Productions and Operations Management Rupesh Patel

Prof.

Productions and Operations Management: Unit-1: 1) Importance of Operations Management 2) Operations Strategy and Competitiveness 3) Product design and Process Selection 4) Facility layout and location Unit-2: 1) Forecasting 2) Inventory Management 3) ggregate Planning

Prepared #y: Prof. Rupesh Patel

Productio n and Operation s Managem ent

Frequently s!ed "uestions

Productions and Operations Management Rupesh Patel

Prof.

!ue"1# $%at are responsi&ilities of Production'Operations Manager( $%at are ) P*s of Production and Operations Management(
The following are the major responsibilities of production managers: Planning: Capacity, location, products and services, make or buy, layouts, projects and scheduling Organi$ing: Degree of centralization, subcontracting %taffing: Hiring laying off of employees &irecting: !ncentive plans, issue of work orders, job assignments 'ontrolling: !nventory control, "uality control, Cost control #roduction managers are responsible for the amalgamation of five #s namely #roduct, #lant, #rocesses, #rograms and #eople$ Product# The product is the most obvious interface between production and marketing$ !t includes characteristics such as performance, aesthetics, %uality, reliability, selling price, deliver dates and or lead times$ Plant# The plant should have the capacities to meet the present needs as well as that of the future$ The considerations are: &i' design and layout of buildings, &ii' performance and reliability of machines and e%uipment, &iii' maintenance of machines and e%uipment, &iv' safety of installation and operation of machinery and e%uipment and &v' environment protection$ Process# The processes include the transformation or conversion processes which convert the inputs into outputs$ The factors to be e(amined in deciding upon a process are: &i' available capacity, &ii' available labour skills, &iv' layout of plant e%uipment, &v' safety re%uirements in operations and &vi' costs to be achieved$ Programs# The programs consist of schedules and timetables which set times for delivery of products or services to customers$ These delivery schedules in turn decide the time schedules for various activities such as design, purchase, manufacture, assembly, packing and dispatch etc$ People# The people aspect of production management includes the skills, knowledge, intelligence, etc$, of labour and managerial personnel which is crucial for the efficient and effective utilization of resources for the production of outputs$

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Productions and Operations Management Rupesh Patel

Prof.

!ue"2# $%at is Production and Operations Management( $%at is t%e difference &et+een goods and services(
*ny process which involves the conversion of raw materials and bought)out components into finished products for sale is known as Production$ +uch conversion of inputs adds to the value or utility of the products produced by the conversion or transformation process$ The utility or added value is the difference between the value of outputs and the value of inputs$ The value addition to inputs is brought about by alteration, transportation, storage or preservation and %uality assurance$ The term operation refers to a function or system that transforms inputs into outputs of greater value$ ,perations are often demand as a transformation or conversion process wherein inputs such as materials, machines, labour and capital are transformed into outputs &goods and services'$ ,ifference &et+een goods and services# -' +ervices are usually intangible whereas goods are tangible .' +ervices are often produced and consumed simultaneously, services cannot be stored whereas goods can be produced and inventoried before consumption or use$ /' +ervices are often uni%ue, for e(ample insurance policies, medical treatment procedures, haircut styles etc$ 0' +ervices have high customer interaction, services are often difficult to standardize and automate because customer interaction demands uni%ueness$ The service product may have to be customized in most of the service offerings$ 1' +ervices are often knowledge based, for e(ample educational, health)care, legal and consultancy services and, therefore, difficult to standardize and automate$ 2' +ervices are fre%uently dispersed because services may have to delivered to the client customer at his her place or office, a retail outlet or even at the residence of the customer client$ 3' 4oods can be inventoried and can be resold whereas reselling of services is unusual and services cannot be inventoried$ 5' +ome aspects of %uality of goods are measurable whereas many aspects of %uantity of services are difficult to measure$ 6' +elling and production are distinct in case of goods whereas in case of services selling is often a part of the service$ -7' 4oods can be transported whereas service cannot be transported but the service provider can be transported$ --' 8ocation of facility to manufacture goods, affects costs whereas location of service facility affects customer contact$ -.' 9anufacturing of goods can be easily automated whereas service is often difficult to automate$ )))))))))))))))))))))))))))))))))))))))))))))))))))))

!ue"3# $%at are t%e recent trends in Production'Operations Management(

9any recent trends in production operations management relate to global competition and the impact it has on manufacturing firms$ +ome of the recent trends are:

Productions and Operations Management Rupesh Patel

Prof.

4lobal 9arket #lace: 4lobalization of business has compelled many manufacturing firms to have operations in many countries where they have certain economic advantage$ This has resulted in a steep increase in the level of competition among manufacturing firms throughout the world

Production'Operations strategy# 9ore and more firms are recognizing the importance of production operations strategy for the overall success of their business and the necessity for relating it to their overall business strategy -otal !uality Management .-!M)# T"9 approach has been adopted by many firms to achieve customer satisfaction by a never)ending %uest for improving the %uality of goods and services$ Fle/i&ility# The ability to adapt %uickly to changes in volume of demand, in the product mi( demanded, and in product design or in delivery schedules, has become a major competitive strategy and a competitive advantage to the firms$ -ime 0eduction# :eduction of manufacturing cycle time and speed to market for a new product provides competitive edge to a firm over other firms$ ;hen companies can provide products at the same price and %uality, %uicker delivery &short lead times' provides one firm with competitive edge over the other$ -ec%nology# *dvances in technology have led to a vast array of new products, new processes and new materials and components$ *utomation, computerization, information and communication technologies have revolutionized the way companies operate$ Technological changes in products and processes can have great impact on competitiveness and %uality, if the advanced technology is carefully integrated into the e(isting system$ $or1er Involvement# The recent trend is to assign responsibility for decision making and problems solving to the lower levels in the organization$ 0eengineering# This involves drastic measures or break)through improvements to improve the performance of a firm$ !t involves the concept of clean)slate approach or starting from scratch in redesigning the business processes$ 2nvironmental Issues# Today<s production managers are concerned more and more with pollution and wastes disposal which are key issues in protection of environment and social responsibility$ There is increasing emphasis on reducing waste, recycling waste, using less)to(ic chemicals and using biodegradable materials for packaging$ Corporate ,o+nsi3ing# Downsizing or right sizing has been forced on firms to shed their obesity$ This has become necessary due to competition, lowering productivity, need for improved profit and for higher dividend payment to shareholders$ Supply"C%ain Management#

Productions and Operations Management Rupesh Patel

Prof.

9anagement of supply)chain, from suppliers to final customers reduces the cost of transportation, warehousing and distribution throughout the supply chain$ 4ean Production# #roduction systems have become lean production systems which use minimal amounts of resources to product a high volume of high %uality goods with some variety$ These systems use fle(ible manufacturing systems and multi)skilled workforce to have advantages of both mass production and job production$ ))))))))))))))))))))))))))))))))))))))))))))))))))))))

Productions and Operations Management Rupesh Patel

Prof.

!ue"4# $%at is Operation Strategy( 5o+ Production'Operations Management is %elpful in gaining competitive advantage( $%at are t%e various competitive dimensions(
The role of operations strategy is to provide a plan for the operations function so that it can make the best use of its resources$ ,perations strategy specifies the policies and plans for using the organization<s resources to support its long)term competitive strategy$ ,perations management is responsible for managing the resources needed to produce the company<s goods and services$ ,perations is the plan that specifies location, size, and type of facilities available, worker skills and talents re%uired, use of technology, special processes needed, special e%uipment, and %uality control methods$ The operations strategy must be aligned with the company<s business strategy and enable the company to achieve its long) term plan$ ,eveloping competitive dimensions t%roug% Operations management# ,perations managers must work closely with marketing in order to understand the competitive situation in the company<s market before they can determine which competitive priorities are important$ =ollowing are the dimensions on which a firm can create a competitive advantage: Cost or Price# #rice is the amount a customer must pay for the product or service$ !f two products are comparable in %uality, and differ in price, customers will buy the product or service that has the lower price$ *lthough price is the competitive weapon used in the market place, profitability is related to the difference between price and cost$ Hence, the production function must be capable of producing the outputs at low cost$ #roductions management decisions regarding location, product design, e%uipment utilization and replacement, labour productivity, inventory control, process technology and tools all contribute to the reduction of costs$ !uality# "uality refers to the ability of the product or service to meet the re%uirements of customers and achieve customer satisfaction for the firm selling the goods or services$ 4enerally %uality relates to the customer<s perceptions of how well the product or service will serve its purpose$ 4enerally customers are often willing to pay more for or wait for delivery of products or superior %uality$ Product or Service ,ifferentiation# :efers to any special features &such as design, cost, %uality, convenience of use, warranty, etc' that causes a product or service to be perceived by the customer as more suitable or attractive than the product or service offered by the competitors$ 0elia&ility# * supplier who has a reputation for reliability &i$e$ keeping the promised delivery schedule' or who has the capability to meet customer demand through of)the)shelf availability of the product has a strong competitive advantage$ Customers are often willing to compromise on cost&i$e$, price' or even %uality in order to obtain on)time delivery when they need an item$ Fle/i&ility# This refers to the ability of a firm to respond to changes demanded by the customers$ The changes might relate to increase or decrease in volume demanded or to changes in the design or product or service or changes in the deliver time$ * firm having higher fle(ibility is

Productions and Operations Management Rupesh Patel

Prof.

able to have a competitive advantage over other firms$ The ability to be fle(ible depends a great deal on the design of the productive system and the process technology employed by the firm$ -ime# Time to perform certain activities refers to several aspects of an organization<s operations such as: -$ How %uickly a product or service is delivered to a customer .$ How %uickly new products or services are designed, developed and launched to the market /$ The rate at which improvements in products or processes are made )))))))))))))))))))))))))))))))))))))))))

