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Presentation on theme: "OPERATIONS MANAGEMENT"— Presentation transcript:


2 Introduction ………………………………………………….

3 Operations Management
Operations Management deals with Management of transforming inputs to outputs. Operation management is management of Direct Resources i.e. MEN MATERIAL MACHINE OM deals with Design of Products & Processes Acquisition of Resources Transformation of Resources into Output Distribution of Goods & Services

4 Operations Management
Traditional view perceives Operations Management as a system that is involved with the manufacture and production of goods and services Modern view perceives OM as a system designed to deliver Value

5 Operations Management
Importance of Operations Management - Organizations need to offer superior quality product /services at competitive price & still survive. This calls for efficiently managed operations Upto 1970, basic focus of OM was Cost Reduction Since 1990 focus is shifted to Value Creation

6 Operations Management
Typical Operations Management Decisions Capacity Decisions – Type, Quantum and Flexibility Facility decision – Location and its size Workflow and Technology decisions – Type of production processes and layout of facilities Materials and Inventory decisions Quality Decisions – Level and how to achieve it

7 Production Systems Production function is concerned with transformation of various inputs into required output Production System is the way in which this production function is carried out Selection of production nsystem is based on criteri like What will each alternative cost in short term and long term What will it provide in terms of cost, quality,time and availability of output What will require in terms raw material, energy, infrastructure, managerial talent and other inputs

8 Classification of Production Systems
Prod./Opera. volume Continuous Production Mass production Mass Production Batch production Batch production Job-shop Production Job-shop Production Output/Product Variety

9 OM in Organization Chart
President or CEO Marketing Operations V.P. of Operations Manages: People, Equipment, Technology, materials and information To Produce: Goods and/or Services Finance

10 OM in Organization Chart
In Manufacturing Firm Operations would include Prod. Control, Scheduling and Materials control Purchasing Manufacturing Quality Assurance Engineering Support Warehouse Management In Service industry it may differ according to the type of service offered

11 Product and Service Manufactured Goods Services These are physical
Intangible Can be stored, transported Can not be stored Customers do not have contact with production system Customers actively participate Response time is longer Response time is very short Requires large facilities, more capital Little facilities, lesser capital Quality is measurable Quality is not measurable

12 Operations as Service Emerging model is every organization is in service business In manufacturing such services can be divided As Core Service Manufacturing and delivering customized product correctly at required time at competitive price As Value-added Service Information Problem-solving Sales Support Field Support

13 HISTORICAL EVOLUTION Adam Smith -- Division of Labor
Assigning workers to tasks based on their SKILLS Production Management was re-titled as OPERATIONS MANAGEMENT (70’s) to enlarge the Field

14 HISTORICAL EVOLUTION Taylor’s Scientific Management
Task to workers based on skills Output time should be used for Plan & Schedules Standardized & written specifications, Job-Instructions Training of Supervisors & Workers Monetary Incentive for Motivation Working for Maximum Output, rather than Restricted output Developing all workers to the fullest extent possible

15 HISTORICAL EVOLUTION Moving Assembly Line
Applying Taylor’s Principle in Automobile production line in Ford Motors, Assembly time was reduced drastically. This increased popularity of Scientific Management Hawthorne Studies -- by Elton Mayo Introduced Human Dimensions Illumination Studies implied the effect of group and work environment on productivity of workers

16 HISTORICAL EVOLUTION Operations Research -- Started with World War II
Mathematical Technique to Deploy Limited Resources. Computers 50’s – Salary & Accounting Statements 60’s – L.P. to analyze operational problems 70’s -- Mnfrg. Information System Material Requirement Planning (MRP) 80’s -- CAD CAM FMS AS/RS 90’s – Robots for Repetitive & Hazardous tasks

17 HISTORICAL EVOLUTION 1980 - Manufacturing Strategy Just In Time (JIT)
TQC Service Quality and Productivity TQM and Quality Certification Business Process Reengineering (BPR) Supply Chain Management (SCM) E - Commerce

18 Shift in Emphasis Operations Management underwent three key shifts in emphasis From Cost and Efficiency to Value Creation From Mass Production to Agility and Customization From Functional Specialization to a Systems approach to achieve high performance

19 Current Issues in OM Coordinating the relationship between mutually supportive but separate organizations Optimizing Global SCM Increased co-production of goods and services Operational Challenges Process Design and Improvements Employee diversity Human Resource scarcity Global workforce

20 Current Issues in OM Challenges at Marketplace
Market fragmentation Vocal Customers Customer-Supplier relationship Technological Challenges Technological changes Bio-genetic Miniaturization Societal Challenges The Environment Intellectual Property

21 Operations Strategy & Competitiveness

22 OPERATIONS STRATEGY STRATEGY is a Plan consistent with the Objectives to eliminate external threats or to take advantage of Opportunities. Levels of Strategy Corporate Strategy Business Strategy Functional Strategy  Operations Strategy Operations Strategy is influenced by Product / Services Market served

23 Corporate Strategy Design Process
Firm should develop comprehensive strategy that integrates Finance, Marketing and Operations Financial Perspective : two basic strategies Growth Build the Franchise – Develop new sources of revenue Increase customer value Productivity Improve cost structure Improve asset utilization

24 Corporate Strategy Design Process
Customer Perspective – Find ways to differentiate itself in the marketplace Product Leadership Customer intimacy Operational excellence Internal Perspective Defines business process Specifies desired outcomes and the process to achieve them

25 Corporate Strategy Design Process
Learning and Growth Perspective – Defines intangible assets needed Strategic Competencies Strategic Technologies Climate for action

26 Strategy Organizations should have Resources and capabilities to execute and support the strategy The extent to which organization is matching its resources and capabilities with the opportunities in external environment is Strategic Fit Strategy is delivered through a set of tailored activities

27 Operations Strategy Operations Strategy specifies how operations can help implement firm’s corporate strategy. Operations Strategy involves linking design decisions and operating decisions Cross-functional interaction must occur for implementing any functional strategy. Operation Strategy must be linked vertically to the customer and horizontally to other parts of enterprise

28 Operations Competitive Dimensions
Competitive priorities – Four Groups COST Low cost operations, Commodity type products QUALITY High performance design, Consistent Quality. TIME Fast delivery time, On time Delivery Development Speed FLEXIBILITY Volume flexibility, Customisation, Varieties of product Special services to augment the sale

Designing the Production System Product / Service Design & Development Technology Selection & Process Development Allocation of Resources to Strategic alternatives Facility Planning

Should be in line with Organization Strategy And Organization Strategy should be in line with Corporate vision Aim is to achieve Long Term goals of Business strategy Operations Strategy should be Flexible to support product through its Lifecycle. Operations Strategy should be consistent with strategies of other functional areas.

31 Long Term Operation Strategy Decisions
concerned with Developing New Product Determining appropriate production capacity Establishing new production facilities Adopting new technologies Locations of Plant & Warehouses

32 Operations Strategy as Weapon in Competition
Identify distinct Competencies Expertise in Product (ITC) / Process / Marketing (P&G) / Supply (HLL) expertise Shorter Product Cycle – Fast entry & Growth (CD Mnfrg) Production Flexibility (Garment manufacturing lines) Low Cost Process (Labor Intensive Jobs) Convenience & Location ( HLL vis a vis Sara Lee) Product variety & Facility Size Quality

33 Productivity The productivity is the measure of efficiency.
Productivity is a ratio of Output to Input. Higher the ratio, higher the efficiency Two basic types of Productivity Total Productivity – Considers all the Inputs & Ratio is Total Output / Total Input Gives very little indication about Input areas needing improvement. It requires all variables to be expressed in same unit. Partial Productivity – Considers only Specific Input (like Labor, R.M.) and Ratio is total Output / Partial Input Partial Productivity ratio is more preferred.

