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Management
Subject Code: MB
0044
BKID B1627
Additional Registrar
SMU DDE
Prof. K. V. Varambally
Director
Manipal Institute of Management, Manipal
Originally Prepared by:
Prof. N. Chandrashekhar
Visiting Faculty Presidency College & Christ College, Bangalore
Prof. Anil B. Gowda
Visiting Faculty MSR
Institute of Management and Canara Bank School of Management Studies
Revised Edition: Spring 2010
Printed: June 2012
This book is a distance education module comprising a collection of learning
materials for our students. All rights reserved. No part of this work may be
reproduced in any form by any means without permission in writing from Sikkim
Manipal University, Gangtok, Sikkim. Printed and Published on behalf of Sikkim
Manipal University, Gangtok, Sikkim by Manipal Global Education Services
Manipal 576 104. Printed at Manipal Technologies Limited, Manipal.
Contents
Unit 1
Production Management
Unit 2
Operations Management
24
Unit 3
Operations Strategy
46
Unit 4
Forecasting
68
Unit 5
Location Strategies
95
Unit 6
Facility or Layout Planning and Analysis
118
Unit 7
Total Quality Management
150
Unit 8
Business Process Modelling
179
Unit 9
Project Management Planning Process
199
Unit 10
Project Implementation, Control and Closure
230
Unit 11
Aggregate Planning
261
Unit 12
Supply Chain Management
280
Unit 13
Operations Scheduling
309
Unit 14
Value Engineering
331
Unit 15
Just-In-Time
348
MB 0044
Production and Operations Management
Course Description
Among all the functional areas of management, production is considered to
be crucial in any industrial organisation. It may be stated that, every
organisation, irrespective of its purpose, has a production function where
departments and personnel play a central role in achieving the objective of
the organisation.
Production is the process by which raw materials and other inputs are
converted into finished products. This process of conversion is at the heart
of the production system and is present in some form in all organisations.
The other word synonymously used with production is manufacturing.
Production Management involves application of planning, organising,
directing and controlling the production process. Thus, the set of interrelated
management activities, which are involved in manufacturing certain
products, is called as Production Management. If the same concept is
extended to services management, then the corresponding set of
management activities is called as Operations Management. Hence the
term operations management is used for systems that produce both tangible
goods and intangible services. Thus, in addition to manufacturing
enterprises, operations management covers service organisations too like
banks, airlines, software companies, retail organisations, educational
institutions, consultancy firms and police departments.
Production and operations management has emerged as a specialised body
of knowledge that facilitates the process of value delivery by improving
productivity, quality, cost and supply chain cycle times and providing a
broad array of high quality products and services. Effective operations
management brings value to organisations and customers through better
product and process design, quality assurance and overall optimal resource
utilisation. It enables the organisation to compete with time (delivery speed
and on-time delivery promise), product variety, and volume variety. It is thus
the key to business success that integrates other functional areas which
together enable an organisation to excel in the market place.
Applying the principles of production and operations management entails a
solid understanding of processes, people and technology and also how they
are integrated within a business system to create value. Production and
operations management provide both the principles and tools for helping
managers meet the challenge of todays global business environment which
changes continually.
This course provides a detailed presentation of the many production and
operations topics and issues faced by organisations. It is a four credit
course in second semester of MBA programme. It provides students a
sound understanding of concepts, techniques and applications of
contemporary production and operations management.
Course Objectives:
After studying this course, the student should be able to:
define production management and operations management
explain the scope of operations management
analyse the role of operations strategy as a competitive weapon in
domestic and global markets
define forecasting and apply the different methods of forecasting and
compare the results
describe location planning process
list and describe the types of layout
explain the importance of layout decision
define quality and explain the importance of quality
describe the importance and principles of project management
develop aggregate plan via different options
explain the concept of supply chain management
recognise how operations scheduling keeps the production cost to
minimum
define value engineering and explain its importance
identify the key elements of JIT
The Self Learning Material (SLM) for this subject is divided into 15 units. A
brief description of all the 15 units is given below:
Unit 1: Production Management
This unit explains the meaning of production and production management,
activities and functions involved in production management, the concept of
production planning and control, the function of production planning and
control. This unit also explains meaning and types of productivity and the
importance of training.
Unit 2: Operations Management
This unit describes the meaning and significance of operations
management, strategic management process, tools for implementation of
operations and industry best practices.
Unit 3: Operations Strategy
This unit describes operations strategy as a competitive weapon competitive
capabilities and core competencies, linkage between corporate, business
and operations strategy. It also deals with developing operations strategy,
elements or components of operations strategy, competitive priorities,
manufacturing strategies, service strategies and global strategies and role of
operations strategy.
Unit 4: Forecasting
This unit explains the meaning of forecasting, importance of forecasting,
benefits of forecasting, cost implication of forecasting, classification of
forecasting and methods of forecasting.
Unit 5: Location Strategies
This unit describes the location strategies, location planning process, the
general and special factors that influence the plant location and the rating
methods used for location decisions.
Unit 6: Facility or Layout Planning and Analysis
This unit explains the objectives of layout planning, classification of facilities,
importance of layout decision, types of layouts and finally the evaluation of
plant layout.
Unit 1
Unit 1
Production Management
Structure:
1.1
Introduction
Objectives
1.2
Integrated Production Management
Production management and production control
Inventories
Material control and material handling
1.3
System Productivity
1.4
Capital Productivity
Outsourcing strategies
Balancing of workstations
Quality tools
Rationalisation of packaging methods
1.5 Labour Productivity
Balancing operations in assembly line
Reallocation of workers
Setting up productivity norms
1.6 Personnel Productivity
1.7 Training
1.8 Summary
1.9 Glossary
1.10 Terminal Questions
1.11 Answers
1.12 Case Study
1.1 Introduction
Production refers to the creation of goods and services for consumption by
the society. Such creation typically involves converting inputs to desired
outputs using different conversion or transformation processes. In fact, the
first step is to decide upon the desired outputs and then to identify the inputs
and the corresponding conversion processes. Production management
encompasses all those activities that enable conversion of a set of inputs
into outputs which are useful to meet the human needs. Figure 1.1 depicts a
diagrammatic representation of production management.
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Inputs
Production
Management
Unit 1
Output
Inputs
Transformation
processes
Outputs
University
Students, lecturers,
staff, facilities, labs,
library
Knowledge
dissemination,
evaluation,
administration
Graduates,
qualified persons
Banks
Accountants,
cashiers, equipment,
staff, client request
Transaction, money
exchange,
accounting, tallying
Money instruments,
financial services,
satisfied customers
Laundry
Cleaning, washing,
rinsing, soaking,
drying
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You will learn about these aspects of production and understand the
intricacies involved so that you will be able to adapt yourself to a production
environment.
Objectives:
After studying this unit, you should be able to:
define production management
list the various functions involved in production management
explain the significance of inventories and material handling
define productivity
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In this module, you will learn about the methods and strategies deployed for
ensuring productivity. You will realise the importance of balancing loads on
various workstations and how setting up norms and evaluation of personnel
improves productivity. The concepts behind quality circles, methods
improvement, and training will become clear to you.
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Estimating
Routing
Scheduling
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Production Control
Dispatching
Expediting
1.2.2 Inventories
Inventories are materials and any other items held at various locations in a
production system. They are either planned or unplanned inventories.
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Planned inventories are for the purposes of building up buffer stocks to cater
to unexpected demands or anticipated disruptions in the manufacturing flow
lines. However, they introduce costs which the management has to accept
for the safety it provides. But inventories cover up inefficiencies and
therefore have to be brought under control. Inventories also help in
decoupling the successive stages if, in case, any stage runs short of items.
Just-in-time and lean manufacturing methodologies were developed to
minimise wastage across the organisation. If a firm is optimistic about the
demand, then that firm increases their planned inventories. On the other
hand, if the demand is weak when compared to the expectations, then that
firms unplanned inventories are high.
1.2.3 Material control and material handling
Material control is a management function whereby procurement, storage,
and issuance of the storage material for purposes of manufacturing the
products or consumption are conducted. Typically, material control involves:
Formulating the policies regarding selection of suppliers
Determining the quantities to be ordered
Fixing the prices
Formulating the terms of delivery
Checking for obsolescence and unusable materials
Classifying the material using different criteria for better monitoring
Material handling refers to the activities that are conducted to provide
suitable and sufficient space for the materials that are stored either before
starting their usage or during their usage. It is also concerned with the
movement of materials. The equipments range from hand trolleys, forklifts,
hoists, cranes to automatic handling devices.
Self Assessment Questions
1. Information flow at every stage identifies the ____ that are taking place.
2. The quantities of each of the items have to be assessed for
procurement, storage, _________ and __________.
3. Just-In-Time and lean manufacturing methodologies were developed to
_________ across the organisation.
4. _________ sets the quantity of each end item to be completed each
week of the short-range planning.
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Output
Input
While the above ratio may imply efficiency, productivity is the value added
for every unit of investment. Thus, it is value added upon cost.
Enhancement of productivity is achieved by either reducing the inputs for
the same output or increasing the output by using the same input.
Productivity can be calculated for:
A single operation
A functional unit
A department or division
A plant
Productivity is a measure of the efficiency of the system and looks at the
economies achieved during the processes. Every process will have a
number of contributors which help in achieving the maximum productivity.
The processes are people, machines, facilitating goods, ancillary
equipments, and technology. Each of these elements attempts to enhance
the contribution of other elements.
Opportunities exist at all stages of the workflow in the entire system to
introduce measures for increasing the productivity. However in actual
manufacturing situations, the inefficiencies will have a cascading effect in
hampering the productivity. Communication, effective review processes, and
innovative methods will ensure optimisation of resources. Building up
reliability into the equipments and managing the supply chain to economise
on the cost factors improves productivity.
Quite often, productivity may suffer because of several problems associated
with different elements of production. In such cases, quality circles are very
efficient in executing low cost projects by using non-intrusive methods of
improving productivity and quality throughout the organisation.
Quality circles:
Voluntary groups of employees who develop solutions to various
problems with less additional resources
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Involve all persons who are actually involved in the production system
and the information they elicit and bring about improvements that are
highly cost effective
Unveil creativity and encourage team work and bring about
improvements almost on a day-to-day basis
Bring continuous incremental changes in a harmonious way instead of
dramatic changes
Encourage identification of possible failures and seek methods of
preventing things going wrong
Lack of expertise The outsourced firm may not have the requisite
expertise to do the job required.
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Methods improvement
Methods improvement starts with methods analysis. The focus of this
process is to find out how a job is done and breaking it down to the
elemental tasks so that they are amenable for analysis. This is done for both
running jobs and new jobs. For a new job, the description becomes the input
for analysis. For current jobs, the analyst depends on observations, records,
and suggestions of the persons involved in the job. When improved
methods are suggested, they are implemented and records are created for
assessing the consequences of the methods improvement procedures.
The analyst should involve all concerned persons in the process so that
acceptance becomes possible and opportunities open up for further
improvements. Moreover, the people actually involved would be interested
in improving their productivity and will help the analyst in the process.
1.4.2 Balancing of workstations
Assembly lines carry out operations in a sequence so that the product gets
completed in stages. Since the workflow has to be uniform and operations
may require different periods for completion, the necessity of line balancing
is felt. Capacities at workstations are so adjusted that a product takes
approximately the same amount of time during each stage in the process of
assembly. The core part of line balancing involves establishing the suitable
cycle time and balancing the individual work stations in terms of the cycle
time.
1.4.3 Quality tools
Kaoru Ishikawa is the originator of fishbone diagrams to identify the root
cause of any problem. Figure 1.5 depicts an example of a fishbone diagram.
The causes for the existence of a problem are classified as pertaining to the
material, processes or method, or any factor that goes into production. The
matter is further investigated and pursued till the exact cause is determined.
Ishikawa further mentioned that the bulk of the quality related problems can
be solved by using 7 QC (Quality Control) tools, which include:
a. Flow charts
b. Pareto diagrams
c. Cause and effect diagrams
d. Control charts
e. Scatter diagram
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f. Check sheet
g. Histogram
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Case Study 1
Rookz Motors is one of the leading car manufacturers in India. The quality
and variety of cars manufactured enriched a stronghold in the Indian
market. In the year 1998, Rookz faced strong competition from foreign and
other automobile players who offered varied designs, products as well as
better technology. The only advantage that Rookz Motors had over the
other car companies was the cost factor. The prices of Rookz cars were
relatively less than those of its competitors. Finally, Rookz Motors began
to lose its market share.
The CEO of Rookz Motors called a meeting of the engineers and other
department leaders to discuss the market condition and the strengths and
weaknesses of Rookz and their competitors were discussed. To take the
company forward in a highly competitive market, he suggested that the
firm bring out new designs and models that would cater not only to the
middle class market but also increase the market share.
The new project was handed over to Rahul. Rahul asked the CEO for 4
months to analyse the financial needs and seek for the coordination of the
other departments. Rahul invited the other department officials to
participate and give suggestions regarding the time and resources needed
to produce such a car. However, Rahul was not ready with the design, and
he concluded that he did not have enough finance. He also stated that the
cooperation from the employees of the other department was lacking. The
CEO was disappointed.
The work was then handed over to Kiran Kumar. He was a specialist in
computer-aided design. When the work was assigned to him, the first task
that he undertook was to form a quality circle consisting of members from
the design, production, and other departments. The team consisted of ten
members. The members with their knowledge and coordination were able
to submit the design for a car model in two months. Their designed car
would cost around two lakh rupees. The CEO appreciated the efforts of
Kiran and his team and advocated the formation of more quality teams
that would not only help the firm in improving the quality of products but
also in increasing the coordination between the various departments.
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Measurement of time required for any task is measured using motion study
and work measurement methods.
Motion study is an analysis of a specific job in an effort to find the most
efficient method in terms of time and effort.
Work measurement is the use of accurate observation and recording to
determine the time it would take for a qualified worker to complete a
specific job to a required level of performance.
Standards are set taking into consideration the differences in performance
by different workers and allowances for accommodating relaxation needs of
human beings. Periods during changeover of jobs, taking trials, inspecting,
and adjusting the tools are all factors that should be considered.
Monotony, difficult conditions, and complexity of work contribute to lesser
production. Reducing the stresses induced by these is a part of superior job
design. There are three steps involved in increasing the labour productivity.
1. Balancing operations in assembly line
2. Reallocation of workers
3. Setting up productivity norms and evaluation of production operations
Let us now discuss these three steps in detail.
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The company flourished and the demand for chairs increased. To meet
the increasing demand with the same amount of workers, Anil and Ravi
had to devise a strategy.
According to their strategy, each worker was allocated the task of
assembling any one of the three processes. This strategy helped each
worker to specialise in the task he/she was performing, thereby, improving
the efficiency of the job. Thus, Anil and Ravi could increase production by
an additional 15 chairs a week.
1.5.2 Reallocation of workers
Allocation of workers should be made when operations start. The allocation
should be based on the job description, requirements on the machining
centres, and the skills of the workers. Bottlenecks get cleared only when the
rate of production at different work stations have been equalised by
increasing the capacities at intermediate positions. This happens by either
improving the tooling or adding another machine or by allocating an
additional worker. A skilled worker may be substituted by a less skilled
worker. Similarly, the skilled worker may be located at a more suitable
position. This process may involve training. This process of relocation
should result in better utilisation of equipment and smoother throughput.
Case Study 2 (Continued...)
Let us consider the previous case study. Let us take a scenario where the
worker who performs step one of the manufacturing processes is on leave
for 10 days. In that case, to run the production smoothly and to meet the
demand, Anil and Ravi asked the remaining two workers to help each
other in assembling the back rest and then to perform their respective
steps (assembling the frame and attaching the back rest). They also
bought an advanced drilling machine to make their work easy.
As a result, instead of any loss due to the absence of the worker who
performs the first step, the remaining two workers could finish the job
smoothly. This is because Anil and Ravi properly reallocated the work to
the two workers who were skilled. Also the usage of the advanced drilling
machine at the right time made their work easy.
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These personnel are equipped with a variety of skills that are required to
manage and sort out the problems on a day-to-day basis. Measuring their
performance for provision of reward is a daunting task for the manager.
Their productivity cannot be directly measured. However, it is necessary that
their functions are recognised and evaluated for purposes of training and
compensation. The middle management relies upon the performance of
these personnel for information, communication, and implementation of any
production-enhancing activities. Personnel will be the ones who will motivate
the workforce during the implementation of change programme, quality
enhancement activities, and methods improvement. Their productivity is
indirectly measured in terms of the productivity in the functions and
workforce to which they are aligned.
1.7 Training
Job descriptions provide the details about the contents of a job which need
to be performed with efficiency. The person should be evaluated for his or
her knowledge level, skill level, and the behavioural aspect (attitude). Any
shortfall has to be corrected, and it is this process that we call training.
When the task is performed systematically under supervision and guidance,
the job gets done. The purpose of training is to enhance the performance so
that the overall objective of achieving the desired productivity is achieved.
Needs are assessed, gaps are measured, and the remedial actions are
planned. New methods, advanced technology, and latest equipments call for
training for those who use these. Training programmes enhance motivation,
which is an important attribute of a productive employee. It gives an
assurance to the manager and confidence to the employee. Different
methods are employed depending upon the needs, time, and budget.
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Training also adds value to the workers contribution and thus paves the
way for career development, which every employee looks forward to. This is
a motivating factor and thus reduces attrition and assures better
performance. Entropy hampers the efficiency and training is necessary to
maintain even the existing levels of efficiency. When expansion
development is on the anvil, training is an efficient tool to make the process
efficient. Implementation of TQM and other change management
programmes depend on training for their success.
Self Assessment Questions
9. The personnel are equipped with a variety of skills that are required to
manage and sort out the problems on a day-to-day basis. (True / False)
10. The purpose of training is to enhance___________.
1.8 Summary
Let us recapitulate the important concepts discussed in this unit:
Production management encompasses all those activities that enable
conversion of a set of inputs into outputs
Production operations involve conversion of materials into saleable
products.
Productivity is generally expressed as the ratio of outputs to inputs.
Getting the maximum productivity depends on the utilisation of machines
most efficiently with a well-trained and motivated workforce.
Transferring of materials inside the operations area also has to be
optimised for efficiency.
Job descriptions are important to select, train, and deploy the personnel.
1.9 Glossary
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1.11 Answers
Self Assessment Questions
1. Value additions
2. inspection, receipt
3. minimise the wastages
4. Master production schedule
5. True
6. Quality circle
7. root cause
8. True
9. True
10. Productivity
Terminal Questions
1. Production management encompasses all those activities that enable
conversion of a set of inputs into desired outputs. Refer section 1.1 and
1.2 for more details.
2. Procurement, manufacturing, maintenance, inventory management are
some of the functions of production management. Refer to 1.1 and 1.2.
3. Productivity is expressed as the ratio of outputs to inputs. Refer to 1.3.
4. Lack of expertise, quality considerations, nature of demand, and cost
factors may restrict outsourcing. Refer to 1.4.1.
5. The purpose of training is to enhance the performance so that the
overall objective of achieving the desired productivity is achieved. Refer
to 1.7.
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1957
1958
1982
Discussion Questions:
What do you think are the reasons for low productivity in India?
What suggestions do you offer to improve the situation?
Can you compare and analyze Indias productivity with respect to other
countries?
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Reference:
E-Reference:
http://callcentres.com.au/outsourcadv.htm
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Unit 2
Unit 2
Operations Management
Structure:
2.1 Introduction
Objectives
2.2 Operations Management and Strategy
Strategic management process
Strategic decision making
Differentiation strategies
2.3 Tools for Implementation of Operations
Implementation of operations
Tools for implementation
2.4 Industry Best Practices
Pragmatic benchmarking
2.5 Summary
2.6 Glossary
2.7 Terminal Questions
2.8 Answers
2.9 Case Study
2.1 Introduction
In the previous unit, we dealt with integrated production management,
system productivity, capital productivity, labour productivity, personnel
productivity, and training. In this unit, we will deal with operations strategy,
tools for implementation of operations, and industry best practices.
Operation management is the systematic design, direction, and control of
the processes that transform inputs into services and products for the
customers. It goes from one side with suppliers and ends with customers. It
covers the entire value chain. It encompasses all management activities
using resources such as:
Plants The factory and the location where all the activities take place.
It includes machinery and heavy equipments
People Direct or indirect workforce
Parts The components, sub-assemblies, or even products
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Operations Management, Krajewski and Ritzman Prentice Hall India (7th Edition, 2004)
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Operations strategy takes under its umbrella the quality, time, and flexibility.
Figure 2.2 depicts the phases of operations strategy.
Quality Quality is the driving factor for any organisation. When buying
a product, a customer will always think about the value of the money he
or she is investing. Even if the price of the product is high, the quality of
the product will provoke the customer to buy it. Typical examples of
companies focusing on quality are Amway, Coco-Cola, Pepsi,
Tupperware, Sony, BMW, etc. Many Indian companies coming under
Tata group and automotive products manufacturers like Maruti Suzuki,
Rane (Madras) have won awards for providing high quality products.
Quality also includes cost competitiveness by various methods like JustIn-Time (JIT), lean manufacturing, TQM, and TPM. Quality enables the
firm to be competitive, but more importantly, helps the company to
remain stable.
Time Time aspect considers that deliveries are made on time to meet
the customers expectations. Time taken to develop and market new
products is becoming very critical in the global environment. To seek
more business, organisations should reduce the time taken for each
factor during operations. The organisations mainly focus on reducing the
time for the elements. Time is also interpreted as speed of response to
any call from the customer, be it for post-sales service or new product
development or maintenance. Figure 2.3 depicts the factors to be
reduced during operations.
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customer focus, total quality, and concern for environment will always be
followed. A business strategy is the result of a decision taken at the highest
level. This outlines how the resources are deployed to achieve the goals in
an environment. A general framework to guide and activate the think-tanks
in the organisation is to come up with proposals. Action plans with time
frames, authority hierarchies, and feed-back mechanisms are formulated
and designed. At this stage, detailed scenarios as to the likely
consequences are considered and contingency plans are worked out for
implementation, if situations call for the same. Being in readiness with
alternatives is a good way of assuring the success of any plan.