!ue")# ,iscuss t%e %istorical development of POM6

>y the end of the -6th century, the economic structure in most of the developed countries of today was fast changing from a feudalistic economy to that of an industrial or capitalistic economy$ The nature of the industrial workers was changing and methods of e(ercising control over the workers, to get the desired output, had also to be changed$ This changed economic climate produced new techni%ues and concepts$ !ndividual ?fficiency: =redric ; Taylor studied the simple output to time relationship for manual labour such a brick laying$ This formed the precursor of the present day time study$ *round the same time, =rank 4ilbreth and his wife 8illion 4ilberth e(amined the motions of the limbs of the workers in performing the jobs, and tried to standardize these motions into certain categories and utilize the classification to arrive at standards for time re%uired to perform a given job$ This was the precursor to the present day @motion study<$ Collective 2fficiency# +cientists such as 4antt shifted the attention to scheduling of the operations and focused on the aspects of collective efficiency$ The considerations of efficiency in the use of materials followed later$ !t was almost in -6/7s, before a basic inventory model was presented by =$;$Harris$ !uality# *fter the progress of application of scientific principles to the manufacturing aspects, the thought process progressed to control over the %uality of the finished material itself$ @"uality< which is an important customer service objective, came to be recognized for scientific analysis$ The analysis of productive systems, therefore, now also included the AeffectivenessB criterion in addition to efficiency$ !n -6/ ;alter +hewart came up with his theory regarding control charts, for %uality or what is known as process control$ !n -6/1, H$=$Dode and H$4$:oming came up with the application of statistical principles to the acceptance and rejection of the consignments supplied by the suppliers to e(ercise control over %uality this is now known as Aacceptance samplingB$ 2ffectiveness as a function of internal climate# The Howthorne ?(periments brought for the concept of effectiveness as a function of internal climate$ These e(periments were conducted with purpose with the purpose of increasing the efficiency of the individual worker$ These e(periments showed that worker efficiency went up when the intensity of illumination was gradually increased, and even when it was gradually decreased, the worker efficiency still kept rising$ This puzzle could be

Productions and Operations Management Rupesh Patel

Prof.

e(plained only through the angle of human psychologyC the very fact that somebody cared, mattered much to the workers who gave increased output$ dvent of Operations 0esearc% -ec%ni7ues# The advent of ,perations :esearch during the ;orld ;ar !! period saw a big boost in the application of scientific techni%ues in management$ Darious techni%ues, such as liner programming, mathematical programming, game theory, %uening theory and the like developed by people such as 4eorge Dantzig, * chanes, *nd ;; Cooper have become indispensable tools for management decisions making today$

-%e Computer ge# *round -611, !>9 developed digital computers$ This made possible the comple( repeated computations involved in various ,: and other management science techni%ues$ !n effect, it helped to spread the use of management science concepts and techni%ues in all fields of decision making$ Service and 0elations%ips 2ra# *dvances in computing technology, associated software, electronics and communication facilitated the manufacture of a variety of goods and its reach to the consumer$ !n parallel, the demand for services such as transport, telecommunication and leisure activities also grew at a rapid pace$ The service economy came to be treated at par as that of physical goods$ !n fact, manufacturing started emulating some of the practices and principles of the services industry$ #roduction and ,perations 9anagement is now getting to be increasingly @relationship oriented<$ There is a web of relationships between the company, its customers and its business associates$ Developments in science and technology give rise to certain social moves$ +imilarity, the changed social interactions and value systems give rise to changed e(pectations from the people$ The type of products and services that need to be produced would , therefore, keep changing$ Today a @product< represents a certain group of characteristicsC a @service< represents certain other utility and group of characteristics these may undergo changes, perhaps fundamental changes, in the future$ #roduction and ,perations 9anagement as a discipline has to respond to these re%uirements$ )))))))))))))))))))))))))))))))))))))))))))

!ue"8# $%at is Productivity( Measures(

$%at are various

Productivity

The term productivity describes how well a production manager achieves productive use of the resources of his firm$ #roductivity is an inde( or measure of the effective use of resources$ !t is usually e(pressed as a ratio or output to input, i$e$ Productivity Outputs 9 """"""""""" Inputs

The outputs are goods and services whereas, the inputs are resources such as materials, labour, energy and other resources used to produce the outputs$ Productivity Measures# -' ;hen productivity ratio is based on a single input it is called partial productivity$

Productions and Operations Management Rupesh Patel

Prof.

.' ;hen the ratio is between more than one input, it is called multifactor productivity$ /' ;hen the ratio is between all inputs and all outputs, it is called total productivity$

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!ue":# 2/plain Product ,evelopment Process in conte/t +it% Production and Operations Management6
* systematic new product development process has si( major steps which are illustrated in following chart$

Productions and Operations Management Rupesh Patel

Prof.

1/

The si( phases of the generic development process are:

P%ase ; <# Planning# The planning activity is often referred to as Aphase zeroB since it precedes the project approval and launch of the actual product development process$ This phase begins with corporate strategy and includes assessment of technology developments and market objectives$ The output of the planning phase is the project mission statement, which specifies the target market for the product, business goals, key assumptions, and constraints$ P%ase"1# Concept ,evelopment# !n this phase the needs of the target market are identified alternative product concepts are generated and evaluated, and one or more concepts are selected for further development and testing$ * concept is a description of the form, function and features of a product and is usually accompanied by a set of specifications, an analysis of competitive products, and an economic justification of the project$ P%ase"2# System"level design# The system)level design phase includes the definition of the product architecture and the decomposition of the product into subsystems and components$ The final assembly scheme &which we discuss later in the chapter' for the production system is usually defined during this phase as well$ The output of this phase usually includes a geometric layout of the product, a functional specification of each of the product<s subsystems, and a preliminary process flow diagram for the final assembly process$ P%ase"3# ,esign detail# This phase includes the complete specification of the geometry, materials, and tolerances of all the uni%ue parts in the product and the identification of all the standard parts to be purchased from suppliers$ * process plan is established and tooling is designed for each part to be fabricated within the production system$ The output of this phase is the drawings or computer files describing the geometry of each part and its production tolling, the specifications of purchased parts and the process plans for the fabrication and assembly of the product$ P%ase"4# -esting and refinement# The testing and refinement phase involves the construction and evaluation of multiple preproduction versions of the product$ ?arly prototypes are usually built with parts with the same geometry and material properties as the production version of the product but not necessarily fabricated with the actual processes to be used in production$ #rototypes are tested to determine whether the product will work as designed and whether the product satisfies customer needs$ P%ase")# Production ramp"up# !n the production ramp)up phase, the product is made using the intended production system$ The purpose of the ramp)up is to train the workforce and to work out any remaining problems in the production processes$ #roducts produced during production ramp)up are sometimes supplied to preferred customers and are carefully evaluated to identify any remaining flaws$ The transition from production ramp)up to ongoing production is usually

Productions and Operations Management Rupesh Patel

Prof.

11

gradual$ *t some point in the transition, the product is launched and becomes available for widespread distribution$ ))))))))))))))))))))))))))))))))))))))))))))

!ue"=# 2/plain various Production Processes6

There are 1. 2. 3. 4. 5. mainly five basic process types: Job shop production Batch production Repetitive or assembly line production Continuous production Project production

1) >o& S%op Process# !t is use din job shops when a low volume of high)variety goods are needed$ #rocessing is intermittentC each job re%uires somewhat different processing re%uirements$ * job shop is characterized by high customization &made to order', high fle(ibility of e%uipment and skilled labour and low volume$ * tool and die shop is an e(ample of job shop where job process is carried out to produce one)of)a)kind of tolls$ =irms having job shops often carryout job works for other firms$ * job shop uses a fle(ible flow strategy, with resources organized around the process$ 2) ?atc% process# >atch processing is used when a moderate volume of goods or services is re%uired and also a moderate variety in products or services$ * batch process differs from the job process with respect to volume and variety$ !n batch processing, volumes are higher because same or similar products or services are repeatedly provided$ ?(amples of products produced in batches include paint, ice cream, soft drinks, books and magazines$

/' 0epetitive Process' ssem&ly line process#

This is used when higher volumes of more standardized goods or services are needed$ This type of process is characterized by slight fle(ibility of e%uipment &as products are standardized' and generally low labour skills$ #roducts produced include automobiles, home appliances, television sets, computers, toys, etc$ :epetition process is also referred to as line process a sit include production lines and assembly lines in mass production$ :esources are organized around a product or service and materials move in a line flow from one operation to the ne(t according to a fi(ed se%uence with little work)in)progress inventory$ This kind of process is suitable to Amanufacture)to)stockB strategy with standard products held in finished goods inventory$ However, Aassemble)to)orderB strategy and Amass customizationB are also possible in repetitive process$ 4) Continuous Process# This is used when a very highly standardized product is desired in high volumes$ These systems have almost no variety in output and hence, there is no need for e%uipment fle(ibility$ * continuous process is the e(treme end of high volume, standardized production with rigid line flows$ The process often is capital intensive and operate round the clock to ma(imize e%uipment utilization and to avoid e(pensive shutdowns and start)ups$ ?(ample of

Productions and Operations Management Rupesh Patel

Prof.

12

products made in continuous process systems include petroleum products, steel, sugar, flour, paper, cement, fertilizers, etc$ )) Pro@ect Process# !t is characterized by high degree of job customization, the large scope for each project and need for substantial resources to complete the project$ ?(amples of projects are, building a shopping centre, a dam, a bridge, construction of a factor, hospital, developing a new product, publishing a new book, etc$ #rojects tend to be comple(, take a long time and consist of a large number of comple( activities$ ?%uipment fle(ibility and labour skills can range from low to high depending on the type of projects$ ))))))))))))))))))))))))))))))))))))))))))))))))

!ue"A# -+o types of cars .,elu/e and 4imited) +ere produced &y a car manufacturer in 2<<)6 !uantities soldB price per unitB and la&our %ours follo+6 $%at is t%e la&our productivity for eac% car( 2/plain t%e pro&lems associated +it% t%e la&our productivity6
"uantity 0777 units sold 2777 units sold .7,777 hours /7,777 hours Rs0Unit :s$ /,.7,777 car :s$ 0,77,777 car :s$ /7 hour :s$ 07 hour

&elu1e car 2imited 'ar 2a#our3 &elu1e 2a#our3 2imited

Solution# -' Delu(e car #roductivity

capital' E E E &0777 ( /.7777' &-.57777777' .-// E E &Delu(e car sales year'

&Delu(e car labour

0 &.7777 ( /7'
&277777'

.' 8imited car productivity

capital' E E E

&8imited car sales year'

&limited car labour

&2777 ( 077777' &.077777777' .777

0 &/7777 ( 07'

0 &-.77777'

The labour productivity for delu(e car is better than that of limited car The price of limited car is higher than that of delu(e car, even the labour rate for limited car is also at higher side, which clearly indicates that the car manufacturer is more conscious about %uality of limited cars than that of delu(e cars$ !f any organization is focusing on %uality of its products that there will be trade)off with productivity$

Productions and Operations Management Rupesh Patel

Prof.