34 Productivity Productivity ratios are used to measure efficiency of operation and comparison of same with reference to Time, Industry. Here it gains importance as control measure. To improve productivity we look at factors affecting productivity Time spent on unproductive activity Social or legal obligations Unrest in employees Learning new skills It is easy to measure the productivity of quantifiable tasks. But for Knowledge workers where tasks are Not quantifiable Intangible Dependent on many other factors Such that results are not directly attributable to tasks and results come up after a long period

35 Example of Productivity Measures
Input & Output Data Output Fin. Units Rs WIP 2500 Dividends 1000 Total Input Human Rs. 3000 Material 153 Capital Energy 540 Other expenses 1500 Total Total Measure Multifactor Measures Partial Measures

36 Learning Curve Learning Curve is a line displaying relationship between unit production time and cumulative units produced Learning Curve Theory is based on three assumptions The amount of time required to complete a given task will be less each time the task is undertaken Unit time will decrease at a decreasing rate The reduction in time will follow a predictable pattern

37 Limited Passenger Service No baggage transfer
No meals No seat assignment Frequent Reliable Departures Lean and highly productive ground and gate crews

38 Process Analysis

39 Process Analysis Process is any part of the organization that takes inputs and transforms them into output expected to be of greater value By analyzing process we can understand Handling capacity Serving time Changes required to increase capacity How much does the process cost We must clearly define the purpose of analyzing the process

40 Process Analysis Process Analysis generally involves following tasks
Decide process boundaries that mark the entry point of the process inputs and exit points of the process outputs Construct process flow diagram showing various process activities and their interrelationships Determine capacity of each step in the process Identify the bottlenecks Evaluate further limitations in order to quantify the impact of the bottlenecks Use the analysis to make operating decisions and improve the process

41 Process Flowcharting Process Flow-charting is a tool that categorizes each activity & provides operational details to understand the process Good way to start analyzing a process is with diagram showing the basic elements of process Tasks Flows Storage Decision points Some times diagram is separated into different horizontal or vertical bands to allow separation of tasks

42 Types of Processes Single –stage process Multi-stage process
May be buffered internally Buffering refers to storage area between stages Buffering allows stages to operate independently If no buffering, it is possible that Blocking or Starving may happen Processes by Market Orientation Make to stock - generally standard products Make to order – generally customize products Hybrid – combination of both above

43 Types of Processes Processes by Production Systems Project Job-Shop
Batch Production Assembly Line Continuous Flow Cell Manufacturing Flexible Manufacturing System Pacing – refers to the fixed timings of movement of the items through the process

44 Multistage Process Alternate Paths Multistage Process with Buffer

45 Measuring Process Performance
Utilization =Actual utilized time / Available time Efficiency = Actual output of the process / standard Run-time – time required to produce a batch of parts Set-up time – time required to prepare a machine to make a particular item Operation time – sum of set-up and run-time for a batch Cycle time – time elapsed between starting and completing a job

46 Measuring Process Performance
Throughput time – time that a unit spends actually being worked on together with time spent waiting in a queue Throughput rate – Output rate that a process is expected to produce Process Velocity – Ratio of total throughput time to the value-added time Value-added time – time in which useful work is actually being done on the unit

47 Throughput Time Reduction
Perform activities in parallel Reduce back and forth movements Change the sequence of activities Reduce interruptions Eliminate redundant activities Combine activities wherever possible

48 /\/\/\/\/\/\/\/\/\/\/\/\/\/\
Product Design /\/\/\/\/\/\/\/\/\/\/\/\/\/\

49 Product Design Starts with conceptualization with objectives of
Providing value to the customer Return on Investment to the company Competitiveness in the market Product design has impact on Materials & components used Processes used for manufacturing Machines used for processing Methods of storage Ways of transportation Production / Operations Strategies Marketing Strategies

50 Product Design Design for Customer
Achievement of purpose for which it is required, expressed or implied Features Ease of operation User-friendly Reliability Consistency Conformance to specification Competitive price Serviceability Safety Aesthetic Environmental friendly Disposal value Durability

51 Quality Function Deployment
Quality Function Deployment is an approach to understand the customers requirements and incorporating it in product design Uses inter-functional teams Shortens design time Process begins with listening to customers to determine characteristics of a superior product Product needs and preferences are defined These are broken down into categories called customer requirements Requirements are given weights according to its importance to customers Customer is asked to compare and rate company’s product with that of a competitor

52 Value Engineering It is “Engineering the Value”
The prime concern of VE is to enhance the function to improve value VE seeks out best functional balance between Cost, Reliability and Performance VE looks at saving money while providing better value Value engineering always improves and / or maintains the quality, reliability and maintainability of a product It promotes progressive change by Identifying and removing unnecessary cost VE shows insights into the basics of Unnecessary cost without compromising on Quality, Reliability or Maintainability Application of Value Engineering is better way to fight inflation

53 Value Engineering VE is But VE is not
Systems Oriented formal job plan to identify and remove unnecessary cost Multidisciplinary team approach Lifecycle oriented – examines the total cost of owning and operating a facility Functional Oriented – relates functions required to the value received But VE is not Design Review A cheapening Process A requirement done on all designs Quality Control

54 Value Programs Value Engineering Value Analysis Value management
Describes a value study on a project or product that is being developed It analyses the cost of project or product while it is being designed Value Analysis Describes a value study of a project or product that is already built or designed It analyses product to see if it can be improved Value management Identifies methodology and techniques used in Value work

55 Design for Manufacturing and Assembly
Concurrent Engineering is necessary to speed up product development Form Cross-functional teams for product development Design for Manufacture (DFM) – A good product design would be such that it would make manufacturing related functions In less time With less effort At less cost

56 Product Development Activities involved in product development
Concept development Market assessment Feasibility Studies Prototype Design Prototype Testing Interaction with suppliers and production departments Initial Design of Production Model Economic Evaluation Market Testing Final Design of Production Model