For example, the production of a model of motor cycle is to be increased by
25% and the price is to be reduced by 10%. This decision would have been
taken as a strategy to meet the increasing demands which are real in order
to fulfil the following:
Enter a niche market of the competitor
Augment marketing departments claim after a vigorous sales campaign
Any other reason
The strategy for the marketing function would be many like promising
freebies, making the commission attractive for the dealer, or opening more
service outlets. The objective of an operations strategy is to achieve the
long-term goals established by the business strategy. The operations
strategy would consider the following constraints:
Subcontracting or including additional machinery
Improving productivity using different methods
Revamping assembly lines
Motivating the employees
Promoting existing employees or hiring new ones
Identifying and developing new suppliers
Looking for opportunities to reduce costs as scaling up provides scope
The above measures will be under consideration at all times. When a
change is considered, identification of areas of cooperation and
collaboration becomes easy. Opportunities arise for understanding and
resolution of problems. Setting up visible targets to meet the deadlines
encourages application of constancy of purpose as per Deming. This in
itself would be a strategy for improving quality and productivity. In addition, it
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is relevant to note the current trends and changes and switch over to
appropriate actions.
2.2.2 Strategic decision making
Decision making is the most crucial management function. Decisions
commit the organisation and its members to activities which have financial
repercussions and affect the functioning of other departments or divisions.
Therefore, decisions are taken after lots of deliberations which involve steps
like data gathering, analysis, and predicting outcomes. Figure 2.4 depicts
planning and decision making.
Accuracy of data and their relevance for the matter under consideration are
the factors which affect the quality of decisions. In addition, the following
factors also form the basis of decision making:
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One should remember that the environment is always dynamic and the
strategy formulation needs to be constantly updated for making effective
implementation. Ultimately, every organisation depends on the core
competencies which give it an advantage over the competitors.
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Boston Consulting Group (BCG) has classified four types of industries and
the approaches available. Figure 2.6 depicts the classification of industries
according to BCG.
Another useful framework to identify the product portfolio is the BCG matrix
that classifies the product offerings along a two dimensional matrix in terms
of growth and market share. This analysis enables a company to prioritise
its product mix to ensure growth and revenue. (Source: QuickMBA.com)
Size of advantage vs. number of approaches to achieve advantage
When the volume of the industry is large, the advantage for a firm is high,
but the number of approaches is small. On the other hand, if it is
fragmented, the size of the advantage is small, and the approaches are
many. The options available and the quantum of advantage are the
considerations for any strategy. For products differentiation, we consider
form, features, and the quality of performance. By form, we mean the
shapes, dimensions, and aesthetics which determine the physical aspects of
the product.
The components and parts that are integral to the product may not be visible
but will have suitable and easy forms for assembly, identification, extraction,
insertion, and inspection. This is necessary for making a product serviceable
and repairable to meet the customers needs. The dimensions are optimised
for safe use, safety, and durability.
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Aesthetics is the ultimate differentiator to attract the customer and make him
comfortable using it. Features contribute for differentiation to a large extent.
It addresses the requirements of the customer in such a way as to make the
products meet them in a way that the competitors do not. Again,
performance is looked at from the point of view of reliability, durability, and
reparability.
Any organisation in the manufacturing or the service sector has to develop a
strategy and ensure sustainability through competitive environment.
Strategy is not static but varies with time and changes in environment.
Particularly when changes are occurring rapidly, strategy needs to be
frequently revised and modified. This further demands innovative abilities
and persistence.
Self Assessment Questions
1. ____________ is the systematic design, direction, and control of the
processes that transform inputs into services and products for the
customers.
2. A business strategy is the result of a decision taken at the highest level
which outlines how the resources are deployed to achieve the goals.
(True / False)
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Tax to be paid
Others
The bills payable section will have to verify the data regarding the above
and seek the inspection reports from the quality control department/user.
Before the actual payment is made, verifications such as the terms of
payment and availability of funds are done. Verification will help you to
notice the following:
Information is sought or given
Materials received and transferred
Papers/instructions are received/issued for initiating activities
All these are also operations. However, for our study, we will limit our focus
to operations involving manufacturing. We identify a set of specialised
techniques. We call them tools which can be standardised for ease of
implementation and control. In the recent times, operations are considered
from end to end of value chain which means the operations that start from
sourcing of materials and other inputs to successful delivery of products to
customers or end users.
2.3.1 Implementation of operations
Implementation is the process of executing the planned operations. When
planning and controlling functions are put together, we call it as
Implementation of Operations.
The planning is the process of estimating, routing, and scheduling. The
controlling functions are conducted while the manufacturing is going on, like
dispatching and expediting. Figure 2.7 depicts the implementation of
operations.
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software, especially SAP, have many modules that store, sort, and analyse
data and make them available to the staff across the globe in many plants,
enabling managers to streamline their operations. Software specific to
functions, applications, or organisation can be obtained. Microsoft
Operations Manager 2005 is a useful tool in this regard. Figure 2.8 depicts
Microsoft Operations Manager 2005.
Case-let 1
MakTel is a national telecom provider. The customer utilisation of ISDN
was less; therefore, the company faced poor sales of ISDN services for
several years. Also, the quality of service delivery was low. The company
applied Pareto analysis to extract the reasons for the failures in service
delivery. The analysis showed that the problem is poor quality of network
terminals and unqualified technicians for provisioning of the ISDN
service. MAkTel rectified the problems and energised the company sales.
Case-let 2
In the recent times, technology is intensively used to track the processes
that are part of the value chain. Radio Frequency Identification (RFID)
helps in tracking and monitoring the flow of goods as they travel through
the entire line. Gillete company uses RFID exclusively for razor blade
movement in cases and pallets from manufacturing centres to customers
place through distribution centres. The company claims an operational
savings of more than 20%. As stated in infoworld.com, dated 15-08-2005,
Gillette, RFID has improved order processing, streamlined inventory
management systems, and increased shipment accuracy, according to
Dick Cantwell, the company's vice president of global value chain.
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Steps in benchmarking
Planning, analysis, integration, and action are the four steps recognised in
the process of benchmarking. The select criteria are compared with the
performance parameters of the company which is considered the best in the
industry. Targets are set and activities are conducted to reach them. Let us
discuss in detail about the steps which are necessary for conducting a
benchmarking operation.
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2.5 Summary
Let us recapitulate the important concepts discussed in this unit:
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2.6 Glossary
Strategy: plan for achieving the goals and objectives in best possible
way
2.8 Answers
Self Assessment Questions
1.
2.
3.
4.
5.
6.
7.
8.
9.
Operation management
True
Scheduling
Differentiation
Routing
Gantt charts
True
Internal benchmarking
True
Terminal Questions
1. Refer 2.1 and 2.2
2. Refer 2.2 and 2.2.1
3. Refer 2.2.2
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4. Refer 2.2.3
5. Refer 2.3 and 2.3.1
6. Refer 2.4
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However the competitors are not quietly watching. The second biggest
tractor manufacturer, TAFE group, had a decent growth of 17%, led by its
most famous brand Massey Ferguson (also the name of its partner). This
brand enjoys very good brand equity among tractor buyers. TAFEs
acquisition of Eichers Tractor Division (way back in 2005) has also helped it
to grow both in terms of volumes and technology.
(Sources:
http://www.researchandmarkets.com/reports/607322/tractor_market_in_india_
an_analysis
http://www.mahindratractorworld.com/
Bhandar, Bhupesh (2010), Collaborative Competition, The Strategist, Business
Standard, 27 December 2010.)
Discussion Questions:
1. What are the objectives that Mahindra and Mahindra had in mind when
they noticed their position in the tractors market?
2. What strategies are followed by Mahindra and Mahindra in reaping
success in the tractors market?
3. What other strategies might have been followed by Mahindra and
Mahindra to accomplish their objectives?
4. Is merger and acquisition a good strategy? Under what
circumstances? Discuss with relevance to operations management.
Reference:
E-Reference:
QuickMBA.com
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Unit 3
Unit 3
Operations Strategy
Structure:
3.1 Introduction
Objectives
3..2 Operations Strategy
3. 3 Competitive Capabilities and Core Competencies
3. 4 Operations Strategy as a Competitive Weapon
Product/service expertise
Quick delivery
Flexibility in production
Low cost production and processes
Product variety and product mix
Quality
3.5 Linkage Between Corporate, Business, and Operations Strategy
3.6 Developing Operations Strategy
3.7 Elements or Components of Operations Strategy
Designing of the production system
Facilities for production and services
Product or service design and development
Technology selection and process development
Allocation of resources
Facility, capacity, and layout planning
3.8 Competitive Priorities
Cost
Quality
Time
Flexibility
3.9 Manufacturing Strategies
Make-to-stock strategy
Assemble-to-order strategy
Make-to-order strategy
3.10 Service Strategies
3.11 Global Strategies and Role of Operations Strategy
Strategic alliance
Locating the operations abroad and after sales support
3.12 Case-let 1
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3.13
3.14
3.15
3.16
3.17
Unit 3
Case-let 2
Summary
Glossary
Terminal Questions
Answers
3.1 Introduction
In the previous unit, we dealt with operations management and strategy,
tools for implementation of operations, and industry best practices. In this
unit, we will deal with operations strategy as a competitive weapon;
competitive capabilities and core competencies; linkage between corporate,
business, and operations strategy; developing operations strategy; elements
or components of operations strategy; competitive priorities; manufacturing
strategies; service strategies; and global strategies and role of operations
strategy.
To succeed in a competitive business environment, organisations should
evolve sound strategies with which they can achieve their business
objectives. The strategies that are planned for implemention should be long
term and broad based to achieve the set of objectives. The normal practice
is to develop organisational strategies at three levels of operations namely
a) corporate level, b) business level, and c) functional level.
While the corporate strategy looks into organisational goals, developing the
core competence and achieving the competitive advantage for their
products, the business level strategy looks at market segmentation and
competitive priorities to be considered for their products or services. The
functional level strategy looks at operations to produce these products by
managing the capability, productivity, quality, flexibility, cost of production,
delivery, and finally after sales and services.
Organisations achieve competitive advanatge over its competitors by
providing products or services that meet the customer requirements of cost,
quality, performance, durability, etc. The corporate strategy determines the
customers to be served, the new products or services to be produced, and
the suitable strategies to be met in competitions from both domestic and
international markets.
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Competitiveness is one of the crucial factors that decides the survival and
growth of a firm. This competitiveness is how effectively an organisation
meets the needs of its consumers as compared to its immediate
competitors. For such competitions, the organisations look into their
operational strengths and equip themselves effectively to use their strengths
and opportunities as competitive weapons.
These competitive weapons are explained below in detail.
3.4.1 Product/services expertise
Expertise gained through operational strengths in the areas of functionalities
and process capabilities will make them the market leaders for such
products.
3.4.2 Quick delivery
The flexible capacity built into the production line and the process adopted
to produce and supply in time will all together provide the much desired
customer satisfaction. This strategy will help sustain the product and its
market lead.
3.4.3 Flexibility in production
The organisation has to develop a capability for change. The adaptation to
change begins with environmental scanning by which trends can be
monitored to suit the needs of the society. There may be a threat to the
product if competotors gain an edge over the broadening product lines,
improved quality, or lowering costs. New entrants into the market or
competiitors offering substitute product may also throw challenges to the
dominant product. To counter this, the desired flexibilty in production must
be built in and operations strategy must be modified accordingly.
3.4.4 Low cost production and processes
The unit cost of each product is required to be lowered to meet the
competition. The cost review on labour, material, and overhead costs of
production lines are to be assessed. An organisation with an efficient and
effective production system will provide such feasibilities to reduce costs.
The operations strategy should also facilitate the processing of products at
lower costs.
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Figure 3.1 above depicts how the operations strategy is developed under
the umbrella of the corporate strategy. It shows the factors that go into the
operations strategy and shows the link between the corporate, business,
and the competitive priorities under the operations strategy. Here, the longterm operations strategic decisions are directly connected to developing
new products, determining production capacity, establishing facilities,
adopting new technologies, locating plants appropriately, and taking suitable
decisons on building and sustaining the quality of products.
The operations strategy translates the product plans and competitive
priorities into decision making processes. The operation decisions
determine the processes required to handle the volume and variety to be
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produced for each market segement. Hence, these decisions govern the
design of the processes, systems, and the procedures that help the
operations strategy.
Selection of the market is another key element. To suit the market
requirements, operation managers develop appropriate processes and
designs to achieve the set objectives. The operations strategy should be
flexible enough to support a product or service throughout its life cycle and
for future changes in the market demand. The operations strategy should
also be consistent with the other functional strategies of marketing, finance,
and human resources.
There are two types of production systems. They are product focussed and
process focussed. Product-focussed system is adopted where there is mass
production by using a group of machines. For example, products like
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3.8.4 Flexibility
Flexibility is the ability to provide a wide variety of products, and it measures
how fast the manufacturer can convert its process line used for one product
to produce another product after making the required changes. The two
types of flexibilities are:
Customisation
Volume flexibility
While customisation is the ability of the firm to satisfy the specific needs of
each its customer, the volume flexibility is the ability to accelerate or
decelerate the rate of production to handle the fluctuations in demand. For
example, the production of fertilisers of different specifications and
applications.
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Joint venture
Joint venture is an agreement between the two firms to produce jointly. This
approach is used to gain access to foreign markets and quickly promote
their interest. Here, the outside firm supplies the technology and expertise
and the local firm provide the required resources for the operations,
processing, human resoucres, infrastructure, etc. For example, Maruti
Suzuki, Hero Honda, etc.
Technology transfer and licencing
Technology transfer is the term used to describe the processes by which
technological knowledge moves within or between organisations. The
technological knowledge that is transferred can assume various forms. It
can be embodied in goods (including physical goods, plant and animal
organisms), services and people, and organisational arrangements, or
codified in blueprints, designs and technical documents.
Licensing is a business arrangement in which one company gives another
company permission to manufacture its product for a specified payment.
While licensing agreements are mainly used in commercialization of a
technology, they are also used by franchisers to promote sales of goods and
services.
3.11.2. Locating the operations abroad and after sales support
Locating the manufacturing operation in a foreign country is another way of
penetrating the new markets. Since economical and political environment
will be different and the customers needs vary, it is essential for firms to
have a detailed techno-economic survey before planning the entry. The
operations strategy will be different from what the company is presently
practising. If it is a standardised product to be sold in the foriegn country, the
methodology and operational strategy could be the same. For example,
McDonalds, Dominos Pizza, etc.
Self Assessment Questions
1. Select correct answer out of the alternatives given
i. While formulating the corporate objectives, the manager considers
a) Market conditions
b) Political and social environments
c) Economic environment
d) all the above
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ii. Nirma manufactures different varieties of soaps for the market and
the production system followed is a
a) Customised production
b) Standardised production
c) Stock-to-order
d) Assemble-to-order
iii. When products are produced well in advance and stored for
marketing, the operations strategy is known as
a) Produce-to-stock
b) Produce-to-order
c) Custom-to-order
2. Which of these is not an operation strategy?
a) Production systems
b) Product plans
c) Collaboration for production
d) Process decisions
e) Capacity decisions
3. Fill up the blanks with appropriate word/words
i. Operations strategy is defined as the set of decisions that are
warranted in the operational processes, which supports the
_____________ of the business.
ii. The six elements of operations strategy that has a direct bearing on
the corporate strategy are:
1) Designing of the production system
2) Facilities for production and services
3) ________________________________
4) Technology selection, development, and process development
5) Allocation of resources
6) Focus on facilities planning
iii. The following three manufacturing strategies are dominant in
industries:
1) Make-to-stock strategy
2) ____________________
3) Make-to-order strategy
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3.12 Case-let 1
Strategic Decisions of Microsoft
Microsoft operates in a very competitive industry. It was dominating in the
DOS and held almost 90% of the market in PC operating system. It
invested futher in developing the next generation OS like Windows 95,
Windows NT, etc to keep the lead and to take advantage of the
profitability in this evergreen DOS segment. Before the competition builds
up for DOS, Microsoft had two thoughts whether to harvest the existing
DOS as it is like a cash cow or bring in different systems to keep away
the competitors. Bill Gates, the co-founder and CEO of Microsoft realised
that if his company is not replacing its own product with a better product,
some other company like IBM would come out and they may loose the
market leadership position. They decided to go forward aggressively to
the next competitive advantage before any other competitors does and
introduced many new products. Microsoft still enjoys the market
leadership position in the operating system.
Discussion Questions:
a) The strategic decision to develop new products to keep the market
leadership - is it a corporate strategy or a business strategy? Discuss
b) The strategy of developing new products to counter the anticipated
competition instead of harvesting their existing cash cow product - is
this correct and in this decision, what is the strategy that is involved?
c) Explain briefly why Bill Gates believed in the aggressive strategy to
gain the competitive advantage and how has it benefitted the
company?
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3.13 Case-let 2
Tata Motors-Development of New Products to Gain Competitive
Advantage
Designing indegenously, building and marketing a new car is a very
complex process and very few corporates take such a decision. Tata
motors, one of the leading manufacturers of automobiles in India, took
this drive forward in developing the first indegenously designed and
developed car in Indica as a competing model to the then prevailing cars
like Maruti 800 and Zen. This strategy by Tata was a tradeoff between
the price and the features.
Indica car was a success story, and it did give the desired competition to
Maruti Suzuki. The target audiance for Tata was the middle class and
fuel efficiency and price were the other primary considerations to woo the
customers. After the design and test runs were satisfactorily done,
benchmarking Indica car for final pricing and positioning in the market
was again a big challenge. Here, the operations strategy adopted was to
offer the first indigenous car at the lowest price possible and with the best
quality. Hence the investment, processes, systems, and procedures for
manufacture of such a car required a total relook by their operations
manager, it was a really big task for the entire Tata Motors.
With the confidence reposed after the success of designing, developing,
and marketing Indica cars to Indian roads, Tata Motors embarked on
another ambitious project of their chairman in bringing the prestigious
peoples car, Nano, to Indian roads. Here, the decision to bring out a
peoples car from Tata Motors stable was purely based on the sale price
of Rs. one lakh per car. This challenge was taken up seriously by the
operations managers and the task was accomplished successfully by
offering Nano cars at the declared price.
In the above two success stories,
a) What do you feel are the corporate strategies?
b) What manufacturing priorities might have been pursued by the
operation managers?
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3.14 Summary
Let us recapitulate the important concepts discussed in this unit:
Operations strategy is a decision making process of selecting the
suitable manufacturing strategies and manufacturing priorities. This
exercise will enable the organisation to respond to the market needs in
the most effective manner by aligning the resources and activities of the
organisation to deliver the products that are likely to succeed in the
market.
Operations strategy involves planning, organising, and allocating of all
the resources to gain the competitive advantage.
Operations strategy is defined as the set of decisions that are warranted
in the operational processes which supports the competitive strategies
of the business. It is a long-range business plan for the companys
products and will provide a road map for the operational functions to be
pursued for achieving business strategies.
Strategic decisions include capacity building; evolving production
systems, type of processes, manufacturing technology to be adopted,
nature of products to be produced, type of material flow and other
logistics, and the means to achieve the required level of performance.
Corporate strategy involves monitoring and making changes to suit the
external environment and exploiting the core competencies.
Competitiveness is one of the crucial factors that decides the survival
and growth of a firm. Organisations will look into their operational
strengths and use them effectively as competitive weapons.
There are six elements of operations. They are designing of the
production system; facilities for production and services; product or
service design and development; technology selection, development,
and process development; allocation of resources; and focus on facilities
planning.
Operating strategy should also analyse the competitive priorities like
cost, quality, time, and flexibility which are the capabilities to be built in
to meet the market expectations.
The three dominant manufacturing strategies are make-to-stock
strategy, assemble-to-order strategy, and make-to-order strategy. These
systems are practised for categories of batch production; mass
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3.15 Glossary
Cash cow products: Cash cow products provide lots of cash for the
firms. They have high market share, and they are always in the growing
market.
Competitive advantages: Organisations achieve competitive
advantages by providing their customers what they want and better or
more effective products than their competitors and take the lead
Core competence: The organisations resources and capabilities are
the sources of their unique competencies
Customisation: Customisation is the ability of a firm to satisfy the
specific needs of each customer.
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3.17 Answers
Self Assessment Questions
1.
Terminal Questions
1.
2.
3.
4.
5.
6.
7.
8.
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Caselet-2
Reference:
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Unit 4
Unit 4
Forecasting
Structure:
4.1 Introduction
Objectives
4.2 What is Forecasting?
4.3 The Strategic Importance of Forecasting
Human resources
Capacity
Supply chain management
4.4 Why Forecasting is required?
Benefits from forecasts
Cost implications of forecasting
Decision making using forecasting
4.5 Classification of Forecasting Process
4.6 Methods of Forecasting
4.7 Case-let
4.8 Forecasting and Product Life Cycle
4.9 Selection of the Forecasting Method
4.10 Qualitative Methods of Forecasting
4.11 Quantitative Methods
What is time series?
Nave method
Moving average method
Weighted moving average
Exponential smoothing method
4.12 Associative Models of Forecasting
4.13 Accuracy of Forecasting
Mean Absolute Deviation (MAD)
Standard Error (SE) of estimate
4.14 Summary
4.15 Glossary
4.16 Terminal Questions
4.17 Answers
4.18 Case Study
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Unit 4
4.1 Introduction
In the previous unit, we have dealt with the concepts of operations strategy,
competitive capabilities and core competencies, operations strategy as a
competitive weapon, linkage between corporate, business, and operations
strategy, developing operations strategy, elements or components of
operations strategy, competitive priorities, manufacturing strategies, service
strategies, and global strategies and role of operations strategy. In this unit,
we will deal with the concepts of forecasting, the strategic importance of
forecasting, why forecasting is required, classification of forecasting
process, methods of forecasting, forecasting and product life cycle, selection
of the forecasting method, qualitative and quantitative methods of
forecasting, associative models of forecasting, and accuracy of forecasting.
Every business activity aims to satisfy some needs and wants of the society
and hence tries to gauge the demand. Only when the demand is properly
understood and predicted with sufficient accuracy, it becomes possible to
develop and utilise the resources to cater to such demands. Thus, for any
business activity to be started, the first step would be to predict the demand
and then to develop the plans towards meeting the demand either partially
or fully. Hence, it is correctly said that forecasting the demand is the first
step and demand forecasting drives all the other activities of production
systems which include human resource planning, aggregate planning,
capacity planning, and scheduling. Even if a company decides to position
itself in a certain way, it has to have done forecasting. Thus good forecasts
are of critical importance in all aspects of a business.
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The forecast is the only estimate of demand until the actual demand
becomes known. However, forecasts are seldom perfect because the
demand for a certain product or service is a complex function influenced by
a multitude of variables. Many of these variables are not controllable and
even not properly evaluated in terms of magnitude and frequency. This
means that outside factors which are not known to us or properly predicted
or controlled impact the forecast tremendously. Hence, it is essential to
allow for this reality. In other words, expecting an accurate forecast is selfdefeating.
Most forecasting techniques assume that there is some underlying stability
in the system, which is not the case always. Hence, product family and
aggregated forecasts are more accurate than individual product forecasts.
