PROJECT MANAGEMENT (19 Lectures)
a.1 Project conception and appraisal ( 5 lectures)
Concept of a project, historical perspective, various issues: Time, cost, Quality, Project Identification and Screening: Various methods and frameworks, Factors for project appraisal, Criteria for project selection, Financial measures, some examples
a.2 Project Planning ( 4 lectures)
Project representation, network concepts, Consistency and Redundancy in Project Networks, Activity on arc representation, concept of scheduling, Critical Path Method, Basic Scheduling with A-O-A, Activity on node representation, Basic Scheduling with A-O-N Networks
a.3 Project crashing and Resource considerations ( 5 lectures )
Probabilistic Scheduling: Uncertainty and probabilistic considerations in project, PERT, Three-estimate approach, Project Scheduling with Probabilistic Activity Times, Heuristic approach for Linear Time-Cost Tradeoffs in Projects, Resource Profiles and leveling, Limited Resource Allocation
a.4 Project Implementation:( 5 lectures )
Considerations in implementation, Project Monitoring and Control with PERT / Cost, Behavioral and human issues, Team Building, Desirable attributes of project leader, computers in project management , Project Completion, Review

114. PRODUCTION MANAGEMENT(CONTENTS)
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
PRODUCTION MANAGEMENT(CONTENTS)
b.1 Strategic decisions in production management (5 lectures )
Concept of a production system, historical perspectives on production system, a generalized model of production system, Concept of a life cycle, various stages in life cycle, implications for managerial decision making vis-à-vis life cycle, Financial Evaluation Of Production Related Decisions: Typical Performance Measures of a Production System, Criteria such as net present value, rate of return, Financial Evaluation of Capital Decisions, concept of a decision tree, evaluation of risk
b.2 Product and process selection ( 4 lectures )
Designing Products and Services: Factors for New product/service introduction, product mix decisions using linear programming approach, stochastic product mix decisions
b.3 Facility Location and Layout ( 4 lectures )
Considerations in Plant Location, various models for location (gravity etc.), Process Layouts, Product Layouts, comparison of process and product layout, concept of Assembly Line Balancing, heuristic approaches for assembly line balancing (rank position weight etc.), Cellular Layouts
b.4 Production planning over the short Term Horizon ( 4 lectures )
Demand Forecasting, various methods for forecasting (qualitative and quantitative), Aggregate Production Planning (APP), models for APP
b.5 Tactical decisions and review (5 lectures )
Inventory: necessity, and costs involved, deterministic inventory models, Dependant demand systems, Material Requirements Planning, Scheduling of Job Shops, various heuristics for scheduling, course review

115. Project and Production Management
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
Project and Production Management
Project Conception and Appraisal
Project Management: An Overview
Project Identification and Screening
Project Appraisal: Part I
Project Appraisal: Part II
Project Selection

116. Project Management Project Planning Project Representation
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
Project Management
Project Planning
Project Representation
Consistency and Redundancy in Project Networks
Basic Scheduling with A-O-A Networks
Basic Scheduling with A-O-N Networks

117. Project Management Project Crashing and Resources
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
Project Management
Project Crashing and Resources
Project Scheduling with Probabilistic Activity Times
Linear Time-Cost Tradeoffs in Projects: A Heuristic Approach
Resource Profiles and leveling
Project crashing with multiple objectives
Limited Resource Allocation

118. Project Management Project Implementation
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
Project Management
Project Implementation
Project Monitoring and Control with PERT / Cost
Team Building and Leadership in Projects
Organizational and behavioral issues
Computers in project management
Project Completion and Review

119. Project & Production Management
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
Project & Production Management
Project Conception and Appraisal
Project Management: An Overview
Project Identification and Screening
Project Appraisal: Part I
Project Appraisal: Part II
Project Selection
Project Planning
Project Representation
Consistency and Redundancy in Project Networks
Basic Scheduling with A-O-A Networks
Basic Scheduling with A-O-N Networks
Project Crashing and Resources
Project Scheduling with Probabilistic Activity Times
Linear Time-Cost Tradeoffs in Projects: A Heuristic Approach
Resource Profiles and leveling
Project crashing with multiple objectives
Limited Resource Allocation
Project Implementation
Project Monitoring and Control with PERT / Cost
Team Building and Leadership in Projects
Organizational and behavioral issues
Computers in project management
Project Completion and Review

120. Production Management
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
Production Management
Strategic Decisions in Production Management
Introduction to Production Systems and a Generalized Model of Production
Life cycle of a Production System and Major managerial Decisions
Performance Measures of a Production System
Financial Evaluation of Capital Decisions
Decision Trees and evaluation of risk

121. Production Management
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
Production Management
Product and Process Selection
Introducing New Products and Services I
Introducing new products and services II
Product Mix Decisions

122. Production Management
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
Production Management
Facility Location and Layout
Plant Location
Process Layouts
Product Layouts and Assembly Line Balancing
Cellular Layouts

123. Production Management
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
Production Management
Production Over the Medium Term Horizon
Demand Forecasting: General considerations
Models for forecasting
Aggregate Production Planning I
Aggregate Production Planning II

124. Production Management
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
Production Management
Production Over the Medium Term Horizon
Demand Forecasting: General considerations
Models for forecasting
Aggregate Production Planning I
Aggregate Production Planning II