57 Manufacturing Process Selection & Design
~~~~~~~~~ ~~~~~ ~~~~~~~~~

58 Major Factors Affecting Process Design Decisions
Nature of Demand Capacity to meet Estimated future demands Influence of Seasonality Trend & other factors Price level Degree of Vertical Integration Determines extent to which product & its components are produced internally Integration Backward or Forward

59 Factors Affecting Process Design
Flexibility Ability to respond quickly to changes In customer needs Market changes Product Flexibility Change from one product to other Results in Small batches Calls for General purpose machines Multi-skilled employees Employee Training Volume Flexibility Ability to change prod. Volume rapidly Required for products where demand fluctuates and high inventories are uneconomical

60 Factors Affecting Process Design
Degree of Automation It is a Strategic weapon Essential for remaining Competitive Can achieve flexibility (label manufacture) Quality Level & Degree of customer Contact Quality decides degree of Automation Customer contacts influence process like banking

61 Types of Processes Single –stage process Multi-stage process
May be buffered internally Buffering refers to storage area between stages Buffering allows stages to operate independently If no buffering, it is possible that Blocking or Starving may happen Processes by Market Orientation Make to stock - generally standard products Make to order – generally customize products Hybrid – combination of both above

62 Types of Processes Processes by Production Systems Project Job-Shop
Batch Production Assembly Line Continuous Flow Cell Manufacturing Flexible Manufacturing System Pacing – refers to the fixed timings of movement of the items through the process

63 Process Flow Structure
Process Flow Structure refers to how a factory organizes material flow Four major process flow structures are Job shop – small batches of varieties of products Batch shop – somewhat standardized job shop Assembly line Continuous flow

Product Focused Process Focused Group Technology

65 Product Focused Also known as Line Flow Production System
Used for High Volume Use Specialised machines Product or Services flow in linear path without backtracking Designed for three forms of production Discreet Unit Manufacturing – Distinct product like Radio Process Manufacturing – involves movement of material between operations ; like cement / paper plant Delivery of services – services are administered while Customers move in a queue

66 Product Focused Advantages – Low unit cost, Ease of Planning
Low labor skill required Reduced training Reduced Supervision Ease of Control Disadvantages - High Initial Investment

67 Process Focused Also called as Intermittent Production System.
Or Job Shop ( Products move in batches) Used for Low Volume Use relatively General purpose machine Operations are grouped according to Process Product flows in Irregular path

68 Process Focused Advantages – Flexibility is good
Less initial Investment Disadvantages – Jobs are waiting for their turn for processing Require greater employee skill More Employee training More Supervision Complex control In practice blend of both the systems is used.

69 Group Technology Dissimilar machines are grouped together into work
centers to process the products which are similar in shape & have similar processing requirement. Each cell is dedicated to a limited range of products Each cell is designed to perform specific sets of processes Also known as Parts Classification and Coding System (because each part manufactured is given a Code).

Selection depends upon Product variety & volume Product Flexibility and small batch size - Process focused Reduction in flexibility & increase in batch size – Cellular Variety decreases, batch size increased – Product focused Investment Economic Analysis – by way of Fixed & Variable Cost

71 Product Structure Process Structure Low volume Low Standardization Multiple products Few major products Higher volume High volume High Standardization Effectiveness Measure 1I Job shop Commercial Printer None (Not feasible Flexibility –High Unit Cost - high II Batch Heavy Equipment III Assembly line Automobile Assembly IV Continuous Sugar Refinery Flexibility – Low Unit Cost - Low

72 Service Process Selection and design
. Service Process Selection and design

73 Service Operations Service Operations exists in two broad organizational contexts Service Business – Primary business is providing services Facilities-based service – customer goes to service facility Field-based service – service is provided in customer’s environment Internal Services – Required to support activities of an organization

74 Characteristics of Services
Intangibility services can not be counted, measured or felt This results in each customer having different experience about the same service Customer-centered Heterogeneity Similar type of services have a different effect depending on person who renders and person who uses it Inseparability The production and consumption of service can not be separated from the source that provides it Perishability Services are required to be utilized as soon as they are produced; they are perishable Quality of work is not the quality of service

75 Classification of Service Organization
Service organizations can be classified on six dimensions Equipment focus / People focus Product focus / Process focus (how the purchase is made) Level of customization Back office focus / Front office focus (direct interaction with customer) Duration of customer contact Level of discretion

76 Categories of Service Organizations Schmenner’s Service Classification Matrix
Degree of Variation Customization for and Interaction with customers Low High Relative throughput time Service Factory Fast Food Call for Standard Operating Procedures Service Shop Traditional Restaurant Focus should be on reducing the variations and standardization of services Mass Service School Focus should be on lowering throughput time Professional Service Gourmet Restaurant Employees are highly skilled Personal Control

77 Designing Service Organization
In service we must meet demand as it arises So capacity is dominant issue Too much capacity generates excessive cost and insufficient capacity leads to lost customers Strive to reduce duration and variability of waiting period Designing service organization involves Identification of target market Service concept(how we differentiate our service in the market) Service strategy Service delivery system

78 Permeable system (some) Reactive system (much)
Buffered Core (none) Permeable system (some) Reactive system (much) Degree of customer/server contact Face to face total cusomization High Low Face to face loose specs Face to face tight specs Sales opportunity Production efficiency Phone contact Internet and on site Technology Mail contact Low High Worker requirement Clerical Skills Helping skills Verbal skills Procedural skills Trade skills Diagnostic skills Focus of operation Paper handling Demand management Scripting calls Flow control Capacity management Client mix Technological Innovation Office Automation Routine methods Computer database Electronic aids Self-serve Client/worker teams

79 Service System Design Depending on High-Contact or Low-Contact System, service design can differ on Facility location Facility Layout Product Design Process Design Scheduling Production Planning Worker Skills Quality Control Time Standards Wage Payment Capacity Planning

80 Service Encounter Service encounters are simply said as interactions between service provider and service seeker Service encounters are important for perception of service Three aspects of encounter are The flow of the service experience (what is happening) The flow of time (how long it seems to take) Judging encounter performance (what you think about it later)

81 Behavioral Science & Service Encounter
Front-end and back-end are not created equal Company is likely to be better off with a relatively weak start and upswing at the end Segment the pleasure and combine the pain Let the customer control the process Pay attention to the norms and rituals Particularly true for professional services People are easier to blame than systems Let the punishment fit the crime in service recovery

82 Service Blueprinting and Fail-safing
Each activity that makes up a typical service encounter is mapped into the flowchart Distinction is made between the high customer contact aspects of the services and those activities that customer does not see by drawing a line of visibility Designing Service Blueprint will involve Identification of all activities Identification of activities prone to problems Decide on time required to deliver service process Delivery of service Listing of interactions between service provider and customer Fail-safing can be done through Poka-yoke (procedure that blocks inevitable mistakes)

83 /\/\/\/\/\/\/\/\/\/\/\/\/\/\
Facility Location /\/\/\/\/\/\/\/\/\/\/\/\/\/\

Selection of Facility Location is needed When business is newly started When expansion in existing plant is not possible When a new branch is to be established When a place has to be vacated for Social or Economic reasons like inadequate power, Govt. regulations etc. Earlier these decisions were dependent on individual preferences.

85 Importance of Location