Objectives:
After studying this unit, you should be able to:
define forecasting
explain the importance of forecasting
explain when to use the qualitative models
apply the different methods of forecasting and compare the results
compute the measures of forecast accuracy
identify special cases like causal and seasonal models
use a tracking signal for checking the accuracy and efficiency of
forecasting
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even resemble a kind of a wild guess or may involve extensive data analysis
involving several parameters. Sometimes, it may involve a combination of a
mathematical model adjusted by a managers good judgment.
Forecasting is synonymous with estimating and prediction, though
forecasting is considered to be more scientific rather than a crude or vague
guesswork.
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example, the governments import policy drastically affects the capacity and
thus any industry hoping of increasing the demand and expanding the
capacity will face a major threat and possible loss.
4.4.3 Decision making using forecasting
Forecasts are always subject to uncertainty because of the changing
environment and hence, any attempt to improve the forecast accuracy only
increases the cost but not the accuracy. Keeping this in mind, the
managerial decision makers adopt the following rule:
Actual decision = Decision assuming forecasting is correct + Allowance for
forecast error.
Further to account for the uncertainty and provide allowance, it is necessary
that the forecast output contains two numbers as follows:
1) Best estimate of the demand + 2) Error
Again the question, how much of error can creep in the forecast? It is
difficult to answer. However, the error in forecast is easy to calculate once
the actual demand is known.
Forecast error = Actual demand - Forecast demand
Figure 4.2 depicts the process of forecasting and the associated factors.
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Quantitative methods
Table 4.1: Quantitative methods classification
Moving averages
Exponential moving averages
Box Jenkins method
Trend projections
Fourier series
Causal methods
Regression analysis
Input output model
Leading indicators
Simulations model
Economic models
4.7 Case-let
Demand for Light Commercial Vehicles (LCV) in India
At present, Tata Motors dominates the market of LCV in India with a market
share of about 52% owing the success largely to their model, Tata Ace.
Mahindra group enjoys around 25% and the other players are Ashok
Leyland, Piaggio, and Eicher Motors.
The demand for LCVs is affected by rising interest rates, decreasing
industrial output, and a considerable increase in the vehicle prices. The
operating cost and environment too have changed significantly affecting the
sales.
In view of the decreasing demand, the manufacturers have to face the
challenge of reduced capacity utilisation. With freight rates almost stagnant,
the market seems to be dull in the short run. However, the long-term growth
holds promise as there will be economic changes. The LCV industry is
expected to grow by 17-18% in the financial year 2011-12. According to the
research conducted by J.D. Power Asia Pacific, India will be the third largest
LCV market by 2020. The report also says that given Indias poor road
infrastructure and concerns about fuel consumption, micro-van and mini
truck models in the LCV segment are likely to be popular.
(Source: Patel, J, LCV Industry Begging to Differ, Business India, 4 march
2012, page 30)
th
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Discussion Questions:
a. What forecasting method might be suitable for the LCV segment?
b. How do you differentiate between poor growth in the short term and
promising growth in the long term?
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Data availability
Case of operation
Accuracy required
Market surveys
Historical analysis
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Moving averages
Exponential moving averages
Box Jenkins method
Trend projections
Fourier series
Causal methods
Regression analysis
Input output model
Leading indicators
Simulations model
Economic models
In the time series methods, one set of data or several sets are analysed to
obtain the forecast. In the causal methods, the association between two
variables forms the basis for forecasting.
4.11.1 What is a time series?
A time series is defined as a set of values pertaining to a variable collected
at regular intervals (weekly, quarterly, or yearly). For example, the
temperature recorded every one hour is time series. Similarly, the annual
rainfall or agricultural output forms a time series. However, it is to be noted
that to draw a reasonable conclusion, at least observations should be
available. With very little number of values, say 7 or 8, the forecasts will not
be accurate.
A time series consists of four components namely:
1) Trend
2) Cyclic
3) Seasonality
4) Random
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Year
Number of small
car offerings
2007
2008
2009
2010
2011
2012
2013
14
17
23
26
31
35
Using the nave method, the forecast for the year 2013 is 31.
4.11.3 Moving average method
A moving average is obtained by summing and averaging the values of a
time series over a given number of periods repetitively, each time deleting
the oldest value and adding a new value. Usually, the number of time
periods chosen will be an odd number like 3 or 5 or 7. Rarely, there will be a
need to go beyond 7 periods.
Consider the same example as given before.
The three-year moving average for the first three periods = (9+14+17)/3 =
13.33
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Every time an old period data is dropped and the new period data is
included to get the average. Therefore, the next three-year moving average
= (14+17+23)/3 = 18
This calculation is continued.
Similarly, the five-year moving average for the first five periods =
(9+14+17+23+26)/5 = 17.8
The next five-year moving average = (14+17+23+26+31)/5 = 22.2
Table 4.4: Moving averages
Year
2007
2008
2009
2010
2011
2012
2013
14
17
23
26
31
35
13.333
18
22
26.667
30.667
17.8
22.2
26.4
Number of small
car offerings
Moving average
3 periods
Moving average
5 periods
To decide upon the number of time periods, the following guide line may be
used:
(AP = Averaging Period)
Table 4.5: Guide line
Noise Dampening
Ability
Impulse Response
Accuracy
AP = 3
Low
High
Low
AP = 5
Medium
Medium
High
AP = 7
High
Low
Medium
Noise dampening refers to the ability to smooth out the variations. Impulse
response enables to detect immediate changes and accuracy implies
minimum forecast error.
Drawbacks of moving average methods:
All the past periods in the averaging period are weighted equally
No provision is made for seasonal patterns
Sikkim Manipal University
Page No. 84
Unit 4
Month
Jan
Feb
Mar
Apr
May
June
Sales in lakhs of
Rupees
90
70
80
85
82
?
Page No. 85
Unit 4
Page No. 86
Unit 4
Page No. 87
Unit 4
Simple
Multiple
Linear
Y= a +b x
Y=a+bx1+cx2+dx3
Non-linear
Y= a+bx2
Y=A+BX1+CX22+DX33
Page No. 88
Unit 4
14
15
16
12
14
20
15
Profit Y
(Rs.
thousands)
15
10
13
15
25
27
24
20
27
44
24
17
First plot the data and decide if a linear model is reasonable (i.e. do the
points seem to scatter around a straight line?) Next compute the quantities
x, y, xy and x2.
Let linear regression equation is Y = a+bX, where
Y= Dependent variable, profit
X= Independent variable, sales
a = Y intercept
b = Slope
The following table is constructed:
Table 4.9: Table Construction for regression
X
7
2
6
4
14
15
16
12
14
20
15
7
Total
Y
15
10
13
15
25
27
24
20
27
44
34
17
132
XY
105
20
78
60
350
405
384
240
378
880
510
119
271
X
49
4
36
16
196
225
256
144
196
400
225
49
3529
Y
225
100
169
225
625
729
576
400
729
1936
1156
289
1796
16.15
8.186
14.558
11.372
27.302
28.895
30.488
24.116
27.302
36.86
28.895
16.15
7159
Page No. 89
Unit 4
1.0
1.4
1.9
2.0
1.8
2.1
2.3
10
12
15
16
14
17
20
Develop the linear regression equation and estimate the spare parts sales
when new car registrations are 22,000.
Answer:
Linear Regression equation:
Y = -0.16 + 0.13 X
Spare parts sales when new car registrations are 22,000 = 2.7 million $
Page No. 90
Unit 4
where
y = values of the dependent variable
yest = Estimated values from the estimating equation that correspond to each
Y value.
n = number of data points used to fit the regression line.
It is important to note that the error values should be as low as possible
while making comparison and selection.
4.14 Summary
Let us now summarise the key learnings of this unit:
For any business activity to be started, the first step would be to predict
the demand and then to develop the plans towards meeting the demand
either partially or fully. This process of estimating is called forecasting
Forecasting basically helps to overcome the uncertainty about the
demand and thus provides a workable solution.
Supply chain management refers to all the activities that enable the right
product at the right place at the right price. Hence, demand forecasting
has to be done with utmost care to help identifying the vendors, pricing
choices, and material options.
Forecasting is broadly classified as quantitative and qualitative
Market survey, Delphi method, historical analysis are some of the
qualitative methods of forecasting
The quantitative methods are divided into two groups. They are time
series analysis and causal methods.
Page No. 91
Unit 4
4.15 Glossary
4.17 Answers
Self Assessment Questions
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
True
True
True
Uncertainty
True
Actual demand
quantitative, qualitative
qualitative
time series
historical analysis
Page No. 92
Unit 4
Terminal Questions
1.
2.
3.
4.
5.
Page No. 93
Unit 4
Discussion Questions:
1. Which model of forecasting do you suggest for plastic industry?
2. How do you factor in the Chinese threat and the environmental issues in
the growth of the industry?
3. If you are a manager in the plastic manufacturing industry, how do you
react to the positive and negative factors to the growth of the industry?
Reference:
E-Reference:
www.icra.in
saber.uca.edu
Page No. 94
Unit 5
Unit 5
Location Strategies
Structure:
5.1 Introduction
Objectives
5.2 Location Planning Process
Planning the location of the plant
General factors
Special factors
Rating methods
5.3 Summary
5.4 Glossary
5.5 Terminal Questions
5.6 Answers
5.7 Case Study
5.1 Introduction
In the previous unit, forecasting, we studied that forecasting the demand is
the first step for any business activity and demand forecasting drives all the
other activities of production systems which include human resource
planning, aggregate planning, capacity planning, and scheduling. A plant
location cannot be changed frequently since a large capital needs to be
invested to build the plant and machinery in the selected area. Therefore,
before selecting a plant location, a long range forecasting is to be made to
foresee the future needs of the company. In this unit, location strategies, we
will learn about the various methodologies used to select the location of the
plant, the flexibility in location choice, the trends and practices across the
globe and also techniques available to determine the location for a particular
type of industry.
Location identification for an organisation is an important strategic level
decision taken by the top management. It involves planning and
management of the plant location. Location decisions are strategic decisions
that bind the organisation to a certain place. Hence utmost care has to be
taken while selecting the location.
Page No. 95
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Page No. 96
Unit 5
for the future. These considerations are vital for the success of any firm. To
deeply understand the importance of planning in operations management,
we consider the planning of the location first and later planning of the layout
in the next unit.
Before looking at the planning process
Selecting a location to a large extent is governed by the flexibility factor
based on the type of industry or service. While some industries are
completely dependent upon the location for survival, other industries may
have varied degrees of flexibility. Flexibility in choice is obviously an
advantage and a better decision can be taken. Figure 5.1 depicts the
flexibility in choice.
Flexibility in choice is high
Electronics and light
manufacturing
Textile, furniture
Heavy machinery and
equipment
Petroleum, chemical and
plastics
Mining, lumber and
agriculture
Hospitality
Professional (legal, computer)
Transportation and
communication
Education and non-profit
organisations
Governmental organisations
Medical and emergency
services
Page No. 97
Unit 5
In this section, let us study in detail about the factors influencing plant
location.
5.2.2 General factors
The general factors that influence the plant location are listed as follows:
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Unit 5
The advantages of locating the plant near to the market place are:
Consistent supply of goods to the customers
Reduction of the cost of transportation
Communication facilities Communication facility is also an important
factor which influences the location of a plant. Regions with good
communication facilities namely postal and tele communication links
should be given priority for the selection of sites.
Sikkim Manipal University
Page No. 99
Unit 5
Unit 5
Unit 5
Case-let 1
Pavan is planning to start an industry in India. He has four options to
locate the plant, Chandigarh, Bhopal, Bangalore, and Cochin. He used
the rating plan method to select the best location suitable for his business
needs. Pavan initially listed important factors of the business need (See
column 1 of table 5.1). According to the rating plan method, in column 2
of the same table, he has given the proportional values for each factor in
percentages. For example, the proportionate values given to the factors
are 20%, 15%, 20%, 15%, etc. The total of the proportionate value is
100%. Table 5.1 depicts the rating plan approach used by Pavan.
Table 5.1: Rating Plan Approach
Factors
Proportion
al
Value
%age
Chandigarh
Bhopal
Bangalore
Cochin
Availability of
labour
20
20
10
15
05
Raw material
sources
15
15
10
15
10
Market
proximity
20
20
20
15
10
Site
15
10
10
15
10
Government
policies
10
10
10
Infrastructure
for employees
10
10
10
Scope for
expansion
10
10
10
Total
100
90
85
80
55
When individual ratings are given to the factors for each city (See
Column 3, 4, 5 & 6 of Table 5.1) we see that Chandigarh has maximum
rating (90 out of 100) and therefore, Pavan has chosen, Chandigarh for
locating the plant.
Factor rating method In factor rating method, each of the factors for
location is rated and the rating of the competitive locations is considered.
Sikkim Manipal University
Unit 5
Then, the products of the rating are added and the location which gets the
maximum product of rating is selected.
Now, let us consider an example for better understanding the factor rating
method. Table 5.2 depicts the factor rating and location rating of three
locations.
Example 1
Table 5.2: Example of Factor Rating Method
Sl.
no
Factor
Factor
rating
Location
rating
Product of rating
Suitability of labour
48
36
30
Proximity to suppliers
42
56
42
Transportation facilities
40
35
45
Tax advantage
12
32
28
Power
56
42
63
Water
48
48
48
Housing
15
21
27
Education
24
24
32
Climate
15
27
18
10
Community
15
18
15
11
Availability of land
30
40
35
12
Owners preference
12
18
15
357
397
398
Total score :
Unit 5
Location factor
Factor
rating
Rating
Goa
Cochin
Facility utilisation
Tax advantage
Employee preferences
Unit 5
Solution
Table 5.4 depicts the factor rating of the locations - Goa and Cochin.
Table 5.4: Product Rating
Sl.
No.
Location factor
Factor
rating
Location rating
Product of rating
Goa
Cochin
Goa
Cochin
Facility utilisation
21
35
Total
production
per month
16
12
Tax advantage
28
35
Land and
construction costs
10
Employee
preferences
15
85
101
Total
The total score for Cochin is higher than that of Goa. Hence location
Cochin is the best choice.
Point rating method - In point rating method, we apportion a fraction of a
suitably selected total rating and see how many points we can allocate to
the locations under consideration. We should compare the totalled ratings
and decide the preference.
Example 2
Consider the data in table 5.5. In column 3, max points, if we decide to
have 1000 points as the maximum possible score considering all factors,
we can then evaluate each location and allocate points. Column 4, 5, 6, &
7 indicates the maximum rating for each factor. By adding the given
ratings for factors of each location, we get 540 for Location A, 670 for
Location B, 690 for Location C, and 745 for Location D. The location
which gets the maximum rating would be chosen, that is, location D is
chosen. Table 5.5 depicts the point rating method used for various
locations.
Unit 5
Factor
Max
points
Location
Location
Location
Location
Proximity to
suppliers
250
150
120
200
175
Proximity to
350
200
300
250
250
customers
3
Labour
availability
200
100
150
150
175
Educational
facilities
100
60
60
30
70
Climate
100
30
40
60
75
1000
540
670
690
745
Total
Case-let 3
A chain of auto components store wishes to build a new distribution
centre to serve the southern region of a country. It is considering three
possible locations namely Gopalpur, Kalyan Nagar and Penwar. Table
5.6 depicts the factors, weights, and ratings being considered. Which city
should they choose?
Table 5.6: Various Factors versus Ratings for Three Locations
Ratings
Factor
Weights
Gopalpur
Kalyan Nagar
Penwar
Nearness to
markets
20
Labour cost
Taxes
15
Nearness to
suppliers
10
10
10
Table 5.7 depicts the ratings and weighted ratings for the three locations.
Unit 5
Weighted Ratings
Weights
Gopalpur
Kalyan
Nagar
Penwar
Gopalpur
Kalyan
Nagar
Penwar
Nearness
to
markets
20
80
140
100
Labour
cost
40
40
20
Taxes
15
120
135
105
Nearness
to
suppliers
10
10
10
100
60
100
340
375
325
Unit 5
It may be noted that what are considered as fixed costs at one time will not
remain so for any length of time, though they are not influenced by the
production volume. For example, the rent may remain constant only for one
or two years and will change later. However for calculation purpose we can
consider the costs as fixed over the planning horizon.
Kote Steel company is considering building a plant in one of three possible
locations. They have estimated the following parameters for each location.
Identify the volume for which each location would be suitable. Table 5.8
depicts the fixed cost versus variable cost for three locations.
Table 5.8: Various Parameters for the Three Locations
Location
Fixed Cost
Variable Cost
Belladur
300,000
5.75
Kisanganj
800,000
2.75
Shafypet
100,000
8.00
Unit 5
Location
Pantnagar
200000
50
Ganganagar
400000
30
Goripara
700000
15
Solution
From 0 to 10,000 units, Pantnagar is suitable
From 10,000 to 20,000 units, Ganganagar is suitable
Above 20,000 units, Goripara is suitable.
Centre of gravity method This method is used mainly when:
Transportation costs, either for distribution of products or collection of
materials from different suppliers, is the main criterion
Production rates are high
The volume and weights of materials that have to be moved are huge
Time taken, either to receive material from suppliers or delivery to
customers, is critical
It is better to locate the facility at such a place, which caters to the different
points most optimally. The vital factor is the load, that is, number of items, or
Sikkim Manipal University
Unit 5
the weights that need to be moved from the central location to the existing
or demanding points. We use this method when, both distance and load
have to be considered for optimality in terms of cost.
Example 3
Table 5.10 depicts the tonnages that would be supplied from five
locations to a plant.
Table 5.10: Loads and Coordinates of Five Locations
Location A
Location B
Load
2100
3800
Coordinates (X, Y)
(50, 250)
120,500
Location C
Location D
3200
1200
475, 610
680,370
Location E
2500
470,120
Locate the five places in a graph using the x and y coordinates and then
locate the centre of gravity point P. We will calculate the x and y coordinates of the central location (P) such that the cost of shipment from
such central location gives the minimum cost in the following way:
CX
CY
Xi
SLi
Yi
SLi
Location
Coordinates
(X, Y)
Load (Li)
Location A
(50, 250)
2100
105000
525000
Location B
(120,500)
3800
456000
1900000
Location C
(475, 610)
3200
1520000
1952000
Location D
(680,370)
1200
816000
444000
Location E
(470,120)
2500
1175000s
300000
12800
3977500
5121000
Total
Lx (or)
Xi
Ly (or)
Yi
Unit 5
From the respective table 5.11, we get the centre of gravity CX and CY.
CX
CX
Xi
SLi
3977500
318
12800
CY
CY
Yi
SLi
5121000
400
12800
Figure 5.5 depicts the graphical representation of all the five locations A, B,
C, D, and E, and centre of gravity point P.
Case-let 4
A new facility is going to be established in Bangalore. Customers will
travel from the seven locations to the new facility when they need
service. The co-ordinates for the centre of each location, along with the
projected populations, measured in thousands are given here. Table 5.12
depicts the details of the seven centres and co-ordinate distances along
with the population for each centre. Find the target areas centre of
gravity for the new facility.
Unit 5
Centres
Population (L)
(3, 4.5)
(2.2, 5)
(10,4.5)
(5,2)
14
(6, 6)
(9, 3)
18
(9,4)
15
Solution
To calculate the centre of gravity, first calculate co-ordinates of loads of
each centre (LX, LY). Table 5.13 depicts the tabulated calculations.
Table 5.13: Calculating LX and LY
Sl. No.
Centres
(x, y)
Population (L)
Lx
Ly
(3, 4.5)
18
27
(2.2, 5)
10
22
50
(10,4.5)
20
(5, 2)
14
70
28
(6, 6)
48
48
(9, 3)
18
162
54
(9, 4)
15
135
60
73
475
276
Total
Next we find, the target areas centre of gravity co-ordinates, CX and CY.
CX
CX
Xi
SLi
475
6.5
73
CY
CY
Unit 5
Yi
SLi
276
3.78
73
The centre of gravity calculated is (6.5, 3.78). Managers can now search
in the vicinity for the optimal location using the centre of gravity as
starting point.
Note:
Ranking the factors and giving weight age for them is one of the ways of
determining the plant location. The methods used to determine the
location are rating plan method, factor rating method, point rating
method, break-even analysis, and centre of gravity method.
Rating method is largely dependent on the decision makers choice of
factors and weights. Hence, it is quite possible that two different persons
may come out with their individual ratings and the ratings may not
necessarily tally with each other.
Break-even analysis on the other hand assumes that in the foreseeable
future the cost value do not change significantly. It also assumes the
relationships to be linear. However, it is well known that the cost values with
higher volumes do not rise in the same proportion.
Self Assessment Questions
1. Location identification for an organisation is an important ________
level decision taken by the top management.
2. Location decisions are made on the basis of parameters which make it
suitable for various considerations of suppliers and markets.
(True / False)
3. Location decisions are important because lands, buildings and
machineries are costly and once fixed cannot be moved easily.
(True / False)
4. The plant should be located near the source of the raw material.
(True / False)
5. The basic modes of transportation should be considered while making
the location decision. (True / False)
Sikkim Manipal University
Unit 5
6. In ________ method, the various factors for locating a plant are given
ratings.
5.3 Summary
Let us recapitulate the important concepts discussed in this unit:
Location identification for an organisation is an important strategic level
decision taken by the top management.
Location decisions are made on the basis of various parameters.
Planning the facilities for manufacturing is a very crucial activity
involving, huge amounts of finance and thus requiring top management
decisions.
The way the machines are laid out is important to achieve the maximum
productivity and minimum movement of materials inside the plant.
Different types of layouts are considered depending on the variety of
products and their volumes.
5.4 Glossary
Plant location: The selection of a place for locating a plant; here plant
is the term used for the land, buildings, and equipment used in carrying
on an industrial undertaking.
Plant location decision: Plant location decision may be understood as
the function of determining where the plant should be located for
maximum operating economy and effectiveness
Break-even analysis: An analysis to determine the point at which
revenue received equals the costs associated with receiving the
revenue.
Unit 5
5.6 Answers
Self Assessment Questions
1.
2.
3.
4.
5.
6.
Strategic
True
True
True
True
rating plan
Terminal Questions
1.
2.
3.
4.
Unit 5
manufacturing and marketing network in Europe, South East Asia and the
Pacific-rim countries. It has the capacity to produce over 30 million tonnes of
crude steel every year.
In the Asian continent, Tata Steels has production facilities at China, Oman,
Thailand, Malaysia, and Singapore. However Tata Steels entry to Vietnam
has been dragged for more than four years. The tripartite venture between
Tata Steel, Vietnam Steel Corporation, and Vietnam Cement Industries is to
develop a steel plant in the coastal province of Ha Tinh, making India one of
the top ten investors in Vietnam. Tata Steel holds a sixty five per cent stake
in this venture and this joint venture is expected to have an output of 4.5
million metric ton a year. The terms of agreement stipulate that through this
venture Tata Steel would have a thirty per cent stake in the Thach Khe iron
mines.