125. Production Management
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
Production Management
Tactical Decisions over the Short Term Horizon
Inventory considerations and various factors
Inventory modeling
Material Requirements Planning`
Scheduling of Job Shops
Course summary and review

126. WHAT IS A PROJECT? PURPOSE
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
WHAT IS A PROJECT?
PURPOSE
An undertaking or venture to accomplish some objective or goal
STRUCTURE
A set of interrelated jobs whose accomplishment leads to the completion of the project
COMPONENTS
Jobs or activities consume time and resources and are governed by precedence relations

127. PROJECTS AS AGENTS OF CHANGE
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
PROJECTS AS AGENTS OF CHANGE
State B
Alternative
Projects
(Paths)
State A

128. FEATURES OF PROJECTS Well defined collection of jobs
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
FEATURES OF PROJECTS
Well defined collection of jobs
Generally non-repetitive, one time effort
Jobs interrelated through precedence
Jobs otherwise independent

129. PROJECT FEATURES (Continued)
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
PROJECT FEATURES (Continued)
Jobs consume time and resources
Coordination needed between individuals, groups & organisations
Constant pressure of conformance to time/cost /performance goals

130. A Project as a Production System
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
A Project as a Production System
Mass production
Batch Production
Job Production Q
Quantity to be Made
Projects 1
P (No. of Products or “VARIETY”)

131. LIFE CYCLE OF A PROJECT Selection of the project Project Planning
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
LIFE CYCLE OF A PROJECT
Selection of the project
Project Planning
Scope of work & network development
Basic Scheduling
Time Cost tradeoffs
Resource Considerations in projects
Project Implementation
Project Completion and Audit

132. Motivation in Introducing New Products
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
Motivation in Introducing New Products
For profit
To satisfy need

133. CONTRIBUTION TO NEW PRODUCT IDEAS
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
CONTRIBUTION TO NEW PRODUCT IDEAS
Sales and Marketing (close touch with customer)
Top management (Active listener to visitor and customer feedback)
Production department (limited to production ease and economics)
Research and Development (prompted by new developments in materials & technology)

134. GENERATION OF NEW PRODUCT IDEAS
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
GENERATION OF NEW PRODUCT IDEAS
Brain storming (preferably by
interdisciplinary team)
Team apprised of
Company objectives & long term goals
Current economic scenario
Preferred field of activity (expertise)
Approximate budget for new product
Each one generates ideas which are recorded without criticism or evaluation

135. EVALUATION OF NEW PRODUCT IDEAS
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
EVALUATION OF NEW PRODUCT IDEAS
The evaluation of the new product ideas could be done on a number of criteria
Likely demand and pattern of growth
Ease of raw material availability
Availability of Production technology
Competition and likely market share
Likely revenues and costs of operation
The product life cycle
An example to illustrate this process is taken up next

136. AN EXAMPLE OF SCREENING OF IDEAS
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
AN EXAMPLE OF SCREENING OF IDEAS
Idea/
factor
Demand
Competition
Ease of Raw Mtl
Cost of processing
Likely profit
Score
Computer peripherals 6 3 5 26
Fast food 8 9 7 35
Fashion clothing 4 24
Soaps and detergents 2 28
Each factor evaluated on a scale of 1(least desirable) – 10 (most desirable)

137. module 9:Tactical Decisions and Review
Back to main index exit back to module contents

138. AN EXAMPLE OF SCREENING OF IDEAS
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
AN EXAMPLE OF SCREENING OF IDEAS
Idea/
factor
Demand
Competition
Ease of Raw Mtl
Cost of processing
Likely profit
Score
Computer peripherals 6 3 5 26
Fast food 8 9 7 35
Fashion clothing 4 24
Soaps and detergents 2 28
Each factor evaluated on a scale of 1(least desirable) – 10 (most desirable)

139. CUSTOMER NEEDS AND DESIRES
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
CUSTOMER NEEDS AND DESIRES
Desires
Natural, as hunger, shelter, love and security
Generated by exposure to circumstances and temptations
(as in advertisements on media, TV,neighbour)
Needs
When a desire becomes strong enough and warrants fulfilment, it becomes a need.
Customer demand is based on real or artificially generated needs
Needs are constantly changing

140. MORTALITY OF IDEAS module 9:Tactical Decisions and Review Screening
Back to main index exit back to module contents
MORTALITY OF IDEAS
Screening
Economic
evaluation Development
Testing
Commercialization
35-40 ?
Number
of ideas
3-24 months ?
Time

141. NEW CHALLENGES IN PRODUCTION
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
NEW CHALLENGES IN PRODUCTION
Price Quality
COMPETITION
Reduced Customer
lead times satisfaction
More producers
Demanding customers
Greater
variety

142. PRODUCTION AS A PART OF THE SUPPLY CHAIN
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
PRODUCTION AS A PART OF THE SUPPLY CHAIN
Transformation
process
Vendors Warehouses Retailers

143. module 9:Tactical Decisions and Review
Back to main index exit back to module contents
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
module 9:Tactical Decisions and Review
Back to main index exit back to module contents
CONCLUSIONS
This course has focussed on the Life Cycle issues in Projects and Production Systems
The Strategic, Operational and Tactical Issues in Projects and Production Systems have been discussed
The approach has been on conceptual issues as well as modelling of key processes and decisions