Location fixes the production technology and cost structure Size and nature of Business Ability to serve customer quickly and conveniently After facility location, Internal structure is decided that is LAYOUT

86 Steps for Location selection
Define the Location objectives and associated constraints Identify the relevant decision criteria Relate objectives to criteria by appropriate model Conduct field research Select the location that best satisfies the criteria Manufacturing location decisions focus on minimization of cost Service facility location decision focuses on maximization of profit potential

87 MODELS Cost – Profit – Volume or Break even analysis between alternatives for the estimated volume. Lower total cost is the choice. Point Rating Method – Decide factors important for location decision Assign weightage to each factor Give rating to each factor in the form of points Take sum of weighted rating of all the factors Highest rating location can be chosen Transportation Method of L.P.

Methods for initial feasible solutions are North-West Corner Method Least Cost Method Vogel’s approximation Method Problem Distances between factory and its warehouse and Demand at each warehouse are given in the table below Factory /Warehouse W 1 W 2 W 3 Supply F F F Demand Find out the solution for transporting the goods at a minimum cost.

89 MODELS Center of Gravity Method - used for optimal location for distribution center to minimize transportation costs The center of gravity can be found by taking weighted average of X and Y co-ordinates of different destinations

90 Locating Service Facility
Services have multiple sites to maintain close customer contacts Location decision is closely linked to market selection decisions Market need affect affects number, size and characteristics of site Service locations many times aim at maximizing profit potential rather than minimizing cost

91 Transportation Methods

92 Transportation This is a special case of L.P.
Applicable in situations involving physical distribution of goods from plants to warehouses and further Can also be applied to Production Scheduling & inventory Control This model reduces computational efforts involved in simplex method. Transportation problem can be Balanced or Unbalanced In Balanced problem Qty of Goods Produced is equal to Total Requirement In Unbalanced problem it is not. Unbalanced problem is made Balanced by adding Dummy If Production Capacity is higher, then Dummy Warehouse is added & If Production Capacity is lesser, then Dummy Origin is added.

93 Formulation of Transportation Problem
X i j represents the number of units shipped from origin i to destination j C i j represents the cost of shipping a unit from origin i to destination j S i represents the supply available at i th origin D j represents the quantity demanded at j th destination Then, Objective Function is Minimize Z = ∑ C i j X i j Subject to supply constraint = S i i = 1,2,….m Subject to demand constraint = D j j = 1,2,….n

94 Steps to solve Transportation Problem
Define Objective function to be minimized Develop Transportation table with Rows representing Origins & Columns representing Destinations Determine the Initial Feasible Solution Examine whether Initial Solution is Feasible. A solution is feasible, if the numbers of occupied cells in the solution are (m + n – 1) where ‘m’ is the number of origins & ‘n’ is the number of destinations. Test the solution for optimality by computing the opportunity cost associated with unoccupied cells If the solution is not optimum, modify the allocation such that transportation cost can be reduced further. Methods for initial feasible solutions are North-West Corner Method Least Cost Method Vogel’s approximation Method

95 Problem Distances between factory and its warehouse and Demand at each warehouse are given in the table below.Find out the solution for transporting the goods at a minimum cost. Factory /Warehouse W 1 2 3 Supply F 16 22 14 200 18 150 8 100 Demand 175 125

96 North-West Corner Method
The allocation of products starts at North-West (top left) corner of Transportation table Assign max. possible qty. to Top Left corner cell of table adjust supply and Demand numbers If supply is exhausted move to next Supply downwards & if Demand is satisfied move to next warehouse horizontally. Continue till entire requirements are met. Check the Feasibility of the Solution

97 W1 W2 W3 Supply F1 175 16 25 22 14 200 F2 18 100 50 150 F3 8 Demand 125

98 North-West Corner Method
The number of occupied cells is 5 that is equal to m + n – 1 cells; so solution is feasible. The cost associated with this solution is Rs. 7250

99 Least Cost Method Allocations are made on the basis of unit transport cost Allocate as many units as possible to the cell with least cost Select a cell with the next higher cost and allocate as many units as possible and continue the process till all requirements are met Number of occupied cells are 5 = m + n -1; hence the solution is feasible. The cost associated with this solution is Rs. 5900

100 W1 W2 W3 Supply F1 50 16 22 150 14 200 F2 25 18 125 F3 100 8 Demand 175

101 Vogel’s Approximation Method (VAM)
This is the most preferred method as it usually results in Optimal or near optimal solution. Calculate penalty i.e. the difference between the least cost and next least cost of that row/ column, for each row and column of T.T. Identify row or column with the largest penalty value; and assign the possible qty. of product to that cell having the least unit cost in that row or column. Adjust the supply and requirement values after the allocation is made. Delete that row or column where the supply or requirement is zero Calculate the values of penalty to all rows and columns for the reduced transportation problem and repeat the procedure till entire requirements are met.

102 W1 W2 W3 Supply Penalty F1 50 16 22 150 14 200 ; 50 2 ;2 ;2 F2 25 18 125 150 25 4 ;4 ;0 F3 100 8 100 ;0 6 Demand 175 75 125 ;0 150 ; 0 8 ;2 ;2 0 ;8 2 ;4 ;4

103 Vogel’s Approximation Method (VAM)
Number of occupied cells are 5 = m + n -1; hence the solution is feasible. The cost associated with this solution is Rs Number of occupied cells are 5 = m + n -1; hence the solution is feasible. The cost associated with this solution is Rs. 5900

104 Modified Distribution Method / MODI Method/ U-V Method
For allocated cells form equation ui +vj = Cij, and solve for ui , vj With these values of ui , vj , find Δij = Cij - ui - vj for all unallocated cells If all Δij are ≥ 0, then it is the optimum solution If any Δiiij ≤ 0, select most negative cell and form loop Starting point of the loop is positive and alternatively they are assigned +ve and –ve signs Examine the quantities allocated at negative places; select minimum and add it to positive places and subtract from negative places Form new table and check again for Optimality

105 Example on moving towards Optimization

106 Variations in Transportation Problem
Unbalanced supply and demand – Add dummy with zero transportation cost Degeneracy – Allocate small quantity (€) to unoccupied cell which has lowest transportation cost Alternate Optimal solution – It exists if the Net Cost Change for an Unoccupied cell is zero Prohibited Transport Route – Assign very large cost to that route For Maximization Transport problem, reverse the process

107 Facility Layout ^#^#^#^#^#^#^

108 FACILITY LAYOUT Physical disposition of the facilities of a plant.
Involves planning & arrangement of manufacturing machinery, equipment & services for first time & improvement thereafter. Aim is to allow quick flow of men & material with minimum cost & least handling process from the stage of material receipt to shipment of finished goods. No set patterns; Requires Expertise

109 FACILITY LAYOUT Revisions are required when changes occur in
Product Design Production Method Plant size Layout decisions have long term effect

To provide smooth flow of work & material Providing sufficient production capacity reducing material handling cost Reducing accidents & hazards Reducing congestion & utilizing the space efficiently and effectively Efficient utilization of labour Easy supervision Easy maintenance & high machine utilization Improving productivity

Maximum Flexibility Max. Co-ordination in different Dept. Max. visibility Max. accessibility Minimum distances / movements Min. handling Min. discomfort Inherent safety Efficient process flow / Unidirectional flow – no crossing Identification – Provide a space for each worker; it raises morale

112 PROCESS LAYOUT (Work-centers)
Also known as Functional layout or Job-shop layout Grouping of similar equipment in one area Use general purpose machines Workers must be highly skilled Require intensive job instructions Advantages – Greater flexibility Better & more efficient supervision thr’specialization Break-down can be handled easily Better utilization is possible Disadvantages – More production time More floor space is required Accumulation of work at different process centres

Graphic & Schematic analysis using templates Computer Models – CRAFT (Computerised Relative Allocation of Facilities Technique) is a program available Works on criteria similar to Load – distance Model. Initial layout is fed with cost of transporting loads and the loads moved. Load – distance Model – Used to minimize the material flow