1(

+o, the case presented here is a normal scenario$ ))))))))))))))))))))))))))))))))))))))))))))))

!ue"1<# CS manufacturing company operating a su&sidiary in an 4,C .less developed country) s%o+s t%e follo+ing results#
%ales4units5 2a#our4hours5 Ra6 materials 4currency5 'apital equipment 4hours5 U% -77,777 .7,777 F.7,777 27,777 2&' .7,777 -1,777 =C .7,777 1,777

a) Calculate partial la&or and capital productivity figures for t%e parent and su&sidiary6 ,o t%e results seem misleading( &) Compute t%e multifactor productivity figures for la&our and capital toget%er6 re t%e results &etter( c) Calculate ra+ material productivity figure .units'0e +%ere 0e 1 9 FC 1<)6 2/plain +%y t%ese figures mig%t &e greater in t%e su&sidiary6
Solution#

Case ; a#
#arent Company:

-' 8abour productivity E

!nput E .7777 E 1

,utput

.' Capital productivity E ,utput !nput E .7777 1777 E 0 a5 7here is huge difference #et6een la#our producti8ities of Parent company and su#sidiary company #5 'apital producti8ity of su#sidiary is higher than that of the Parent company3 6hich is contradictory.

-77777

.' Capital productivity E ,utput !nput E -77777 27777 E -$22

+ubsidiary Company:

-' 8abour productivity E

!nput E -1777 E -$// .7777

,utput

Case ; &#"
#arent Company: -' 9ultifactor productivity E E E +ubsidiary Company: -' 9ultifactor productivity E E E E ,utput &8abour G Capital' -77777 &.7777G27777' -77777 57777 -$.1

E ,utput &8abour G Capital' .7777 &-1777G1777' .7777 .7777 -

9es3 the multifactor producti8ity of la#our and capital of parent company and its su#sidiary is 8ery much similar to each other.

Case ; c#"
:ate of e(change is Therefore, - :e E -7 =C F - E -7 =C &=oreign Currency' F.777 E .7777 =C

#arent Company: -' :aw materials productivity E E E +ubsidiary Company: -' :aw materials productivity E E E ,utput !nput .7777 .777 -7 ,utput !nput -77777 .777 1

7he ra6-materials producti8ity is #etter n su#sidiary than that of parent company. 7he reasons might #e as follo6ing: 7he capital equipment producti8ity of su#sidiary is greater than that of parent company. :hich clearly suggests that the machineries and equipments are used in optimum manner in su#sidiary as compared to parent company. o 9ore output from the available capital e%uipment hours o 8ess damaged products o 8ess wastage of raw)materials %o the #etter capital equipment usage leads the su#sidiary to #etter ra6materials producti8ity

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!ue"11# Darious financial data for 2<<4 and 2<<) follo+6 Calculate t%e total productivity measure and t%e partial measures for la&orB capitalB and ra+"materials for t%is company for &ot% years6 $%at do t%ese measures tell you a&out t%is company(
Output ;nput %ales 2a#or Ra6 materials <nergy 'apital Other 2//) :s$ .77777 /7,777 /1,777 1,777 17,777 .,777 2//* :s$ ..7777 07,777 01,777 2,777 17,777 /,777

+olution:

2<<4
-' -otal Productivity
!nput E .77777
&/7777G/1777G1777G1777 7G.777'

2<<)
E ,utput

1) -otal Productivity
!nput E

,utput

..7777

&07777G01777G2777G1777 7G/777'

E .77777 -..777 = 1.+)

E ..7777 -00777 = 1.*2

.' 4a&our Productivity

!nput E =

,utput

2) 4a&our Productivity
!nput E =

,utput

.77777 /7777 +.++ E ,utput

..7777 07777 *.** E ,utput

/' 0a+ Materials Prod6

!nput E =

3) 0a+ Materials Prod6

!nput E =

.77777 /1777 *.,1

..7777 01777 ).--

&uring 2//) to 2//*3 the producti8ity of the company has #een decreased #ecause of fall in la#our and ra6-materials producti8ity :hile the capital producti8ity has #een impro8ed in 2//* than that of in 2//) )))))))))))))))))))))))))))))))))))))))))))))))

!ue"12# n electronics company ma1es communication devices for military contracts6 -%e company @ust completed t+o contracts6 -%e navy contract +as for 23<< devices and too1 2) +or1ers t+o +ee1s .4< %ours per +ee1) to complete6 -%e army contract +as for ))<< devices t%at +ere produced &y 3) +or1ers in t%ree +ee1s6 On +%ic% contract +ere t%e +or1ers Contract " 1 more productive( Contract " 2
Bo. of Output devices Bo. of :or!er workers Bo. of hrs06ee! Bo. of 6ee! consumed Bo. of man-hours = ( = = ./77 .1 Bo. of Output devices Bo. of :or!er workers Bo. of hrs06ee! Bo. of 6ee! consumed Bo. of man-hours = = = 1177 /1

= 07 hrs = . weeks Ho$ of workers ( Ho$ of hrs week

= 07 hrs = / weeks Ho$ of workers ( Ho$ of hrs week Ho$ of weeks /1 ( 07 ( / )2// man-

( Ho$ of weeks E .1 ( 07 ( . E 7he producti8ity in contract-2 is #etter than that of contract-1. E 2/// manE hours hours Producti8ity = = = Output 0 ;nput Producti8ity 2(// 0 2/// ------------------------------------1.1* = = =

Output 0 ;nput **// 0 )2// 1.(1

!ue " 13# retail store %ad sales of 0s64)<<< in pril and 0s6)8<<< in May6 -%e store employs eig%t full"time +or1ers +%o +or1 a 4<" %our +ee16 In pril t%e store also %ad seven part"time +or1ers at 1< %ours per +ee1B and in May t%e store %ad nine part"timers at 1) %ours per +ee1 .assume four +ee1s in eac% mont%)6 Csing sales value as t%e measure of outputB +%at is t%e percentage c%ange in productivity from pril pril to May( May
%ales = :s$01777 Fulltime 6or!ers = 5 &I 07 hrs week' Part-time 6or!ers = 3 &I -7 hrs week' 7otal Man-hours = &&5(07'G&3(-7'' 9onths ( 0 weeks E &/.7G37'(0 = 1*+/ man-hrs Producti8ity = Output 0 ;nput = )*/// 0 1*+/ > change = in producti8ity 2-.-) %ales = :s$12777 Fulltime 6or!ers = 5 &I 07 hrs week' Part-time 6or!ers = 6 &I -1 hrs week' 7otal Man-hours = &&5(07'G&6(-1'' 9onths ( 0 weeks E &/.7G-/1'(0 = 1-2/ man-hrs Producti8ity = Output 0 ;nput = *+/// 0 1-2/ = ?4(/.,+ @ 2-.-)5 = 0 2-.-)A (/.,+ 1 1//

+.+* > pril

7he producti8ity of May is increased #y +.+* > than that of

parcel delivery company delivered 1B<3B<<< pac1ages in 2<<4B +%en its average employment +as =4 drivers6 In 2<<) t%e firm %andled 112B<<< deliveries +it% A8 drivers6 $%at +as t%e percentage c%ange in productivity from 2<<4 to 2<<)(

!ue ; 14# $%at are t%e factors influencing +%ile selecting a Facility 4ocation(
=ollowing are the factors influencing the selection of =acility location: 1) ,eciding on domestic or international location# =irst the management must decide whether the facility will be located internationally or domestically$ Howadays, with the globalization of business this choice is significant because a location in any country in the world will be considered to have competitive advantages derived from location$ !f the decision is to choose an international location, the ne(t logical step is to decide about the country for location$ The choice of a particular country for location depends on such factors as: &i' political stability, &ii' e(port and import %uotas, &iii' e(change rates, &iv' cultural and economic considerations, &v' availability of natural resources, eliminate, cost of labour etc$ 2) 0egional location decision# The selection of a particular region may involve choosing among many national regions or among several regions within a much smaller geographical area$ The factors affecting the selection of a particular region are: vaila&ility of ra+ materials and nearness to t%e sources of ra+ materials# This will reduce the cost of transportation of raw materials from its source to the place where the plant is located$ =or e(ample, steel, sugar, paper and cement industries which use bulky raw materials should be located near the sources of raw materials$ Eearness to t%e mar1et# =or many firms producing consumer non)durable items such as bread, ice)cream, packed foods, etc, it is necessary to be located near the market to reduce the transportation costs as well as reduce the time re%uired of transportation$ *lso, when finished goods are bulky, heavy, fragile or perishable, the firms must be located nearer to market to increase the speed of delivery$ =or instance, bottling plants of soft)drink companies are located within the cities$ Pro/imity to suppliers# =irms are located near their suppliers because of perishability, transportation costs, or bulkiness of materials$ vaila&ility of Po+er# #ower is essential for any manufacturing firm$ Coal, oil and natural gas are sources of electric power in addition to generation of power through hydro electric power stations$

+ome industries such as *luminum e(traction plants consume heavy amount of electricity and hence, re%uire ade%uate supply of electricity at a cheap rate$ -ransport Facilities# Transport facilities are essential for transportation of raw materials and supplies and employees to the plant as well as for carrying finished goods from the plant to the market place$ The location of the plant must be well connected by rail, road and sea$ =or e(ample, petroleum refineries and fertilizer plants are located near the ports because they need shipping facility either to bring raw materials &such as crude oil' to the plant or ship the finished products &fertilisers' to other destinations &ports'$ Suita&ility of Climate# Certain industries re%uire particular climatic conditions because of the nature of their production$ =or e(ample, humid climate is re%uired for cotton te(tile and jute industries$ *lso, dust free climatic conditions are favorable for electronic industries$ ?ven though the desired climatic conditions can be provided artificially, it would be %uite costly to do so and hence, natural climatic conditions are preferred$ Fovernment Policy# +ome states in backward regions of our country, have encouraged industrialists to locate their industries in the backward regions &economically backward states'$ The central government may influence plant location in backward states by their licensing policy, freight rate policy, institutional finance and subsidies, etc$ Competition &et+een states# 9any states compete among themselves to attract new industries by offering investment subsidies, cheap power and land, sales ta( e(emption, longer loan repayment period and low interest rates, etc$, small and medium sized plants are attracted by these incentives$