Tata Steel has not yet been able to acquire an investment license and land
clearance for the venture. As per Vietnamese law, the local government has
to bear the cost of land clearance. The investor is not expected to incur this
cost, though as per reports the investor is somehow made to pay for it. This
project requires 725 hectares of land and the cost of getting land clearance
is close to US$200 million. However citing budgetary constraints, the
Vietnamese government is delaying the processing allotting the land and
subsequently the project is yet to take off.
The deadlock over this project has been raised at all bilateral visits between
India and Vietnam in the past four years. This was done most recently at the
India-Vietnam business forum in New Delhi where President Truong Tan
Sang assured that he would look into the matter. According to the political
observers it is more to do with China than any other issue. The Chinese
government has put an indirect pressure that the Indian company should not
be entertained. China considers Vietnam as major destination for Chinese
companies.
(Source: Amruta Karambelkar, The Curious Case Of Tata Steel In Vietnam
Analysis, Written by: IPCS)
(http://www.eurasiareview.com/08122011-the-curious-case-of-tata-steel-invietnam-analysis/).
Unit 5
Discussion Questions:
1. Should Tata Steel now consider other countries and start negotiating?
2. In the rating method, are political factors more relevant than other
factors in developing the overall score of the locations?
3. Will time delays kill profitability?
Reference:
E-Reference:
http://www.eurasiareview.com/08122011-the-curious-case-of-tata-steelin-vietnam-analysis/
www.ipcs.org
www.tata.com
Unit 6
Unit 6
Structure:
6.1 Introduction
Objectives
6.2 Objectives of Layout
6.3 Classification of Facilities
6.4 Basis for Types of Layouts
6.5 Why Layout decisions are important
6.6 Nature of layout problems
6.7 Redesigning of a layout
6.8 Manufacturing facility layouts
6.9 Types of Layouts
Process Layout
Product Layout
Group technology layout
Fixed position layout
Hybrid layout
6.10 Layout Planning
6.11 Evaluating Plant Layouts
6.12 Assembly Line Balancing
6.13 Material handling
6.14 Summary
6.15 Glossary
6.16 Terminal Questions
6.17 Answers
6.1 Introduction
In the previous unit, we learnt about the various methodologies used to
select the location of the plant, the flexibility in location choice, the trends
and practices across the globe and also techniques available to determine
the location for a particular type of industry. In this unit we will study about
facility or layout planning and analysis.
Production systems whether manufacturing a product or being responsible
for providing a service need a specific place to carry out their operations.
These systems also need an arrangement of machines, equipment, and
pathways for people to move. In addition, space is required to store
Sikkim Manipal University
Unit 6
Unit 6
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investment in time and money, also disturbs the existing schedule and may
even lead to temporary shutdown of operations till the new layout becomes
fully operational. This eventually leads to loss of revenue for quite some
time.
Many occasions demand a redesign of existing layout both due to
expansion of capacity and due to technical reasons. Most common reasons
for redesign of layouts include the following:
Inefficient operations (for example, high cost, bottlenecks)
Accidents or safety hazards
Changes in the design of products or services
Introduction of new products or services
Changes in volume of output or mix of outputs
Changes in the methods or equipment
Changes in environmental or other legal requirements
Morale problems
Case-let
Layout in a seminar hall
Seminar halls are very commonly constructed as a part of the academic
building in universities and institutes of higher learning. The seating
capacity may vary from 50 to 300 and typically people gather to listen
and discuss topics of common interest. They may also be used to
conduct training. Here the most important point is the convenience for
the speaker and also the participants. Because nowadays, the sessions
are more interactive in nature rather than monologues from one
speaker, it is necessary that the layout is carefully set.
Self Assessment Questions
1. A _________ represents typically a floor plan and the additional details.
2. The main objective of plant layout is to __________ and also to ensure
employee satisfaction
3. The type of layout is generally determined by the __________,
____________, and ___________.
Unit 6
Unit 6
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Product layout
Process layout
9. Movement of equipment is
generally not very costly
Unit 6
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Ease of communication
Similar work performed
Unit 6
Unit 6
Figure 6.8 depicts the current layout and proposed layout with mathematical
scores.
Example 2
Consider six departments numbered 1 to 6 and the closeness rating as
depicted in Figure 6.9.
Unit 6
To start with, highest priority is given for two ratings namely A and X. Hence
the departments with these ratings are listed separately.
A rating: 1-2, 1-3, 2-6, 3-4, 4-6, 5-6
rating: 1-4, 3-4, 3-6
Assuming a 2 (rows) by 3 (columns) grid for the department configuration,
the following solution is generated as depicted in table 6.2:
Table 6.2: Solution for the Department Configuration
Department configuration
Solution
1
Unit 6
To:
15
20
From
A
B
20
18
12
14
10
4
14
6
12
18
Unit 6
10
10
10
10
Unit 6
Load
Distance
Load X Distance
A and B
50
10
500
A and C
20
10
200
A and D
30
20
600
B and C
15
20
300
B and D
20
10
200
C and D
40
10
400
2200
Total
From the calculations it is clear that two major values namely 600 and 500
are between A and C, and A and D. A and C are adjacent and hence, C and
D will be interchanged to make A and D adjacent to each other. Then the
resultant layout will be as depicted in the figure 6.12.
Again the load-distance calculations are carried out and the results are
depicted in the table 6.5.
Table 6.5: Long distance calculations
Between
A and B
Load Distance
50
10
Load X Distance
500
A and C
20
20
400
A and D
30
10
300
B and C
B and D
C and D
Total
15
20
40
10
20
10
150
400
400
2150
Unit 6
We notice that the total load distance has decreased from 2200 to 2150 and
hence, this change is justifiable.
Example 4
Four departments A, B, C, and D are to be located in four rooms marked 1,
2, 3, and 4 as depicted in the figure 6.13. The centre to centre distance
between adjacent rooms is 20 feet. The flows between the departments are
as depicted in the table 6.6. The supervisor, Mr. Jeff wants department B to
be in Room 2 only. Obtain the layout satisfying this condition and find the
total cost of movement?
Suppose Mr. Jeff agrees to give up his choice and wants a layout with the
minimum total cost of movement, what will be the new layout and its total
movement cost? What improvement do you see?
1
To
From
25
30
20
15
25
35
50
40
Example 5
Six departments marked A, B, C, D, E, and F are to be located in six
production areas marked 1, 2, 3, 4, 5 and 6. The quantity moved between
the departments is depicted in the table 6.7. Obtain the layout that
minimises the total distance traveled. The adjacent departments are located
at a distance of 1 unit (say equal to 20 feet). Figure 6.14 depicts the six
production areas.
1
Unit 6
From To
50
100
F
20
30
50
10
20
100
50
E
F
Answer: Figure 6.15 depicts the optimum solution.
A
Unit 6
As the items move along the line, the work is progressed intermittently and
leaves the line as a finished product. Typically the objective is, to divide the
work content equally among the workstations so that the workstations are
loaded as evenly as possible. This is known as balancing. Firstly, if such a
balance is not achieved, a certain amount of inefficiency will arise because
some stations will have more work to perform than others, and all the
stations are expected to process same number of items per period of time.
Secondly, unequal work content at different workstations leads to unequal
work distribution and also formation of queue of items. Hence, to ensure a
smooth flow, all the workstations are given the same time to process the
items. The entire line typically, on a manual or power-driven conveyor
moves from workstation to workstation at a constant rate.
The time required to complete the work allotted to each station is known as
the service time and the time available at each station is known as the
cycle time, normally longer than the service time. The cycle time includes
both the productive as well as the non-productive time along with idle time if
any. Non productive time includes time for movement, handling and
inspection time. The manner in which the work content is allocated to the
station is influenced by the technological sequence of the assembly and
expressed by precedence requirements, that is, one operation must be
completed before the other operation can start. Such constraints limit the
ability to achieve complete or perfect balance while allocating work to
stations.
The allocation of work elements to a workstation may also be influenced by
zoning constraints which occurs in two ways: positive zoning constraint
demands that certain operations have to be clubbed together because of
certain sharing of resources, and negative zoning which insists that certain
operations should be clubbed together because of interference or conflict.
All these constraints make it very difficult or impossible to achieve perfect
line balance and hence, a certain amount of balancing delay or balancing
loss is inevitable. Balance delay is defined as the total time available to
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complete the given job and the total time required. In other words, the
balance delay is the difference in time between the service time and the
cycle time, expressed as a percentage of the cycle time.
The objective of line balancing is that, given a desired cycle time, the
attempt is to assign work elements to workstations to:
Minimise idle time or balancing delay
Minimise the number of work stations
Distribute balancing delay evenly between stations
Avoid violating any constraints
As it is difficult to achieve all these objectives simultaneously at least one
objective has to be satisfied. Based on this premise, several researchers
have proposed different heuristic methods to realise the desired goal.
Discussing all the different approaches is beyond the scope of this topic and
hence a few methods are illustrated.
Several calculations are involved in line balancing. The different terms and
corresponding calculations are stated here as follows:
Cycle time, C
C=
1
r
Where, c = cycle time in hours per unit, and r = desired output rate in units
per hour
TM =
Where,
t
c
Idle time nc t
time
(%) Efficiency=
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t 100
nc
(Ref:
Heizer
and
Render
(2008)
Operations
An assembly line is to operate eight hours per day with a desired output of
240 units per day. Table 6.8 depicts the task times and precedence
relationships.
Table 6.8: Task Times and Precedence Relationships
Task
Immediate
predecessor
60
None
80
20
50
90
B, C
30
C, D
30
E, F
60
Draw the precedence diagram. What is the cycle time? Balance this line
using the longest task time rule. Find the efficiency and the balance delay.
Sikkim Manipal University
Unit 6
First we draw the precedence diagram. Figure 6.17 depicts the precedence
diagram.
Cycle time
After drawing the precedence diagram, the next step is to assign the tasks
to the workstations. First we calculate the theoretical minimum number of
workstations as follows:
Minimum number of workstations = total task time / Cycle time
= 420 / 120 = 3.5 or rounded as 4 (Workstations cannot be a fraction)
Now using this number of workstations the tasks have to be assigned
without violating the precedence relationships. Furthermore, in each
workstation the total task time cannot exceed the cycle time.
Starting from workstation 1, task A has a task time of 60 seconds and can
only be clubbed with another task such that the total time doesnt exceed
120 seconds.
A + B = 60 + 80 = 140 (Not feasible because exceeds 120)
A + C = 60 + 20 = 80 (Feasible)
A + D = 60 + 50 = 110 (Feasible)
Between the two feasible combinations, A + D is selected using the rule
longest task time.
Similarly, other tasks are assigned and line is balanced. The final allocation
of tasks to the four workstations is depicted in the Table 6.9.
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Task
Task time
A
D
60
50
B
C
E
F
G
H
80
20
90
30
30
60
Idle time
10
20
0
30
The efficiency =
420
T
=
= 0.875 or 87.5%
Na C
4(120)
Unit 6
Activity 1
The desired output for an assembly line is 360 units which operates 450
minutes per day. Table 6.10 depicts information about task times and
precedence relationships. Draw the precedence diagram. What is the
cycle time? Balance this line using the largest number of following
tasks rule. Find the efficiency.
Table 6.10: Task Times and Precedence Relationships
Task
Immediate
predecessor
30
None
35
30
35
15
65
40
E, F
25
D, G
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Unit 6
It should be noted that any of the systems described above have to suit the
purpose and economies that can be derived. Before implementing any of
these, a detailed study of alternatives, a plan for expansion or reduction in
the requirement of a particular product or a probable shifting of the location,
etc will have to be undertaken.
Some of the factors affecting the selection of equipment are listed here:
(See Figure 6.19)
Material properties
Size, weight and nestability
Carton counts, pallet counts
Value
Fragility
Environment temperature, humidity
System requirements for the product
Volume per product
Number of order to be shipped
Response time
Supporting processes labelling, pricing
Growth factors
Economic factors
Investment required
Project life
Rate of return
Figure 6.19 depicts the factors affecting the selection of equipment
Unit 6
6.14 Summary
Let us now summarise the key learnings of this unit:
A layout refers to the arrangement of facilities connected with
production, support, customer service, and other activities
The primary objective of plant layout is to increase productivity and also
to ensure employee satisfaction and lowering the costs.
The type of layout is generally determined by the type of product,
volume of production and types of production process.
The layout developed for a manufacturing purpose has to primarily
favour easy and smooth operations to enable the desired level of output
Process layout is concerned with the grouping of machines, process, or
services according to their function.
Product layout focuses on the sequence of production or assembly
operations required for manufacturing or assembling a part or a product
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Unit 6
6.15 Glossary
6.17 Answers
Self Assessment Questions
1.
2.
3.
4.
5.
6.
layout
increase productivity
type of product, volume of production, types of production process
process layout
cells
fixed-position
Terminal Questions
1. Refer to section 6.2
2. Refer to section 6.1 and 6.4
3. Refer to section 6.7
4. Refer to section 6.9
5. Refer to section 6.12
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Unit 6
References:
www.resourcesystemconsulting.com.
Unit 7
Unit 7
Structure:
7.1
Introduction
Objectives
7.2
Meaning and Dimensions of Quality
Dimensions of quality
Systems view of quality
7.3
Quality Control Techniques
Quality at the source
Quality control tools
Acceptance sampling
7.4
Quality Based Strategy
7.5
Total Quality Management (TQM)
Approaches to total quality management
7.6
Towards TQM ISO 9000 as a Platform Working with Intranet
7.7
Total Productive Maintenance (TPM)
7.8
Summary
7.9
Glossary
7.10 Terminal Questions
7.11 Answers
7.12 Case Study
7.1 Introduction
In the previous unit, facility or layout planning and analysis, we studied
about a layout which refers to the arrangement of facilities connected with
production, support, customer service, and other activities. It involves the
physical arrangement of work centres, storage, space for material handling
and movement, utility areas and other essential spaces required for
production and operations. In this unit, total quality management, we will
study about the definition of quality and quality control as a system. We will
also study about quality control techniques, quality based strategy and total
quality management.
Quality has become a very important aspect of operations management and
even regarded as a critical success factor. Producing the items in required
quantities at the right time is not enough to satisfy the customers as
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Inspect
Open
Inspect
Open
Reject
Pack
Reject
Fig. 7.3: Sample Flow Chart
2) Check sheet - Check sheets are used to record the number of defects,
types of defects, locations at which they are occurring, times at which
they are occurring, and workmen by whom they are occurring. The sheet
keeps a record of the frequencies of occurrence with reference to
possible defect causing parameters. It helps to implement a corrective
procedure at the point where the frequencies are more. Table 7.1 depicts
a sample check sheet.
Table 7.1 Sample Check Sheet
No. of
Defects
//
///
///
/////
//
////
///
////
///
//
//////
////
//
//
//
////
///
//
//
///
//////
///
///
//
////
///
///
//
Day
The table shows that the number of defects 1 and 5 are not many as
compared to defect number 2 which increased over the days and appears to
be stabilising at the higher side and therefore needs to be attended
immediately. The column which shows days can be changed to observed by
the hour, if need be. A check list is a special type of check sheet which
enables to provide a set of standardised activities or actions to be taken up
while performing a task and to ensure quality.
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FREQUENCY
80
70
60
50
50
40
27
30
20
32
29
20
14
10
0
A
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marching towards zero defects. Pareto diagrams are vertical bar charts
drawn to indicate the extent of each category of problems in descending
order of magnitude of the problem. Typically Pareto diagrams are drawn
both before and after the quality initiative to visualise the improvement.
5) Scatter diagram Scatter diagram is used when we have two variables
and want to know the degree of relationship between them. We can
determine if there is a relationship between the variables and also the
degree of extent over a range of values of the variables. Sometimes, we
can observe that there is no relationship, in which we can change one
parameter being sure that it has no effect on the other parameter.
Further if there is a relationship between the variables, it also reveals the
type of relation namely positive or negative. Figure 7.5 depicts a sample
scatter diagram.
VARIABLE 2
We can see that the change in variable 2 does not have much effect on
variable 1. The other interpretation can be that for a small change in
variable 1, the effect on variable 2 is more.
6) Control charts Control charts are used to verify whether a process is
under statistical control. This means the process is subject to variations
due to random causes and there are no variations due to assignable
causes. Variables, when they remain within a range, will render the
desired quality in the product and maintain the specifications. This is
called the quality of conformance. The range of permitted deviations is
determined by design parameters. Samples are taken and the mean and
range of the variable of each sample (subgroup) is recorded. The mean
of the means of the samples is taken as the central line, and deviations
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equal to three times the standard deviation corrected for sample size,
are used to determine the control limits. The control above the mean line
is called the Upper Control Limit (UCL) and the control limit below the
mean line is called the Lowe Control Limit (LCL). Assuming normal
distribution, we expect 99.97 percent of all values to lie within the Upper
Control Limit (UCL) and Lower Control Limit (LCL) corresponding to +
3. The graphical representation of data helps in changing settings to
bring back the process closer to the target. As long as all the plotted
values taken from samples in chronological order fall within the control
limits, the process is considered to be under control. If one or more
points fall outside the control limits, the process is considered to be out
of control and subject to variations due to assignable causes. In addition,
the pattern of points whether; continuously raising or lowering, close to
the central line, closer to the limits, five points continuously ascending or
descending, clustering of points around central line or limits, erratic
variation, and other such patterns, indicate that the process is not fully
under control and hence demands investigation. Once the out of control
signal is received the process stops and the investigation begins. It
should be noted that based on sample size the limits are calculated
using constants.
Figure 7.6 depicts a control chart.
Unit 7
Example 1
A shaft is to be made with a diameter of 25mm. The area required to be
ground is between +0.01 and -0.02mm by a process of centre less
grinding. A sample of 5 numbers is taken every hour and the
observations are recorded as under. Table 7.2 depicts a sample check
sheet.
Table 7.2: Sample Check Sheet
Samples
Time
9 AM
24.98
24.99
25.00
25.04
25.01
10 AM
25.01
25.02
25.00
25.01
25.00
11 AM
24.99
24.98
25.02
25.02
24.97
12 Noon
24.97
24.99
25.01
25.04
25.03
2 PM
25.01
25.02
25.00
25.03
25.01
3 PM
24.99
24.98
25.02
24.97
25.00
4 PM
24.97
24.99
25.01
25.04
25.03
5 PM
25.01
25.02
25.00
25.03
25.01
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UCL x
LCL x
3R
d2
3R
d2 n
9 AM
24.98
24.99
25.00
25.04
25.01
25.02
10 AM
25.01
25.02
25.00
25.01
25.00
25.00
11 AM
24.99
24.98
25.02
25.02
24.97
24.99
12 Noon
24.97
24.99
25.01
25.04
25.03
25.00
2 PM
25.01
25.02
25.00
25.03
25.01
25.01
3 PM
24.99
24.98
25.02
24.97
25.00
24.99
4 PM
24.97
24.99
25.01
25.04
25.03
25.00
5 PM
25.01
25.02
25.00
25.03
25.01
25.01
25.00
Unit 7
systematically categorised are indicated along branches and subbranches. These are arranged in such a way that different branches
representing causes connect the stem in the direction of the discovery of
the problem. When each of them is investigated thoroughly we will be
able to pin-point some factors which cause the problem. We will also
observe that a few of them can have cumulative effect or even a
cascading effect. Figure 7.7 depicts a sample and cause effect diagram.
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plan. In this case a range of defectives is fixed. If defectives are less, the lot
is accepted. If it is more than the higher number, the lot is rejected. If the
number of defectives falls between the above two numbers, another sample
of a higher size is taken for inspection and if the total number of defectives
is less than another determined number, the lot is accepted. Acceptance
sampling is not quality improvement or correction, but only a way of
ensuring that the number of defectives is within a certain permitted number.
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Quality is built into the system of manufacture, inputs and processes that
are on stream like raw material, spare parts, labour, machine
maintenance, training, warehousing, inspection procedures, packaging,
and others. All these have to follow standards and control exercises to
make sure those mistakes do not occur often and that if mistakes do
occur then they are corrected at the source. (See Figure 7.8 for Jurans
quality triology)
Unit 7
Philip Crosby also emphasises on the fact that quality is free meaning that,
quality should not demand additional resources and hence there should be
no cost.
D) Taguchis quality loss function
Genichi Taguchi is a Japanese quality guru and unlike other experts sees
quality from a perspective of loss. He is not in favour of just meeting the
specifications, but contends that the quality characteristics should always be
close to the nominal or target value. Taguchis contention is that quality
comes from design. He advocated a wide use of design of experiments for
experimentation on variables and obtains specifications which will result in
high quality of the product. It helps in bringing cost effective improvements
in quality. He believed that, designers should make robust designs so that,
product can withstand the variability which tends to be persistent and give
quality for longer periods. His objective in giving the loss function is to make
manufacturers realise that it is the target value of the specification that
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Unit 7
L CX T 2
Where,
L = Total loss
C= Cost constant
X = Average value of the quality characteristic
T = Target value of the characteristic
Taguchi also talks about losses to society because of a dent in quality - both
the manufacturers and users in society will have to endure the
consequences of reduced performance as long as the product is used.
Self Assessment Questions
4. ___________ is a visual representation of a process showing the
various steps.
5. ___________ are used to record the number of defects, types of
defects and locations at which they are occurring.
6. ____________ is used when we have two variables and want to know
the degree of relationship between them.
7. According to Juran, the definition of quality is Fitness for use. (True /
False)
Unit 7
The key elements of ISO 9000 detail many functions of the organisation and
procedures that are to be adhered. Documents that are being followed have
to be formulated and the personnel trained to use them. Documentation is a
very important requirement. It means everyone will have to write what has to
be done, and do what he or she has promised to do. Certification is done by
accredited agencies that are specially trained to do the various inspections
required before an organisation is certified. During the process of
implementation, a number of opportunities open up for improving quality.
Since documentation is done for all activities, the records act as a guide for
analysing problems and solutions can be sought. The team work that is
required results in better communication.
ISO 9000 acts as a starting point towards higher efforts for achieving total
quality management. The benefits of better communication with intranet
cannot be overlooked. Capturing data, analysis of them and distribution of
relevant data to users is an important facilitation process which intranet
provides. Verification, guidance, and monitoring become easy and all
processes whether design, manufacture or dispatch, can be conducted
efficiently with proper authorisations sought and received instantly. With
video-conferencing, the inconvenience of putting people at one place for
discussion and decision making is avoided. Documents can be transferred,
edited and be effective almost instantaneously. The time, energy, and
money saved can be utilised for other activities, thus enhancing efficiency of
all the people concerned. All these enhance the quality of work of all
personnel.
