Operations Management –
ICWA – Inter - Notes
Ulhas D Wadivkar - BE (Electrical), MBA ( Finance)
Retired Vice President, Graphite India Limited
Satpur, Nashik, Maharashtra.
Chief Executive Adviser – Nirman Group - Nashik
Guest Faculty in MBA Institutions in Nashik
• "To manage is to forecast and to plan, to organise, to
command, to co-ordinate and to control." – Henry Fayol
• "Management is a multi-purpose organ that manages
business and manages managers and manages workers
and work." – Peter Drucker
• "Management is the art of getting things done through
people." - Mary Parker Follet,
• Operation Management is the management of that part of
an organization that is responsible for producing goods and
/ or services.
• An Operating System is defined as a configuration of
resources combined for the provision of goods or services.
• Any operating system converts inputs, using physical
resources, to create outputs, to satisfy customer`s wants.
• The creation of goods or services involves transforming
or converting inputs into outputs. Various inputs such as
capital, labour, and information are used to create goods
or services using one or more transformation processes
(e.g., storing, transporting, and cutting).
• To ensure that the desired output are obtained, an
organization takes measurements at various points in the
transformation process (feedback) and then compares
with them with previously established standards to
determine whether corrective action is needed (control).
Resources in an operating system
• The physical resources generally utilized by operating
systems can be categorized for convenience in the in
the following manner:-
• Materials: Physical items that are consumed or
converted by the system. e.g. - raw
materials, fuel, indirect materials, etc.
• Machines/ (Facilities): Those physical items that are
utilized by the system, so that the consumption /
conversion of materials can be done in an optimum
manner. e.g. - plant, tools vehicles, buildings etc.
• Labour: The people who provide or contribute to the
operation of the system and ensure that the machines
and materials are effectively used.
Principal functions of an Operating System - 1
• The functions of an operating system are a reflection of the
purpose it serves for its customers. The following four
principal functions identified below also relate to the basic
four operations done in any organization:
• 1) Manufacture: Manufacturing function is the one which
involves some physical transformation or a change in the form
utility of the resources. Something is physically created and
the output consists of goods which differ physical (e.g., in
terms of form, content etc.) from those materials input to the
• 2) Transport: This function of operating system provides a
change in the place utility of something or someone in order
to satisfy customer. The customer or something belonging to
the customer is moved from place to place and thus results in
the change in location. There is no major change in the form
of resources. …….contd.
Principal functions of an Operating System - 2
3) Supply: This function provides a change in the
possession utility of a resource, i.e., the ownership or
possession of goods is changed. Unlike manufacture,
outputs of the system are physically same as the
4) Service: This function primarily results in a change in
the state utility of a resource. The principal common
characteristic is the treatment or accommodation of
something or someone. The state or condition of the
physical outputs will differ from the inputs as they
have undergone same kind of treatment.
• Most large and complex organizations have to perform all
the principal four functions of operating
systems, discussed above. Thus we may redefine
operating system as a configuration of resources
combined for the function of
manufacture, transport, supply or service.
Structures for operating systems:
• S = Stock, O = Operation, D = Direct,
Q = Customer Queue, C = Customer direct Input
• (a) SOS - ‘Make from stock, to stock, to customer’, i.e. all input resources
are stocked and the customer is served from a stock of finished goods.
• (b) DOS - ‘Make from source, to stock, to customer’, i.e. no input
resource stocks are held, but goods are produced to stock.
• (c) SOD - ‘Make from stock, direct to customer’, i.e. all input resources
are stocked but goods are made only against and on receipt of customers’
• (d) DOD - ‘Make from source, direct to customer’, i.e. no input resource
stocks are held and all goods are made only against and on receipt of
• (e) SCO - ‘Function from stock, and from customer’, i.e. input resources
are stocked, except in the case of customer inputs where no queuing
• (f) DOQ - ‘Function from source, and from customer queue’, i.e. no input
resources are stocked although customer inputs accumulate in a queue (or
• (g) SQO - ‘Function from stock and from customer queue’, in which all
inputs are stocked and/or allowed to accumulate in stocks.
• The customers exert some ‘push’ on the system.
• In manufacture and supply the customers act directly
on output: they ‘pull’ the system, in that they pull
goods out of the system whether direct from the
function (structures (c) and (d)) or from output stock
(structures (a) and (b)).
• In transport and service the customers push the
system: they act directly on input. In such
systems, therefore, some part of the resource input is
not directly under the control of operations
management. In these ‘push’ systems the customers
control an input channel, and we must therefore
distinguish this channel when developing models of
Operation Management is defined as the management which is
concerned with the design and the operation of systems for
manufacture, transport, supply or service.
• Manufacture: Goods at given Specification, acceptable
cost, delivered at desired time.
• Transport: Movements from destination to destination at given
cost, delivered at given time.
• Supply: Procurement of Goods at given Specification at
reasonable price at required time.
• Service: Providing a service (Treatment) at given desired
specification of Customer in given time at given cost in required
Operation Management has also a responsibility of being effective. The
effectiveness is the difference between Input Cost plus cost of value
adding costs and also non value adding costs i.e. the cost of output
goods and Price available in Market.
The scope of operations management:
• Design & Planning: Involvement in design / specification of the goods /
services, design / specification of process / system, location of facilities
1) Layout of facilities / resources and materials handling . 2 ) Determination
of capacity / capability 3) Design of work or jobs 4) Involvement in
determination of remuneration system and work standards
Operation and control: Planning and-scheduling of activities
Control and planning of inventories
Control of quality
Scheduling and-control of maintenance
Replacement of facilities
Involvement in performance measurement
Capacity Management and Demand Matching operating system:
: Activity Scheduling
: Timing the conversion activities
: Inventory Management
: Planning and controlling physical stocks
Responsibilities for Operation Management
• Inventories, Quality,
• Maintenance and replacement of facilities,
• Scheduling of activities, Location,
• layout, Capacity determination and staffing.
• Goods / Services Design and Specification,
• Process / System Design and Specification,
• Location of Facilities,
• Layout of Facilities Resources and Materials Handling,
• The Design of Work and of Jobs,
• Remuneration System Design,
• Operations Control,
• Quality Control and Reliability,
• Maintenance and Replacement, Performance Measurement
The operations management decision-making process
• Operations management decision-making process is ‘the
formulation of overall strategies for operations, typically
involving interrelated areas of responsibility within
operations management, and the making of decisions in
these areas in pursuit of these strategies within the broader
• Quality-based strategy that focuses on quality in all phases
of an organization: Quality-based Strategies:
• : Attracting and retaining Customers
• : Catch up with competition
• : Maintain existing image
• : Cost reduction
• : Increased Productivity
• : Reduced delivery Time
• Time-based strategy that focuses on reduction of time needed to
• : Planning time: The time needed to react to a competitive threat, to
develop strategies and select tactics.
• : Product / service design time: The time needed to develop and
market new or redesigned products or services.
• : Processing time: The time needed to produce goods or provide
services. This can involve scheduling repairing equipment, methods
used, inventories, quality, and training
• : Changeover time: The time needed to change from producing one
type of product or service to another. This may involve new
equipment settings and attachments, different
methods, equipment, schedules, or materials.
• : Delivery time: The time needed to fill orders.
• : Response time for complaints: These might be customer complaints
about quality, timing of deliveries, and incorrect shipments. These
might also be complaints from employees about working conditions
(e.g., safety, lighting, heat or cold), equipment problems, or quality
Strategic operations management decisions:
1. Product and service design: Costs, quality, liability and
2. Capacity: Cost structure, flexibility
3. Process selection and layout: Costs, flexibility, skill level
4. Work design: Quality of work life, employee
5. Location: Costs, visibility
6. Quality: Ability to meet or exceed
7. Inventory: Costs, shortages
8. Maintenance: Costs, equipment reliability,
9. Scheduling: Flexibility, efficiency
10. Supply chains
Costs, quality, agility, shortages,
11. Projects: Costs, new products, services,
or operating systems
The Role of Operations in Designing of a new Product
Preliminary Stages: Information and Intelligence from
Markets, Suppliers, Competitors, Regulators etc.
Stage 1: Ideas Generation:
• Operations has a contribution to make in stages 2, 3, 4, 5, 6 and
7 for there is little benefit in conceiving a product which cannot
efficiently, fully or economically be provided. Hence operations
must enter into the design dialogue as follows:
• Market-or technology-oriented ideas
• New concepts or incremental developments
• Internally or externally generated
Stage 2: Screening and selection:
• Can the product / service be provided by the operating system?
• Do we have the processes, technology and skill?
• Do we have the capacity?
• Market analysis test, Technological feasibility, Competitive
advantage, Risk assessment
Stage 3: Initial design:
• What is the most appropriate design required for providing, at the required
quality and probable cost?