3) Selection of Community# The selection of a locality or a community in a region is influenced by the following factors: vaila&ility of 4a&our# 8abour having the appropriate levels of skills needed for the industry is an important consideration$ The skilled labour influences the plant location &their availability and cost'$ This factor may not be very important if the skilled labour are mobile &i$e$, willing to move'$ The attitude of labour &workers', union activities and industrial disputes play a major role in attracting an industry to be located in a community$ Civic menities for 2mployees# ?mployees need facilities such as housing, medical facilities, sports and recreational facilities, educational facilities$ +uch facilities will attract skilled labour and other employees to the plants which are located in places where all employee amenities are available$ 2/istence of ComplementaryB ncillary and Competing Industries# Complementary and ancillary industries can accept job orders which are subcontracted by major industries$ *lso, the big industries can get raw materials, tools and supplies from the small scale industries located in the vicinity of in the same community$ Competing industries which encourage healthy competition are advantageous to the new plants because they can jointly tackle certain problems regarding raw materials, labour, power, wastage, disposal,

pollution control, etc$, and also collectively negotiate with labour unions or government agencies$ Finance and 0esearc% Facilities# *vailability of banks, financial institutions, and research and development laboratories is also a factor which attracts new industries to a location$ vaila&ility of $ater# +ome industries such as chemical and paper industries re%uire plenty of water for industrial use and hence must be located where water is available in abundance$ :egularity of supply, cost and purity are considered regarding water supply to the plant$

vaila&ility of Fire Fig%ting Facilities# +ince industrial units are prone to fire hazards, ade%uate fire fighting facilities must be available 4ocal ta/es and restrictions# The municipality or local administration has its own ta( structure for industries and regulations waste disposal, effluents and smoke emanated from the industries$ 4) Selection of 2/act Site# The selection of e(act site for a plant is influenced by the following considerations: rea of land availa&leB soilB topograp%y and cost of land# =or certain industries such as *gro industries, fertile soil is necessary$ =or industries re%uiring large area of land, availability of land and cost of land are important considerations$ Topography is also considered because a hilly, rocky and rough terrain is unsuitable and involves e(penditure to level the site$ ,isposal of +aste# +ome industries such as chemical plants, leather industries, breweries, steel plants etc$ have the problem of disposal of effluents and the site selected should have provision for this$ Community ttitude# The people living in the nearby areas surrounding the proposed site for the industry should not oppose the location of the plant$ The reasons for negative attitude could be pollution, health hazards &such as radiation' dangerous fumes emanating from the industries etc$

---------------------------------------------

!ue ; 1)# $%at is facility layout( $%at are t%e needs for facility layout planning(
#lant layout, also know as A=acility 8ayoutB refers to the configuration of departments, work) centers and e%uipment and machinery with focus on the flow of materials or work through the production system$ #lant layout or facility layout means planning for location of all machines, e%uipment utilities, work stations, customer service areas, material storage areas, tool servicing areas, tool cribs, aisles, rest rooms, lunch rooms, coffee tea bays, offices, and computer rooms and

also planning for the patterns of flow of materials and people around, into and within the buildings$ -%e need for layout decisions# The need for layout planning arises both in the process of designing new plants and the redesigning of e(isting plants or facilities$

0easons for design of ne+ layouts# -' 8ayout is one of the key decisions that determine the long)run efficiency in operations$ .' 8ayout has many strategic implications because it establishes an organization<s competitive priorities in regard to capacity, processes, fle(ibility and cost as well as %uality of work life, customer contact and image &in case of service organization'$ /' *n effective layout can help an organization to achieve a strategic advantage that supports differentiation, low cost, fast response or fle(ibility$ 0' * well designed layout provides an economic layout that will meet the firm<s competitive re%uirements$ 0easons for redesign of layout# -' !nefficient operations &high cost, bottleneck operations' .' *ccidents, health hazards and low safety /' Changes in product design service design 0' !ntroduction of new products services 1' Changes in volume of output or product)mi( changes 2' Changes in processes, methods or e%uipment 3' Changes in environmental or legal re%uirements 5' 8ow employee morale

---------------------------------

!ue ; 18# ,iscuss various types of Facility 4ayout6

* layout essentially refers to the arranging and grouping of machines which are meant to produce goods or services$ 4rouping is done on different lines$ The choice of a particular line depends on several factors$ The methods of grouping or the types of layout are: -' #roduct or 8ine 8ayout .' #rocess or =unctional 8ayout /' =i(ed position or static 8ayout 0' Cellular layout or 4roup Technology 8ayout 1) 4ine of product layout

-%e position and order in t%e se7uence for a mac%ine performing particular operation is fi/ed6 Once a mac%ine is in lineB it cannot perform any operationB +%ic% is not designated in t%e se7uence of operations6 -%ere is a continuous flo+ of material during t%e production process from start to finis%6

d8antages of line of production layout: -$ ?nsures smooth and regular flow of material and finished goods$ .$ #rovides economy in materials and labour by minimizing waster$

/$ +hort processing time$ 0$ :educes material handling$ 1$ 8ow cost labour procurement and lesser training re%uirements 2$ 8esser !nspection$ 3$ =loor area is more production 5$ ?asy production control$ 6$ 9inimum need for buffer stock$ &isad8antages of line of production layout: -$ #roduct layout is infle(ible in nature$ .$ Chances of production line to shut down$ /$ +upervision is more difficult$ 0$ :e%uires heavy capital investment

2) Functional or process layout

5ere mac%ines performing same type of operations are installed at one

place 6i6e6 plant is grouped according to functions e6g6 all drilling mac%ines are located at one place 1no+n as drilling section6 -%is type of layout is most appropriate for intermittent .>O? and ? -C5 ) type of mfg systems +%ere small 7ty*s of a large range of products are to &e manufactured e6g6 mac%ine tools etc6 d8antages of process layout: -$ ?ach production unit of the system works independently and is not affected by the happenings in another section of the plant$ .$ +cope for more skilled labour leads to better %uality in production$ /$ ;ide fle(ibility in production facilities$ 0$ ?ffective supervision$ 1$ 9achine breakdown doesn<t disrupt production$ 2$ 8ower capital investment$ &less duplication of machines'$ &isad8antages of process layout: -$ 9ore material handling$ .$ 8onger processing time, as more time s re%uired for material handling, transportation and inspection$$ /$ :e%uires substantial production planning and control$ 0$ :e%uires more floor space$ 1$ !nspections more fre%uent and costlier$ 2$ :e%uires highly skilled labour creating difficulty in labour procurement$

3) Stationary layout -%is type of layout is used in situations +%ere t%e semi finis%ed goods are of suc% a si3e and +eig%t t%at t%eir movement from one place to t%e ot%er is not possi&le6 5ere menB e7uipment and t%e ra+"material is moved to a place +%ere all t%e mfg activities are carried out e6g6 S%ip &uildingB constructions of dams etc66

d8antages of Fi1ed 2ayout: -$ This layout is fle(ible with regard to change in design, operation se%uence, labour availability etc$ .$ !t is essential in large project jobs, such as construction and shipbuilding etc$, where large capacity mobile e%uipment is re%uired /$ Dery cost effective when similar type products are being processed, each at a different stage of progress$ &isad8antages of Fi1ed layout: -$ Capital investment may be for a one)off product, which can make it e(pensive$ .$ Due to long duration to complete a product, average utilization of capital e%uipment is limited$ /$ +pace re%uirements for storage of material and e%uipment are generally large 4) Cellular 4ayout Cellular 4ayout is a layout &ased on Froup tec%nology principles6 In t%is layoutB components t%at are similar in design or manufacturing operationsB are groped into one familyB called part"family6 It is a com&ination of &ot% process and product layout and incorporates t%e strong points of &ot%6

d8antages of 'ellular 2ayout: -$ 8ower work)in)progress inventories .$ * reduction in materials handling costs /$ +horter flow times in production 0$ +implified scheduling of materials and labour 1$ "uicker set)ups and fewer tooling changes 2$ !mproved functional and visual control &isad8antages of 'ellular 2ayout: -$ :educed manufacturing fle(ibility .$ Jnless the forecasting system in place is e(tremely accurate, it also has the potential to increase machine downtime /$ There is also the risk that the cells that may become out)of)date as products and processes change, and the disruption and cost of changing to cells can be significant 0$ There is increased operator responsibility, and therefore behavioral aspects of management become crucial )))))))))))))))))))))))))))))))))))))))))))

!ue ; 1:# $%at is forecasting( 2/plain various forecasting met%ods6

=orecasting is the first step in planning$ =orecasting is defined as estimating the future demand for products and services and the resources necessary to produce these outputs$ ?stimating of future demand for products or services are commonly referred to as sales forecasts$ The sales forecasts or demand forecasts are the starting point for the entire planning in production and operations management$ =or e(ample, material planning, capacity planning, manpower planning, financial planning and production scheduling, all depend on sales forecasting$ Forecasting met%ods#

The two general methods to forecasting are: &i' "ualitative, and &ii' "uantitative$ "ualitative methods consist mainly of subjective inputs, often of non)numerical description$ "uantitative methods involve either projection of historical data or the development of association models which attempt to use causal variables to arrive at the forecasts$ !ualitative Met%ods 16 >ury of 2/ecutive Opinion# !t is a forecasting techni%ue in which the opinions of a small group of high)level e(ecutives &managers' are taken, based on which a group estimate of demand is obtained as the forecast$ d8antage: Jses e(perience and knowledge of two or more managers to arrive at a single forecast$ Can be used for technological forecasting$ Can be used for forecasting the demand for new products Can be used to modify an e(isting forecast to account for unusual circumstances &isad8antages ?(ecutive opinion can be costly because it takes valuable e(ecutive time$ !t sometimes gets out of control or gets delayed$ Difficult to obtain consensus opinion of several e(perts$ 26 Sales Composite Met%od# This is also known as A#ooled +ales force ?stimateB method$ ?ach sales person estimates what sales will be in his or her territory$ These estimates are then reviewed to ensure that they are realistic$ Then they are combined at the district and national level to arrive at the overall forecast$ d8antages: The sales force is the group closest to the customers$ The sales persons are most likely to know which products or services, customers will be buying in the near future and in what %uantities$ +ales territories often are divided into districts or regions and forecasts for districts or regions will be useful in inventory management, distribution and sales force staffing$ &isad8antages !ndividual biases of sales people may affect the sales forecast &some are optimistic and some are pessimistic'$ +ales people may be unable to distinguish between what customers would like to do and what they actually will do$ +ometimes, sales people may be overly influenced by their recent e(periences$ !f the firm uses individual salesperson<s estimate as a performance measure, sales people may deliberately underestimate their forecasts so that their performance will look good when they e(ceed their %uotas which are fi(e based on their estimates$ 36 Mar1et 0esearc% ' Consumer Survey Met%ods# This is a systematic approach to determine consumer interest in a product or service by conducting a consumer survey and sample consumer opinions$ This method may be used to forecast demand for the short, medium and long)term$ d8antages

Consumer<s opinion regarding their future purchasing plans are better than e(ecutive opinion or sales force opinion because it is the consumers who ultimately determine demand$ *lso, information that might not be available elsewhere can be obtained by consumer surveys$ &isad8antages !t may not be possible to contact every customer or potential customer and opinions are obtained from sample customers which may lead to forecast error if the sample size is inade%uate +urveys re%uire considerable amount of knowledge and skill to handle correctly$ +urveys can be e(pensive and time consuming$ The response rate for mailed %uestionnaire may be poor$ The survey results may not reflect the opinions of the market$