114 PRODUCT LAYOUT (Assembly Line)
Also known as Flow shop / Straight Line Layout Arrangement of machines according to progressive steps. Preferred in the plant manufacturing standard products Advantages – Material handling cost is reduced considerably Less floor space required Better production control Disadvantages – Expansion of production line is difficult Break-down of equipment may disrupt entire line

This is partly established when Product design is made and the different steps to make it are determined. Line balancing is used to group tasks to be performed at each work-station Line balancing ensures that each work-station gets equal amount of time approximately

116 Assembly Line Balancing
Assembly Line Balancing problem is one of assigning all tasks to a series of workstations so that workstation is engaged for maximum amount of time out of Required Workstation Cycle Time (T) Steps in Balancing assembly Line Draw Precedence Diagram Determine Required Workstation Cycle Time ( C) C = Production time per day/ Reqd. output per day Determine theoretical minimum number of workstations (N) required to satisfy WCT N = Sum of Task Time (T) / Cycle Time (C) Assign task that has max following tasks to first workstation untill the sum of the task times is equal to WCT or no other tasks are feasible because of time or sequence restrictions Repeat till all tasks are completed Efficiency = Sum of task times / WCT * No. of Work stations

117 Grouping Technology Layout
These help in simplifying machine changeovers. Developing A Cellular Manufacturing Layout Parts with common sequence are grouped Dominant flow pattern is identified as a basis for location Machines are physically grouped into cells

Movement of machines & men to product which is stationery Less investment in Layout Avoids transporting bulky material HYBRID LAYOUT – Combination JAPANESE APPROACH Because of space constraint, layouts are COMPACT Designed for flexibility and adaptability to different product models SERVICE FACILITY LAYOUT Include features for customer contact & conveniences Layout in Banks is built totally around customer receiving service Layout in Hospital is more of process oriented than customer

119 Retail Service Layout Objective may be to maximize net profit per sq. ft. of floor space Aim is to maximize product exposure to customers Some rules for this layout Locate high-draw items around the periphery of the store Use prominent locations for high margin items Remove cross-over aisles Distribute “Power items” to both sides of aisles Also consider ambient conditions

120 Office Layout Basic design of the entire office and workspace
Should include everything that is required in the particular office for people to work smoothly and efficiently Relationship diagrams are considered for placing different departments adjacent to each other

121 Measuring Flow - Qualitatively
Can be measured by using Closeness relationship values Value Closeness A Absolutely necessary E Especially important I Important O ordinary closeness okay U Unimportant X Undesirable It is reasonable to expect 5% of the pair-wise combinations to have A activity

122 Relationship Chart Department / Person Closeness Relationship Value
Reason in code Relationship Chart

123 Graph based Method Relationship Chart Relationship Diagram 1 9 1 2 9
1 9 1 2 9 12 7 8 2 10 13 12 8 13 5 3 7 10 20 2 4 3 20 4 2 5

124 Graph based Method Step 2 Step 3 2 2 3 4 1 9 8 10 27 5 7 16 12 13 1 3
Total 1 8 10 18 2 12 13 25 5 2 3 4 1 9 8 10 27 5 7 16 12 13 1 3 4 20 2 Faces Total 1-2-3 7 1-2-4 9 1-3-4 2 2-3-4 2 3 1 5 5 1 4 4 3

125 Waiting Line Management

126 Waiting Line Models Capacity decisions in Service system are often made on the basis of impact on customer In service system, waiting time is important operational measure Waiting line models analyze impact of alternative capacity choices on operational measures

127 Queuing Models Can be applied to operational situations when there is imperfect matching between customers and service facilities Imperfect matching occurs because of inability to predict accurately arrival and service times of customers. Queuing Models are used to determine the level of service (either service rate or the number of service facilities) that balances the two conflicting costs Cost of offering the service Cost incurred due to delay in offering service The optimum service level is the one which minimizes sum of these two costs

128 Total Cost Cost Cost of Customer Waiting Cost of Service Capacity Service Capacity

129 Elements of Queuing Models
Customer – entities that arrive and require some service Server – entities that provide the service required by the customer Queue discipline – refers to the behavior of the customer in the waiting line and the design of waiting line Service Discipline – refers to the manner in which customers are served

130 Waiting Line Models Structure of Queuing System
Calling Population – It places demand and uses capacity deployed Arrival Parameters – The rate at which customers arrive and the pattern of the same Queue Parameters – Indicate how waiting jobs are handled and how arriving customer behaves System Structure – Refers to manner in which resources are organized in operating system

131 Structure of Queuing System
Service Parameter – determines how resources are likely to be consumed i.e. it specifies service time Performance Metrics Average no. of customers in the system = Ls Average no. of customers in the waiting line = Lq Average time a customer spends in the system = Ws Average time a customer spends in waiting line = Wq Generalized relationship known as Little’s formula λ = Arrival rate & µ = Service rate


133 QUEUING MODELS To study varieties of Queuing problems following classification scheme is adapted (x / y / z) : (u / v / w) where x = Arrival (or inter-arrival) distribution y = The departure (service time) distribution z = Number of parallel service channels u = The service discipline v = Maximum number of customers allowed in the system w = The size of population

134 Codes used for Symbols M = Exponential inter-arrival or service time distribution (equivalent to Poisson arrival or departure distribution) GI = General independent distribution of arrival G = General distribution of departure D = Deterministic inter-arrival or service time Symbol z, v and w are replaced by appropriate numerical designations Symbol u is replaced by codes like FCFS = First come, first served LCFS = Last come, first served SIRO = Service in random order SPT = Shortest processing time GD = General service discipline Superscript is attached to the first symbol if bulk arrival exists and to the second symbol if bulk service is used

135 Notations in Queuing System

136 Operating Characteristics

137 Model I – {(M/M/1):(FCFS/Infinity)}

138 Example on Model I Customers arrive at one window drive-in bank according to Poisson distribution with mean 10 per hour. Service time per customer is exponentially distributed with mean 5 minutes. The space in front of the window including that for the serviced car can accommodate a maximum of 3 cars. Others can wait outside this space. What is the probability that an arriving customer can drive directly to the space in front of the window? What is the probability that an arriving customer will have to wait outside the indicated space? How long is an arriving customer expected to wait before starting service?

139 Strategic Capacity Management

140 Capacity What is Capacity
Capacity denotes maximum amount of output of products or services one can achieve Capacity can be expressed in terms of hours available of a resource or output in some units of measure Capacity has significant impact on cost of operations

141 Measures Measures of Capacity
Low volume – high variety firms generally indicate capacity by quantum of input that it can process in unit time High volume – low variety use output as measure of capacity Capacity Utilization is one of the important parameter in determining capacity required Capacity Utilization = Capacity put to use /Total capacity available Rated capacity = Capacity X Utilization X Efficiency

142 CAPACITY PLANNING 100 % capacity utilization is not possible
Capacity requirement should not be under or over estimated Economies of Scale – As the size of operation increases, per unit cost of operation decreases Because of decrease in the fixed cost per unit of output & adoption of efficient processes and technologies But beyond a certain point this cost per unit starts increasing because of increase in storage and distribution cost and complexities of operations Consider the concept of capacity focus In response to changing market scenario capacity decision should be addressed from time to time Capacity can not be added in incremental terms at frequent intervals Firms undergo a cycle of over, appropriate and under capacity

143 Factors Affecting Capacity Planning
Type of Product and Services that are offered Process Resource availability External factors

144 Capacity Planning Capacity Planning is systematic approach to
Identification & Evaluation of Long-term & Short-term capacity Requirements Ascertain available capacity & additional capacity requirement Identify Action to bridge gaps Evaluation of alternative methods for augmenting the capacity Select the action plan Devising various methods to use existing capacity effectively