• Specification of major aspects/features, Initial model/’mock-up’
Stage 4: Economic analysis:
• How much would it cost to make the appropriate volumes, and at the
• Estimate of development cost, Estimate of provision cost, Estimate of final
• Estimate of price
Stage 5: Prototype testing:
• Check providability through operating system
• Performance / function testing, Consumer tests, Test of Providability’
Stage 6: Redesigning / modification:
• Introduce modifications to providability, Improvements, corrections and
modifications, Retesting if necessary, Approval for final design
Stage 7: Final specification:
• Future appropriate quality specifications. Begin process specification in
marketing the above contribution, operations must have regard to the
following: Full detailed specification of content, structure, function and
(a) Computer Aided Design: Computers are increasingly
used for product design. CAD uses computer graphics for product
• The design can be maneuvered on the screen, it can be rotated
to provide the designer different views of the product, it can be
split apart to have a view of the inside and a position of the
product can be enlarged for closer view. The printed version of
the completed design can be taken and also the design can be
• Also a database can be created for manufacturing which can
supply required information on product geometry and
dimensions, tolerances, material specifications etc.
• Also, some CAD systems facilitate engineering and cost analyses
on proposed designs, for example, calculation of volume and
weight and also stress analysis can be done using CAD systems.
• It is possible to generate a number of alternative designs using
computer aided design systems and identify the best alternative
which meets the designer’s criteria.
Value Engineering / Value Analysis in Product Design:
• Value engineering or value analysis is concerned with the improvement of
design and specifications at various stages such as research, design and
product development. Benefits of value engineering are:
• Cost reduction.
• Less complex products.
• Use of standard parts/components.
• Improvement in functions of the product.
• Better job design and job safety.
• Better maintainability and serviceability.
• Robust design.
• Value engineering aims at cost reduction at equivalent performance. It
can reduce costs to the extent of 15% to 70% without reducing quality.
• While value engineering focuses on preproduction design
improvement, value analysis, a related technique seeks improvements
during the production process.
• Once launched, even good products have limited lives and, to remain
viable, the organization seeks a flow of new product possibilities. Let’s
examine the product’s birth-to-mortality pattern.
Product Life Cycle
• Products, like men, are mortal. They flourish for a time, then
decline and die.
• A product that has not built up its potential during its
formative years is likely to be relatively unsuccessful on its
• The product, thus, has “life cycles” just as human beings
have. From its birth, a product passes through various
stages, until it is finally abandoned, i.e. discontinued from the
• These stages taken together are referred, to as “The product
• This life cycle of the product comprises four stages:
Introduction, Growth, Maturity and Decline.
• The introduction stage is preceded by ‘production planning and
development’. This period requires greater investment. This
investment should be gradually recouped as the sales pick up. The
concept of life cycle would give the management an idea as to the
time within which the original investment could be recouped.
• In the growth stage, both sales and profits will begin to increase. It
is here that similar other new products begin to appear in the
market as substitutes and offer competition. At the end of this
stage, the distribution arrangement is likely to get completed and
the prices, if necessary, are reduced a little.
• The third stage is the maturity stage. During this stage the
manufacturers introduce new or modified models or adopt
methods to retain their position in the market. The number of
buyers will continue to grow, but more slowly. In economic terms
this is the stage where supply exceeds demand. Some of the
promotional efforts may lengthen the span of this stage but they
will not offer a permanent solution.
• At the final stage of decline, profit margins touch a low
level, competition becomes severe and customers start using newer
and better products. It is here that the story of a product ends-a
natural but hard end.
Process Planning and Process Design:
• At the time of designing and developing a product, due consideration
is given for the manufacturability or producibility of the product using
the current process technology and the capability of the firm to
manufacture the product.
• If the firm already has the required technology, the facilities
(machines and equipments) and the manufacturing processes, and
the firm has sufficient capacity or can acquire the needed capacity to
manufacture the product, then decision is taken to go ahead with the
• After the final design of the product has been approved and released
for production, the production planning and control department takes
the responsibility of process planning and process design for
converting the product design into a tangible product. As the process
plans are firmly established, the processing time required for carrying
out the production operations on the equipments and machines
selected are estimated. These processing times are compared with
the available machine and labour capacities and also against the cost
of acquiring new machines and equipments required before a final
decision is made to manufacture the product completely in house or
any parts or sub-assemblies must be outsourced.
What is a Process?
• A process is a sequence of activities that is intended to
achieve some result, typically to create added value for
• A process converts inputs into outputs in a production
system. It involves the use of organisation’s resources to
provide something of value. No product can be made and
no service can be provided without a process and no
process can exist without a product or service.
• Processes underlie all work activities and are found in all
organisations and in all functions of an organisation.
Deciding what processes to use is an essential issue in the
design of a production system.
• Process decisions involve many different choices in
selecting human resources, equipment and
machinery, and materials. Process decisions are strategic
and can affect an organisation’s ability to compete in the
• Types of Processes: Basically, processes can be categorised as:
• (i) Conversion processes, i.e., converting the raw materials into
finished products (for example, converting iron ore into iron and then
to steel). The conversion processes could be metallurgical or chemical
or manufacturing or construction processes.
a) Forming processes include foundry processes (to produce
castings) and other processes such as forging, stamping, embossing and
spinning. These processes change the shape of the raw material (a metal)
into the shape of the work piece without removing or adding material.
b) Machining processes comprise metal removal operations such as
turning, milling, drilling, grinding, shaping, planing, boring etc.
c) Assembly processes involve joining of parts or components to
produce assemblies having specific functions. Examples of assembly
processes are welding, brazing, soldering, riveting, fastening with bolts
and nuts and joining using adhesives.
• (ii) Manufacturing processes can be categorised into (a) Forming
processes, (b) Machining processes and (c) Assembly processes.
• (iii) Testing processes which involve inspection and testing of products
(sometimes considered as part of the manufacturing processes).
• Process planning is concerned with planning the
conversion processes needed to convert the raw material
into finished products. It consists of two parts:
• Process design and
• Operations design.
• Process Design is concerned with the overall sequences
of operations required to achieve the product
specifications. It specifies the type of work stations to be
used, the machines and equipments necessary to carry
out the operations.
• The sequence of operations are determined by
(a) The nature of the product,
(b) The materials used,
(c) The quantities to be produced and
(d) The existing physical layout of the plant.
Operations Design is concerned with the design of the individual
manufacturing operation. It examines the man-machine relationship in
the manufacturing process. Operations design must specify how much
labour and machine time is required to produce each unit of the
product. Framework for Process Design
• The process design is concerned with the following:
• Characteristics of the product or service offered to the customers.
• Expected volume of output.
• Kinds of equipments and machines available in the firm.
• Whether equipments and machines should be of special purpose or
• Cost of equipments and machines needed.
• Kind of labour skills available, amount of labour available and their
• Expenditure to be incurred for manufacturing processes.
• Whether the process should be capital-intensive or labour-
• Make or buy decision.
• Method of handling materials economically.
• Process selection refers to the way production of
goods or services is organised. It is the basis for
decisions regarding capacity planning, facilities (or
plant) layout, equipments and design of work
systems. Process selection is necessary when a firm
takes up production of new products or services to
be offered to the customers.
• Three primary questions to be addressed before
deciding on process selection are:
(i) How much variety of products or services will
the system need to handle?
(ii) What degree of equipment flexibility will be
(iii) What is the expected volume of output?
• A process strategy is an organisation’s approach to process selection for the
purpose of transforming resource inputs into goods and services (outputs). The
objective of a process strategy is to find a way to produce goods and services
that meet customer requirement and product specification (i.e., design
specifications) within the constraints of cost and other managerial limitations.
• The process selected will have a long-term effect on efficiency and production
as well as flexibility, cost, and quality of the goods produced. Hence it is
necessary that a firm has a sound process strategy at the time of selecting the
Key aspects in process strategy include:
(i) Make or buy decisions : Make or buy decisions refer to the extent to
which a firm will produce goods or provide services in-house or go for
outsourcing (buying or subcontracting).
(ii) Capital intensity : Capital intensity refers to the mix of equipment and
labour which will be used by the firm.
(iii) Process flexibility : Process Flexibility refers to the degree to which
the system can be adjusted to changes in processing requirements due to
such factors as changes in product or service design, changes in volume
of products produced and changes in technology.
• Three process strategies:
• Virtually every good or service is made by using some variation of
one of three process strategies. They are:
(i) Process focus (ii) Repetitive focus and (iii) Product focus.
• (i) Process Focus: Majority (about 75 per cent) of global
production is devoted to low volume, high variety products in
manufacturing facilities called job shops. Such facilities are
organised around performing processes. For example, the
processes might be welding, grinding or painting carried out in
departments devoted to these processes. Such facilities are
process focussed in terms of equipment, machines, layout and
supervision. They provide a high degree of product flexibility as
products move intermittently between processes. Each process is
designed to perform a wide variety of activities and handle
frequent changes. Such processes are called intermittent
processes. These facilities have high variable costs and low
utilisation of facilities.