46 >udgmental Met%od',elp%i Met%od# !n this method opinions are solicited from a number of other managers and staff personal$ The decision makers consist of a group of 1 to -7 e(perts who will be making the actual forecast$ ?ach new %uestionnaire is developed using the information e(tracted from the previous one, thus enlarging the scope of information on which participants can base their judgments$ d8antages This method can be used to develop long)range forecasts of product demand and sales projections for new products$ * panel of e(perts may be used as participants &respondents' &isad8antages: The process can take a long time :esponses may be less meaningful because respondents are not accountable due to anonymity$ High accuracy may not be possible #oorly designed %uestionnaire will result in ambiguous or false conclusions$

!uantitative Met%ods There are five %uantitative forecasting methods, all of which use historical data$ They fall into two categories$ ime series models -$ HaKve approach .$ 9oving averages method /$ ?(ponential smoothing method Causal models -$ Trend projection .$ 8inear regression analysis

-ime Series Models 16 EaGve pproac%

The simplest way to forecast is to assume that forecast of demand in the ne(t period is e%ual to the actual demand in the most recent period &i$e$ the current period'$ For e1ample: !f the actual sales for a product in Lanuary .7-- is -77 units, the forecast demand for =ebruary .7-- will also be -77 units$ 26 Moving verages Met%od

1. %imple Mo8ing 8erage Method * moving average forecast uses a number of most recent historical actual data values to generate a forecast$ The moving average for @n< number of periods in the moving average is calculated as: Mo8ing a8erage E C demand in pre8ious n periods n n may be /, 0, 1 or 2 periods for /, 0, 1 or 2 period moving average 2. :eighted Mo8ing 8erage Method ?ach historical demand in the moving average can have its own weight and the sum of the weight e%uals one$ =or e(ample, in a / period weighted moving average model, the most recent period might be assigned a weight of 7$17, the second most recent period might be assigned a weight of 7$/7 and the third most recent period with a weight of 7$.7 Then forecast, F tD1 E &7$07=t G 7$/7=t-1 G 7$.7=t-2 G 7$-7=t-(' &7$0G7$/G7$.G7$-' (. <1ponential %moothing Method !t is a sophisticated weighted moving average method that is still relatively easy to understand and use$ !t re%uires only three items of data This period<s forecast, The actual demand for this period M which is referred to as smoothing constant and having a value between 7 and -$ Ft = Ft-1 D E 4 t-1 - Ft-15 Ft Ft-1
t-1

= = = =

Forecast for the this period 4t5 Forecast for the pre8ious period 4t-15 ctual demand for the pre8ious period 4t-15 %moothing constant 48alue 8aries from / to15

Causal Models 16-rend Pro@ection Met%od .-PM) The trend component of a time series reflects the effect of long)term factors on the series$ *nalysis of trend involves developing an e%uation that will suitably describe trend$ The trend component may be liner or may not$ * simple plot of the data can often reveal the nature of a trend$ Trend ?%uation : * linear trend can be e(pressed as 9 = a D #1

1 = %pecified num#er of time periods from 1 = / y = Forecast for period 1 a = Falue of yt at 1 = / # = %lope of the straight line 26 4inear 0egression Model !n a simple linear regression model, the dependent variable &N' is a function of only one independent variable &(' and the theoretical relationship is linear or a straight line$ 9 = a D #1 9 = &ependent 8aria#le G = ;ndependent 8aria#le = constant 8alue 4a constant 8alue5 H = %lope of the line 4a constant 8alue5 ))))))))))))))))))))))))))))))))))))))))))))

!ue " 1=6 -%e num&er of cans of soft drin1s sold in a mac%ine eac% +ee1 is recorded &elo+6 ,evelop forecasts using a t%ree period moving average6 33=B 21AB 2:=B 28)B 314B 323B 2AAB 2)AB 2=:B 3<2
!et "t denote the number o# cans o# so#t drin$s sold in a machine o# th the t %ee$. &o% the 3 month movin' avera'e o# the t(1th %ee$ is 'iven by

Ft9

"t ( "t)1 ( "t)2 3

* t+3* 4* , 5

&o% the three periods movin' avera'e #orecast is 'iven in the #ollo%in' table
hree)period movin' avera'e 0orecast -ee$ .t/ "t .0t/ 1 2 3 4 5 4 3 1 2 15 331 212 231 245 314 323 222 252 213 352 231.33 254.55 215.43 355.43 312.55 223.43 211.43

!ue ; 1A# Cse a four period moving average to forecast attendance at &ase&all games6 5istorical records s%o+ )348B :=12B 8)13B ):=3B )A=2B 8)1AB 82=3B ))::B 8:12B and :34)
th

!et "t denote the number o# vie%ers o# baseball 'ame o# the t th 4 period mov) in' avera'e o# the t(1 period is 'iven by

period. &o% the

"t ( "t)1 ( "t)2 ( "t)3 Ft9 4

* t+ 4* 5* 4 , 3

&o% the #our periods movin' avera'e #orecast is 'iven in the #ollo%in' table

0our period movin' avera'e Perio 0orec d " ast 1 5344 2 3112 3 4513 4 5313 5 5212 4343. 5 4 4512 4522. 5 3 4212 4122. 25 1 4213 4125. 35 2 5533 4255. 35 1 4312 4142. 5 5 1 3345 4123. 1 35

!ue ; 2<# %ospital records t%e num&er of floral deliveries its patients receive eac% day6 For a t+o +ee1 periodB t%e records s%o+ 1)B 2:B 28B 24B 1=B 21B 28B 1AB 1)B 2=B 2)B 28B 1:B 23 Cse e/ponential smoot%ing +it% a smoot%ing constant of 64 to forecast t%e num&er of deliveries6

he #ormula is Ft9HI
5ereB H9 <64 9actual data F9forecasted data t9period num&er

t"1J

.1" H) Ft"1

$ee1

,ay . / 0 1 2 3 5 6 -7 --. -/ -0

,elive Ft &y e/ponential ry-1 smoot%ing .3 .2 .0 -5 ..2 -6 -1 .5 .1 .2 -3 ./ -1 -6$5 ..$.5 ..$62 5 .7$657

5 .-$/6151.5 -5$5/31--25 ..$17.1737./$17-170. .0$17767.1. .-$17710-1-

5 .7$6550 5 ..$66/75

!ue ; 21# -%e num&er of girls +%o attend a summer &as1et&all camp %as &een recorded for t%e seven years t%e camp %as &een offered6 Cse e/ponential smoot%ing +it% a smoot%ing constant of 6= to forecast attendance for t%e eig%t% year6 4:B 8=B 8)B A2B A=B 121B 148
6

0t+0t)1(7 .6t)1)0t)1/ 8ere9 7+ 5.1

Kear . / 0 1 2 3 5

ttendan Ft &y e/ponential ce 03 smoot%ing 25 21 6. 65 -.-02 03 2/$5 20$3 2 52$11 . 61$3-7

0 --1$60.7 5 -/6$6550-2

!ue ; 22# -%e num&er of pi33as ordered on Friday evenings &et+een )#3< and 8#3< at a pi33a delivery location for t%e last 1< +ee1s is s%o+n &elo+6 Cse e/ponential smoot%ing +it% smoot%ing constants of 62 and 6= to forecast a value for +ee1 116 Compare your forecasts using MS26 $%ic% smoot%ing constant +ould you prefer( )=B 48B ))B 3AB 42B 83B )4B ))B 81B )2

0t+0t)1(7 .6t)1)0t)1/
M Eo of Pi3" 3a 15 02 11 /6 0. 2/ 10 11 21. 7$. MS2 50$-./003. 1 S7uar ed 2rro -00 7$/2 .3-$1670 -7/$3-/51 2 -21$-60023 5 -$200-/605 0$-7/5//.. 3 15$7307120 3 5$0/7.3..6 5

$ee1 . / 0 1 2 3 5 6 -7 --

Ft &y e/ponential 15 11$ 2 11$0 5 1.$-5 0 17$-03 . 1.$3-33 2 1.$630. 75 1/$/36/2 20 10$67/06/ -. 10$/..36 01

2rror )-. )7$2 )-2$05 )-7$-50 -.$51. 5 -$.5.. 0 .$7.136 . 3$2.72/ 0 ) .$67/06

M Eo of Pi3" 3a 15 02 11 /6 0. 2/ 10 11 21.

7$5

MS2

-73$-37/3. S7uared 2r" ror -00 0/$12 .-1$17.0 7$770762 00-$1/332/ 5 ./$7-10/71 1 7$77-20-.. . /2$763.600 1 27$5-03./0

$ee1 . / 0 1 2 3 5 6 -7 --

Forecast using e/ponential 15 05$ 0 1/$2 5 0-$6/ 2 0-$653 . 15$3630 0 10$6160 55 10$66-56 32 16$365/36 1. 1/$11623 16

2rror )-. 2$2 )-0$25 7$720 .-$7-. 5 ) 0$36300 7$7071. 2$775-7 . ) 3$365/5

It is clear &y MS2 t%at if H value increases t%e error is also increase6

!ue ; 23# $%at is

ggregate Production Planning(

!t !s the process of determining output levels &units' of product groups over the ne(t 2 to -5 months period on a weekly or monthly basis$ The plan indicates the overall level of outputs level of outputs supporting the business plan$ *ggregate production planning involves planning the best %uantity to produce during time periods in the intermediate)range horizon &often / months to - year' and planning the lowest cost method of providing the adjustable capacity to accommodate the production re%uirements$ =or manufacturing operations, aggregate planning involves planning workforce size, production rate &work hours per week' and inventory levels$ ))))))))))))))))))))))))))))))))))))))))

!ue ; 24# $%at are t%e o&@ectives of Planning(

ggregate Production

-$ To develop plans that are .a) Feasi&le# The plans should provide for the portion of demand that the firm intends to meet and should be within the capacity of the firm .&) Optimal# The firm should aim for plans which will ensure that resources are used as wisely as possible and cost kept as low as possible$ .$ To increase the range of alternatives of capacity use that can be considered by the management of the firm ))))))))))))))))))))))))))))))))))))))))

!ue ; 2)# $%at are t%e purpose and scope of

ggregate Planning(

*ggregate planning begins with a forecast of aggregate demand for a product, over the intermediate time horizon$ Then general plan in prepared to meet the demand re%uirement by setting output, work force and finished goods inventory levels$ *lternate plans must be e(amined in light of feasibility and cost$ ;ithin the intermediate time horizon &2 to -. months' of the production plan, it is usually not feasible to increase capacity by building new facilities or purchasing new e%uipment$ However, it is feasible to hire or lay)off workers, increase or reduce the working hours &add an e(tra shift, sub)contract, use overtime' or build up or deplete inventory levels$

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!ue ; 28# $%at are t%e Inputs and Outputs for Production Planning(

ggregate

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!ue ; 2:# 2/plain t%e process of

ggregate Planning(

""""""""""""""""""""""""""""""""""""""""""""""""""

!ue ; 2=# $%at is Materials 0e7uirements Planning(

=or a manufacturing company to produce end items to meet demand, the availability of materials, fabricated parts or sub)assemblies are re%uired$ ,ne approach to manage the availability of these items is to keep a high stock of all the items that might be needed to produce the end items$ 6n alternative approach to mana'in' these re:uirements is to plan #or procurement or manu#acture o# the speci#ic components that %ill be re:uired to produce the re:uired :uantities o# end products as per the production schedule indicated by the master production schedule.;P</. he techni:ue is $no% as material re:uirements plannin' techni:ue.