Unit 7
Case-let
Bank of America is the world largest bank. Their goal is to be number
one in customer satisfaction. The bank achieved its goal by enhancing
enterprise-wide quality system. The quality system focused on:
Cost of quality
Since olden days attempts have been made to find out the cost of quality
and many researchers have examined different situations involving quality.
Cost of quality is understood as the cost that would be incurred, if quality is
not maintained. However; in the modern context it is considered, as the total
cost required to provide desired quality, and the cost that would be incurred
to check quality along with the cost of failure. Thus, the cost of quality is
divided into four categories as follows:
Unit 7
Prevention costs Prevention costs are costs of all activities that are
designed to prevent poor quality from arising in products or services.
Examples include the costs for:
quality planning
supplier evaluation
new product review
Appraisal costs Appraisal costs are costs; that occur because of the
need to control products and services, to ensure a high quality level in all
stages, conformance to quality standards and performance requirements.
Examples include the costs for:
checking and testing purchased goods and services
in-process and final inspection/test
field testing
Internal failure costs Internal failure costs are costs that are caused by
products or services, not conforming to requirements or customer/user
needs, and are found before delivery of products and services to external
customers. They would have otherwise led to the customer not being
satisfied. Deficiencies are caused both by errors in products and
inefficiencies in processes. Examples include the costs for:
rework
delays
re-designing
shortages
failure analysis
re-testing
downgrading
External failure costs External failure costs are costs that are caused by
deficiencies found, after delivery of products and services to external
customers, which lead to customer dissatisfaction. Examples include the
costs for:
complaints
repairing goods and redoing services
warranties
customers bad will
losses due to sales reductions
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Unit 7
Unit 7
7.8 Summary
Let us recapitulate the important concepts discussed in this unit:
7.9 Glossary
in
Unit 7
7.11 Answers
Self Assessment Questions
1.
2.
3.
4.
5.
6.
7.
8.
9.
Quality
True
Conformance to design
Flowchart
Check sheet
Scatter diagram
True
True
Internal failure cost
Terminal Questions
1.
2.
3.
4.
5.
6.
Unit 7
Ever since the project was announced by the company Tata Motors that
they are going to release a car that is affordable to the average Indian
middle class family, there were more sceptics than before who expected the
cost boundary of Rs. One Lakh to be impossible to achieve. But the
company proved the myth wrong and delivered to the market a car what
was a dream buy for the average middle class families.
True to its capacity and efficiency Tata Motors reduced the cost as much as
they can through homegrown engineering cutting the cost by efficient
design and eliminating all the frills but maintaining only the essentials. The
car thus was proved to be cost effective and of course affordable to the
Indian middle class families.
There were several hiccups after the loss the most important one being
safety. As if to prove the safety factor is low, a couple of accidents raised
doubts about the cars strengths and weaknesses. The company no doubt
tried to convince the customers by drawing their attention to the fact that the
cars were tested for all types of failure.
Tata Nano enjoyed a roller coaster drive in sales since inception and after
about 1,40,000 vehicles had been sold in around two years time came the
jolt.
As reported in the media, particularly Business Standard, Tata Motors is
taking 1,40,000 Nano cars off the roads to replace the starter motor free of
cost. This is seen as the biggest recall in the Indian auto market.
The exercise of recall is to replace the starter motor - an electrical
component - in the world's cheapest car and is expected to cost the
company around Rs.115 crore.
"The replacement will cover the entire lot of Nanos produced since the
launch of the mini car in 2009 and sold till November 21 this year," the
company's spokesperson said. However, it excludes the Nano 2012 model
which rolled off the Tata assembly line on November 21 this year.
Will the company face a severe crunch financially because of this massive
recall is the question on everyones mind. Thought the spirit of Nano seems
to be unfazed as seen through the launch of new model for the year 2012,
there is no gainsaying in the fact that the image while already shaky has
taken a big hit.
Sikkim Manipal University
Unit 7
TQM advocates Do it the first time, next time and every time. Has this
policy been corroborated by Nano?
(Source:http://www.autofocusasia.com/management/tata_nano.htm,
http://in.reuters.com/article/2009/03/30/idINIndia-38567520090330,
timesofindia.indiatimes.com/speednewsshow/8167915.cms)
Discussion Questions:
1. What might be the reasons for Tata Nanos recall?
2. Is the company right in this action?
3. Does this incident affect the image of the company?
4. What cost of failure is involved here?
5. What lessons are there for manufacturers?
Reference:
E-References:
http://www3.best-in-class.com/
www.businessdictionary.com
http://www.autofocusasia.com/management/tata_nano.htm
http://in.reuters.com/article/2009/03/30/idINIndia-38567520090330
timesofindia.indiatimes.com/speednewsshow/8167915.cms
Unit 8
Unit 8
Structure:
8.1 Introduction
Objectives
8.2 Importance of Business Process Modelling
8.3 Business Process Modelling
Logical process modelling
Physical process modelling
8.4 Data Driven Approach to Process Definition
Constructing the process model diagram
8.5 Logical vs. Physical Database Modelling
8.6 Business Process
The ingredients
Business analyst
Workflow vs. business process modelling
Impact on process modelling
8.7 The Way Forward
8.8 Summary
8.9 Glossary
8.10 Terminal Questions
8.11 Answers
8.12 Case Study
8.1 Introduction
In the previous unit, total quality management, we studied about quality
control as a system; the various quality controlling techniques, and quality
based strategy. We also learnt about total quality management and the
various approaches to it. In this unit, business process modelling, we will
see the role of business process modelling (BPM) in achieving the overall
business objectives. It refers to a set of activities undertaken to optimise the
business process.
A process is a set of elements that repeatedly act to result in an output. It is
also coordinating a set of activities to produce a specific outcome. There is a
process involved in almost everything we do like preparing tea, sending a
mail, etc.
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Unit 8
Figure 8.1 depicts the various reasons for optimising the business process
Unit 8
Simple, static
processes
Complex, dynamic
processes
Moderate business
value. Volume matters,
standard practices,
requires support, focus
on collaboration
Context and
support activities
Customised processes,
scope for outsourcing,
costs to be watched
What companies really want is; best practices for increasing efficiency and
unique, often home-grown superior processes, to claim uniqueness and
create competitive advantage. Every company can assess and categorise
the processes as per the spectrum shown in the matrix and then try to build
the competitive advantage.
(Source: Howard Smith and Peterr Fingar, Business Process Management,
Megan Kiffer Press, USA, 2003)
Unit 8
In this section, let us know more in detail of the two processes of modelling.
8.3.1 Logical process modelling
Logical process modelling is the representation of putting together all the
activities of business process in detail and making a representation of them.
The initial data collected has to be arranged in a logical manner so that,
links are made between nodes for making the workflow smooth. The steps
to be followed to make the work smoother are given as follows:
1. Capture relevant data in detail to be acted upon
2. Establish controls and limit access to the data during process execution
3. Determine which task in the process is to be done and also the
subsequent tasks in that process
4. Make sure that all relevant data is available for all the tasks
5. Make the relevant and appropriate data available for that task
6. Establish a mechanism to indicate acceptance of the results after every
task or process. This is to have an assurance that flow is going ahead
with accomplishments in the desired path
Some of these activities may occur in a sequential order whereas; some of
them may run parallel. There may even be circular paths, like re-work loops.
Complexities arise when the process activities are not connected together.
Unit 8
Logical process model consists of only the business activities and shows the
connectivity among them. The process model is a representation of the
business activities and is different from the technology dependent ones.
Thus, we have a model that is singularly structured only for business
activities. Computer programmes are also present in the total system. This
allows the business oriented executives to be in control of the inputs,
processes and outputs. The logical process model improves control on the
access to data. It also identifies, who is in possession of data at different
nodes in the dataflow network that has been structured.
A few of the logical modelling formats are as follows:
Process descriptions with task sequences and data addresses
Flow charts with various activities and relationships
Flow diagrams
Function hierarchies
Function dependency diagrams
Every business activity, when considered as a logical process model, can
be represented by a diagram. It can be decomposed and meaningful names
can be given to the details. Verb and noun form combinations can be used
to describe each level. Nouns give the name of the activity uniquely and are
used for the entire model meaning the same activity.
Figure 8.3 depicts the ways of representing logical process modelling.
Unit 8
Unit 8
Figure 8.4 depicts the steps to set the data in a logical order.
The following steps should be considered for setting the data in a logical
order.
1. Check whether the participants in the process that is, people, teams,
and electronic applications are sufficient or, any changes and additions
need to be made.
2. Ensure that all the data expected is included or not. Generally, we start
with an initial set of data which we have. When we check them with the
requirements of the process for the desired outcomes, we find gaps.
These gaps help us in determining which subset of the data is
appropriate at each task in the process.
3. Check whether the data is sufficient for the implementation of the
process. This can be achieved by answering the following questions:
1. What is the path the process should take?
2. What decisions are to be made at any point in the process?
3. Are data available at those points?
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4. State the rules used to define the various parts of the process. At
this stage, the naming conventions are also included. This is
important to be included at the process definition stage.
5. Determine the disposition of data at the end of the process and
decide the following:
a. Do we plan to keep the data or delete them?
b. If they are to be stored, where and in what form will be used?
c. What are the measures of security for access?
6. Determine the other elements depending upon the business process
and the need. The elements added must be questioned to collect a
detail data. It is better to go deeper into the details and collect data, and
make them available at this initial stage, so that a better model can be
prepared. Then, the processes will be more successful in delivering the
desired output. Process definition enables us to go into details at every
stage of the process and verify the adequacy of data, the sequential
steps in the process and fill the gaps before attempting implementation.
The purpose of setting the data in a logical order is to, locate deficiencies
and remove them. Therefore, the decisions about process and sequence
can be taken and a model can be designed which is useful in all
perspectives.
8.4.1 Constructing the process model diagram
We have seen how the process has to be defined. The business analyst can
now use process modelling software to construct diagrams and graphically
represent the business process under consideration. The following are
included in the diagrams:
The starting point of the process It is possible that we have multiple
beginnings and different activities starting simultaneously and running
parallel.
Tasks during process execution The tasks that are done during
process execution and their sequence and dependencies.
Nodes in the path Nodes in the path show the activities that should
be completed before starting further activities.
Decision points Decision points help in taking a decision between
choosing the path or whether the process should continue or not.
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Process path The points, at which the process path divides, creating
two or more paths for activities, combine and lead to another activity.
More points At the end of the process, we may have one or more
points.
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For better forecasting the business needs, the analyst should have the
necessary skills, knowledge, and functions.
Figure 8.5 depicts the skills, knowledge and functions required for a
business analyst.
Fig. 8.5: Skills, Knowledge and Functions Required for Business Analyst
Unit 8
The only thing lacking is the flexibility that business situations demand all
the time. This is because, the enterprise has to perform and excel in
conditions of uncertainty, improvement, and competition. Fortunately these
are exceptions. While majority of the repeated tasks goes on smoothly, we
need to manage these exceptions. Notably, exceptions create new
processes, opportunities and help us get new insights into the processes. It
has been found that 80% of process costs arise out of managing
exceptions. These happen at many points in the value chain. Managing all
these is business process management.
Workflow does not offer options in the way processes are conducted. They
have fixed routes, activities, and schedules. Actually, there is not much
management. Business process modelling goes ahead not on a fixed track,
but on bumpy roads, turning sharply to avoid collisions and overtaking the
vehicles that are ahead. It calls for all management skills.
8.6.4 Impact on process modelling
If business process modelling is not flexible in the path, then the activities or
the entities need to be aligned to make it more flexible. Therefore, it is not
any more necessary to define the total process initially. The flow of the
activities need not be fitted into a model to be followed continuously, but
can be adapted to suit the situations the process is in. The user has choices
of subsequent activities and can take advantage of the flexibility the process
is allowed to have.
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Figure 8.9 depicts the conversion of the business modelling stage to system
requirement for implementation.
Sikkim Manipal University
Unit 8
8.8 Summary
Let us recapitulate the important concepts discussed in this unit:
Business process consists of a number of coordinated activities to result
in outcomes which add value to the customer. It consists of data that are
needed to know what the activities are, how they are done, how close it
is to the customers requirement.
Business process model is composed of a logical process and a
physical process.
Logical process modelling deals with identifying the business
requirements, and produces diagrams and charts, to show relationship
between business processes having parent-child relationships among
people, activities and data.
Physical process modelling is the design of the database to meet the
requirements of the logical model.
The business analysts job is to understand the requirements of the
business and work with technology experts to create databases which
interface with the applications in software.
Unit 8
8.9 Glossary
8.11 Answers
Self Assessment Questions
1.
2.
3.
4.
5.
6.
7.
8.
Activities
Business process modelling
Logical process model, diagram
Database, tables
Logical order
Process definitions, adequacy of data
Information and workflow
True
Terminal Questions
1.
2.
3.
4.
5.
Unit 8
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Reference:
Business
Process
E-Reference:
www.forbes.com
www.developer.com
Unit 9
Unit 9
Structure:
9.1 Introduction
Objectives
9.2 Project Management
Understanding project management
Definitions related to project management
Need for project management
9.3 Project Management Principles
Project management knowledge areas
The project manager (PM) and responsibilities of PM
Project failure
9.4 Essentials of Project Management Philosophy
Characteristics of project mindset
Project evaluation and selection criteria
Typical characteristics of a project
Project parameters for negotiation
Value addition of project management
Project management players, their roles and responsibilities
9.5 Project Planning
Scoping
Work Breakdown Structure (WBS)
9.6 Project Process Flows
Project processes
Process groups
Process interactions
Customisation
9.7 Summary
9.8 Glossary
9.9 Terminal Questions
9.10 Answers
9.11 Case Study
Unit 9
9.1 Introduction
In the previous unit you learnt about business process modelling, logical
process modelling and physical process modelling. In this unit, you will learn
about project management and its principles and significance.
Project management is well recognised as a part of Operation
Management and managing projects is considered as an essential skill
required for any management professional. Project management typically
deals with resource allocation to reach the specified objectives while
working within a certain time frame.
In this unit, you will learn Project Management by way of definitions and
explanations of the various steps involved. You will also understand the
important issues related to Human Resources, which forms a much greater
part of Project Management. It is to be remembered that, people have to
take the initiative to drive processes. Only then the system will take the
initiative to drive the people.
Objectives:
After studying this unit, you should be able to:
explain the definitions and terminology of project management
recall the fundamentals of project management
explain the importance of project management
list the principles of project management
describe the project management philosophy
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More and more companies across the globe are adopting the practices of
managing projects, looking out for skilled managers and practitioners,
thereby increasing the demand for project managers globally. An
organisation understands a project as an activity that starts with a
description of a mission and ends with the completion of a deliverable or
product. An effective project management will result in identifying the tasks
required to achieve the goals of the project and preparing an effective plan
by considering the manpower, material, cost, and time, which will help to
complete the project smoothly.
9.2.2 Definitions related to project management
Project
A project is a temporary endeavour with a finite completion date undertaken
to create a unique product or service. Projects bring form or function to
ideas or needs.
A project is a set of activities which are networked and aimed towards
achieving a common goal. Upon completion of all the activities, the goals of
the project would have been achieved. A project is undertaken to achieve a
purpose. Some examples of projects are listed below:
Commissioning a new industrial unit
Construction of a house
Setting up of an office
Developing a technology
Launching a new product in the market
Management
Management is the technique of understanding the problems, needs, and
controlling the use of resources such as cost, time, manpower and
materials.
Project cycle
A project cycle consists of the various activities of operations, resources,
and the limitations imposed on them.
Process
A process is part of the project which consists of simple and routine
instructions to achieve a desired result of any activity of the project.
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A process is responsible for bringing about the changes in the inputs fed to
the process and giving out the desired output.
Resource
The resource of a project refers to manpower, machinery, money, and
materials which are required in the project.
Scope
Scope of the project refers to the various parameters that affect the project
in its planning, formulation, and execution.
Project cost
Project cost is the budgeted expenditure of the project.
Project Classes and definitions
Project Classes and definitions are as depicted in the table 9.1 below
Table 9.1: Project Classes and definitions
Type
Duration
Risk
Complexity
Technology
Problems
> 18 Months
High
High
Breakthrough
Certain
9-18 Months
Medium
Medium
Current
Likely
3-9 Months
Low
Low
Best
Some None
< 3 Months
Very low
Very low
Practical
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http://en.wikipedia.org/wiki/Radar_chart,
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Project
integration
management,
communications management.
Project scope
management.
management,
quality
cost
management,
management,
and
and
risk
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Project
Integration
Management
Project
Scope
Management
Project
Time
Management
Project
Cost
Management
Project
Quality
Management
Project
HR
Management
Project
Communication
Management
Project
Risk
Management
Executing
Processes
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Relevance:
Is the project relevant to the defined scope in terms of the deliverable
product and service?
State-of-the-art technical methodologies:
Check if the state-of-the-art methodologies are adequately described?
Relevance to market:
Has any market analysis been done?
Is there any documentation of the various market opportunities?
Creativity: Creativity is required to understand and develop a project as
innovatively as possible and should be well described in its documents.
The project objectives may be creatively quantified for its
measurements.
Are the outcomes of each such objective task clearly defined?
Potential:
Is there an adequate description of the project methodologies and its
dissemination which would be used in future?
Are the potential products or services of future identified?
Project management and work plan:
Is there a project management and work plan?
Are the roles and responsibilities of each project member clearly
defined?
Effort justification:
Are the efforts in-line with the work and the objectives to be achieved?
Is there enough competence for doing research?
Is there any value addition to the project?
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These players are also called stakeholders of the project. The individual
players are actively involved in the project and play an important role to
successfully complete the project. The players interest may be affected
(positively or negatively) by the outcome (success or failure) of the project.
Thus, they have influence over the project and its results.
Roles and responsibilities
The roles and responsibilities of players while managing projects are given
below:
There are a number of projects which an organisation works on. It is not
possible for one individual to manage all the projects. There is a team of
managers who manage the projects.
There may be different teams working on different projects.
An experienced project manager and his/her team may manage more
than one project at a time.
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The project team is responsible for ensuring that the project upon
completion, shall deliver the gain in the business for which it is intended
for.
The project team has to properly coordinate with each other working on
different aspects of the project.
The team members are responsible for the completion of the project as
per the plans of the project.
Remember
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GANTT chart
A GANTT chart is a graphical representation of the duration of tasks
against the progression of time.
Source: http://www.ganttchart.com/
A Gantt chart as depicted in figure in 9.6 is a useful tool for planning and
scheduling projects as well as for monitoring and controlling the project
deliveries.
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Along with a milestone chart, helps you to represent the planned bar
which indicates the deadlines and other significant events of the project.
Figure 9.7 representing progress bar and planned bar.
Fig. 9.7: GANTT Chart Representing Progress Bar and Planned Bar
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structure and frequency are followed are decided at various stages. In case
of differences, the reasons behind the changes are analysed and the
deliverable in terms of cost, schedule, and effort are altered accordingly.
Planning tools
There are several planning tools which may prove useful for coordinating a
project successfully. In this section we will discuss each of these tools.
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Initiating
Processes
Controlling
Processes
Planning
Processes
Executing
Processes
Closing
Processes
Fig. 9.9: Connection between Process Groups in a Phase
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Initiating processes
Every process is initiated by management group decisions which results in
the next phase of the project.
Planning processes
Interactions focus on planning. Planning processes are highly
interdependent. Hence, this makes it more important that things are planned
properly. If there is an overrun on one parameter, the entire project may be
in jeopardy. For example, if the cost is unacceptable, scope and time may
need to be redefined.
Executing processes
Interactions in this group depend on the nature of the work. They are
dynamic and dependent on team innovations and responsiveness.
Controlling processes
The interactions are aimed at measuring project performance (time, cost,
quality) and identifying the variances from the plan. Tracking the project
performance is a continuous process. In case of deviation from the planned
project, plans are updated and corrective actions are taken.
Closing processes
The interactions revolve around review of the project, findings and analysis
of the project performance with respect to various processes.
9.6.4 Customisation
At times, project management processes need to be customised based on
the requirement of the product. The following are some examples of
customisation:
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9.7 Summary
Let us recapitulate the important concepts discussed in this unit:
A project is a set of activities which are networked and aimed towards
achieving a common goal.
Project management is the application of knowledge, skills, tools, and
techniques to project activities to meet project requirements
Project management can be considered to have five dimensions which
are necessary to be managed. The dimensions are Features, Quality,
Cost, Schedule, and Staff
Project management players are individuals and organisations who are
involved in the project
The entire process of a project may be considered to be made up on
number of sub process placed in different stage called the Work
Breakdown Structure (WBS).
Project management processes can be categorised under five process
groups initiating processes, planning processes, executing processes,
controlling processes, and closing processes
Sikkim Manipal University
Unit 9
9.8 Glossary
9.10 Answers
Self Assessment Questions
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
True
False
True
True
True
Cost, schedule and staff
Business and economics
True
False
False
Execution
WBS
Initiating, executing, closing
Less
Terminal Questions
1. Refer 9.2
2. Refer 9.2.2
Sikkim Manipal University
Unit 9
3. Refer 9.3.3
4. Refer 9.4.6
5. Refer 9.5.1
6. Refer 9.5.2
Discussion Questions:
1. What special skills might be required for successful completion of IT
projects?
Unit 9
E-Reference:
http://www.cio.com/article/40342
Unit 10
Unit 10
Project Implementation,
Control and Closure
Structure:
10.1 Introduction
Objectives
10.2 Project Management Life Cycle
Phases of project management life cycle
10.3 Project Monitoring and Control
Steps for monitoring and controlling a project
Use of network diagrams in project management
Program Evaluation Review Technique (PERT) chart
Caselet
Project control process
10.4 Change Control
Changing project management process
Tools for changing process
10.5 Risk Management
10.6 Project Closure
Completion of all activities and benefits
Post implementation review
Final project reporting and documentation
10.7 Summary
10.8 Glossary
10.9 Terminal Questions
10.10 Answers
10.1 Introduction
In the previous unit you studied about project management and planning
process. You learnt the principles of project management and the essentials
of project management philosophy. In this unit you will learn the
implementation of projects.
Project managers have to keep in mind the various problems that may be
encountered during the project. Associated with the project could be the
risks that may deter the project processes. Careful monitoring and regular
supervision is required all through the project.
Sikkim Manipal University
Unit 10
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The important tasks of the project manager during the phase of analysis and
evaluation include:
Marketing phase
A project proposal is prepared by a group of people including the project
manager. This proposal has to contain the strategies adopted to market the
product to the customers.
Design phase
Design phase involves the study of inputs and outputs of the various project
stages. Figure 10.2 depicts the study of inputs and outputs in design phase.