(ii) Repetitive Focus: A repetitive process is a product oriented
production process that uses modules. It falls between
product focus and process focus. It uses modules which are
parts or components prepared often in a continuous or
mass production process. A good example of repetitive
process is the assembly line which is used for assembling
automobiles and household appliances and is less flexible than
process-focused facility. Personal computer is an example of a
repetitive process using modules in which the modules are
assembled to get a custom product with the desired
(iii) Product Focus: It is a facility organised around products, a product
oriented, high-volume low variety process. It is also referred to
as continuous process because it has very long continuous
production run. Examples of product focussed processes are
steel, glass, paper, electric bulbs, chemicals and
pharmaceutical products, bolts and nuts etc. Product-focussed
facilities need standardisation and effective quality control.
The specialised nature of the facility requires high fixed cost,
but low variable costs reward high facility utilisation.
• Process Management:
• Process management is concerned with the selection of
inputs, operations, work flows and methods that transform
inputs into outputs. The starting point of input selection is the
make-or-buy decision (i.e., deciding which parts and
components are to be produced in-house and which are to be
purchased from outside suppliers). Process decisions are
concerned with the proper mix of human skills and
equipments needed to produce the parts in-house and which
part of the processes are to be performed by each equipment
• Process decisions: It must be made when:
(i) A new or modified product or service is being offered.
(ii) Quality must be improved.
(iii) Competitive priorities have changed.
(iv) Demand for a product or service is changing.
(v) Cost or availability of materials has changed
(vi) Competitors are doing better by using a new technology or
a new process.
Major Process Decisions:
• Process Choice: The production manager has to choose from
five basic process types — (i) job shop, (ii) batch, (iii) repetitive
or assembly line, (iv) continuous and (v) project.
• (i) Job shop process: It is used in job shops when a low volume
of high-variety goods are needed. Processing is
intermittent, each job requires somewhat different processing
requirements. A job shop is characterised by high customisation
(made to order), high flexibility of equipment and skilled labour
and low volume. A tool and die shop is an example of job
shop, where job process is carried out to produce one-of-a kind
of tools. Firms having job shops often carry out job works for
other firms. A job shop uses a flexible flow strategy, with
resources organised around the process.
• (ii) Batch process: Batch processing is used when a moderate
volume of goods or services is required and also a moderate
variety in products or services. A batch process differs from the
job process with respect to volume and variety. In batch
processing, volumes are higher because same or similar
products or services are repeatedly provided, examples of
products produced in batches include paint, ice cream, soft
drinks, books and magazines.
(iii) Repetitive process: This is used when higher volumes of more
standardised goods or services are needed. This type of process is
characterised by slight flexibility of equipment (as products are
standardised) and generally low labour skills. Products produced include
automobiles, home appliances, television sets, computers, toys etc.
Repetitive process is also referred to as line processes as it include
production lines and assembly lines in mass production. Resources are
organised around a product or service and materials move in a line flow
from one operation to the next according to a fixed sequence with little
work-in-progress inventory. This kind of process is suitable to
“manufacture-to-stock” strategy with standard products held in finished
goods inventory. However, “assemble-to-order” strategy and “mass
customisation” are also possible in repetitive process.
(iv) Continuous process: This is used when a very highly standardised
product is desired in high volumes. These systems have almost no variety
in output and hence there is no need for equipment flexibility. A
continuous process is the extreme end of high volume, standardized
production with rigid line flows. The process often is capital intensive
and operate round the clock to maximise equipment utilisation and to
avoid expensive shut downs and shut ups. Examples of products made in
continuous process systems include petroleum
products, steel, sugar, flour, paper, cement, fertilisers etc.
• (v) Project process: It is characterised by high
degree of job customisation, the large scope for
each project and need for substantial resources
to complete the project. Examples of projects are
building a shopping centre, a dam, a
bridge, construction of a
factory, hospital, developing a new
product, publishing a new book etc. Projects tend
to be complex, take a long time and consist of a
large number of complex activities. Equipment
flexibility and labour skills can range from low to
high depending on the type of projects.
• Vertical Integration: Vertical integration is the amount of the
production and distribution chain, from suppliers of components to
the delivery of products/services to customers, which is brought
under the ownership of a firm. The management decides the level or
degree of integration by considering all the activities performed from
the acquisition of raw materials to the delivery of finished products to
customers. The degree to which a firm decides to be vertically
integrated determines how many production processes need to be
planned and designed to be carried out in-house and how many by
outsourcing. When managers decide to have more vertical
integration, there is less outsourcing.
• The vertical integration is based on “make-or-buy” decisions, with
make decisions meaning more integration and a buy decision
meaning less integration and more outsourcing. Two directions of
vertical integration are
(a) Backward integration which represents moving upstream
toward the sources of raw materials and parts, for example a steel mill
going for backward integration by owning iron ore and coal mines and a
large fleet of transport vehicles to move these raw materials to the steel
(b) Forward integration in which the firm acquires the channel
of distribution (such as having its own warehouses, and retail outlets).
• Advantages of vertical integration are:
• Can sometimes increase market share and allow the
firm enter foreign markets more easily.
• Can achieve savings in production cost and produce
higher quality goods.
• Can achieve more timely delivery.
• Better utilisation of all types of resources.
• Disadvantages of vertical integration are:
• Not attractive for low volumes.
• High capital investment and operating costs.
• Less ability to react more quickly to changes in
customer demands, competitive actions and new
3. Resource flexibility:
• The choices that management makes concerning competitive
priorities determine the degree of flexibility required of a
firm’s resources — its employees, facilities and equipment.
Production managers must decide whether to have flexible
workforce which will provide reliable customer service and
avoid capacity bottlenecks. Flexible workforce is useful with
flexible flow strategy to even out fluctuating workloads.
• Also when volume flexibility is required, instead of laying-off
and hiring workforce to match varying demands, it is better to
have certain amount of permanent workforce having multiple
skills. This will facilitate movement of surplus workforce from
low-load work centres to higher-load work centres.
• When a firm’s product has a short life cycle and a high degree
of customisation, low production volumes mean that the firm
should select flexible general purpose machines and
• 4. Customer-involvement is the extent to which customers
interact with the process. A firm which competes on
customisation allows customers to come up with their own
product specification or even become involved in the
designing process for the product (quality function
deployment approach to design for incorporating the voice of
• 5. Capital intensity means the predominant resource used in
manufacturing, i.e., capital equipments and machines rather
than labour. Decision regarding the amount of capital
investment needed for equipments and machines is
important for the design of a new process or the redesign of
an existing one. As the capabilities of technology increase
(for example automation), costs also will increase and
managers have to decide about the extent of automation
needed. While one advantage of adding capital intensity is
significant increase in product quality and productivity, one
big disadvantage can be high investment cost for low-volume
• The list of manufacturing environments is never-ending and an indication of
the range and length is given in the following list, adapted from Government
statistical publications under the classification ‘Production
• Industries’ / ‘Manufacturing Industry’:
• Mining and quarrying
• Food processing and manufacture
• Food consumption
• Drink and tobacco
• Coal and petroleum products
• Chemical and allied industries.
• Metal manufacture
• Mechanical engineering
• Instrumental and electrical engineering
• Shipbuilding, vehicles and other metal goods
• Textiles, leather, leather goods and fur.
• Clothing and footwear.
• Bricks, pottery, glass, cement, etc.
• Paper, printing and publishing
• Gas, electricity and water.
• Among these few are regulated & thus covered under cost
audit report rules by government rest are unregulated
• Under the provisions of Cost and Works Accounts Act, 1959
(23 of 1959) : The regulated industries are –
• i) Pharmaceutical Industry
• ii) Fertilizers Industry
• iii) Sugar & Alcohol Industry
• iv) Electricity Industry
• v) Petroleum Industry
• vi) Telecommunication Industry
• Amongst these regulated industries, most are
manufacturing, except the telecommunication.
Measuring Process Performance -1
• Efficiency is a ratio of the actual output of a process relative to some
standard. For example, consider a machine designed to package cereal
at a rate of 30 boxes per minute. If during a shift the operators actually
produce at a rate of 36 boxes per minute, then the efficiency of the
machine is 120 percent (36/30).
• Run time is the time required to produce a batch of parts.
This is calculated by multiplying the time required to produce
each unit by the batch size. Example: Package cereal at a rate of
30 boxes per minute. Therefore Run Time will be 60 Seconds / 30 = 2
• The Setup time is the time required to prepare a machine to make a
particular item. Machines that have significant setup time will typically
run parts in batches.
• The Operation time is the sum of the setup time and run time for a
batch of parts that are run on a machine.
• Consider the cereal-boxing machine that is designed to produce at a
rate of 30 boxes per minute.
• The run time for each box is 2 seconds.
• To switch the machine from 16-ounce boxes to 12-ounce boxes
requires a setup time of 30 minutes.
• The operation time to make a batch of 10,000, 12-ounce boxes is
(30 minutes’ setup = 30 x 60 = 1800 seconds) + (2 seconds / box
x 10,000 boxes) = 21800 Seconds or 363.33 minutes.