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!ue ; 2A# $%at are t%e o&@ectives of Materials 0e7uirements Planning(

he objectives o# ;RP in operations mana'ement are= -' To improve customer service by meeting delivery schedules promised and shortening delivery lead times .' To reduce inventory costs by reducing inventory levels /' To improve plant operating efficiency by better use of productive resources$

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!ue ; 3<# $%at are t%e Inputs and Outputs of M0P system(

M0P system Inputs#

1. Master Production %chedule: 9#+ specifies what end products are to be produced and when$ 2. Hill of Material File or Product %tructure File: #rovides the information regarding all the materials, parts and sub assemblies that go into the end product$ (. ;n8entory %tatus File: 4ives complete and up)to)date information on the on)hand %uantities, gross re%uirements, schedules receipts and planned order releases for the item$ !t also includes other information such as lot sizes, lead times, safety stock levels and scrap allowances, etc$ M0P system Outputs# 1. 76o primary outputs are: #lanned order schedule which is a plan of the %uantity of each material to be ordered in each time period$ The order may be a purchase order on the suppliers or production orders for parts and sub)assemblies on production departments Changes in planned orders O i$e$, modification of previous planned orders$ 2 7he secondary outputs are: ?(ception reports which list items re%uiring management attention to control #erformance reports regarding how well the system is operating, e$g$, inventory turnovers, percentage of delivery promises kept and stock)out incidences$ #lanning reports such as inventory forecasts, purchase commitment reports, etc$ )))))))))))))))))))))))))))))))))))))

!ue ; 31# 2/plain Materials 0e7uirements Planning process(

The 9aterials :e%uirements #lanning portion of manufacturing activities most closely interacts with the master schedule, bill of materials file, inventory records file, and the output records as shown in the above chart$ 15 &emand For Products: #roduct demand for end items comes primarily from two main sources$ The first is known customers who have placed specific orders, such as those generated by sales personnel, or from interdepartmental transactions$ These orders usually carry promised delivery dates$ There is no forecasting involved in these orders)simply add them up$ The second source is forecast demand$ The demand from the known customers and the forecast demand are combined and become the input for the master production schedule$ !n addition to the demand for end products, customers also order specific parts and components either as spares or for service and repair$ 25 Hill of Materials File: The bills of materials &>,9' file contains the complete product description, listing not only the materials, parts, and components but also the se%uence in which the product is created$ This >,9 file is one of the three main inputs to the 9:# program$ The >,9 file is often called the product structure file or product tree because it shows how a product is put together$ !t contains the information to identify each item and the %uantity used per unit of the item of which it is a part$

(5 ;n8entory %tatus File: This file contains important information such as what items should be ordered, and when orders should be released$ The inventory status file keeps data about the projected use and receipts of each item and determines the amount of inventory that will be available in each time bucket$ !f the projected available inventory is not sufficient to meet the re%uirement in a period, the 9:# program will recommend that the item be ordered$ )))))))))))))))))))))))))))))))))))

!ue ; 32# $%at is Inventory( $%at is Eature and Importance of Inventory management(
The term inventory refers to any resource that has certain value, which can be used at a future occasion when the demand arises$ *lternatively inventory may be defined as Astock of items kept on hand by an organization to be used to meet customer demandB$ Dirtually every type of organization maintains some form of inventory$ * department stores or retail store carries inventories of all the retail items it sells, a family household maintains inventories of food, clothing, medical supplies, an automobile dealer maintains inventory of automobiles, a manufacturing firm maintains inventory of raw materials, bought)out components, semi finished goods or work)in)progress items, finished goods, spare parts for maintenance of e%uipment and machinery, inventory of skilled labour, li%uid funds such as cash and also inventory of plant and e%uipment$ !n an organization, the importance of inventory management can be recognized for the following reasons$ -' !nventories represent resources ac%uired at a cost, thereby locking up substantial working capital$ .' !nventories allow for smooth flow of production process by ensuring that ade%uate supply of raw materials, components and manufactured items are available to the production lines$ /' !nventories serve as buffers against uncertain and fluctuating usage and reduce stock) out situations, thereby avoiding production hold)ups and loss of customer goodwill$ ))))))))))))))))))))))))))))))))))))

!ue ; 33# $%at are t%e types of different inventories needs to &e managed in an organi3ation(
!nventories are usually classified as: &a' :aw materials, &b' >ought)out components or subassemblies, &c' +emifinished goods or work)in)process, &d' Consumable stores, &e' maintenance spare parts, &f'=inished goods stored or in transit to warehouses or customers$ =ollowing are lists of various types of inventories: 4 5 Hased on nature of materials: Production Inventories# :aw materials, parts and component which become part of the firm<s finished product in the production process$

M0O Inventories# 9aintenance, repair and operating supplies which are consumed in the production process, but which do not become part of the finished product &e$g$ lubricants, grease cotton waste, spare parts for machine repars'$ In"process Inventories# *lso known as Awork)in)processB or work)in)progress or semi) finished goods inventories O these are parts or sub assemblies found at various stages in the production process$ =inished 4oods !nventories: Completed products kept in stores ready for shipment$ 4H5 'lassified #y ho6 it is created Cycle Inventory# The position of total inventory which varies directly with lot size &i$e$, %uantity ordered'$ =or e(ample, if " is the order %uantity or the lot size and the supply is received e(actly when the stock is nil, then the minimum inventory is nil, ma(imum inventory is " and the average cycle inventory is half of %uantity ordered$ Safety Stoc1 Inventory# +afety stock inventories are held to avoid stock)out conditions which cause production stoppages and to project against uncertainties in demand, lead time, supply and consumption rates$ nticipation Inventory# !nventory of materials purchased in bulk %uantities in anticipation of price rise and products having seasonal demand produced in %uantities more than the demand during off)seasons and held in inventory to meet higher demand rate &more than production rate' during seasons of high demand$ Pipe"line Inventory# !nventory moving from point to point in the materials flow system$ 9aterials move from supplier to a plant, from one operation to the ne(t in the plant and from the plant to the warehouse or distribution centre of to the customer$ #ipe line inventories also include materials that have been ordered but not received$ Fluctuation Inventory# !nventory held as reserve stock to meet the une(pected fluctuating demand over a period which cannot be predicted accurately$ ))))))))))))))))))))))))))))))))))))))

!ue ; 34# $%at are t%e functions of Inventory Management(

The objective of maintaining inventories in organizations is that it is rarely possible to predict sales levels, production levels, demand and usage patterns e(actly$ !n such situations, inventory serves as a buffer against uncertain and fluctuating and keeps a supply of items available in case items are needed by the organization or its customers$ The many functions that inventories perform can be summarized as follows: 1) Smoot%ing out irregulations in supply# !nventories provide a buffer to overcome the problems of uncertainties in supplies such as delayed deliveries and supply of short %uantities by vendors as against the promised delivery schedules and %uantities$ *lso, the customer demand for the goods may increase suddenly which affects the ability of the manufacturer to meet the customer demand$ !n such cases also, an inventory of finished goods held in the warehouses will act as a buffer against the uncertainties in demand$ Thus, inventories fill the gap between supply and demand$

2) ?uying or producing in lots or &atc%es# ;hen the demand for an item does not justify its continued production through)out the year, it is produced in batches or lots on an intermittent basis$ During the time when the item is not being produced, demands are meet from the inventory which is accumulated by batch production$ 3) -o meet seasonal or cyclical demand# Companies will produce items at a constant production rate more than the demand rate in order to meet the seasonal demand occurring at a later period for which the production capacity its insufficient$ 4) -o ta1e advantage of price discounts +%ile &uying items# * company will often purchase large amounts of inventory to take advantage of price discounts, as a hedge against anticipated price increase in the future$ !n some cases large %uantities are ordered becaue the cost of an order may be very high and it is more cost)effective to have higher inventories than to order small %uantities several numbers of times in a year$ )) -o maintain continuity to operations in production processes# 9any companies find it necessary to maintain in)process inventories at different stages in a manufacturing process to provide independence between operations and to avoid work stoppages or delays and to continue production smoothly if there are temporary machine breakdowns or other work stoppages$ )))))))))))))))))))))))))))))))))

!ue ; 3)# 2/plain t%e tec%ni7ues of inventory control

The various techni%ues of inventory control are: 15 H' analysis: The most recent techni%ue for controlling the inventory is a value item analysis &which is based on annual usage value', popularly known as *>C analysis which attempts to relate how the inventory value is concentrated among the individual items$ 25 F<& analysis 4Hased on criticality of the items5: D?D stands for Dital ?ssential and Desirable$ !t is ideally suited for classification of maintenance spare parts$ Dital means items that, when not available, production is held up$ These are also called insurance items$ ?ssential means non available items, which dislocate production work$ Desirable means items that are necessary, but do not cause any immediate loss in production$ (5 %&< analysis 4Hased on procurement aspects5: + means scarce items which are generally imported$ D means difficult to procure items for which reliable supply source is not available$ ? means easily available items$ )5 IM2 analysis 4Hased on unit cost5:

*>C analysis works on the basis of total annual usage value, but the individual items cost is ignored$ !n H98 analysis, unit cost in considered$ H means high unit cost items$ 9 means medium unit cost items$ 8 means low unit cost items$ *5 F%B analysis 4Hased on consumption rate5: This analysis helps in arrangement of the stock in stores and its distribution and handling methods$ = means fast moving items$ + means slow moving items$ H means non moving items &not issued over a . year period'$