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Execution phase
In execution phase, the project manager and the team members work on
the project objectives as per the plan. At every stage during the execution,
reports are prepared.
Control inspecting, testing and delivery phase
During this phase, the project team works under the guidance of the project
manager. The project manager has to ensure that the team is implementing
the project designs accurately. The project has to be tracked or monitored
through its cost, manpower, and schedule. The project manager has to
ensure ways of managing the customer and marketing the future work, as
well as ways to perform quality control work.
Closure and post completion analysis phase
Upon satisfactory completion and delivery of the intended product or
service, the staff performance has to be evaluated. The project manager
has to document the lessons from the project. Reports on project feedback
get prepared and analysed. A project execution report is prepared.
Let us have a quick recap of what is involved in the above phases.
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Agenda for quality review: The project manager should create and
distribute a quality review agenda specifying the objectives,
products, logistics, roles, responsibilities, and time frames. This
increases the effectiveness of the review and also reduces the time
gap.
Conduct quality review: The quality review is conducted in a
structured and formal manner. Quality review focuses on product
development and its quality factors. The project members check
whether the review meets the prescribed quality standards.
Follow-up: Quality review complete product status is to be revised
from In Progress to Quality review Complete. Actions planned are
strictly followed up to ensure conformity to the standards.
Review quality control procedures: The project members verify
that the quality objectives for each product are appropriate. They
also ensure that all participants are satisfied both with the process
and its outcome.
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activities. They also serve the purpose of illustrating the various activities
and their inter dependence.
Historically, two types of network representations based on different
fundamental element have been in existence. They are PERT (Program
Evaluation and Review Technique and CPM (Critical Path Method).
Advantages of network diagrams
Networks generated provide valuable project documentation and
graphically point out various project activities
Applicable to a wide variety of projects and industries
Useful in monitoring not only schedules, but costs as well
Network diagrams like PERT and CPM show interdependencies and
precedence among the activities of a project
Benefits of PERT/CPM
Useful at many stages of project management
Mathematically simple
Uses graphical displays
Gives critical path and slack time
Provides project documentation
Useful in monitoring costs
10.3.3 Program Evaluation Review Technique (PERT) chart
A PERT chart is a project management tool. It is used to schedule,
organise, and coordinate tasks within a project.
PERT chart is a popular project management charting method. Using PERT
chart, the collection of series and parallel tasks performed in complex
projects can be represented as a network diagram. It represents the
activities and milestones of the project. Project network models represent
activities and milestones by arcs and nodes as depicted in figure 10.6 which
is an example of a PERT chart.
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t o 4t m t p
6
Page No. 244
Variance
V
for
tp to
each
activity
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completion
time
is
given
as
Predecessor
tm
tp
1-2
10
13
16
1-3
1-4
14
3-2
1-3
3-4
1-3
2-5
1-2, 3-2
10
11
18
4-5
1-4, 3-4
11
Determine the project completion time, critical path, and find out the
probability of completing the project in 23 weeks by the variance
method.
Solution:
Based on the information given in the table on activities and their
Sikkim Manipal University
Unit 10
t o 4t m t p
6
SD V
Activity
tE (d)
SD
to
tm
tp
1-2
10
13
16
13
1-3
1-4
14
2.78
1.67
3-2
0.11
0.33
3-4
0.03
0.17
2-5
10
11
18
12
1.78
1.33
4-5
11
0.44
0.67
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Table 10.3, tabulates the values of EST, LCT, and Slack of the five
nodes.
NODE
1
2
3
10
16
NC
25
25
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The activities connecting the critical nodes with slack=0 are the critical
activities. Therefore the critical path is: 1 2 5
The project completion time is the EST or LCT of node 5. In this
problem, it is 25 weeks.
To determine the probability of completing the project in 23 weeks,
consider, TS= 23.
Consider, TE = 25, that is, the project completion time estimated. SD
along the critical path can be calculated as:
SD
SD 11.78 1.67
z
z
TS TE
sdcp
23 25
1.2
1.67
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c) Decide on the actions for the change: Present the change request,
alternative solutions and recommendation to the project management
team. The project management team is required to accept the
recommendation, choose an alternative solution, or request further
investigation. Based on this, a final action plan for the change is
selected.
d) Implement change: Once the project management approves a solution
for the change, make appropriate schedule and other project plan
adjustments to accommodate the change, communicate these to team
members, monitor progress, and execute quality control on the changes.
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3. Risk prioritising: Rank the risks based on the probability and effects on
the project. For example, a high probability, high impact item will have
higher rank than a risk item with a medium probability and high impact.
4. Risk mitigation: Select the top few risk items for mitigation and tracking.
Refer to a list of commonly used risk mitigation steps for various risks
from the previous risk logs maintained by the project manager and
select suitable risk mitigation step. The risk mitigation steps must be
properly executed by incorporating them into the project schedule. In
addition to monitoring the progress of the planned risk mitigation steps,
periodically revisit the risk perception for the entire project. The results of
this review are reported in each milestone analysis report. To prepare
this report, make fresh risk analysis to determine whether the priorities
have changed.
Self Assessment Questions
State True or False
7. Risks are those events or conditions that may occur and whose
occurrence has a harmful or negative impact on a project. (True/False)
8. The risk mitigation step must be properly executed by incorporating
them into the project schedule. (True/False)
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Effective closure
Ensure all deliverables are installed
Handover documentation
Stakeholder acceptance of deliverables
Post-implementation review/audit
Celebrate success
Project failure
Major Reasons for project failure
Incomplete, ambiguous, inconsistent specifications
Poor or no planning and/or estimating
No clear assignment of authority and responsibility
Not enough or wrong user involvement
Lack of adequate tools and techniques
Dependence on external sources (vendors, subcontractors)
High staff turnover or inadequate training
Why projects fail?
Most failures have been put down to:
Poor project specification
Unrealistic timescales
Timescales that are too long
Inappropriate staff
Failure to manage user expectations
Failure to manage the change required
Source: Gido and Clements, Successful Project Management, Vikas
Publishing House, New Delhi, 2003
10.6.1 Completion of all activities and benefits
The closure of a project is followed by its analysis and performance
measured against its scheduled baseline version. The closure of a project
may result in the following benefits:
It implies that on successful completion of a project, it has not drifted
from its intended course and plans. Otherwise, it would have resulted in
a change and may also kick start another project affecting the main
project.
Sikkim Manipal University
Unit 10
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10.7 Summary
Let us recapitulate the important concepts discussed in this unit:
Project managers have to keep in mind the various problems that may
be encountered during the project.
Feasibility study has to be conducted to analyse whether the project is
technically, economically, and practically feasible to be undertaken
The project has to be evaluated in terms of expected profit, cost, and
risks involved.
Controlling the changes in the project is possible through a proper
change management process and using necessary tools for controlling
the change
Risk management aims to identify the risks and then take actions to
minimise their effect on the project.
Unit 10
10.8 Glossary
10.10 Answers
Self Assessment Questions
1. True
2. False
3. False
4. True
5. Change control
6. CMS
7. True
8. True
9. True
10. True
Unit 10
Terminal Questions
1.
2.
3.
4.
5.
Refer
Refer
Refer
Refer
Refer
10.2.1
10.3.1
10.4.2
10.5
10.6
Reference:
Unit 11
Unit 11
Aggregate Planning
Structure:
11.1 Introduction
Objectives
11.2 Requirement of Aggregate Plan
11.3 Steps in Developing an Aggregate Plan
11.4 Advantages of Aggregate Plan
Master Schedule
Hierarchal planning system
11.5 Aggregate Planning Strategies
Pure strategies
Features of three strategies
Mixed strategies
Mathematical Planning Models
11.6 Planning Options
Capacity options
Demand options
11.7 Selecting the Method in Aggregate Planning
11.8 Aggregate Planning in Services
11.9 Illustrative Examples
11.10 Summary
11.11 Glossary
11.12 Terminal Questions
11.13 Answers
11.14 Case Study
11.1 Introduction
In the previous unit you learnt about project management, project monitoring
and control, risk management. In this unit, you will study about aggregate
planning. In any manufacturing or service organisation, it is necessary that a
broad plan is prepared for a specified period which indicates how the target
is reached. This plan tells how the planned output is reached and what
options are followed. Aggregate planning is the process of planning the
quantity and timing of output over the intermediate range (often 3 to 18
months) by adjusting the production rate, employment, inventory, and other
controllable variables. Aggregate planning links long-range and short-range
Sikkim Manipal University
Unit 11
Month
Number of motors
40 25
55
30
30
50
30
60
40
5hp
15
30
30
20
10
25hp
20
25
25
15
15
15
20
30
20
15
15
10
10
10
Master Schedule
Month
AC motors
DC motors
20hp
Objectives:
After studying this unit, you should be able to:
define aggregate planning
explain the advantages of aggregate plan
identify optional strategies for developing an aggregate plan
develop an aggregate plan via different options
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Production
Planning
Product lines
or families
Aggregate plan
Resource
requirements
Plants
Individual
products
Master
Production
Schedule
Critical work
centres
Capacity planning
Resource level
Unit 11
Components
Material
Requirements
Plan
Capacity
requirements Plan
Manufacturing
operations
Manufacturing
operations
Individual
machines
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output, in some months there is shortage and when the output is above the
average there is surplus and build-up of inventory. However, wherever
possible excess output can be used to accumulate inventory and that
inventory be used to meet the above average demands other time periods.
No initial inventory is maintained. In case of shortages, some back orders
could be allowed under a level production, or inventory strategy. If
backorder is not allowed then the result is loss in sales.
Stable work-force strategy:
In this strategy, the work force is maintained at the same level on regular
time. Production output is varied either by overtime or by building up
inventory. However, if the demand falls then the production output is
decreased and some workers may become idle. Thus, using overtime and
idle time to meet demand would be a stable work-force strategy.
11.5.3 Mixed strategies
In mixed strategies, the aggregate planner has a wide variety of choices by
mixing two or more strategies. The number of mixed strategies in
alternative production plans is almost limitless. However, based on the
realities of the situation, the number of practical solutions is limited. These
can be evaluated on a trial-and-error basis to find which plan best satisfies
the requirements, taking cost, employment policies, etc. into account.
11.5.4 Mathematical Planning Models
Mathematical models attempt to refine or improve upon the trial-and-error
approaches. However, the solution generated may not be feasible and need
to be refined. A popular technique is the application of transportation
algorithm which is a special case of the linear-programming model. It views
the aggregate planning problem as the problem of allocating capacity
(supply) to meet forecast requirements (demand) where supply consists of
the inventory on hand and units that can be produced using regular time
(RT), overtime (OT), and subcontracting (SC), etc.
Demand consists of individual-period requirements plus any desired ending
inventory. Costs associated with producing units in the given period or
producing them and carrying them in inventory until a later period are
analysed. Cost is obtained, as in the standard transportation linearprogramming format and a least total cost solution.
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drops off and quality also becomes a casualty. Overtime also implies the
increased overhead needed to keep a facility open. On the other hand,
when there is a period of decreased demand, the company must
somehow absorb workers idle time; usually a difficult process. Though
such options like plant shutdown, maintenance work and social events
are organised during such lean periods, they cannot be carried over a
long time.
d) Subcontracting: A firm can acquire temporary capacity by
subcontracting work during peak demand periods. Subcontracting,
however, has several pitfalls. First, it may be expensive; second, it risks
opening the clients door to a competitor. Third, it is often hard to find the
perfect subcontract supplier, one who always delivers the quality product
on time. However, of late outsourcing has become a complete business
policy and cost of operations may be cited as the main reason. Thus, it is
possible to partly produce the items outside or completely procure from
outside. Depending on who is stronger and controlling the whole process
the subcontracting costs will vary and could be even low.
e) Using part-time workers: Part-time workers can fill unskilled labour
needs, especially in the service sector. This practice is common in
restaurants, retail stores, and supermarkets. There are many
organisations where part time workers sometimes called as temps work
almost full time but with less compensation than that of a regular
employee. Again, the question of getting the right type of temporary
workers is a major issue and there are many agencies who specialise in
supplying temporary workers.
11.6.2 Demand options
The basic demand options are:
Influencing demand: When demand is low, a company can try to increase
demand through advertising, promotion, personal selling, and price cuts.
Airlines and hotels have long offered weekend discounts and off-season
rates; telephone companies charge less at night; some colleges give
discounts to senior citizens; and air conditioners are least expensive in
winter. However, even special advertising, promotions, selling, and pricing
are not always able to balance demand with production capacity.
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Back ordering during high-demand periods: Back orders are orders for
goods or services that a firm accepts but is unable (either on purpose or by
chance) to fill at the moment. If customers are willing to wait without loss of
their goodwill or order, back ordering is a possible strategy. This is a good
strategy if the companys products command a premium and the customers
are ready to wait. However, with choices available to customers, some firms
which practice back order have to take a risk as the approach often results
in loss of sales.
Counter-seasonal product and service mixing: A widely used active
smoothing technique among manufacturers is to develop a product mix of
counter-seasonal items. Examples include companies that make both
furnaces and air conditioners or lawn mowers and snow blowers. Here, the
idea is to produce products that are suited for each season based on the
demand and seasonal change. The company however has to have
adequate resources for both types of products. It is common to see a
company producing air conditioners, heaters, and air coolers, to maintain
the product demand during all seasons. However, companies that follow this
approach may find themselves involved in products or services beyond their
area of expertise or beyond their target market.
These eight options, along with their advantages and disadvantages, are
summarised and depicted in table 11.3 as given by Heizer and Render
(2008).
Table 11.3: Aggregate Planning Options: Advantages and Disadvantages
Option
Advantages
Disadvantages
Some
Comments
Changing
inventory levels
Changes in human
resources are
gradual or none;
no abrupt
production
changes
Inventory holding
costs may
increase.
Shortages may
result in lost sales
Applies
mainly to
production,
not service
operations.
Varying workforce
size by hiring or
layoffs
Used where
size of labor
pool is large.
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Varying
production rates
through overtime
or idle
time
Matches seasonal
fluctuations without
hiring/training
costs.
Overtime
premiums; tired
workers; may not
meet demand.
Allows
flexibility
within the
aggregate
plan.
Subcontracting
Permits flexibility
and smoothing of
the firms output.
Loss of quality
control; reduced
profits; loss of
future business.
Applies
mainly in
production
settings.
Using part-time
workers
High
turnover/training
costs; quality
suffers; scheduling
difficult.
Good for
unskilled
jobs in areas
with large
temporary
labor pools.
Influencing
demand
Tries to use
excess capacity.
Discounts draw
new customers.
Uncertainty in
demand. Hard to
match demand to
supply exactly.
Creates
marketing
ideas.
Overbooking
used in
some
businesses.
Back ordering
during highdemand periods
May avoid
overtime. Keeps
capacity constant.
Customer must be
willing to wait, but
goodwill is lost.
Many
companies
back order.
Counter-seasonal
product and
service mixing
Fully utilizes
resources; allows
stable workforce.
Risky finding
products or
services with
opposite
demand
patterns.
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Month
Demand in 000's
Month
Demand in 000's
January
45
July
40
February
31
August
30
March
40
September
47
April
55
October
65
May
66
November
70
June
50
December
61
Solution:
Stable workforce strategy or level strategy
The total demand is obtained by adding the monthly demands.
Hence total demand = 600 and average demand = 50.
Based on the production strategy average monthly production = 50
Because the demand is more than 50 in 6 months and less than 50 in
another 6 months, it is necessary to maintain inventory and meet the
demand through regular production and inventory. Whenever the actual
demand is less than the average demand, there will be excess production
and some units have to be carried out as inventory. These excess units are
pulled out of inventory whenever the production during a month is not
capable of meeting the actual demand. This assumes that the product
quality remains stable even though it is kept in the inventory. This is typically
the case of auto components and assemblies.
Aggregate planning problems are ideally suited for spreadsheet applications
like MS Excel, because we follow the tabular format for all the calculations.
Sikkim Manipal University
Unit 11
Beginning
Inventory
Added during
the month
Ending
inventory
January
45
50
February
31
50
24
March
40
24
50
34
April
55
34
50
29
May
66
29
50
13
June
50
13
50
13
July
40
13
50
23
August
30
23
50
43
September
47
43
50
46
October
65
46
50
31
November
70
31
50
11
December
61
11
50
Average
Demand
50
Total
272
Month
We construct a Table showing the original data and add three columns. The
beginning inventory column shows the stock on hand at the beginning of the
month. If the company is carrying any stock from the previous period it is
reflected the column. The next column indicates the addition to the inventory
by virtue of the current months production.
Then the ending inventory is calculates as:
Ending inventory = (Beginning inventory + Current months production)
Current months demand.
Because the company has decided to produce an average demand of 50
per month the production quantity added during every month is 50. Since
the demand is varying, less than 50 during January, February, March, and
again during July, August, and September, the quantity produced will be in
excess of demand and hence goes towards inventory. This quantity will be
utilised to meet the demand when more than 50 units are demanded during
a given month.
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When we reach the end of the final period we find that the ending inventory
is zero. This is because the entire annual demand was spread over 12
months in an equal manner.
The inventory carried over from month to month attracts a price which is
called inventory carrying cost. This is usually given as Rs. per month per
unit.
Thus inventory cost = Rs. 4.00 per unit per month X 272 = Rs. 1088.00
Problem 2
Chase demand strategy
Consider the previous problem. The company decides to vary the workforce
according to the demand. On average the output per worker is 5000 units
per month. Fractions are rounded up. Whenever a worker is laid off there is
a cost of Rs. 5000.00 and whenever a worker is hired it costs Rs.6000.00 to
the company. To start with, there are 10 workers in the beginning of
January. Find the total cost of the plan.
Solution:
Table 11.6: Construction of table of inventory & workforce for example
problem 2
January
February
March
April
May
June
July
August
September
October
November
Demand in
000's
45
31
40
55
66
50
40
30
47
65
70
Workers
required
9
7
8
11
14
10
8
6
10
13
14
Number in
the beginning
10
9
7
8
11
14
10
8
6
10
13
December
61
13
14
Month
Total
Number
hired
Number
laid-off
1
2
1
3
3
4
2
2
4
3
1
1
15
12
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Total
Cost per worker
Total cost
Hired
15
6000
90000
Laid off
12
5000
60000
Period
Demand
4000
3200
2000
2800
11.10 Summary
Let us now summarise the key learning of this unit:
Aggregate planning is the process of planning the quantity and timing of
output over the intermediate range (often 3 to 18 months) by adjusting
the production rate, employment, inventory, and other controllable
variables.
Since the demand varies from period to period the aggregate plan helps
in arranging production resources to satisfy the demand by a
combination of strategies
While developing the aggregate plan it is assumed that the facilities are
fixed and cannot be expanded or contracted
Sikkim Manipal University
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11.11 Glossary
11.13 Answers
Self Assessment Questions
1.
2.
3.
4.
5.
6.
7.
True
an overall plan
forecast demand
pure strategies, mixed strategies
chase demand
level production
capacity
Unit 11
Terminal Questions
1.
2.
3.
4.
5.
6.
October
1983
December
Maruti800 launched
1986
April
1994
March
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1997
October
2000
June
2002
May
2003
April
2005
April
2006
October
2007
September
2010
March
2011
March
(Source: http://www.globalsuzuki.com/globalnews/2011/0315.html)
Discussion Questions:
1. How do you see the growth of company with respect to the changes in
Indian car market?
2. What strategies might have been followed by the company to develop
or market different models?
3. What kind of capacity strategy has been followed by the company?
References:
E-Reference:
http://www.globalsuzuki.com/globalnews/2011/0315.html)
Unit 12
Unit 12
Structure:
12.1 Introduction
Objectives
12.2 Domain Applications
12.3 SCM The Breakthrough Article
Supply chain decisions
Supply chain modelling approaches
12.4 Supply Chain Management
A global perspective
How SCM works?
Definitions of SCM and ISCM
The imperatives
The seven principles
12.5 Views on Supply Chain
12.6 Bullwhip Effect in SCM
12.7 Collaborative Supply Chain
Internet and supply chain
12.8 Inventory Management in Supply Chain
12.9 Financial Supply Chain A New Revolution within the SCM Fold
12.10 Summary
12.11 Glossary
12.12 Terminal Questions
12.13 Answers
12.14 Case Study
12.1 Introduction
In the previous unit you learnt about aggregate planning, advantages of
aggregate planning and hierarchical planning system. In this unit, you will be
studying about Supply Chain Management (SCM). SCM is the term used to
describe the management of materials and information across the entire
supply chain, from supplier to component producers to final assemblers to
distribution (warehouses and retailers), and ultimately to the consumer. It
often includes the after-sales service and returns or recycling.
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Reduction of inventory
Enhancement of participation level and empowerment level
Increase in functional effectiveness of existing systems like Enterprise
Resource Planning (ERP), Accounting Software, and Documentation
such as Financial reports/ Statements/ISO 9000 Documents
Effective integration of multiple systems like ERP, communication
systems, documentation system and security
Design / Research & Development (R&D) systems
Better utilisation of resources like men, material, equipment, and money
Optimisation of money flow cycle within the organisation as well as from
external agencies
Enhancement of value of products, operations, and services. These
enhancements will consequently enhance the profitability of organisation
Enhancement of satisfaction level of customers and clients, supporting
institutions, statutory control agencies, suppliers and vendors,
employees and executives
Enhancement of flexibility in the organisation to help in easy
implementation of schemes involving modernisation, expansion and
diversification even divestments, mergers and acquisitions
Enhancement of coverage and accuracy of management information
systems
Unit 12
Objectives:
After studying this unit, you should be able to:
define supply chain management
identify the domain applications of SCM
explain the various views of SCM
recognise the inventory management in SCM
explain collaborative supply chain
Costing systems
g. Manufacturing systems
SCM implementation involves the certain steps as depicted in figure 12.1:
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There are four major decision areas in supply chain management: location,
production, inventory, and transportation. There are both strategic and
operational elements in each of these decision areas as depicted in
figure 12.3.
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The network design methods for the most part, provide normative models
for the more strategic decisions. These models typically cover the four major
decision areas described earlier and focus more on the design aspect of the
supply chain, the establishment of the network and the associated flows.
Rough cut methods on the other hand give guiding policies for the
operational decisions. These models typically assume a single site and add
supply chain characteristics to it, such as explicitly considering the sites
relation to the others in the network.
Simulation method is a method by which a comprehensive supply chain
model can be analysed, considering both strategic and operational
elements. However, one can only evaluate the effectiveness of a prespecified policy rather than develop new ones. Let us discuss in detail the
three modelling approaches in this section.