• The cycle time is the elapsed time between starting and completing a
Example: For a Batch of 10,000 Boxes the Cycle time is 20,000
Seconds or 333.33 Minutes
• Throughput time includes the time that the unit spends actually
being worked on together with the time spent waiting in a queue.
• The Throughput rate is the output rate that the process is expected
to produce over a period of time.
• Process velocity (also known as throughput ratio) is the ratio of the
total throughput time to the value added time.
• Value-added time is the time in which useful work is actually being
done on the unit.
Measuring Process Performance -2
• Little’s Law states a mathematical relationship between throughput
rate, throughput time, and the amount of work-in-process inventory. Little’s
Law estimates the time that spend in work-in-process inventory, which can
be useful for calculating the total throughput time for a process. Using the
terminology defined in this section, Little’s Law is defined as follows-
• Throughput time = Work-in-Progress divided by Throughput rate
• This formula holds for any process that is operating at a Steady Rate.
• By Steady Rate we mean that work is entering and exiting the system at the
same rate over the time period being analyzed. Our assembly line has 120
units entering and 120 units exiting the process each hour. If, for
example, 150 units were entering the system each hour but only 120 units
were exiting, then the system would not be operating at a steady rate since
30 additional units would be accumulating in the system each hour. These 30
units add to work-in-process, which would cause the throughput time to
increase each hour. The actual increase in throughput time would be 15
minutes per hour (30 units/120 units per hour = 0.25 hour)
Study Note – 2: PRODUCTION PLANNING:
• All the activities in the manufacturing or production cycle must be
planned, coordinated, organised, and controlled to achieve the
objective “Delivery of products to “customers” or to “inventory” stocks
according to some predetermined schedule.”
• Long-term Production Planning (usually from seven to ten years or
more) deals with plant construction and location and with product-
line, design and development.
• Short range Production Planning (from several months to a year)
focuses on such areas as inventory goals and wage budgets
• Production consists of a sequence of operations that transform
materials from a given form to a desired form (products). The highest
efficiency in production is obtained by manufacturing the required
quantity of products, of the required quality, at the required time, by
the best and cheapest method.
Three stages in PPC
• (i) Planning: The choice from several alternatives of
the best means of utilising the resource available to
achieve the desired objectives in the most efficient
and economic manner.
• (ii) Operations: Performance in accordance with the
details set out in the production plan.
• (iii) Control: The monitoring of performance through
a feed-back by comparing the result achieved with
the planned targets so that performance can be
improved through proper corrective action by
subsequent adjusting, modifying and redefining plans
and targets in order to ensure the attainment of
• The functions of PPC can be classified under the following:
• Materials: Raw materials, spare parts and components which
must be available in the correct quantities and specifications at
the right time. Planning for procurement of raw
materials, components and spare parts in the right quantities
and specifications at ·the right time from the right source at the
right price. Purchasing, storage, inventory
control, standardisation, variety reduction, value analysis and
inspection are the other activities associated with materials.
• Methods: It involves deciding the best sequence of operations
for manufacturing the parts, building up subassemblies and
major assemblies which in turn will make up the finished
product, within the limitations of existing layout and workflow.
Includes choosing the best method of processing from several
alternatives. It also includes determining the best sequence of
operations (process plans) and planning for tooling, jigs and
The functions of PPC -1
• Machines and Equipments: PPC is concerned with selection of machines
and equipments and also with maintenance policy, procedure and
schedules, replacement policy and tooling. (Design and manufacture of
tools). Manufacturing methods are related to production facilities
available in the production system. It involves facilities planning, capacity
planning, allocation and utilization of plant and equipments, machines
etc. It also involves equipments replacement policy, maintenance policy
and maintenance schedules, tools manufacture and maintenance of tools
• Manpower: Planning for man power (labour, supervisory and managerial
levels) having appropriate skills and expertise.
• Routing: Routing prescribes the flow of work in the plant and is related to
consideration of layout, of temporary storage locations for raw
materials, components and semi processed parts, and of material
handling systems. Routing is a basic PPC function. Determining the flow of
work, material handling in the plant, and sequence of operations or
processing steps. This is related to considerations of appropriate shop
layout and plant layout, temporary storage locations for raw
materials, components and semi-finished goods, and of materials
The functions of PPC - 2
• Estimating: The processing times (both set up time and
operation time per piece) required for the parts to be
manufactured in-house are estimated and the standard time
(both machine time and labour time) are established as
performance standards. Establishing operation times leading to
fixation of performance standards both for workers and
• Loading and Scheduling: Machines have to be loaded according
to their capacity and capability. Machine loading is carried out in
conjunction with routing (as indicated in process layouts or
operations analysis and routing sheets) to ensure smooth
workflow and the prescribed feeds. Speeds of machines are
adhered to as well as the estimated time (standard time which is
the allowed time to do a job). Machine loading is allocation of
jobs to machines in conjunction with routing and with due
consideration for capacity of machines and priority for jobs in
order to utilize the machines to the maximum possible extent.
The functions of PPC - 3
• Scheduling: Determines the utilisation of equipment and manpower and
hence the efficiency of the plant. Scheduling determines the starting
time and completion time for each and every operation for each and
every part to be manufactured and sub-unit to be assembled so that the
finish product is ready to be shipped to the customer as per the
predetermined delivery schedules.
• Dispatching: This is concerned with the execution of planning functions.
Production orders and instructions are released according to the
schedule, sequences indicated in route sheets, and machine loading
schedules are adhered to and authorisation is given for release of
materials and tools to the operators to carry out the work. This is
concerned with the execution of the planning functions. It gives
necessary authority to start a particular work which has already been
planned under routing and scheduling functions. Dispatching is release of
orders and instructions for the starting of production in accordance with
the route sheets and schedule charts.
• Expediting or Progressing: This means follow-up or keeping track of the
progress made in completing the production as per schedules. This
follows dispatching function logically. Means chasing, follow up or
progressing which is done after dispatching function. It keeps a close
liaison with scheduling in order to provide an efficient feedback and
prompt review of targets and schedules.
The functions of PPC - 4
• Inspection: This function relates to checking the quality of
production and of evaluating the efficiency of the
processes, methods and workers so that improvements can be
made to achieve the desired level of quality. This function is
related to maintenance of quality in production and of
evaluating the efficiency of the processes, methods and labour
so that improvements can be made to achieve the quality
standards set by product design
• Evaluating or Controlling: The objective of evaluation or
controlling is to improve performance. Methods and facilities are
evaluated to improve their performance. To sum up, we can
state that PPC is a management tool, employed for the direction
of the manufacturing operations and their co-ordination with
other activities of the firm. The objective of evaluation is to
improve performance. Performance of machines, processes and
labour is evaluated to improve the same.
• Cost Control: Manufacturing cost is controlled by wastage
reduction, value analysis, inventory control and efficient
utilization of all resources.
Objectives of Production Planning and Control:
1. To deliver quality goods in required quantities to the customer in the
required delivery schedule to achieve maximum customer satisfaction
and minimum possible cost.
2. To ensure maximum utilization of all resources.
3. To ensure production of quality products.
4. To minimise the product through-put time or production/manufacturing
5. To maintain optimum inventory levels.
6. To maintain flexibility in manufacturing operations.
7. To co-ordinate, between labour and machines and various supporting
8. To plan for plant capacities for future requirements.
9. To remove bottle-necks at all stages of production and to solve problems
related to production.
10. To ensure effective cost reduction and cost control.
11. To prepare production schedules and ensure that promised delivery
dates are met.
12. To produce effective results for least total cost
Basic types of Production Control:
• Block control: This type of control is most prominent in textiles and book and
magazine printing. In these industries it is necessary to keep things separated
and this is the fundamental reason why industries resort to block control.
• Flow control: This type of control is commonly applied in industries like
chemicals, petroleum, glass, and some areas of food manufacturing and
processing. Once the production system is thoroughly designed, the production
planning and control department controls the rate of flow of work into the
system and checks it as it comes out of the system. But, under this
method, routing and scheduling are done when the plant is laid out. That is to
say, the production line which is established is well balanced and sequenced
before production operations begin; this type of control is more prevalent in
continuous production systems.
• Load control: Load control is typically found wherever a particular bottleneck
machine exists in the process of manufacturing.
• Order control: The most, common type of production control is called order
control. This type of control is commonly employed in companies with
intermittent production systems, the so-called job-lot shops. Under this
method, orders come into the shop for different quantities for different products.
Therefore, production planning and control must be based on the individual
• Special project control: Special production control is necessary in certain
projects like the construction of bridges, office
buildings, schools, colleges, universities, hospitals and any other construction
industries. Under this
Requirements of Production Planning and Control System
1. Sound organizational structure with mechanism for proper delegation of authority
and fixation of responsibility at all levels.
2. Information feedback system should provide reliable and up-to-date information to
all persons carrying out PPC functions.
3. Standardisation of materials, tools, equipments, labour, quality, workmanship etc.
4. Trained personnel for using the special tools, equipments and manufacturing
5. Flexibility to accommodate changes and bottle-necks such as shortage of materials,
power failures, machine break downs and absenteeism of employees.