145 Capacity Planning Capacity Planning should be focused on each stage of production or Service Delivery System Time horizon Long term i.e. 2 – 5 years Medium term i.e. 1 year Short term i.e. 1 week – 3 months

146 Capacity Augmentation
Adding additional resources may not be always attractive There can be alternatives to this Waste Elimination Multi-skilling of work-force Over time working Sub-contracting / Outsourcing Considerations are Lack of capacity Technological Intensity and criticality of item Cost of Manufacturing vs. Outsourcing Advantages are Flexibility in handling demand fluctuations Reduction in response time Reduction in risk in investment for new equipment

147 Service Capacity Services has typical characteristics
Cannot be stored Must be located near customer Volatility of demand Capacity decisions in Service system are often made on the basis of impact on customer In service system, waiting time is important operational measure Waiting line models analyze impact of alternative capacity choices on operational measures Enough capacity is required to be built for meeting maximum demand Demand management principles can be utilized to utilize capacity and regulate waiting time

148 Aggregate Sales & Operations Planning

149 Aggregate Sales & Operations Planning
Traditionally this is known as Aggregate Planning Aggregate plan links strategic goals and objectives with plan for individual products, services and their various components Aggregate Sales & Operations Planning is a process to help Give better customer service Lower inventory Shorter customer lead times Stabilize production rates Keep business in control Process is built on teamwork between sales, operation, finance and product development Process is designed to help company get demand and supply in balance The balance must occur at aggregate level and also at detailed individual product level

150 AGGREGATE PLANNING Aggregate Planning reflects operational decisions to ensure that resources required are available To satisfy demand, essential to have Resource planning. Easy for Single product; but difficult for multiple product company. For multiple products, take group of products. Decision can be taken on this basis. Measure output in common terms – AGGREGATE OUTPUT Planning on this basis is AGGREGATE PLANNING

Output rates Workforce Requirement Inventory levels Equipment allocation Backorders Sub-contracting / Outsourcing Overtime etc. Aggregate plans are disaggregated into smaller tasks to give master schedule for individual products. Aggregate plan gives stages for future course of action MASTER PRODUCTION SCHEDULE (MPS) gives quantity to be produced & time frame for deliveries.

Objective is To minimize production cost / Improve profit Improve customer service Minimize inventory investment Utilization of resources Make changes in Production Rates & Workforce levels Concept of aggregation – Identify a measure of output.

153 AGGREGATE PLANNING Aggregate Planning Goals –
# Specify required output # Specify Inventory levels # Utilize facility’s capacity in an efficient way w.r.t. organization's strategy # Should be in line with company’s policy & objectives regarding its employees.

154 Variables in Development of Aggregate Planning
Developed on considering the variables like Operations - Current machine Capacities Plan for future capacities Workforce Capacity Current staffing levels Materials - Supplier capabilities Storage capacity Materials availability Engineering - New Products

155 VARIABLES Distribution & Marketing – Customer needs Demand Forecast
Competition Accounting & finance – Cost data Financial condition of a firm Human resources – Labour market condition Training Capacity Use different combinations of variables To satisfy demand efficiently & economically

156 Strategies for Managing Supply
Chase Strategy – Capacity is adjusted to match the demand as close as possible Level Strategy – Maintains constant capacity over a period of time, irrespective of fluctuations in demand This strategy is used when skill level, training required and cost of hiring or terminating people is high Mixed Strategy – Trying to keep workforce constant Adjustments by o/t, sub-contracting, inventory levels, hiring or lay-offs

157 Pure Planning strategy
Pure Planning strategy – When only one strategy is adapted, then it is a pure strategy. Normally a combination is used. Different pure Strategies used Varying Workforce Disadvantages – Hiring & lay-off costs Training Cost Morale of workforce Non-availability of skilled workforce Varying the utilization of workforce – Disadvantages - Idleness or overtime Inefficiency in employees Loss of interest in employee Prone to job related accidents Morale down

158 Pure Planning strategy
Varying the size of Inventory – Disadvantages - Increased inventory cost Increased material handling cost Additional storage space required Risk of damage, loss, obsolescence Back-orders Sub-contracting Adjusting Plant Capacity

159 Aggregate Planning Techniques
Graphical method – Cum days on X-axis & cum. Output on Y-axis Select planning Strategy & plot output for the period Compare demand and output Estimate the cost Optimal Models– Linear programming for minimizing the cost Useful when cost & variable relationship is linear

160 Aggregate Planning Techniques
Linear Decision Rules – Set of equations for calculating optimal solution Overcomes limitations of L.P. by taking into account non-linear cost relationship Drawback is that for any changes in equation, extensive mathematical analysis is required Must be tailored to suit specific requirement

161 Aggregate Planning Techniques
Heuristic Approach – based on historical data Management Co-efficient Model – uses Regression Method; objective is to find regression equation that fits best for past data & then use that equation for future. Computer Search method – When large amount of information on different variables is available, Computer Programme Simulation of all conditions to find best solution Computer Simulation in capacity Evaluation – Used to evaluate performance of plans.

162 INVENTORY MANAGEMENT .,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,

163 Inventory What is Inventory?
It is Stock of Goods, Commodities or other Economic Resources held for future production requirements. Two Categories - Direct – Used directly in production Indirect – Goods necessary for production process

164 Types of Inventories Types of Inventories & Reasons for holding –
Raw Materials – Delay in delivery, Qty. discount, Reduction in freight charges because of large shipments Semi-finished Goods – Flexibility in planning, Unequal production rates of processing stations, Reduction in handling & prod. Cost due to large batch size. Finished Goods – To meet Customer demand in time, Production in batches, High level of production to take advantage of economies of scale, to show product to customer. Replacement Parts & Consumables Inventory

165 Independent versus Dependent Demand
Inventory items are divided into two types Independent Demand & Dependent Demand Independent Demand Not controlled directly by the company Generally includes finished products Demand is generally independent of company’s own production plans Dependent Demand Usually generated by company’s own production plan It is related to the demand for another inventory item or product Vertical dependency (Assymbly – Sub-assymbly – component Horizontal dependency (Attachments, manual with product) To manage dependent demand Materials Requirement Planning is used

166 Inventory Management Inventory Management –
To minimize Inventory cost , without affecting Customer service. Objective is To Order Right Quantity, at Right Time Without affecting Production Purpose for Inventory Smooth Production Better services to the customers Protection against business uncertainties Take advantage of quantity discounts

167 Inventory Costs Purchase Cost – Cost per unit of item
Carrying Cost (or Holding Cost) – Cost incurred due to storing of inventories. Include Opportunity cost of investment, Cost of Storage (Rent, Electricity), Staffing Equipment & Maintenance Insurance, Interest, Taxes, Security, Loss due to Pilferage. Spoilage, Breakage, Obsolescence Generally expressed as percentage of material cost(20-25 %).

168 Inventory Costs Ordering Cost Stock-out Cost – Include
Incurred for process of purchasing i. e. preparing order, communication, record-keeping & accounting, material receiving Incurred every time the order is placed Fixed cost does not change even if order quantity is changed. Stock-out Cost – Include Loss of Sale Customer shift to competitor’s product Additional cost associated with urgent purchase Loss of Customer good-will

Single period Models (Perishable products) or Multiple period Models (for items required on on-going basis) In multiple period models there are two general type of systems Fixed Order Quantity (EOQ) Model or Q-System Fixed Time Period Model or P-System

170 Fixed Order Quantity System ( Q – system)
Check stock level continuously Place new order, when level reaches certain point (Reorder point) Order Quantity is constant Quantity of order is determined by demand & cost consideration Objective is to determine order quqntity soas to minimize total cost