2' For fast mo8ing items, rate contracts will be of great help in arranging for ready
procurement$ Hon moving items are e(amined with a view to their disposal as early as possible$ ,5 G3 H93 'J or F3 H<3 '& analysis: These combine . of the above mentioned classifications and give a more powerful analysis$ -5 <conomic Order "uantity 4<O"5: ;hen the size of an order minimizes the total inventory cost it is known as the ?,"$ +ome costs increase as inventory increases and others decreasesC there is no ideal order size$ The best lot size will result in ade%uate inventory to reduce some costs, yet will not be so large that it results in needless e(penses for holding inventory$ * compromise must be drawn b w conflicting costs$ ?," is an important factor in inventory control$ !t is also known as standard order %uantity, economic lot size or economic ordering %uantity$ .5 Minimum-Ma1imum technique: The minimum ma(imum system is used for manual inventory control system$ The minimum %uantity in established in the same way as at any re)order point$ 9a(imum is worked out as the total of minimum %uantity and the optimum lot size$ 1/5 76o Hin 7echniques: *n earlier system of inventory control, a crude method is the . bin system$ !t was used for c group inventories &*>C analysis'$ +tock of each item is put into two bins$ ,ne bin is just enough for the stock to last from the date of placement of a new order to the date of receipt of inventory$ The ne(t bin covers a %uantity of stock large enough to satisfy probable demand during the period of replenishment$ 115 Material Requirements Planning 4MRP5: 9:# is a techni%ue of working backward from the scheduled %uantities and need dates for end items specified in a master production schedule to determine the re%uirements for components needed to meet the master production schedule$ 125 Kust-in-time 4K;75: !t is a broad philosophy to seeking e(cellence and eliminating waste in the manufacturing process$ !t includes, &i'#eople involvement &ii' Total "uality Control &iii' L!T production

The L!T philosophy of continuous improvement and minimization of waste considers waste to be any activity that does not add value to the product or serve the customers in some way$

!ue ; 38# ,iscuss in detail t%e 2O! model and ?C analysis as t%e t+o important tec%ni7ues of inventory management6
?ffective inventory management is essential in the operation of any business$

<O" Model:
?," is a widely used techni%ue for inventory control$ ?," is also known as ?conomic batch "uantity or economic lot size$ ?," seeks to balance order %uantity is the best %uantity techni%uesC it tries to e%uate both procurement and carrying costs$ !t is that %uantity where these costs are e%ual or least, both together$ 2O! ssumptions# o Demand is known, constant and independent o 8ead time is known and constant o :eceipt of material !nstantaneous o Ho %uantity discounts o ,nly order &set up' cost and holding cost o Ho stock)outs if orders are placed at the right time o ,rder %uantity received all at once$

The nature of ordering costs is that per order the cost remains same: However the move the number of orders$ #laced during a year, more will be the total costs$ Hence, it pays to procure more at point so that least orders can be placed$ !nventory carrying costs related to those costs which are incurred to hold the stock$ >y holding less %uantity, these costs can be reduced$

2O! Model 27uations# ,ptimal ,rder "uantity " E ?(pected number of orders H E D "

;here, DEDemand per year +E+etup &order' cost per order HEHolding &carrying cost' )))))))))))))))))))))))))))))))))

!ue ; 3:# $%en to reorder 2O! ordering#

:e)order point O !t is the level where the stock level reaches a stage indicating the replenishment of over consuming stock because there is always a gap between placing an order and actually getting it$ The idea is not to place the order too early or too because in both the cases the form is danger zone$

H'

nalysis:

The principle of management by e(ception is better suited here items inventory are classified into *,>,C stand for three different classes$ *>C analysis is based on the relative importance of the materials$ Conventionally, *>C analysis refers to the annual consumption value of the items, in an attempt to identify the small number of items that will account for most of the sales volume and that are the most important ones to control for effective inventory management$ >y ranking the inventory items in rupee terms * items being the most e(pensive to C items being the least e(pensive, managing inventory, investment can be broken down to a manageable level * items usually make up 17 to 27P of inventory rupees, however they only account for normally -7 to .7P of inventoried items > items usually make up /7 to 07 of inventory rupees and only account for normally /7 to 07P of inventoried items$ C items usually make up 1 to 17P of inventory rupees and account for normally 07 to 17P of inventories items$ >y managing the * items, a positive impact can be made in inventory investment reduction reducing one or two * items can and will have a bigger impact on inventory reduction$ ))))))))))))))))))))))))))))))))

;BF<B7OR9 M B L<M<B7 %UM% !ue " 3=#

+tock Humber L.0 :.2 87. 9-. #// T3. +23 "03 D.7 *>C *nalysis *nnual F Dolume #ercent of *nnual F Dolume -.,177 02$. 6,777 //$/ /,.77 --$5 -,117 1$5 2.7 .$/ 21 7$. 1/ 7$. /. 7$/7 7$-

E -77$7

$%at are t%e appropriate

?C groups of inventory items(

Solution#
*>C 4roups *nnual Dolume .-,177 0,317 577

Class * > C

!tems L.0, :.2 87., 9-. #//, T3., +23, "03, D.7

#ercent of F Dolume 36$1 -3$2 .$6

E -77$7

!tem #// is a judgment call$ !t might be considered a > item by some organizations$ However, the modern tendency is to move items to as low a level as possible thereby reducing inventory management costs$ )))))))))))))))))))))))))))))))))

!ue " 3A firm %as 1B<<< L M items .+%ic% it counts every +ee1B i6e6B ) days)B 4B<<< L?M items .counted every 4< days)B and =B<<< LCM items .counted every 1<< days)6 5o+ many items s%ould &e counted per day( Solution#
!tem Class * > C "uantity -,777 0,777 5,777 #olicy Humber of !tems to Count #er Day ?very 1 days -777 1 E .77 day ?very 07 days 0777 07E-77 day ?very -77 days 5777 -77E57 day Total items to count: /57 day

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!ue " 4< ssume you %ave a product +it% t%e follo+ing parameters# nnual ,emand 9 38< units 5olding cost per year 9 N16<< per unit Order cost 9 N1<< per order $%at is t%e 2O! for t%is product( Solution#

EOQ =

2* Demand *Order Cost 2*360*100 = = 72000 = 268.33 items Holding cost 1

The ?," model assumes any real %uantity is feasible$ The actual %uantity ordered may need to be an integer value and may be affected by packaging or other item characteristics$ !n the following #roblems an ?," of .25 is assumed$ )))))))))))))))))))))))))))))))))

!ue " 41 Fiven t%e data from Pro&lem 3B and assuming a 3<<"day +or1 yearB %o+ many orders s%ould &e processed per year( $%at is t%e e/pected time &et+een orders( Solution# N= T= Demand 360 = = 1.34 orders per year Q 268

Wor ing days = 300 !1.34 = 224 days "et#een orders $%pected n&m"er o' orders
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!ue " 42 $%at is t%e total cost for t%e inventory policy used in Pro&lem 3( Solution# TC = Demand *Order Cost ()&antity o' *tems+ *(Holding Cost+ + Q 2 360*100 268*1 = + = 134 + 134 = ,268 268 2

Hotice that at the ?," Total Holding Cost and Total ,rdering Cost are e%ual$ )))))))))))))))))))))))))))))))))

!ue " 43 ?ased on t%e material from Pro&lems 3 ; )B +%at +ould cost &e if t%e demand +as actually %ig%er t%an estimated .i6e6B )<< units instead of 38< units)B &ut t%e 2O! esta&lis%ed in pro&lem 3 a&ove is used( $%at +ill &e t%e actual annual total cost( Solution#

TC =

Demand *Order Cost ()&antity o' *tems+ *(Holding Cost+ + Q 2 -00*100 268*1 = + = 186.-7 + 134 = ,320.-7 268 2

Hote that while demand was underestimated by nearly 17P, annual cost increases by only .7P (320 ! 268 = 1.20 + an illustration of the degree to which the ?," model is relatively insensitive to small errors in estimation of demand$

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!ue " 44 If demand for an item is 3 units per dayB and delivery lead"time is 1) daysB +%at s%ould +e use for a simple re"order point( Solution#
R>P E Demand during lead)time E / Q -1 E 01 units )))))))))))))))))))))))))))))))))

!ue " 4) ssume t%at our firm produces -ype C fire e/tinguis%ers6 $e ma1e 3<B<<< of t%ese fire e/tinguis%ers per year6 2ac% e/tinguis%er re7uires one %andle .assume a 3<< day +or1 year for daily usage rate purposes)6 ssume an annual carrying cost of N16)< per %andleB production setup cost of N1)<B and a daily production rate of 3<<6 $%at is t%e optimal production order 7uantity( Solution#
The e%uation used differs from the basic ?," model by allowing for gradual replenishment, which affects the average level of inventory$

Q* p =

2* Demand *Order Cost (2+(30. 000+(1-0+ = = 3000 &nits 100 Daily /sage 0ate 1.-0 1 Holding Cost 1 300 Daily 1rod&ction 0ate
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!ue " 48 $e use 1B<<< electric drills per year in our production process6 -%e ordering cost for t%ese is N1<< per order and t%e carrying cost is assumed to &e 4<O of t%e per unit cost6 In orders of less t%an 12<B drills cost N:= per unitP for orders of 12< or more t%e cost drops to N)< per unit6 S%ould +e ta1e advantage of t%e 7uantity discount( Solution# Q* p (,78+ = Q* p (,-0+ = (2+(1000+(100+ = 80 &nits (0.4+(78+ (2+(1000+(100+ = 100 &nits = 120 to ta e ad2antage o' 3&antity disco&nt. (0.4+(-0+

,rdering -77 units at F17 per unit is not possible, the discount does not apply until -.7 units are ordered$ ;e need to compare the total costs for the two alternatives, ?&F35' and ? E -.7$ !n this situation, the Total Cost e%uation must include the cost of the item since this is not a constant$

4otal cos t = Demand * Cost + 4otal cost(,78+ = (1000+(78+ +

Demand * Order Cost ( )&antity o' *tems+ * ( Holding cos t + + ) 2

(1000+(100+ (80+(0.4+(78+ + = 80 2 ,78. 000 + ,1. 2-0 + ,1. 248 = ,80. 458 (1000+(100+ (120+(0.4+(-0+ + = 120 2 ,-0. 000 + ,833 + ,1. 200 = ,-2. 033 4otal cost(,-0+ = (1000+(-0+ +
Therefore, we should order -.7 each time at a unit cost of F17 and a total cost of F1.,7//$ Hotice that Total Holding Cost is not e%ual to Total ,rdering Cost at the lowest cost alternative &? E -.7' since this is not an ?,"$ )))))))))))))))))))))))))))))))))

!ue " 4: 4itely Corp sells 1B3)< of its special decorator lig%t s+itc% per year and places orders for 3<< of t%ese s+itc%es at a time6 ssuming no safety stoc1sB 4itely estimates a )<O c%ance of no s%ortages in eac% cycle and t%e pro&a&ility of s%ortages of )B 1<B and 1) units as <62B <61)B and <61) respectively6 -%e carrying cost per unit per year

is calculated as N) and t%e stoc1out cost is estimated at N8 .N3 lost profit per s+itc% and anot%er N3 loss of good+ill or future sales)6 $%at level of safety stoc1 s%ould 4itely use for t%is product( .Consider safety stoc1 of <B )B 1<B and 1) units6) Solution# 6a'ety stoc = 0 &nits7
Carrying cost e%uals zero$ Total +tockout Costs E &stockout costs Q possible units of shortage Q probability of shortage Q number of orders per year'