6. Appropriate management policies regarding production and inventory levels,
product -mix and inventory turnover.
7. Accurate assessment of manufacturing lead times and procurement lead times.
8. Plant capacity should be adequate to meet the demand. The plant should be
flexible in order to respond to the introduction of new products, changes in
product-mix and production rate.
Limitations of PPC
(a) Production planning and control function is based on certain
assumptions or forecasts of customers demand, plant
capacity, availability of materials, power etc. If these
assumptions go wrong, PPC becomes ineffective.
(b) Employees may resist changes is production levels set as per
production plans if such plans are rigid.
(c) The production planning process is time consuming when it is
necessary to carry out routing and scheduling functions for
large and complex products consisting of a large no. of
parts going into the product.
(d) Production planning and control function becomes extremely
difficult when the environmental factors change very rapidly
such as technology, customers’ taste regarding fashion or style
of products needed, Government policy and controls
stoppages of power supply by electricity boards due to
power cuts, break in supply chain due to natural calamities
such as floods, earthquakes, war etc.
2.2 Economics and Optimization :
• Economic person always takes rational decisions with
respect to economic matters. The rationality is defined in
terms of optimizing behaviour.
• Market perfect competition, Marginal Revenue, Marginal
Cost, Resources required to produce
output, Space, Inventory, warehousing problems etc. are
required to be considered to decide “Profit Maximising
Output”. The constraint of being able to sell maximised
product fully in Market, price constraint, constraint due to
consumers not having product knowledge are also
required to be considered.
• Economic theory believes in “unbounded maximizing
behaviour and the whole theoretical infrastructure is
geared to achieve the objectives based on the same. It
is, therefore, natural that economic literature is
exceptionally rich in optimization models.
• Baumol’s model of “sales maximization subject to a profit
constraint” and its opposite “maximization of short-run
profits subject to a minimum sales or market share
constraint” is summarized as below:
• R = Revenue, X = Output, A = Advertisement Expenses, mP =
Minimum acceptable Profit, C = Total Production Cost
• Total Revenue (R) = f1 (X, a) = Revenue is a Function of
Output & Advertisements.
• Total Production Cost (C) = f2 (X) = Production Cost is a
Function of Output.
• A firm aims at the maximization of
• R = f1 (X, a)
• Subject to the minimum profit constraint
• Maximum Profit ‘mP’ is Revenue minus Cost minus
• mP = R – C – A ≥mP
Economic Problems and Optimization Techniques
• The process of finding, the best or optimal strategies is called optimization
and includes the problems related to both maximization and minimization.
These objectives have to be optimized under two conditions: (a) without any
constraints and (b) with constraints. They can be divided further.
• 1. Unconstrained optimization into (i) functions with the (independent)
variable and (ii) multi-variate functions.
• 2. Constrained optimization into (i) equality constrained optimization, (ii)
inequality constrained optimization, (iii) static optimization (Kuhn-Tucker
conditions), and (iv) dynamic optimization (Hamiltonian conditions)
• Equality constrained problems can, again, be of two kinds. In Economics, the
popular examples are:
• (a) the maximization of the utility subject to a budget constraint and
• (b) the minimization of the cost subject to a production (technology)
• (c) or maximization of output subject to a resource (cost) constraint.
Economic model Example Optimization technique
1. Unconstrained Optimization
(a) A single variable without constraint
(b) a multi-variate function without
Max R or sales = f (P)
Minimize C = f(x)
Max π (R – C) = f(x)
Max π = f (price and advertisement)
First derivative should be equal to zero.
Partial derivative with respect to one
variable assuming other as constant
2. Constrained optimization
(a) With Equality constraint
(b) With Inequality
(a) Max utility subject to
a budget constraint.
Minimize cost subject to a production
(b) Max profit subject to
energy, budget capacity,
or time constraints
a) Lagrangian multipliers
(b) Linear programming and its
3. Optimization with multiple goals Max more than one objective in order of
(i) Multi-criteria decision
(ii) Goal programming (as
one of the techniques)
4. Dynamic optimization Max net profit stream; Max utility
stream; Max social welfare in the
presence of pollution from production
(i) Optimal control theory in the case of
continuous time optimization problems.
(ii) Dynamic programming in the case
of discrete-time optimization problems
Limitations of Linear Programming
• But Linear programming itself suffered from several limitations:
1. It assumes all functions to be linear which implies perfect
competition. Take, for example, the maximization of profit, sales, or
revenue. When an objective function is expressed in a linear form, if is
assumed that all the output can be sold at a given (constant) price.
This is possible only when a firm faces “Horizontal Straight Line”
demand curve, a feature of perfect competition.
2. It deals with a single objective and given constraints.
3. It is confined to non-negative values only.
4. It accepts rational values, which sometimes an awkward situation.
For example, it may be difficult to acquire half a machine or truck or
5. It is a “deterministic” technique, which means that the values of all
the variables and all the coefficients must be known with certainty.
6. There are several practical limitations particularly related to: (a)
difficulties in calculation and (b) the exorbitant cost of gathering data.
7. It also suffers from several other limitations common to operations
research techniques as a group.
2.3 Work Study
• The British Standards Institution defines work study as ‘a generic term
for those techniques, particularly method study and work
measurement, which are used in the examination of human work in all
its contexts, and which lead systematically to the investigation of all the
factors which affect the efficiency and economy of the situations being
reviewed, in order to effect improvements’.
• Time Study & Method Study can be defined to be a searching scientific
analysis the methods and equipments used in doing a piece of
work, developing a method in practical detail and of the best manner of
doing it and determination of time required.
• The aims of work study are, by analysis of work methods and the
materials and equipment used, to:
(a) Establish the most economical way of doing the work;
(b) Standardise this method, and the materials and equipment involved;
(c) Establish the time required by a qualified and adequately trained
worker to do the job while working at a defined level of performance;
(d) Install this work method as standard practice.
• The operation analysis is the study of the entire process for elimination of
wasteful activity and deciding sequence to avoid unnecessary
transportation. It concentrates on
• Idle time of Machines
• Tools Used
• Equipments used
• Working conditions (Light, Temperature, Ventilation, Safety etc.)
• Whether manual work is an important part of the job, e.g. (1) the wage
rate for the job, (2) the ratio of machine time to manual time in the work
• Utilization of equipment, machines, tools, etc., the cost of such
equipment, and whether the utilization is dependent on the work
• Method study is normally conducted before work measurement. Apart
from the possible-need to compare the times for old work methods with
the times for new methods, work measurement conducted before
method study is poor practice.
Job Analysis / Job Standardisation:
• Best way of performing the job.
• Perfect / Exact Recording of Method.
• Time taken for each element.
• Determination of Standard Time.
• Determination of special & essential factors
specific to work and qualifications necessary
of worker to perform the job.
• This analysis is used for wages, incentive and
up-gradation of worker.
Method study Work Measurement
• Record Method Direct Work measurement Indirect Work measurement
• Examine the Method Motion Study Synthetic Times
Time Study PMTS
Developing a Method in Activity Sampling Analytical Estimating
Practical details in best manner.
Develop and define the Work Method
Job Analysis and Job Standardisation Provide Time Allowances
Calculate Standard Time for the Job
• Install & Maintain the Work method
• Preparation of preliminary description of each
• Analysing each job to document final job description.
• Finding worth or value of the Job.
• Qualification required of a worker.
• Job critical activities.
• Job Responsibilities.
• Allowance for working conditions.
• Use of ranking, grading method, Factor comparison
Method, Point Rating Method. ( Straight Point
Method, Weighted Point Method)
• Valuation of job in terms of money.
Basic Work Study Procedure:
1. There are eight basic steps involved in a work study procedure. Some of
them are common to both
2. Method study and work measurement. These steps are:
a) Select the job or the process or the operation to be studied.
b) Record all relevant facts about the job or process or operation using
suitable charting techniques
c) Such as operation process chart, flow process chart, flow diagram, SIMO
chart (simultaneous motion chart) and man-machine chart.
d) Examine critically all the recorded facts, questioning the
purpose, place, sequence, person and the means of doing the
e) Develop the new method for the job/process/operation.
f) Measure the work content and establish the standard time using an
appropriate work measurement technique, viz; time study using stop
watch, synthesis method, analytical estimating method, predetermined
motion time system and work sampling.
g) Define the new method for the job/process/operation.
h) Install the new method as standard practice.
i) Maintain the new method for the job/process/operation.
Method Study Procedure
1. The various steps involved in method study are:
2. Select the work or job to be studied and define the objectives to be achieved by method
study. The job selected to have maximum economic advantage, shall offer vast scope for work
improvement through reduction of excessive material handling and fatigue to workmen, offer
scope for improving the working conditions and improving the utilization of resources.