171 Total Cost Annual Total Cost Shortage Cost Carrying Cost Order Quantity

172 Economic Order Quantity Model
Order quantity is such that the Total cost ( Ordering cost + carrying cost ) is minimized. Assumptions Price of item is independent of order quantity Cost of ordering is fixed & independent of qty. Carrying cost is proportional to inventory level Usage rate of product is constant Lead time is known & is fairly constant Reorder Point – assumes that inventory reaches zero at the end of each reordering cycle Reorder Point = Demand X Lead Time D X LT

173 Economic Order Quantity Model
Optimal Order Quantity Shortages are not allowed i.e. no Shortage Cost So, total cost is having three components Ordering cost Holding Cost Variable Cost Ordering cost / unit time = C o x D / Q D – Demand per unit time Q – Order quantity Holding Cost / unit time = C h x Q / 2 Total Cost - TC = C o x D / Q + C h x Q / 2 + C p x D Total Cost is minimum when C o x D / Q = C h x Q / 2 EOQ =

174 Examples A company purchases 9000 parts of a machine for its annual requirements, ordering one month’s usage at a time. Each part costs Rs. 20. The ordering cost per order is Rs. 15 and the carrying charges are 15% of the average inventory per year. Suggest a more economical purchase policy for the company

175 Fixed Order Period System ( P - System)
Order period is fixed Order quantity varies according to inventory level & future requirements No continuous check on Inventory is required But safety stocks are high Safety stock can be = zSL *S.D.

176 Inventory Classifications
ABC Classification System Principle of Selective Control Items with high Usage value are paid more attention. Usage value = Unit cost X Qty. consumed in a year ‘A’ - represents material of high usage value (60-70 %) ‘B’ - represents material of Moderate usage value (10-30 %) ‘C’ - represents material of low usage value (5-15 %) ABC - ALWAYS BETTER CONTROL

177 Inventory Classifications
VED Classification – Based on importance of a particular item in production process V – Vital E – Essential D – Desirable Item categorized as V, need maximum control and investment FSND Classification – Based on the turnover of the goods F – Fast-moving S – Slow-moving N – Non-moving D - Dead

178 Other Inventory Systems
Optional replenishment System Like P-system review is taken at regular interval but order is placed only when stock reaches re-order level Order is placed for a quantity as calculated in P-system Two Bin System Involves use of two containers for inventory When first bin is empty, it is time for re-order The second bin contains stock sufficient to satisfy demand during lead time and safety stock

179 Materials Requirement Planning

180 Dependent Demand & MRP Dependent Demand – Demand for an Item that can be linked to the demand for another item. To manage dependent demand Materials Requirement Planning (MRP) is used MRP – combines Inventory Control with Production Planning finds Net requirement & Generates Schedules through Computers Backward scheduling process considering Date of Requirement of End Product Lead Time for Components & inventories

181 MRP Dis-assembles End Products into Product Hierarchy i.e.
Sub-Assemblies Components Raw material Std. Bought-out Parts Schedules the activities in Time Period of Planning Co-ordinates orders from Internal and External sources Aims at replenishing stock when required Examines production Schedule regularly to adjust material flow to reduce Inventory Helps taking Capacity Planning Decisions Useful in Complex products Involving many components and sub- assemblies Products with shorter delivery schedule Job shop, Assemble to order process Also for continuous process to adjust production disruption

182 MRP OBJECTIVES of MRP Improved Customer Service
Reduced Investment in Inventory Improved Operating efficiency Faster Response to market change COMPONENTS of MRP Input Processing & Output To process it requires Order position Demand forecast Capacity Information Stock position of Dependent demand items (W.I.P. & R.M.) Expected receipts & consumptions of items Design changes expected This information is converted into a form acceptable to MRP system

183 MRP - INPUT Master production Schedule (MPS) Bill of material (BOM)
Inventory Record file MPS – MRP system assumes that Production Capacity is sufficient for production as per MPS From MPS, Replenishment plan is generated for items used Time horizon is divided into time Bucket like Days, Weeks

184 MRP - INPUT BOM – also known as Product Structure file
Shows production Phase Levels Lists all the sub-assy. & components which make end product Inventory Record file – Complete Record of each material held like Opening stock Expected Receipts & consumption Lead time for the item Rate of purchase Supplier’s information

Develops Production & Purchase Schedules Explosion – End product is dis-assembled into components Generates the Sequence followed to produce the End Product Netting –Development of Material requirement Plan for each item in BOM, for each time Bucket Offsetting – Planned Order release Consolidation – of Material Requirement in Master Material Requirement Plan

186 OUTPUT Reports - Planning Information Schedules Customised Reports
Primary Reports – Main Reports like Orders Changes in due date Cancellation Used in Inventory & Production Control Secondary Report – To assess the Performance like Planning Report Performance Report Exception Report

187 MRP System Advantages of MRP System –
Reduction in per unit cost of production Low Inventory levels Better market response Better Customer service Optimised production scheduling Improved Capacity allocation & Planning

188 MRP System Disadvantages – High Cost Technical Complexities
Longer implementation time Large amount of Inputs are required Assumed data may be misleading Problems in Implementation – Inadequate Employee Training & involvement Use of inaccurate & obsolete data Inappropriate product environment

Integrating other functional areas like engineering, production, Finance, marketing, Purchasing with MRP is Manufacturing Resource planning (MRP II)

Gives details of Type and Quantity of each product to be produced. Detail plan includes scheduling of different stages in production & Reflects most economic use of labor & equipment capacities.

191 Functions of MPS Translates aggregate plan to
Break-up of total production into Groups of product or lots Gives specific number of individual products to be produced with workstations and time-frame. Evaluate alternative schedule Identify material requirement Generate Capacity Requirement Effectively utilize capacity – assign load for labor & equipment

Planning of activities to achieve production objectives. MRP & CRP are part of this activity. Steps in scheduling – Determine the Gross Requirement of materials Obtain Net Requirement considering inventories Correction in MPS if required Convert Net Requirement into Planned Release Orders Developing Load – Report containing information on amount of work assigned to individual worker, m/c & work-stations If mismatch between available & required capacity, modify MPS or add capacity.

193 MPS MPS is generally based on Demand forecast.
Demand forecast is not always accurate. Actual demand is not equal to schedule Schedule is not equal to Actual Output So, MPS needs modifications. These are done by – Modifying the size or composition of product Allow changes in inventory level Divert resources at the cost of some other function Sub-contract the requirements Alter the price to influence the demand level

Made from aggregate Plan. Influenced by Market Environment & Resource availability. Main inputs which influence MPS are forecast & orders. For Make-to-stock items Input is Demand forecast Inventories are replenished at plant or distributor. Finished goods inventories are maintained constantly. For Make-to-Order items Detail scheduling is essential No finished goods inventory. Production begins after order is received


196 What is SCM Supply Chain covers various stages in provision of product to customers SCM is involved with integration of three flows between different stages Flow of information Flow of product / material Flow of Funds A typical Supply Chain may involve variety of stages like Customers Retailers Wholesalers/Distributors Manufacturers Component/Raw material suppliers Supply Chain Management is integration of activities at these stages for competitive advantage of the organization Supply Chain management should be EFFICIENT & RESPONSIVE.

197 Key Drivers of SCM Inventory – R.M., WIP. & F.G.
Required because of mismatch between Demand & supply Lead Time & to increase Responsiveness Objective of SCM is to reduce Inventory cost without compromising on the Responsiveness Transportation – Decision on Mode, Route & Network Whether company should own Transport There is always trade-off between Efficiency & Responsiveness Facilities – Locations where R. M. & F.G. are stored WIP is assembled Finished Goods are distributed Facility’s location & capacity has effect on SCM 4. Information – SC is made up of various entities; Proper co-ordination of them is key to efficiency. Flow of Information improves the co-ordination

198 Supply Chain Strategy Supply Chain strategy should support Business strategy Look at your Core competencies Focus Means of differentiation Assess the extended supply chain