S0 = 6*-*0.2*

13-0 13-0 13-0 + 6*10*0.1-* + 6*1-*0.1-* = ,128.2300 300 300

6a'ety stoc = - &nits7 Carrying cos t = ,- per &nit * - &nits = ,2+tockout cost:

S- = 6*-*0.1-*

13-0 13-0 + 6*10*0.1-* = ,60.7300 300

4otal Cost 8 Carrying cost 9 6toc o&t cost = ,2- + ,60.7- = ,8-.76a'ety stoc = 10 &nits7 Carrying cos t = 10 * - = ,-0.00
+tockout cost:

610 = 6* -* 01. *

13-0 = ,20.2300

4otal Cost 8 Carrying cost 9 6toc o&t cost = ,-0.00 + ,20.2- = ,70.26a'ety stoc = 1-7 Carrying cos t = 1-* - = ,7-.00 6toc o&t cos ts = 0 &There is no shortage if -1 units are maintained' 4otal Cost 8 Carrying cost 9 6toc o&t cost = ,7-.00 + ,0 = ,7-.00
Therefore: 9inimum cost comes from carrying a -7 unit safety stock$

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!ue " 4= Presume t%at 4itely carries a modern +%ite 1itc%en ceiling lamp t%at is 7uite popular6 -%e anticipated demand during lead"time can &e appro/imated &y a normal curve %aving a mean of 1=< units and a standard deviation of 4< units6 $%at safety stoc1 s%ould 4itely carry to ac%ieve a A)O service level( Solution#
To find the safety stock for a 61P service level it is necessary to calculate the 61th percentile on the normal curve$ Jsing the standard Hormal table from the te(t, we find the R value for 7$61 is -$21 standard units$ The safety stock is then given by:

(16. * 40+ + 180 = 66 + 180 = 246 Ceiling :amps

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!ue ; 4A# $%at is Operation Sc%edule( 2/plain its significance also e/plain sc%eduling6
+cheduling is the ne(t techni%ue of production control after routing$ ;ork scheduling is defined as the assignment of starting and completion time for the various operations to be performed$ !t involves developing and assigning specific dates for the start or completion of the necessary work tasks$ +cheduling is performed in two stages: a' 8oading b' Dispatching 8oading is assigning to a particular work centre the task to be performed during some gross scheduling period, say a week$ O&@ective of sc%eduling# -' To meet the pre)determined demand .' To keep the inventory of raw materials at the optimum level$ /' To minimize the production cost 0' Co)ordination with other departments 1' To arrange for product development and design 2' To arrange the activities of the %uality control and inspection department 3' To determine economical batch size and ascertain se%uence of operations so that the set up cost is reduced$ 5' To eliminate delays in production$ 6' To arrange for proper guidance and control -7' To work out a schedule

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!ue ; )<# ,iscuss various met%ods of operation sc%eduling

+cheduling pertains to establishing both the timing and use of resources within an organization$ Jnder the operations function &both manufacturing and services', scheduling relates to use of e%uipment and facilities, the scheduling of human activities and receipt of materials$ ;hile issues relating to facility location and plant and e%uipment ac%uisition are considered long term and aggregate planning is considered intermediate term, operations scheduling is considered to be a short)term issue$ *s such, in the decision)making hierarchy, scheduling is usually the final step in the transformation process before the actual output &e$g$, finished goods' is produced$ 4enerally, scheduling objectives deals with tradeoffs among conflicting goals for efficient utilization of labor and e%uipment, lead time, inventory levels, and processing times$

There are two general approaches to scheduling: forward scheduling and backward scheduling$ *s long as the concepts are applied properly, the choice of methods is not significant$ !n fact, if process lead times &move, %ueue and setup times' add to the job lead time and process time is assumed to occur at the end of process time, then forward scheduling and backward scheduling yield the same result$ ;ith forward scheduling, the scheduler selects a planned order release date and schedules all activities from this point forward in time$ ;ith backward scheduling, the scheduler begins with a planned receipt date or due date and moves backward in time, according to the re%uired processing times, until he or she reaches the point where the order will be released$ ,f course there are other variables to consider other than due dates or shipping dates$ ,ther factors which directly impact the scheduling process include: the types of jobs to be processed and the different resources that can process each, process routings, processing times, setup times, changeover times, resource availability, number of shifts, downtime, and planned maintenance$

2O &;BL 8oading involves assigning jobs to work centers and to various machines in the work centers$ !f a job can be processed on only one machine, no difficulty is presented$ However, if a job can be loaded on multiple work centers or machines, and there are multiple jobs to process, the assignment process becomes more complicated$ The scheduler needs some way to assign jobs to the centers in such a way that processing and setups are minimized along with idle time and throughput time$ Two approaches are used for loading work centers: infinite loading and finite loading$ ;ith infinite loading jobs are assigned to work centers without regard for capacity of the work center$ #riority rules are appropriate for use under the infinite loading approach$ Lobs are loaded at work centers according to the chosen priority rule$ This is known as vertical loading$
=inite loading projects the actual start and stop times of each job at each work center$ =inite loading considers the capacity of each work center and compares the processing time so that process time does not e(ceed capacity$ ;ith finite loading the scheduler loads the job that has the highest priority on all work centers it will re%uire$ Then the job with the ne(t highest priority is loaded on all re%uired work centers, and so on$ This process is referred to as horizontal loading$ The scheduler using finite loading can then project the number of hours each work center will

operate$ * drawback of horizontal loading is that jobs may be kept waiting at a work center, even though the work center is idle$ This happens when a higher priority job is e(pected to arrive shortly$ The work center is kept idle so that it will be ready to process the higher priority job as soon as it arrives$ ;ith vertical loading the work center would be fully loaded$ ,f course, this would mean that a higher priority job would then have to wait to be processed since the work center was already busy$ The scheduler will have to weigh the relative costs of keeping higher priority jobs waiting, the cost of idle work centers, the number of jobs and work centers, and the potential for disruptions, new jobs and cancellations$ !f the firm has limited capacity &e$g$, already running three shifts', finite loading would be appropriate since it reflects an upper limit on capacity$ !f infinite loading is used, capacity may have to be increased through overtime, subcontracting, or e(pansion, or work may have to be shifted to other periods or machines$

%<"U<B';BL +e%uencing is concerned with determining the order in which jobs are processed$ Hot only must the order be determined for processing jobs at work centers but also for work processed at individual work stations$ ;hen work centers are heavily loaded and lengthy jobs are involved, the situation can become complicated$ The order of processing can be crucial when it comes to the cost of waiting to be processed and the cost of idle time at work centers$
There are a number of priority rules or heuristics that can be used to select the order of jobs waiting for processing$ +ome well known ones are presented in a list adapted from Dollmann, >erry, ;hybark, and Lacobs &.771': :andom &:'$ #ick any job in the %ueue with e%ual probability$ This rule is often used as a benchmark for other rules$ =irst come first served &=C =+'$ This rule is sometimes deemed to be fair since jobs are processed in the order in which they arrive$ +hortest processing time &+#T'$ The job with the shortest processing time re%uirement goes first$ This rule tends to reduce work)in)process inventory, average throughput time, and average job lateness$ ?arliest due date &?DD'$ The job with the earliest due date goes first$ This seems to work well if the firm performance is judged by job lateness$ Critical ratio &C:'$ To use this rule one must calculate a priority inde( using the formula &due dateOnow' &lead time remaining'$ This rule is widely used in practice$ 8east work remaining &8;:'$ *n e(tension of +#T, this rule dictates that work be scheduled according to the processing time remaining before the job is considered to be complete$ The less work remaining in a job, the earlier it is in the production schedule$ =ewest operations remaining &=,:'$ This rule is another variant of +#TC it se%uences jobs based on the number of successive operations remaining until the job is considered complete$ The fewer operations that remain, the earlier the job is scheduled$ +lack time &+T'$ This rule is a variant of ?DDC it utilizes a variable known as slack$ +lack is computed by subtracting the sum of setup and processing times from the time remaining until the jobSs due date$ Lobs are run in order of the smallest amount of slack$ +lack time per operation &+T ,'$ This is a variant of +T$ The slack time is divided by the number of operations remaining until the job is complete with the smallest values being scheduled first$

He(t %ueue &H"'$ H" is based on machine utilization$ The idea is to consider %ueues &waiting lines' at each of the succeeding work centers at which the jobs will go$ ,ne then selects the job for processing that is going to the smallest %ueue, measured either in hours or jobs$ 8east setup &8+J'$ This rule ma(imizes utilization$ The process calls for scheduling first the job that minimizes changeover time on a given machine$

These rules assume that setup time and setup cost are independent of the processing se%uence$ However, this is not always the case$ Lobs that re%uire similar setups can reduce setup times if se%uenced back to back$ !n addition to this assumption, the priority rules also assume that setup time and processing times are deterministic and not variable, there will be no interruptions in processing, the set of jobs is known, no new jobs arrive after processing begins, and no jobs are canceled$ ;hile little of this is true in practice, it does make the scheduling problem manageable$

L B77 'I R7% 4antt charts are named for Henry 4antt, a management pioneer of the early -677s$ He proposed the use of a visual aid for loading and scheduling$ *ppropriately, this visual aid is known as a 4antt chart$ This 4antt chart is used to organize and clarify actual or intended use of resources within a time framework$ 4enerally, time is represented horizontally with scheduled resources listed vertically$ 9anagers are able to use the 4antt chart to make trial)and)error schedules to get some sense of the impact of different arrangements$ There are a number of different types of 4antt charts, but the most common ones, and the ones most appropriate to our discussion, are the load chart and schedule chart$ * load chart displays the loading and idle times for machines or departmentsC this shows when certain jobs are scheduled to start and finish and where idle time can be e(pected$ This can help the scheduler redo loading assignments for better utilization of the work centers$ * schedule chart is used to monitor job progress$ ,n this type of 4antt chart, the vertical a(is shows the orders or jobs in progress while the horizontal a(is represents time$ * %uick glance at the chart reveals which jobs are on schedule and which jobs are on time$ 4antt charts are the most widely used scheduling tools$ However, they do have some limitations$ The chart must be repeatedly updated to keep it current$ *lso, the chart does not directly reveal costs of alternate loadings nor does it consider that processing times may vary among work centers$