3. Record all the relevant facts or information pertaining to the existing method using the
recording techniques such as -
a) Process charts
b) Outline process chart
c) Operation process chart
d) Flow process chart-material type, man type and machine type/equipment type.
e) Man-machine chart
f) Two handed process chart
4. Diagrams such as
a) Multiple activity chart
b) Simultaneous motion chart (SIMO chart)
c) Motion chart
5. Diagram such as
a) Flow diagram
b) String diagram
c) Cycle graph
Computation of Standard Time
• OT + PRF + PA + RA + CA + SA = ST
• ST + POA = AT
• Standard Time + Policy Allowance = Allowed Time
OT = Observed Time
PRF = Performance Rating Factor
PA = Process Allowance
RA = Relaxation Allowance
CA = Contingency Allowance
SA = Special Allowance
ST = Standard Time
POA = Policy Allowance
AT = Allowed Time
Work Sampling Procedure
• In work sampling study, the works study engineer takes a great number of
observations of a worker or machine random times throughout the working shift
or day. He records precisely what the worker or the machine is doing
(i.e., working or idle) at the time of observation. No stop-watch is used. The
objective is to find the frequency of occurrence of every work element.
• The technique is based upon the laws of probability. It is based on the statistical
premise that the occurrences in an adequate random sample observations of an
activity will follow the same distribution pattern that might be found in a
lengthy, continuous study of the same activity. Algebraically put,
• P= x / N = (Number of observation of the activity) / (Total number of observations)
• Thus, the work sampling method, as stated above consists of taking a number of
intermittent, randomly spaced instantaneous observations of the activity being
studied and from this determining the percent of time devoted to each aspect of
• In order to set a standard by the work sampling procedure, it is necessary to level
or rate the performance of the worker being studied (as with stop watch time
study) and to count the actual number of units produced during the period under
Steps in Work Sampling
• The work sampling study consists of essentially the following steps:
1. Determine the objective of the study, including definitions of
the states of activity to be observed.
2. Plan the sampling procedure including:
(a) An estimate of the percentage of time being devoted to
each phase of the activity.
(b) The setting of accuracy limits.
(c) An estimation of the number of observations required.
(d) The selection of the length of the study period and the
programming of the number of readings over this period.
(e) The establishment of the mechanics of making the
observations, the route to follow and the recording of data.
3. Collect the data as planned.
4. Process the data and present the results.
Advantages of Work Sampling over Conventional
Work Measurement Methods
1. Economical to use and usually costs considerably less than
a continuous time study.
2. Can be used to measure many activities that are impractical
to measure by time study.
3. Not necessary to use a trained work measurement analyst
to make the observations.
4. Work sampling measurements may be made with a pre-
assigned degree of reliability.
5. Measures the utilization of people and equipment directly.
6. Eliminates the necessity of using stop watch for
7. Provides observation over a sufficiently long period of time
to decrease the chance of day to day variation affecting the
• Planning is fundamental to management. Forecasting, which involves a study of the present and
past, with a view to estimate the future activities, which forms the basis of planning.
• Forecasting is important to production and operations management in a number of decisions; to
make an annual plan of production / operations, to make a weekly or daily schedule of production or
service operations, to procure or manufacture the raw materials or components and to plan the
manpower, requirement amongst various other things.
• Advantages of forecasting are stated as under:
• Past data provides guidance for future and is a tool to train. Forecasts based on past data helps in
• Forecasting of customer’s demand help in strategy planning, capacity planning, location planning and
• Past data provides trends, which are used to forecast the future trends and helps to decide on
products or services pursued or to be stopped or abandoned.
• Forecast of manufacturing is essential to ensure the availability of materials for sub-assemblies and
• Forecasting by specifying future demands reduce the costs of readjustment of operations in response
to the unexpected deviation.
• Accurate estimation of future demands of goods and services through forecasting increases the
• Forecasting is an important component of strategic and operational planning.
• Utilization of the plant is improved with correct forecasts.
Forecast Error• Normally there is a gap between forecasted demand and actual demand. If the
forecasted demand is less than the actual demand,
• Forecast error is the numeric difference between the forecasted and actual
• There are two measures of error as stated below.
• Mean Absolute Deviation (MAD): MAD is the ratio of sum of absolute deviations for all
periods to the total number of periods studied. Deviation means Difference between
Forecasted Demand and actual demand for that period.
• It is represented as below: MAD =
(sum of absolute values of deviations for all periods)
(Total number of periods studied = n)
• Bias: Bias is worked out by using algebraic difference between forecasted and actual
demands for all the periods. The algebraic differences are summed up and divided by the
total number of periods studied.
• Bias is represented as: Sum of algebraic errors for all the periods
Total number of periods studied
• Bias indicates the directional tendency of the forecast errors.
Tracking Signals (TS)
• The TS indicates the direction of the forecasting error.
• If TS is positive – increase the forecasts, but
• if TS is negative – decrease the forecasts.
• It is the ratio of the cumulative algebraic sum of the deviations
between the forecasts and the actual values to the mean absolute
• If the TS is around zero, the forecasting model is performing well. A
forecast is considered out of control, if the value of Tracking Signal
exceeds plus or minus 4.
• Mathematically, Tracking Signal is presented as below:
Algebraic sum of deviations
Tracking Signals (TS) = ------------------------------------------------------
Mean Absolute Deviations (MAD)
• Qualitative Approaches: Qualitative approaches include five forecasting techniques:
• Grass-root Forecasting: People at the grass-root level in the organization, who are in
direct contact with the phenomenon under study, are asked to give inputs in forecasting.
For example, sales representatives could be asked to give information on current market
conditions. These inputs are satisfactory for short term planning.
• Focused Forecasting: This method integrates common sense, grass-root inputs and
computer simulation processes to assess the forecasts. For example, an Income-tax
Inspector would forecast the earning of a store from the number of customers entering
the store. He would multiply the number of customers with an expected average value of
purchases made by each customer. This gives him a rough estimate of the earnings of the
• Historical Analogy: Information of past events is used to give insights into prediction on
related future developments. It is assumed that the future events would follow similar
pattern as of the past events. This approach gives inaccurate forecasts as the past events
might not have had similar conditions as that which the future events could encounter.
For example, demand for laptop computers based on the past sales of desktop computers
does not give a correct forecast
• Panel Consensus: A group of knowledgeable persons are invited for an open discussion on
a topic selected for forecasting. It is believed that a single person might not be able to
consider all the aspects on the topic. Collective effort of the group invited to interact and
come to a consensus on a subject, is considered as the acceptable approach for
forecasting. The group could have persons from marketing, engineering, sales, materials
management, etc. The basic objective of this approach is to use the creatively of the
members of the group. This process is not sophisticated, and works well as the group
members have a true sense of participation and bring out workable solutions.
• Delphi Method: A number of experts associated with the subject are asked to
give their response to pre-selected questions, which would help in forecasting. The
experts could be persons from within the organization or from outside the organization.
• The coordinator for forecasting obtains the responses from the experts, complies and
analyses the responses and gives feedback to the experts involved in the process.
• The coordinator again formulates new questions to obtain the response from the experts
again. The process of obtaining responses is repeated in few rounds until the coordinator
is satisfied that a good conclusion is reached on the subject.
• As the experts come from diverse backgrounds, they look at the issue independently from
their own perspectives. On getting the feedback, they are able to appreciate the views of
the experts from other expertise fields also. This gives them better understanding of the
issue. The result of Delphi is arrived by pooling up the knowledge of various experts and
brings very good results.
Merits of Delphi: Delphi is preferred for the following reasons:
• It involves knowledgeable persons on the subject.
• Members in Delphi exercise come from different backgrounds and therefore the method
is able to consider and pool up various aspects of the issue.
• Since the members do not meet each other, their views are not influenced by the views of
• No conflict of personality is seen in the process.
• No dominance by any influential expert on the other experts.
• It gives quick results as compared to quantitative techniques and helps in timely decisions.
• Quantitative forecasting techniques use the past numerical data for forecasting
the future events. The quantitative techniques use time series, which includes the
• Simple Average.
• Simple Moving Average: In this method, the number of past periods is selected.
The average of the selected number of periods is calculated instead of average of
all the periods taken together. In this case, the average is changing as we move
forward and reflects the demand of the recent period more closely. As the one
period elapses, the demand for the oldest period is not counted and the demand
for the most recent period is added for the next calculation.
• Weighted Moving Average: In case the planner wants to give different weights to
different periods, he could use weighted moving average method by incorporating
some weight for old demand instead of equal weightage for all past periods under
consideration. Weighted Moving Average (WMA) = Sum of the product of weight
factor and demand for the month
• Exponential Smoothing: This method is more popular. The pattern of weight is
exponential in form. In this method, the demand for the most recent period is
weighted most heavily and the weights of just preceding periods are lowered
exponentially. As we go back in time, the weight is decreased exponentially. This
method cannot be used for an item, which has trend or seasonal pattern. This is
best suited for independent demand with no trend and seasonality.
• A new forecast is presented as under: N F = OF+ α (AD-OF) Where NF = New
Forecast, OF = Old Forecast, α = Weight Factor, normally called smoothing
coefficient and A D = Actual Demand.