1. Network design methods: As the name suggests, these methods
determine the location of production, stocking and sourcing facilities and
paths for the delivery. Such methods tend to be large scale, and are
used generally at the inception of the supply chain. The earliest work in
this area, although the term supply chain was not in vogue, was by
Geoffrion and Graves (1974). They introduced a multi commodity
logistics networks design model for optimising annualised finished
product flows from plants to the DCS and from DCS to the final
customers. Breitman and Lucas (1987) attempted to provide a
framework for a comprehensive model of a production distribution
system, Planets, that is used to decide what products to produce, where
and how to produce it, which markets to pursue and what resources to
use. Parts of this ambitious project were successfully implemented at
General Motors. These network design methods add value to the firm in
that they lay down the manufacturing and distribution strategies far into
the future.
2. Rough cut methods: These models deal with the more operational or
tactical decisions. The thrust or the rough cut models is the development
of inventory control policies, considering several levels or echelons
together. These models have come to be known as multi level or multi
echelon inventory control models. Current research in multi-echelon
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goods and large quantities, but slower and less reliable. So, if you ship
by sea or rail, you have to plan further in advance and keep larger
inventories than you do if you ship by air.
Managing the chain: Once you have determined all the elements in the
supply chain, how do you manage the chain? There are three main paths in
the process: product flow, information flow, and financial flow. Figure 12.5
depicts managing the chain.
1. Product flow includes the movement of goods from a supplier to a
customer, as well as customer returns.
2. Information flow involves transmitting orders and updating the status of
delivery.
3. Financial flow consists of credit terms, payments and payment
schedules, plus consignment and title ownership.
Juggling these elements involves record-keeping, tracking, and analysis by
many departments. Supply chain softwares, especially large, integrated
packages, combine many different technologies to give a single view of
supply chain data that can be shared with others. SCM applications fall into
two main categories planning applications and execution applications.
Planning applications determine the best way to route materials and the
quantities of goods needed at specific points. When such applications work
well, they make possible the Just-In-Time delivery of goods. Execution
applications track financial data, the physical status and flow of goods, and
ordering and delivery of materials.
Unit 12
A relatively new SCM option involves web based software with a browser
interface. Several major websites now offer auctions and other electronic
marketplaces for buying and selling goods and materials. Also, web-based
application service providers are now promising to provide part or all of the
SCM services for companies that rent their services.
SCM is so big that it can be difficult to plan the deployment of such a
system. Just remember, a chain connects one link to the next and an SCM
implementation can proceed similarly. Each added link brings more
efficiency.
When all the links are in place and when the information, goods, and
finances are flowing properly, the benefits are enormous. This is truly a case
in which the whole is greater than the sum of its parts.
Implementation of SCM: Implementation is in the form of various
interconnected functional blocks of an organisation through which a smooth
flow of the product development is possible. A list of few of such functions is
given as business processes, sales and marketing, logistics, financing,
purchasing, Customer Relationship Management (CRM), manufacturing
strategy, costing, demand planning, trade-off analysis, environmental
requirements, process stability, integrated supply, supplier management,
product design, suppliers, customers, and material specifications.
12.4.3 Definitions of SCM and ISCM
Supply chain is an integrated process where raw materials are transformed
into final products, then delivered to customers.
Beamon (1999)
A system whose constituent parts include material supplies, production
facilities, distribution services and customer linked together by feed forward
flow of materials and feedback flow of information.
Berry (1995)
An integrating process based on flawless delivery of basic and customised
services.
Kalakota (2000)
Supply chain is a process of strategically managing the movement and
storage of materials, parts and finished inventory from suppliers through the
firm and on to the customers.
Johnson (1995)
Sikkim Manipal University
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Overview of postponement
The concept of postponement lies in the organising the production and
distribution of products in such a way that the customisation of these
products is made as close as possible to the point when the demand is
known. Postponement belongs to a set of levers used in inventory
management to attack the variability of demand and supply. This set of
levers can be divided into proactive and reactive. Proactive levers directly
attack the causes of variability, reactive levers help to cope with its
consequences. Postponement is a reactive lever along with substitution,
specialisation, and centralisation.
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12.10 Summary
Let us recapitulate the important concepts discussed in this unit:
SCM is the term used to describe the management of materials and
information across the entire supply chain, from supplier to component
producers to final assemblers to distribution (warehouses and retailers),
and ultimately to the consumer
SCM lets an organisation get the right goods and services to the place
they are needed at the right time, in the proper quantity and at an
acceptable cost
Inventory refers to a detailed list of all the items in the stock
The supply chain involves several elements such as, location,
production, inventory, and transportation
The Bullwhip effect is the uncertainty caused from distorted information
flowing up and down the supply chain
Sikkim Manipal University
Unit 12
12.11 Glossary
12.13 Answers
Self Assessment Questions
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
True
False
True
True
True
SCM
ISCM
Bullwhip effect
True
False
Bullwhip effect
Net Model
Unit 12
Terminal Questions
1.
2.
3.
4.
5.
6.
Refer 12.3
Refer 12.4.1 and 12.4.3
Refer 12.3.1
Refer 12.4.5
Refer 12.6
Refer 12.7
Unit 12
processing units, food retailers and food exporters). This helps eliminate or
prevent identified hazards or reduces them to acceptable levels. This trend
is slowly beginning to take shape with the efforts to integrate and
consolidate the supply chain in Indian food retailing.
The Codex, HACCP (Hazard Analysis Critical Control Point), ISO 22000,
Bar coding (adoption of EAN systems) and food-hygiene standards have
been increasingly adopted by the food processing units in India as
prerequisites for becoming a vendor for big retail chains.
FoodWorld
FoodWorld which is a pioneer in Indian organised retail business became
Indias first national chain of supermarkets. It was started as a division of
Spencer & Co., a part of the RPG Group, in May 1996, and opened its 1st
supermarket in Chennai. In August 1999, FoodWorld hived off as a separate
company with 51-49 percent joint venture between Spencer & Co. and Dairy
Farm International of the Jardine Matheson Group, a US $ 4.5 billion retail
giant. FoodWorld enjoys 62 percent of the organised retail market in cities in
where FoodWorld operates.
FoodWorld was a division of Spencers, the retailing company under RPG
Enterprises (RPG). RPGs asset base was over 75 billion rupees in 1997.
RPGs business interests spanned a variety of sectors including power,
tyres, agribusiness, telecommunications, retailing and others including
financial services. RPG got into retailing with the acquisition of Spencers &
Co. in 1989. It had a large number of partnerships with international
companies, which included Fortune 500 companies.
In late 1994, RPG Enterprises, decided to explore retailing as a new area of
business activity. Several retail formats were considered and food retailing
was seen as the most promising entry vehicle into the Indian market.
Spencer & Co. was chosen to spear head these retailing efforts. Spencers
entered into a partnership with Dairy Farm International Holdings, a
US$ 12 billion Australasian food retailer to initiate food retailing activities.
By the end of 1998, 19 FoodWorld stores had proliferated in three major
cities of Southern India, namely Chennai (six stores), Bangalore (eight
stores) and Hyderabad (five stores). FoodWorld executives believed that
given their self service oriented merchandising strategy, the ideal store size
Sikkim Manipal University
Unit 12
was 4500 sq. ft. However, due to constraints on real estate and/or property
availability in the residential high streets, stores of smaller sizes were also
opened. Some of the larger stores had bakeries and fast food centres, with
a view to provide a pleasant shopping ambience and outstanding service.
Distribution/supply chain strategy
The key elements of FoodWorlds distribution/supply chain strategy were as
follows:
1. Minimum suppliers to take advantage of economies of scale (in
purchasing and supply logistics), reduced overheads and control
requirements, and easier vendor development.
2. Creation of regional hubs with three regional offices (Chennai,
Bangalore and Hyderabad) to address the state-wise requirements. This
facilitated over 90 percent central distribution. The remaining 10 percent
(mostly perishable items like fruits and vegetables, bakery etc.) were
supplied direct to store.
3. Replenishment frequency was about desired servicing of stores from the
warehouses was daily, while the supply frequency for any specific SKU
was twice a week. The desired ordering and servicing frequency from
suppliers to the warehouses was weekly. Hardware and general
merchandise items were treated as exceptions, to be indented and
ordered as required.
4. Sourcing with minimum intermediaries with the idea to source from as
upstream as possible in the supply chain, in order to reduce losses and
increase margins.
The chain for dry groceries like rice, dal, sugar, and spices was very long,
often with six or seven links from the farmer to the retailer. FoodWorld had
to an extent managed to integrate two of these links in buying directly from
the miller. It provided the consumer with a pre-weighted, pre-cleaned and
trust-marked standard product, at prices that were no greater than the local
grocer. Consumers positive response is attested by the fact that 20% of
FoodWorlds throughput is dry groceries under the FoodWorld brand.
Manufacturers of branded products had also responded well to jointly
managing the chain to provide greater value to the consumer. Initiatives like
the centralised servicing of FoodWorld by Hindustan Lever, the creation of a
special accounts manager in the Proctor and Gamble marketing/sales
hierarchy, and the launching of new products/variants from FoodWorld,
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were all pointers to the fact that the FMCG distribution system, geared to
servicing the needs of 5 million small shops, had begun to adapt itself to the
needs of the modern retailer.
Challenges and constraints
Organised retail food stores face competition from emerging value-based
formats and from independent modern stores who provide a better value
proposition. Investments made in areas like IT, back end administration, and
customer relationship management, do not provide immediate returns.
Unorganised sector has started getting organised Bombay Bazaar and Efoodmart have also been formed which are aggregations of the local grocer.
Challenges in the area of infrastructure, supply chain, warehousing, and
local legislation are still prevalent. Key concerns are as follows:
Supply chain structuring
Inventory planning and replenishment management
Warehouse management
Customer order fulfilment
Logistics - temperature controlled
Total kilometre run per month
Perishable tonnage handled per month
The organised food chain is slowly consolidating and moving towards
becoming a major industry. Foodworld, although not able to maintain its
dominance is making all efforts to improve the service and sustaining its
position.
Discussion Questions:
1. What are the real issues in food supply chains?
2. How have the food retail chains penetrated rural areas?
3. What are the reasons for food worlds growth and success?
4. Should food retail chains be controlled by government?
References:
Unit 12
E-Reference
http://www-personal.umich.edu/
www.chillibreeze.com/articles_various/Food-Retail-industry
http://www.on-line-foods.com/tech_paper/Ajay_Gupta.pdf
stdwww.iimahd.ernet.in
www.slideshare.net
http://www.supplychainonline.com/
Unit 13
Unit 13
Operations Scheduling
Structure:
13.1 Introduction
Objectives
13.2 Purpose of Operations Scheduling
13.3 Factors Considered while Scheduling
13.4 Scheduling Activity under PPC
13.5 Scheduling Strategies
Detailed scheduling
Cumulative scheduling
Cumulative-detailed combination
Priority decision rules
13.6 Scheduling Guidelines
13.7 Approaches to Scheduling
Forward scheduling
Backward scheduling
13.8 Scheduling Methodology [Quantitative]
Charts and boards
Priority Decision Rules
13.9 Scheduling in Services
13.10 Summary
13.11 Glossary
13.12 Terminal Questions
13.13 Answers
13.1 Introduction
In the previous unit, we have dealt with the concepts of supply chain
management, domain applications, views on supply chain, bullwhip effect in
SCM, collaborative supply chain, inventory management in supply chain,
and financial supply chain. In this unit, we will deal with the purpose of
operations scheduling, factors considered while scheduling, scheduling
activity under PPC, scheduling strategies, scheduling guidelines,
approaches to scheduling, scheduling methodology, and scheduling in
services.
Unit 13
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describe how it achieves the rate of output and maintain the finished
goods inventory to levels predetermined and meet the marketing
requirements.
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Routing
Scheduling
Dispatch
Follow up
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Forward scheduling
End of operations
Work forward
Opns
01
Days:
02
2
03
5
04
6
05
9
06
11
07
13
08
15
Backward Scheduling:
Start of Operations (start late by three days)
Operations
01
Days:
02
2
03
5
04
6
05
9
06
11
07
08
FGI
13
15
17
Work backward
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B(16)
0
A(4)
0
Painting
21
B(12)
D(24)
Brazing
B(7)
5
C(12)
12
C(8)
0
D(9)
35
E(11)
44
16
A(5)
0
C(14)
55
40
D(4)
24
28
E(6)
34
E(16)
8
16
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Sheet
work-1
X(4)
Solder
Y(5)
Braze
Z(6)
Sheet
work-2
F(3)
Solder
7 8
10
11
Jobs are shown in Column one and the work completed on a particular days
in the progress chart above, is shown
As against 4 days of sheet metal work-1 of X component, the operation has
completed up to 3.5 days, and hence there is half a day work pending on
that day.
a) Job X requires half day of change over on 5th day-shown as Black
square and then, soldering operation is continued for next four days.
b) Job Y Brazing continued for five days and as on this day it is as per
schedule, i.e., it has taken 5 days to complete as scheduled.
c)
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This is how the progress charts shows the present day status of the job on
hand, jobs completion, jobs within the schedules, and jobs outside the
schedule.
c) Schedule boards
Shop floor personnel need to know the information as to how they are
processing components in production and this can be reflected in a simple
schedule board inside the production shops. Content of these boards are
updated daily by the progress department. The boards contain simple bar
graphs to represent the actual status of components/products.
d) Computer graphics
Computer graphics and reports have replaced the mechanical boards and
charts. With the help of computers, PPC keep track of hundreds of items
and can revise the schedules.
13.8.2 Priority decision rules
A priority decision rules shown below are the systematic procedures for
assigning priorities to waiting jobs, and determining the sequence in which
jobs are required to be processed.
The major criteria for applying rules are set up costs, idle time of machine
and labor, in-process inventory, percentage of jobs that are late, average
number of jobs waiting in queue, average time to complete job, and
standard deviation of time to complete job.
Classifications of priority decision rules
A. Single-criteria rules
B. Combined criteria rules (Johnsons rule)
C. Critical ratio scheduling
D. Index method of scheduling
E. Critical path method
Let us now discuss these classifications in detail.
A) Single-criteria rules
Here the jobs are assigned to the production division by considering single
and important criteria. These criterias are:
First come first served (the job that comes first is served by scheduling
first)
Earliest due date (here the job with the earliest due date is processed)
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Unit 13
Least slack available for production (here priority is given to the waiting
job whose slack time is least. Slack time is calculated as the difference
of the length of time remaining until the job is due and the length of its
operation time. For example, if a job requires 6 days and time left is 8
days, then the slack for that job is 2 days.)
Shortest processing time (job requires least of shortest time is
processed first)
Longest processing time (job that requires the longest time is processed
first)
Preferred customer order (priority to orders coming from favorite
customers)
Random selection (Jobs are selected at random and purely a chance for
any job)
Illustration - 4
The illustration below details how the above said priority rules are applied
while scheduling. It also explains the different methods available for PPC
department.
Five jobs are to be processed at a Fabricating unit. The processing time in
days and the due date in days are given below.
Table 13.1: Data for illustration 4
Job
21
18
13
15
10
24
22
16
16
Determine:
a) The sequence of job according to the shortest processing time
b) Calculate total completion time
c) Calculate mean flow time or average completion time
d) Calculate average number of jobs in the system each day
e) Calculate average lateness
Solution
a) The sequence as is ABCDE, where as the sequence with the shortest
flow time is ADECB
Unit 13
Job
Sequence
Processing
Time in days
10
-2
21
29 (8+21)
24
18
47 (29+18)
22
25
13
60 (47+13)
16
44
15
75 (60+15)
16
59
Total
75
219
Processing
time
Flow
days
10
21
29 (8+21)
24
18
47 (29+18)
22
13
60 (47+13)
16
15
75 (60+15)
16
Total
75
219
time
in Due Date
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Total
cumulative
flow
time
in
= 219/5
= 43.8 days.
This means the average job in the production line is 43.8 days.
e) Average job lateness
Here for A the lateness is (-2), i.e., produced 2 days earlier, hence
lateness is zero.
B) Combined criteria rules (Johnsons rule)
Johnsons rule is used to determine the sequence of order for a series of
jobs to be processed on a fixed number of machines. The basis for the
sequencing is that the total time required to complete all the jobs should be
minimum thereby reducing the idle time of all machines. Johnsons rule is a
procedure that minimises the total cycle time in scheduling a group of jobs
on two workstations and the sequence of the jobs at the two work stations
should be identical and hence priority assigned to a job should be the same
at both. This type of production sequence for a group of jobs to minimise the
time has two advantages:
1) The group of jobs is completed in minimum time
2) Utilisation of two station flow shop is maximised
Steps used to adopt Johnsons rule
Step - 1:
Step - 2:
Step - 3:
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Step - 4:
Step - 5:
Repeat steps 2, 3, and 4 until all the jobs are assigned into the
sequence.
Note: In case of a tie (i.e. a job having the same operation time on both the
machines or two jobs having the same operation time on either of the
machines), choose the job with the smallest subscript first for assigning into
sequence (i.e. when job A and job B has the same time on either machine
M1 and M2, choose job A first as compared to job B). On the other hand if
any job has the same processing/operation time on machines M1 and M2,
then give preference to the processing time/operation time on M1 to be
considered first for assigning that job into the sequence. The above rules
are known as Thumb Rule to be followed in case of tie between two jobs or
between two machines.
Illustration - 5
Two machines working for six jobs to be produced whose time for two
operations are given below. Sequence them for scheduling by adopting
Johnsons rule and find the minimum elapsed time and idle time on each
machine.
Table 13.4: Data for illustration 5
Job
Machine A
Time in hours
Machine B
Time in hrs
12
16
14
13
10
13
15
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6
2) The next shortest time is for job 4 on machine A. So place job as early
as possible.
4
3) The next shortest time is a tie between 1 and 5 (both 5 hours). Select
any one. Place job 1 as early as possible among the remaining jobs.
4
4)
The next shortest time from the tie above is 5; therefore place it as late
as possible among the remaining slots.
4
5) The next shortest time for job 3 on machine A (7 hours), place it as early
as possible among the remaining slots.
4
Critical ratio greater than one means the job can be completed ahead of
schedule, equal to unity means the job needs close watch, and less than
unity means special measures are to be taken to complete the job on due
date. Here, a quantity called as the critical ratio is calculated for each job
and the jobs with lower critical ratios are given priority to be processed first.
Critical Ratio = Time remaining for due date of the job/Time needed to
complete the job.
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Illustration - 6
In the following table, four jobs are shown with its operation time, due dates,
number of operations remaining, and shop remaining time. Calculate the CR
sequence schedule.
Table 13.5: Data for illustration 6
Job Operating
time (hrs)
1
2
3
4
Time
remaining
due days
14
11
20
8
5
10
8
14
Number of
operations
remaining
8
2
10
6
1.55
1.1
1.176
0.72
Answer:
Using CR to schedule, CR = [time remaining to due date]/shop time
remaining CR for first reading =14/9 = 1.55. Similar calculation and readings
are filled in the CR column. Arranging sequence is the lowest CR first and
then ascending order and hence sequence of job loading is 4, 2, 3, 1.
D) Index method of scheduling
This assigns job to the best machine until its capacity is exhausted and then
remaining jobs are assigned to the next best machine, etc. Here, the jobs
are assigned to the best work centre till it is fully loaded to capacity and the
remaining jobs are assigned to the next best if processing time is the
criterion. If the jobs can be processed in different work centres, indices are
calculated for the different likely process time with the lowest index time of
1.0.
Illustration - 7
Solve the following shop loading problem by using index method.
Table 13.6: Data for illustration 7
Job
WC-1
WC-2
WC-3
WC-4
10
12
25
20
14
16
10
18
14
16
25
20
20
20
20
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The following table 13.6 shows the indices. The days corresponding to a job
assigned is with bold letter and underlined. Bold number and underlined is
the minimum number of days in each centre.
Table 13.7: Indices for illustration 7
WC1
WC2
WC3
WC4
Days
Index
Days
Index
Days
Index
Days
Index
10
1.25
1.13
1.00
12
1.5
1.5
2.00
2.5
1.00
25
1.78
20
1.42
14
1.00
16
1.14
1.00
1.28
10
1.42
1.28
18
1.28
14
1.00
16
1.14
25
1.78
No
of
Days
20
20
20
20
Days
assign
14
22
Indices are decided as: Job A has a minimum processing time of 8 days at
centre 3, and hence, this index is 1.00, i. e., the processing times of 10, 9,
and 12 at centres at 1, 2, and 4 are divided by 8 to find out the indices. This
procedure is followed for all jobs and their indices are indicated in the
column.
Assignment of the jobs to work centres based on the index equal to 1 is as
follows:
Table 13.8: Assignment of the jobs to work centres for illustration 7
Jobs
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Appointments
Here the customer is specified with the time of services. The advantage is
that the service is customised and utilisation of the capacity will be high. The
individual customer needs are satisfied. Service activities are determined
and planned for the customer. For example, surgery in hospitals.
Self Assessment Questions
1. Which of the following is not a characteristic of forward scheduling?
a) Production starts after the job order is received
b) Start and finish time is found by the earliest time slot available at a
work centre
c) Jobs starts in advance as per the latest available time slot in work
centre
2. In which of the following, the Gantt chart application is not there?
a) Used to track performance of shop floor employees
b) Used to reflect work load levels for machines and workstations
c) Can adopt change in scheduling each work centre
3. While job sequencing, _________ the critical ratio, __________ the
priority is given.
a) higher, higher
b) higher, lower
c) lower, higher
4. Which of the following is not a priority rule?
a) Shortest processing time rule
b) Allow longest slack time
b) Earliest due date processing rule
c) Critical ratio rule
5. Which one of these is not a scheduling activity?
a) Dispatch
b) Routing
c) Scheduling
d) Facility planning
6. Fill up the blanks with appropriate word/words
a) A priority decision rule is a systematic procedure for _________
_________ to waiting jobs, and determining the sequence in which
jobs are required to be processed.
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13.10 Summary
Let us summarise the key learnings of this unit:
13.11 Glossary
Critical path: The critical path is the path which has the largest amount of
time associated with the activities and this represents the minimum time
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Unit 13
13.13 Answers
Self Assessment Questions
1.
2.
3.
4.
5.
6.
(c)
(a)
(c)
(b)
(d)
a. Assigning priorities
b. Johnsons
c. Time needed to completed the job
Terminal Questions
1.
2.
3.
4.
5.
6.