199 Performance Measures for Overall Supply Chain
Delivery Performance - % orders delivered as per schedule Fill rate by line item – Customer would prefer to get all the items they order at the time they ordered them Order fulfillment lead time Perfect order fulfillment Supply Chain Response time – This measures how long it will take for the effect to be felt in the supply chain given a change Upside production flexibility – Assesses response time required by the manufacturing facility to meet increase in demand

200 Performance Measures for Overall Supply Chain
Supply Chain Management cost Warranty Cost as % of revenue – Affects in two ways: one is warranty cost and other is loss of goodwill or even customer Value added per employee Inventory days of supply – It quantifies how long enterprise can continue to run if all sources of supply are cut off. Cash-to-cash cycle Time Asset Turns – How many times the same asset can be used to generate revenue and profit (Inventory turnover ratio)

201 . Push strategy pushes a product through the trade channel
Creates inventory of F.G. Pull Strategy – Customer initiates demand Focus is required for reduction in WIP Inventory of common raw material required. can be increased to reduce lead time Push/Pull strategy – Bullwhip Effect distorts demand information within the supply chain when complete information is not shared between stages due to conflicting objectives, the information gets distorted as it moves within the supply chain and it creates bullwhip effect Results in loss of SC co-ordination, trust in the members Also results in damage to performance metrics

202 Outsourcing Outsourcing refers to the process of contracting to the third party Considerations are Lack of capacity Technological Intensity and criticality of item Cost of Manufacturing vs. Outsourcing Advantages are Flexibility in handling demand fluctuations Reduction in response time Reduction in risk in investment for new equipment Disadvantage Product differentiation may be lost If it is because of cost consideration, efficient competitor may overtake you

203 Global Sourcing Aims to exploit global efficiencies in the delivery of product or services These efficiencies include low cost of labour/ raw material and other economic factors Advantages Learning how to do business in new potential market Tapping into skills or resources so far unavailable Developing alternate sources Increasing total capacity Disadvantages Hidden costs associated with different culture, time zone Exposure to financial and political risks Increased risk of loss of intellectual property Increased monitoring cost, lead time Difficulties in monitoring quality

204 Mass Customization Aim is increase in variety and customization of product or service without corresponding increase in cost It is mass production of individually customized goods or services Four types of Mass Customization Collaborative Customization – On getting information from customer, make a product that suits the specific customer Adaptive Customization – Firm produces standard product but product is customizable in the hands of the end user Transparent customization – provide customized product without telling customer about it Cosmetic Customization – produce standardized product but market it to different customers in a unique ways

205 Total Quality Management

206 CONCEPT OF TQM W.E. Deming – Father of TQM It is a Philosophy for improvement through Involvement of everyone Earlier, quality was referred only to Product and Production; now it is referred to entire Organization TQM refers to meeting the customers Requirement consistently by continuous improvement in the quality of Work TQM is a process approach Process approach is also used in ISO 9000

207 Objectives and essentials of TQM
Meeting Customers Requirement Consistently Continuous Improvement to meet ever-changing Requirements It may be better quality different size Price reduction Comparison with Competitors Product Advancement in Technology Involvement of all Employees It should be a concern of all Managers & Workers Improvement in Quality of work of employees through Training & Development Employees should be conscious about need for Improvement. A positive attitude towards Customer and Constant enhancement of Quality must be the attitude of all Employees. In TQM each dept. treats other dept. as their customer

208 What is Quality? Quality means ability of the Product to meet stated or implied needs. Quality of Design Quality of Conformance Quality of Performance Availability Reliability Maintainability Quality was viewed as defensive function. Quality control was used to reduce number of customer complaints. It was concerned with inspection after the defect is produced.

209 Quality Functions Eight different Quality Function Performance
Features Reliability Conformance Durability Serviceability Aesthetics Safety User-friendliness Customizability Environmental friendliness Perceived quality Role of Inspection in Quality Control

210 Cost of Quality Assurance
Cost of Inspection includes Man power cost Equipment cost Material cost Training cost Sample cost Cost of quality or undetected faults includes Customer complaints Loss of goodwill Product replacement & recall Returned products Liability suits

211 Cost of Quality Cost of quality or undetected faults categorized into
Cost of Prevention –which includes Investment in machinery, technology training to reduce number of defect Cost of quality programs, data collection and analysis This brings high returns Cost of detection/appraisal associated with quality evaluation Cost of failure Internal failure cost – include Scrap, repair, retesting, downtime External failure cost – include Cost of returned material, warranty charges, legal suits, loss of customer goodwill

212 Six Sigma Six Sigma is a technique to manage process variation that causes defect It aims to achieve world-class performance, reliability and value for customers Traditionally Quality programmes focus on detecting and correcting defects whereas Six sigma focus on variations in process which lead to defect creation The performance of a process is measured in terms of Defects Per Million Opportunities (DPMO) In Six Sigma , on a long term basis, no more than 3.4 DPMO are permitted Successful implementation of six sigma is based on sound personnel practices as well as technical methodologies To convey the need to vigorously attack the problems, professionals are given martial arts titles

213 Six Sigma Methodology DMADV methodology is used when
DMAIC and DMADV are the methodologies to implement six sigma DMAIC DMADV D – Define D - Define M – Measure M – Measure A – Analyze A - Analyse I – Improve D - Design C- Control V – Veify DMADV methodology is used when Product or process is not in existence Existing product or process does not meet the customer specification or Six Sigma level

214 Shingo System Two aspects of Shingo System
Hoe to obtaindrastic cuts in equipment set-up time by Single Minute Exchange of Die (SMED) Use of source inspection or Poka-Yokesystem to achieve zero defect According to Shingo SQC does not prevent defects, it is inadequate to improve quality Shingo’s approach Defects occur because people make error Defects can be prevented if feedback leading to corrective action takes place immediately after error is made

215 Shingo System Such feedback requires 100 % inspection
Inspection can be Successive checks – Performed by next person in the process Self-check – Done by individual worker Source Inspection – Done by individual worker; in this case worker checks for error that causes defect All these inspection depend on fail-safe procedure

216 Fail-safe Fail-safe are the methods to prevent human errors from becoming defects in the end product Concepts are particularly appropriate when full scale automation is too costly or it is otherwise impractical Fail-safe does not require that a specific value be put on process parameters It requires only ability to discriminategood from bad Poka-Yoke is automatic device or method used in fail-safing

217 ISO 9000 ISO 9000 It is a series of standards agreed by International Organization for Standards Adapted by more than 100 countries in 1987 It says “Document what you do & then do as you documented”. Relates Quality Management System Provides standardized requirement for Quality Management System

218 ISO 14000 ISO 14000 ISO 19011 It is Environmental Management Standard
This is significant international initiative for Sustainable Development Objective is to promote most effective and efficient Environmental Management System ISO 19011 It isaudit standard applies when auditing for both ISO 9000 & ISO compliance at once

219 Kaizen (Continuous Improvement)
No process can ever be declared as perfect and so there is always a scope for improvement Kaizen is about continually aiming for small improvement across the whole company Kaizen is based on principles that Process creates result – Without improving the process, results do not improve Look for improvement in five inputs to the process – persons, machines, methods, materials and environment Total systems are more important than each of the parts Be non-blaming and non-judgemental – find what is wrong and not who is wrong


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