• To forecast a time series that has a long-term linear trend. The type of time series for which the trend
projection method is applicable shows a consistent increase or decrease over time; because it is not stable;
following Techniques are used:
• Equation for Linear Trend Tt = b0 + b1t
• Calculating the Seasonal Indexes
• De-seasonalizing the Time Series
• Seasonal Adjustments
• Cyclical Component
• Regression Analysis
• Curve Fitting: Curve fitting is the process of finding a linear or non-linear, relationship between the
dependent variable (which is usually the demand in forecasting) and an independent variable. It is helpful in
causal methods where the demand is said to depend upon some factor(s), as also in the decomposition
methods of time series analysis where a trend-line is to be obtained prior to forecasting/estimating the
demand in a future time period.
• CAUSAL METHODS
• Regression and Correlation - Regression is an estimation of the dependent variable, say Y, from the
independent variables X1, X2, X3, . . . XN. A regression equation is an equation representing this relationship.
• Equation of a Line is Y = a + bx : In case of a straight line: If there are N points (X1, Y1), (X2, Y2), . . .
(XN, YN), then the constants, a and b are determined by solving the simultaneous equations.
1. ∑ Y = a.N + b ∑ X
2. ∑ XY = a ∑ X + b ∑ X²
Y X X² XY
. . . .
. . . .
. . . .
∑ Y ∑ X ∑ X² ∑ XY
2.5 Capacity planning
• Capacity of a facility is referred to as its capability to produce.
• Definition of Capacity: Capacity is the rate of output from an operating system per unit
time. Capacity is based on the output that the system can produce, store, and transport.
• For example, a cement plant could be capable to produce 3000 tons per day (tpd) of
cement. Output is also measured in terms of number of products that could be produced
from the process.
• Capacity is classified in many ways such as
budgeted, dedicated, productive, protective, rated, safety, standing, and demonstrated.
Mainly, the classification of capacity is talked in terms of:
• Designed or rated capacity
• Planned capacity
• Demonstrated capacity
• Designed or Rated Capacity: Designed capacity is also the maximum capacity, which a
facility can achieve. It defines the highest normal output that a process could achieve.
Designed capacity is usually higher than the normal output rate.
• The designed capacity of a process is calculated by taking into account the following:
• • Number of machines available.
• • Capacity of each machine.
• • Number of shifts operated.
• • Duration of each shift.
• • Number of workdays in the period under consideration.
• Planned Capacity: Planned capacity is the capacity, which is maintained
or achieved in normal operations. Production plans and schedules are
worked out based on planned capacity. Planned capacity is usually less
than the designed capacity due to the following reasons:
• Unexpected demand comes from some customers. Important
customers often ask for shorter delivery to meet their urgent
requirements, which need quick response and disturbs the planned
• Preventive and predictive maintenance need time and influence
the available time for production. Any variation in the time taken in
completing the preventive and predictive maintenance would adversely
affect the planned capacity. Preventive and predictive maintenance are
important for uninterrupted work as the possibilities of breakdowns are
• Corrective repairs need time to take care of the unexpected
breakdowns, which adversely affect the capacity of the process.
• Running at maximum capacity could be sustained for short time as
both men and machines are strained, if they have to operate at the
maximum capacity. If it is not taken care, the effect is harmful to both men
and the machines. Therefore a reasonable efficiency is taken into
consideration while determining the planned capacity. Normally it is 85 to 90
• Demonstrated Capacity
• The actual level of output for a process over a period of time is known as the
demonstrated capacity. Demonstrated capacity deals with the actual production
over a time rather than the calculated designed capacity or planned capacity.
Demonstrated capacity is determined by averaging the recorded figures of actual
output over a period of time.
• Demonstrated Capacity might differ from both the designed and the planned
capacities for various reasons, such as:
• Product mix
• Operator skill and experience
• Health of equipment or machines
• Type of jobs
• Quality of materials
• Inaccurate standards for process performance
• Idling time
• Rejection due to poor quality
• Training time of the operators
• Other factor
• Efficiency = Standard time / Actual time
• Utilization = Actual hours/Scheduled available hours
• Planned capacity = Designed capacity × Efficiency × Utilization factor
• Productivity = Efficiency x Utilization
• Illustration : A worker is employed for 12 hours. During this period he
takes 8 hours to complete a job with the standard time of 7 hours. Calculate
the productivity of the workers as a percentage.
• Efficiency = Actual hours used / Standard time allowed
= (7 /8) x100 = 87.5%
• Utilization = Actual time worked / Hours available
= (8 / 12) x100 = 66.67%
• Productivity = Efficiency x Utilization
= 87.5% x 66.67% = 58.83%
• Productivity = Standard hours of output / Clock time scheduled
= (7 / 12) x 100 = 58.33%
• Capacity Requirement Plans: Forecast for demand of the product is the base for
estimating the short-term workload on the facility. Companies make plans for a
period of about one year and workout the expected output of different products
or services based on the forecast. Capacity Requirement Plans (CRP) looks into
the individual operations by using the routine information. Each operation is
valued in standard hours, which results in total hours required per work center
per time period.
• Rough Cut Capacity Plans: Rough Cut Capacity Plans (RCCP) serves the Master
Production Schedule (MPS) for one or two years. RCCP is used to check the
balance of scheduled items, normally finished goods, and time period. RCCP
looks at the workload for each critical area by time period.
• Resource Requirement Planning: Resource Requirement Planning (RRP) serves
the production plan and covers a number of years. Longer-term capacity
requirements are difficult to determine due to the uncertainties in the future
market demand and technologies. RRP is interactive. What-if module is used.
• Input /Output control and operation sequencing: Input /Output control and
operation sequencing are related to the daily plan and provides the means to
control the volume of work and determines the priority sequence in which it is
required to be produced.
• Input /Output Control: It is a control technique where the planned and actual
inputs are monitored. Actual input is compared to planned inputs to identify
where work center output might vary from the plan because work is not
available at the work center. Actual output is also compared to the planned
output to identify problems within the work center. Planned and actual inputs as
well as outputs have an impact on the Work-in-Process (WIP) inventory.
• Calculation of Capacity: Following steps are taken in the calculation of capacity:
1. Prepare a flow chart for the process. Stream line the operation or plan parallel operations as
2. Assign time for every activity in the process over the same time period for which the capacity of the
process is to be measured; say year, month, week or a day.
3. Use a common unit of measurement for the entire process.
4. Determine the designed capacity of the process. Designed capacity of individual activity as well as
the overall capacity of the process should be worked out. This would require consideration of
operation whether in sequence or in parallel.
5. Work out planned capacity for the overall process based on utilization factor and efficiency.
6. Determine the demonstrated capacity based on the observed results over time.
7. Compare demonstrated, planned and designed capacities and decide on
1. Reducing the input rate.
2. Adding resources to increase the upper limit on process capacity.
3. Evaluating the current uses of capacity.
• The management of capacity is the key planning responsibility of operations managers. All other
operations planning takes place within the framework set by capacity decisions. Capacity management
is concerned with the matching of the capacity of the operating system and the demand placed on
that system. A Systematic Approach to Capacity Decisions
• Although each situation is somewhat different, a four-step procedure generally can help managers
make sound capacity decisions. In describing this procedure, we assume that management has already
performed the preliminary step of determining existing capacity.
1. Estimate future capacity requirements.
2. Identify gaps by comparing requirements with available capacity.
3. Develop alternative plans for filing the gaps.
4. Evaluate each alternative, both qualitative and quantitative, and make a final choice.
• The demand forecast has to be converted to a number that can be compared directly
with the capacity measure being used. Suppose that capacity is expressed as the
number of available machines at an operation. When just one product (service) is being
processed, the number of machines required, M, is
• Number of machines required =
• Processing hours required for year's demand
• Hours available from one machine per year after deducting desired cushion
• M = -----------------
• N (1 – (C/100))
• Where D = number of units (customers) forecasts per year
• P = processing time (in hours per unit or customers)
• N = total number of hours per year during which the process operates
• C = desired capacity cushion
• If multiple products or services are involved, extra time is needed to change over from
one product or service to the next. Setup time is the time required to change a
machine from making one product or service to making another.
Number of machines required=
Processing and setup hours required for year's demand, summed over all products
• M = ----------------------------------------------------------------------------------------
Hours available from one machine per year after deducting desired
(Dp1 + (D/Q)s) + (Dp2 + (D/Q)s) + ……..(Dpn + (D/Q)s)
• M = ----------------------------------------------------------------------
N (1 – (C/100))
• Where Q = number of units in each lot & s = setup time (in hours) per lot
• Always round up the fractional part unless it is cost efficient to use short-term
conditions such as overtime or stock outs to cover any shortfalls.
2.6 Process Planning:
• Process Planning is defined as the systematic determination of methods by which a
product is to be manufactured economically and competitively. It consists of selecting the
proper machines, determining the sequence of operations, specifying the inspection
stages, and tools, jigs and fixtures such that the product can be manufactured as per the
required specification. The detailed process planning is done at each component level. :
The activities that are associated with process planning are:
• List of operations to be performed and their sequence.