Refer 13.3
Refer 13.5
Refer 13.7
Refer 13.8.1
Refer 13.8.1
Refer 13.8.2
Unit 13
Reference:
E-Reference:
www.enotes.com
www.som.umass.edu
Unit 14
Unit 14
Value Engineering
Structure:
14.1 Introduction
Objectives
14.2 Value Engineering/Value Analysis
14.3 Relevance of VE in Modern Manufacturing
14.4 Process of Value Analysis
14.5 VE Approaches and Aim
Pre-sourcing
Supplier evaluation and certification
14.6 Providing Value to the Customers
14.7 Benefits
14.8 Summary
14.9 Glossary
14.10 Terminal Questions
14.11 Answers
14.1 Introduction
In the previous unit, we dealt with the purpose of operations scheduling,
factors considered while scheduling, scheduling activity under PPC,
scheduling strategies, guidelines and methodology, approaches to
scheduling, and scheduling in services. In this unit, we will deal with the
concepts of value engineering and value analysis, the relevance of value
engineering in modern manufacturing, the process of value analysis, the
approaches and aim of value engineering, providing value to the customers,
and the main benefits of the application of value engineering.
Value engineering and/or value analysis has gained importance in todays
manufacturing field because of the necessity of making all components as
economically as possible. Every unnecessary component and every
unwanted operation have to be eliminated for economising. Materials may
have to be changed and tolerances in manufacturing have to be relaxed
because value can be created in terms of reduced volume, increased
strength, or longer service. Involving the supplier and utilising their
knowledge and experience are crucial for the companys success.
Let us learn about value engineering in this unit.
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Unit 14
Objectives:
After studying this unit, you should be able to:
define value engineering and/or value analysis
recognise the importance of value engineering/value analysis for a
manufacturing concern
describe the involvement of suppliers in realising the advantages of
value analysis
recognise that design changes can affect the usage and utility of the
product and at the same time, reduce the cost
explain how customers will be benefited by value engineering and bring
us increased volumes of business
Unit 14
Example 1
Let us consider a component which needs a
round brass rod as raw material of diameter
21.5mm. The component has to perform
seven
operations:
cutting,
drilling,
chamfering, boring, milling, plating, and
polishing.
Value analysis considers all aspects of each of these and investigates
whether any of them can be substituted by another material, a different
size, a different tool, a different machine, a different cut sequence, a
different tool for an operation, a different chemical, a different
concentration, a different voltage, shorter time or processing.
For the above example, studies can be conducted to verify whether any
operation can be eliminated. Simplification of processes reduces the cost of
manufacturing. Every piece of material and the process should add value to
the product so as to render the best performance. Thus, there is an
opportunity at every stage of the manufacturing and delivery process to find
the alternatives which will increase the functionality or reduce the cost in
terms of material, process, and time. It also includes analysing the methods
used and the tools and equipments involved.
The different aspects of value engineering can be encapsulated into a
sequence of steps known as a Job Plan. Value engineering in any
organisations helps to identify:
The problem or situation that needs to be changed/improved
All that is good about the existing situation
The improvements required in the situation
The functions to be performed
The ways of performing each function
The best ways among the selected functions
The steps to be followed to implement the function
The person who executes the function
It should be remembered that we are not seeking a cost reduction sacrificing
quality. It has been found that there will be an improvement in quality when
systematic value analysis principles are employed.
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Unit 14
Remember
Value engineering or value analysis is a methodology by which we try to
find substitutes for a product or an operation. It finds alternatives for
increasing the functionality or reducing the cost in terms of material,
process, and time by simplification, variety reduction, and parts reduction.
Unit 14
Unit 14
Phase
Data gathering
Objective
Key questions
Techniques
Tasks
Unit 14
may be given to each of them. Considered with the cost of the part and the
weight, each function gets a value attached to it. Table 14.2 depicts a brief
about the key questions, techniques, and tasks that need to be performed in
step 2.
Table 14.2: Analysis and Valuation of Functions
Phase
Objective
Key
questions
Techniques
Tasks
Unit 14
Evaluation
Objective
Evaluate alternatives
Key
questions
Techniques
Tasks
Techniques
Tasks
Implementation
Implement alternatives
Unit 14
Remember
The process of value engineering can be divided into:
1. Data Gathering
2. Analysis and valuation of functions
3. Idea generation and evaluation of substitutes
4. Implementation and regularisation
Unit 14
14.5.1 Pre-sourcing
The process of involving suppliers from the design stage is called presourcing.
As an extension of the internal processes where a higher value is sought to
be realised for the same cost, suppliers of materials and services are
involved at the design stage. Suppliers are in a position to provide
suggestions for design changes that will help making the operations more
efficient. Their inputs will help in ensuring higher quality at lower costs.
Sometimes, suppliers are given total responsibility for design, procurement
of materials, processing, quality, and deliveries as per schedules. If a group
of them act in coordination, a number of parts that go in for assembly get
sourced, so that, guaranteed supplies are assured. The cost effectiveness
of such arrangements is considerable. This procedure of involving suppliers
from the design stage is called pre-sourcing.
However, careful analysis of the systems followed by the supplier and their
robustness in terms of capacity, capability, and commitment is compulsory.
14.5.2 Supplier evaluation and certification
To ensure reliable supplies, firms adopt procedures for supplier evaluation
and certification. Evaluation is done for the processes and quality assurance
measures. It will be necessary to augment their equipment, training
programmes, and inspection methods and instruments. At first hand,
assessment by a team should look into the following facilities which are part
of the manufacturing system:
Material procurement procedures
Inspection and issue procedures
Production planning and control systems
Quality control methods
Process of design and evaluation
Management Information Systems
Labour relations and compensation systems
Culture of productivity and quality
Some organisations empower their suppliers with self-certification which
means that the inspection conducted by the supplier is accepted as the
inspection done by the organisations inspectors. The confidence placed
gets converted to responsibility.
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Unit 14
You will note that the above process tries to bring the environment of the
supplier organisation as close to the firms. The result is that, we will be able
to treat the supplier as our partner and this enhances the involvement and
cooperation and the resultant synergy produces quality.
Self Assessment Questions
3. Since there are a number of factors to be considered and to break away
from the conventional thinking, _____________is preferred
4. Engineering starts at the product concept and design and is carried
down the ___________.
Unit 14
14.7 Benefits
The main benefits of the application of VE are:
Cost reduction
Overall cost consciousness
A culture of effecting savings across organisation
Streamlining of administration and creation of transparency in all
dealings even with outsiders
Development of reliable suppliers
Unit 14
Case-let 2
In implementation of VA, Ashok Leyland changed the
gear material from phosphor bronze to a less
expensive cast iron and eliminated frequent field
complaint of gear seizure in trucks.
Unit 14
Case-let 3
T.V. Sundaram Iyenger & Sons (TVS) Limited is one of the
largest automobile distribution companies in India.
During the mid 1940s to 1960s, TVS, based in Madurai, was ranked as the best
bus transportation system in India. It could manage to run the fleets for about
96% of the time.
TVS used the VE approach to restore the mobility of buses that had broken
down. They stocked their garage with some critical assemblies of a bus.
Whenever a part or an assembly failed of a bus, they replaced it immediately
with a new one, thus restoring mobility within a couple of hours.
When compared to the traditional method, this approach has gained much more
benefits to the company. It helped to save time, reduce cost, and to become
efficient, quicker, and competitive.
Case-let 4
4 Hospital & Health Network in Pennsylvania approached Strategic Value
Analysis (SVA) solutions to find a right solution in reducing their non-salary
expenses. Strategic Value Analysis in Healthcare (SVAH) took it as a challenge
to determine any non-salary opportunities of the Health Network system.
SVAH, with their systematic approach, analysed each and every part of the
Hospital Network and came out with the solution. The solution was to implement
teaching healthcare organisations and give advanced tools, training, strategies,
and tactics. This solution was very helpful to manage and control 4 Hospital &
Health Network non-salary expenses more successfully.
4 Hospital & Health Network were convinced with the solution and implemented
SVAHs Strategic Value Analysis System and e-Value Analysis Software. To
enhance the Health Networks value management, SVAH provided three months
of consulting, coaching, and facilitation services. SVAHs Strategic Value
Analysis System has improved the Health Networks strategic plan and trained
the Health Networks value team leaders, team members, and coordinators. The
e-value software helped to manage the members and the process of the 4
Hospital & Health Network.
Finally, after 3 months of successful completion of the Health Networks value
management program, 4 Hospital & Health Network could manage to save 2.3
million dollars in non-salary expenses.
(Source: http://www.strategicva.com/)
Sikkim Manipal University
Unit 14
Case-let 5
A cosmetic company came across the case of an empty packet of a
cream tube. A customer raised a complaint on that company, stating that
there was no cream tube in the packed box.
When the complaint came to the notice of the company officials, the
authorities isolated the problem to the assembly line engineers. The
management asked engineers to solve the problem. Engineers worked
hard and found a solution for the problem. They devised a high-resolution
X-ray machine which would help to monitor all the packed boxes that
pass through the assembly line. Though, the X-ray devise was costly,
management compromised to buy the devise. Management felt that the
devise would help them to avoid such unforeseen errors.
Engineers ordered the floor managers to fix the X-ray machines at the
assembly line to ensure all packaged boxes have cream tube in it before
delivering to the delivery department. Also, two employees were
appointed to check the flow line and to maintain the record of the empty
boxes.
When the two employees were working on it, one of them got a better
solution for the problem. He thought that his idea would solve the
problem much better and it involves less costly equipment. The idea was
to place a strong industrial electric fan near to the assembly line, which
would blow off the empty boxes passing through the line, if any, thereby
ensuring zero errors.
When his idea was placed in front of the management he was awarded
for his intellectual skills.
Here are a few companies that implemented value engineering for providing
value to their customers.
Example 2
Modi Xerox designed the VE-d low cost copier
1025 ST, which uses a single tray. The advantage
of the new design is that it is easy to operate and
the cost is also very low.
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Unit 14
14.8 Summary
Let us recapitulate the important concepts discussed in this unit:
Value Engineering (VE) or value analysis is a methodology by which we
try to minimise the cost and improve the revenue of a product or an
operation
Value engineering process calls for a deep study of a product and the
purpose for which it is used
Value analysis looks at the manufacturing activities with a view to make
the components simpler, processes faster, and the products better
The process of value analysis can be divided into the following four
steps: Data gathering, Analysis and valuation of functions, Idea
generation and evaluation of substitutes, Implementation and regulation
Sikkim Manipal University
Unit 14
14.9 Glossary
14.11 Answers
Self Assessment Questions
1.
2.
3.
4.
Simplification
Highly accurate, reduced costs
Brain storming
Value chain
Terminal Questions
1.
2.
3.
4.
Refer to 14.2
Refer to 14.2 and 14.7
Refer to 14.4
Refer to 14.5
References:
E-Reference:
http://www.strategicva.com/
Unit 15
Unit 15
Just-In-Time
Structure:
15.1 Introduction
Objectives
15.2 Characteristics of JIT
Concept of 5S
15.3 Key Processes to Eliminate Waste
Kanban for material flow
High quality production
Small and uniform workloads
Suppliers as partners
Flexible workforce and training
Total productive maintenance
15.4 Implementation of JIT
Pre-requisites for implementation
Shop floor control
Purchasing
Vendor-managed inventory
15.5 JIT Inventory and Supply Chains
15.6 Summary
15.7 Glossary
15.8 Terminal Questions
15.9 Answers
15.10 Case Study
15.1 Introduction
In the previous unit, we have dealt with the concepts of value engineering
and value analysis, the relevance of value engineering in modern
manufacturing, the process of value analysis, the approaches and aim of
value engineering, providing value to the customers, and the main benefits
of the application of value engineering. In this unit, we will deal with the
characteristics of JIT, key processes to eliminate waste, implementation of
JIT, and JIT inventory and supply chains.
Toyota Motor Corporation, with annual sales of over 9 million cars and
trucks, is the largest vehicle manufacturer in the world. Two techniques,
Sikkim Manipal University
Unit 15
just-In-Time (JIT) and the Toyota Production System (TPS), have been
instrumental in this post-world war II growth. Toyota, with a wide range of
vehicles, competes head-to-head with successful and long-established
companies in Europe and the U.S. Taiichi Ohno, the former vice president of
Toyota, created the basic framework for the worlds most discussed systems
for improving productivity, JIT and TPS.
Just-In-Time (JIT) is an approach of continuous and forced problem solving
via a focus on throughput and reduced inventory. The Toyota Production
System (TPS), with its emphasis on continuous improvement, respect for
people, and standard work practices, is particularly suited for assembly
lines.
Just-In-Time (JIT) manufacturing is a process by which companies don't
keep excess inventory; instead, they manufacture a product as an order
comes in. It is a management philosophy of continuous and forced problem
solving.
The objective of JIT manufacturing system is to:
Eliminate waste, that is, minimise the amount of equipment, materials,
parts, space, and workers time, which adds great value to the product
Increase productivity
JIT means making what the market demands when it is needed. It
incorporates the generic elements of lean systems. Lean production
supplies customers with exactly what the customer wants, when the
customer wants, without waste, and through continuous improvement.
Deploying JIT results in decrease of inventories and increases the overall
efficiencies. Decreasing inventory allows reducing wastes which, in turn,
results in saving lots of money. There are many advantages of JIT. They are
as follows:
Increases the work productivity
Reduces operating costs
Improves performance and throughput
Improves quality
Improves deliveries
Increases flexibility and innovativeness
Unit 15
In this unit, you will know more about JIT, its key elements, the processes of
eliminating waste, the applications, the process of implementing, and its
failures and successes.
Objectives:
After studying this unit, you should be able to:
identify the key elements of JIT
explain the key processes to eliminate wastes according to JIT
recognise the key business practices and applications of JIT
explain how JIT is implemented
recognise how organisations fail or succeed by implementing JIT
Sikkim Manipal University
Unit 15
Unit 15
Waiting time Wastage of time happens when goods are not moving or
being processed. The operator, the machine, or the part will either be
not working or be worked upon. The duration of waiting can be said to
be unproductive and may create more serious consequences.
Movement Any unnecessary movement is a waste of energy; it
causes blockages, disrupting movements, and delaying the flow of other
items creating delays.
Effort The people who work do not make a study as to how the
products on which they are making are utilised and do not realise the
purpose for which they are made. This lack of education will lead to
waste of resources. Finally, they end up in shortage of resources when
needed.
Defective products The defective products lead to a tremendous loss
to the company. This is because they use up the same equipments,
workmen, and the time that would be used to make good products.
Thus, defective products use up resources and result in losses.
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The containers used in the material flow are designed to hold specific
components in certain numbers. Kanban system is a physical control
system which uses cards and containers, that is, materials must not be
removed without posting a card at the receiving post.
Advantages of Kanban processes are listed below:
The orders are controlled and triggered from defined locations
Inventory costs and Work In Progress (WIP) are reduced
The control of stock in the inventory will be improved
The lead time to deliver is reduced
The process demand can be visualised
The process of deviation escalation and rectification of root cause of the
deviations in production can be improved
15.3.2 High quality production
JIT production is meant for products which are repetitive in nature. The
system has its origin in providing a solution to a manufacturing process,
where the finished product is obtained by a number of parts that get
assembled. The problems in such situations will be to keep the arrival of
parts, components, and sub-assemblies so that no shortages will occur
during production. Therefore, it becomes vital that all parts are of high
quality, so that the assembly does not get held up.
For JIT to be successful, the inventories have to be kept to the minimum
and every component produced must represent the highest quality. It is
relevant to mention Taguchis insistence on achieving the target value to
realise quality. The permitted tolerances do not ensure high quality.
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If the technology they have is superior, if the equipments they use are
optimal and the workforce is efficient, the benefits would increase for them
at a cost to the organisation.
If there are a number of suppliers, the organisations would exploit the
situation and decrease the cost by choosing the one who charges the least.
With this exploitative environment, there are some disadvantages to the
organisation, such as:
Commitment to meet the organisation needs is less
Giving the benefit of their learning to the organisation has fewer chances
Transferring organisation knowledge to the suppliers for improved
service would be absent
Likelihood of quality suffers
As explained earlier, to be able to implement JIT, we need to change
schedules quite often either delaying or hastening the production of some
items almost on a daily basis, if not hourly. The main concern in such
situations will be a build up of inventory or stock out positions. Problems of
communication add to the difficulties. The following ways will ensure
cooperation of the suppliers and timely delivery of supplies with good
quality:
Treating suppliers as a part of the organisations business and sharing
information
Providing technical and financial assistance
Seeking suppliers help in improving process
Building up rapport between the employees of the supplier organisation
Assuring business
Many times, the supplier, owing to his or her specialised operations, may
contribute to the organisations productivity. Quality enhancement
programmes can be implemented simultaneously for faster and better
results.
15.3.5 Flexible workforce and training
Flexible workforce consists of workmen who are capable of performing
many tasks. It may be at their specified workstations or at other workstations
where the skills required may be quite different from those which they use
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1.
2.
3.
4.
Link operations
Balance workstation capacities
Relay-out for flow
Emphasise preventive
maintenance
5. Reduce lot sizes
6. Reduce set-up and changeover
times
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1.
2.
3.
4.
5.
Stabilise Schedule
1. Level schedule
2. Under utilise capacity
Kanban Pull
1. Demand pull
2. Back flush
3. Reduce lot sizes
1.
2.
3.
4.
Reduce Inventories
1.
2.
3.
4.
5.
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You will observe that when the above requirements are met, we achieve JIT
to a very close extent.
15.4.2 Shop floor control
Realistic planning and scheduling takes the frequency with which setups
have to be changed to manage the material flow without building up
inventories into consideration and leads to JIT manufacturing.
SMED (Single-Minute Exchange of Die) gives flexibility for production
process. Advocated by Shigeo Shingo, SMED method calls for designing,
making fixtures, and tooling which are instrumental in changing setups so
that, changes are to be effected within a minute. In other words, this helps in
reducing the setup time on the machines when changeover of products
takes place. The de-clamping and clamping elements should be made for
this purpose. Some of these operations are carried outside the machine
without stopping the machine.
Application of Kanban, wherever suitable, is another mechanism for
controlling the flow of material. Maintenance of machines and periodic shop
floor inspection is necessary. Verifying whether the processes are delivering
components within the tolerances specified is needed.
15.4.3 Purchasing
The essence of JIT purchasing lies in treating the purchaser as a participant
in your activities. Cooperative relationship leads to the development of the
supplier who understands the companys requirements and in situations
where he or she confronts any difficulty, he or she should be in a position to
approach the company for its solution. Being open and trusting helps the
organisations to identify the problems and go to the source which is like
implementing TQM.
Every problem or discovery of a defect is considered an opportunity in which
the supplier and the company together get a deeper understanding of the
problem, and the solutions will not only solve that problem but also the ones
that were hidden. It is also the practice of many companies who procure a
large number of parts manufactured from their vendors to have supplies
made to the assembly in specific quantities to meet the needs just in time.
Self-certification by the vendor is resorted to ensure quality of the material.
The actual users are given autonomy to demand from the supplier, the
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quantities required as well as the time of its need. Any change in demand is
conveyed and complied. This requires cooperation and trust between the
supplier and the customer. This is how JIT purchases work.
15.4.4 Vendor-managed inventory
The very purpose of JIT is to reduce inventory at all places in the supply
chain. Inventory is considered a waste because inventory is created by
using materials, machines, and efforts of persons. All of these are resources
which have already been used up and that portion of it which is not
consumed and sent up the value chain causes a drag in the system.
However, inventories are inevitable because uncertainties exist at every
stage, making it necessary to provide a buffer so that demands do not go
unfilled. The challenge is to keep it to the minimum. To make this happen,
the calculations involving the following are necessary:
Worker absenteeism
Each of these will have many factors which affect them. JIT depends upon
the accurate assessment of them and based on the decisions taken,
activities are initiated. These should result in holding materials as small as
the number of components or products as feasible to maintain the flow of
material without disruption. Many companies make their suppliers hold their
inventories and request them to make timely supplies. This may be done at
a cost. The most important requirement for a successful vendor-managed
inventory system is a good communication system.
Case-let 1
Anode Electronics produces different kinds of electronic products like
TVs and tape recorders. Since the world market of electronics was
moving towards high variety of products and the delivery of the orders
was getting shorter, the top managers of Anode Electronics were under
great pressure to increase the competitive position of the company in the
market. One of the executive managers of Anode Electronics suggested
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implementing a system called JIT with the hope that inventory levels
would be reduced and quality production would increase.
The main aspect in introducing the JIT manufacturing system in a
company is to educate the staff about JIT. Four middle level managers
were asked to attend a seminar conducted by a company called
Electrode Combinations who have already implemented this system, so
that they could explain the whole company about JIT manufacturing
system. A group of managers, one from each department, were a part of
the team who discussed what is to be done and how to implement JIT in
their company. According to their discussions, the following 5 activities
were called the 5 JIT principles:
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improve safety, quality, and productivity over the years. The quality and
productivity problems under the water have shown up and have been
solved.
A major success in the implementation of JIT system showed the
reduction in the amount of inventory and workers. Inventory level has
been reduced by 63%, parts inventory has been reduced by 50%, and
the number of workers has been reduced from 1020 to 865 during the
past four years. The growth rate of the company has increased by 5%
every year.
Self Assessment Questions
1. Break downs generally occur as the symptoms are neglected. (True /
False)
2. The very purpose of JIT is to reduce inventory at all places in the
supply chain. (True/False)
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Production scheduling
Inspection
Distribution
Retailing
These are the subjects of study and management. Note that information
flows along with the materials and is the content for collection,
dissemination, analysis, and decision making. The purpose is to measure
the value that gets added and the costs involved in the progression. One of
the factors that add cost and not value is the hold-ups that occur along the
path. This is the inventory cost.
Forecasting determines the quantities to be produced at specified intervals
of time. All other functions get initiated and the managers concerned try to
derive maximum value at the least cost. So, production scheduling is
meticulously done taking into consideration all the uncertainties. The better
the information the manager has, better the analysis and more efficient the
implementation and greater the value added for lesser cost.
The ideal situation, which JIT envisages, is that there should not be any
bottlenecks and no extra material lying at any of the points in the supply
chain. Different companies adopt different strategies depending on the
following:
Products
Type of outsourcing they are able to develop and manage
Extent of reach they have for customers
Competition they face
Managing the supply chain efficiently helps in achieving JIT completely or as
much of it as possible.
Self Assessment Questions
3. The supply chain creates a _______ along its path.
4. There should no bottlenecks and no extra martial lying at any of the
points in the ________.
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15.6 Summary
Let us recapitulate the important concepts discussed in this unit:
15.7 Glossary
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15.9 Answers
Self Assessment Questions
1.
2.
3.
4.
True
True
Value chain
Supply chain
Terminal Questions
1. Refer to 15.2
2. Refer to 15.4
3. Refer to 15.4.4
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Discussion Questions:
1. If you are Mr. Ikebuchi, What will you do?
2. What does this experience tell you about justintime?
3. What actions will you have to take to handle such cases in the future?
(Source: Render and Heizer, Operations Management, 9
Hall, USA.)
th
Edition, Prentice
Reference:
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