• Specifications of the machines and equipment required.
• Necessary tooling, jigs and fixtures. • Gives the manufacturing details with respect
to feed, speed, and depth of cut for each operation to be performed.
• It gives the estimated or processing time of operations.
• Steps in Process Planning
1. Detailed study of the component drawings to identify the salient features that influence
process selection, machine selection, inspection stages and tooling required.
2. List the surfaces to be machined.
3. The surfaces to be machined are combined into basic operations. This step helps in
selection of machines for operation.
4. Determine the work centre, tools, cutting tools, jigs and fixtures and inspection stages
5. Determine the speed, feed and depth of cut for each operation.
6. Estimate the operation time.
7. Find the total time to complete the job taking into account the loading and unloading
times, handling times, and other allowances.
8. Represent the details on the process sheet.
• A number of tools help production manager to understand the complexities of process design
and redesign. Flow Diagrams: It is a drawing used to analyse the movement of people or
material or product to understand, analyse and communicate the process to others.
• Assembly Charts: Assembly charts are used to provide an overall macro view of how
materials and sub-assemblies are assembled to form finished products. These charts list all
major materials, components, sub-assembly operations, inspections and assembly
• Process Charts: A process chart is understood as a graphic representation of events and
information relating to them during a series of actions or operations
• Application of BCA (Break-even Cost Analysis) in the choice of machines or process, this
analysis is the most convenient method for selecting the optimum method of manufacture or
machine amongst the competing ones. The cost estimates of the competing methods (both
fixed and variable costs) are prepared and a particular quantity N is determined at which the
alternatives give the same cost.
• If the quantity to be manufactured is less than N the process with lower fixed cost is selected
and if the quantity to be produced is more than N the process with lower variable cost is
• Let FA = the Annual Fixed Cost of Machine A & FB = the Annual Fixed Cost of Machine B
• VA = Variable Cost per unit for Machine A & VB = Variable Cost per unit for Machine B
• N = Quantity at which costs on both machines will be equal. Flow Diagrams: It is a drawing
used to analyse the movement of people or material or product to understand, analyse and
communicate the process to others.
Total cost on machine A = Total cost on Machine B for Quantity N
F A + VA.N = FB+VB.N & N (VA-VB) = (FB- FA), therefore, N = (FB – FA) / (VA – VB)
Principles of Layout
• Plant Layout: Meaning, Definition and Scope: A plant layout refers to the arrangement of
machinery, equipment and other industrial facilities – such as receiving and shipping
departments, tools rooms, maintenance rooms, employee amenities, etc., for the purpose
of achieving the quickest and smoothest production at the least cost.
(i) The Principle of Minimum Travel: Men and materials should travel the shortest distance
between operations so as to avoid waste of labour and time and minimize the cost of
(ii) Principle of Sequence: Machinery and operations should be arranged in a sequential
order. This principle is best achieved in product layout, and efforts should be made to
have it adopted in the process layout.
(iii) Principle of Usage: Every foot of available space should be effectively utilized. This
principle should receive top consideration in towns and cities where land is costly.
(iv) Principle of Compactness: There should be a harmonious fusion of all the relevant
factors so that the final layout looks well integrated and compact.
(v) Principle of Safety and Satisfaction: The layout should contain built in revisions for
safety for the workmen. It should also be planned on the basis of the comfort and
convenience of the workmen so that they feel satisfied.
(vi) Principle of Flexibility: The layout should permit revisions with the least difficulty and at
(vii) Principle of Minimum Investment: The layout should result in savings in fixed capital
investment, not by avoiding installation of the necessary facilities but by an intensive use
of available facility
• Process Layout : Also called the functional layout, layout for job lot manufacture
on batch production layout, the process layout involves grouping together of like
machines in one department. For example, machines performing drilling
operations are fixed in the drilling department machines performing casting
operations are grouped in the casting department;
• Product Layout: Also called the straight-line layout or layout for serialized
manufacture (the term straight-line, as applied to production, refers to the
movements which do not involve backtracking of crossing of the line of movement of
the product), the product layout involves the arrangement of machines in one line
Process Layout Product Layout
1. Reduction in the investment on
machines as they are general purpose
1. Mechanisation of materials handling
and consequent reduction in materials
2. Greater flexibility in production. 2. Avoidance of bottlenecks.
3. Better and more efficient supervision
possible through specialization.
3. Economy in manufacturing time.
4. Better scope for expansion. 4. Better production control.
5. Better utilization of men and
5. Less floor area required per unit of
6. Easier to handle breakdowns of
equipment by transferring work to
another machine or station.
6. Minimum investment in work-in-
7. Full utilization of the plant. 7. Early detection of mistakes or badly
8. Greater incentive to individual
workers to raise the level of their
8. Greater incentive to a group of
workers to raise their performance.
Cellular Manufacturing (CM) Layouts
• In cellular manufacturing (CM), machines are grouped into cells, and the
cells function somewhat like a product layout within a larger shop or
process layout. Figure is an illustration of CM. Each cell in the CM layout is
formed to produce a single parts family – a few parts all with common
characteristics, which usually means that they require the same machines
and have similar machine settings.
Fixed Position Layout
• As the term itself implies, the fixed position layout involves the movement of
men and machines to the product which remains stationary. In this type of
layout, the material or major component remains in a fixed location, and
tools, machinery and men as well as other pieces of material are brought to this
location. The movement of men and machines to the product is advisable
because the cost of moving them would be less than the cost of moving the
product which is very bulky.
Criteria for Selection and Design of Layouts
• The various methods used for selecting the best layout among
several alternatives layouts are illustrated below with example:
1. Travel Chart Method
• The travel chart which is also known as from-to-chart is helpful in
analysing the overall flow of material. It shows the number of
moves made between departments and identifies the most
2. Load-Distance Analysis Method
• Load-distance analysis is useful in comparing alternative layouts
to identify the one with the least product or material travel time
per period. This method helps to minimise transportation costs
by evaluating alternate layouts on the basis of the total of the
product of actual distance moved and the load (the units moved)
for each layout alternative. Alternatively, the material handling
costs can be computed directly by multiplying the number of
loads by the material-handling cost per load. The layout with the
lowest total (load x distance) or total (load x cost) is the best
PROJECT MANAGEMENT – DEFINITION
• Project is a activity for development product in time, within
specified budget, in conformance with the pre-determined
performance specifications. It is a set of finite activities that
are usually prepared only once and have well designed
objectives, using a combination of human and non-human
resources within limits of time. It consists of a series of non-
routine, interrelated activities with a goal that must be
completed with a set amount of resources and within a set
• Project Management is a scientific way of
planning, implementing, monitoring and controlling the
various aspects of project, such as time, money, materials and
other resources (e.g., manpower) with the intention of
achieving the basic objectives or goals (technical, costs, time)
while formulating a project.
• Project Management Institute (PMI) identifies six basic
functions that project management must address. These
• Manage the project’s scope to define-the goals and the
work to be done in sufficient detail to facilitate
understanding and correct performance by participants,
• Manage the human resources involved in a project
• Managing communications to see that appropriate parties
are informed and have sufficient information to keep the
• Manage time by planning and meeting schedules,
• Manage quality so that project results are satisfactory, and
• Manage costs to see that project is performed at the
minimum possible cost and within the budget, if possible.
A Framework for Project Management Issues:
• Strategy The high-level requirements of the project and
means to achieve them.
• Structure The organisational arrangement to carry out the
• Systems The methods for work to be designed
monitored and controlled.
• Staff Selection, recruitment, management and
leadership of staff working on the project staff
working on the project.
• Skills The management and technical tools available
to the project manager and the staff.
• Style/culture The underlying way of working and
interrelating within he work team or
• Stakeholders Individuals and groups who have an
interest in the project process and outcome.
Project Selection Technique :
• Cost benefit analysis • Risk and sensitivity analysis
• Project Execution Planning Techniques
• Work breakdown structure (WBS),
• Project execution plan (PEP),
• Project responsibility matrix, and Project management manual.
• Project Scheduling and Coordinating Techniques
• Bar chart, • Project life cycle ,
• Line of balance (LOB), Networking techniques (PERT/CPM).
• Project Monitoring and Progressing
• Progress measurement technique,
• Performance monitoring technique,
• Updating, reviewing and reporting technique.
• Project Cost and Productivity Control • Productivity budgeting
• Value engineering, and Cost calculation using WBS.
• Project Communications and Clean-up Techniques Control
Room, and Computerised information systems.
• Bar Chart: This is a pictorial device in which the activities are
represented by horizontal bars on the time axis. The left-hand end of
the bar shows the beginning time, the right-hand end the ending time.
The duration of the activity is indicated by the length of the bar. The
manpower required for the activity is shown by a number on the bar.
• Gantt chart is one of the oldest techniques used for
planning, scheduling and controlling of projects. Gantt chart was
developed by H.L. Gantt in 1917 and is in use till today. Gantt charts
were used even before computer came on the scene. Even
today, Gantt chart applies to manufacturing as well as service
• Gantt chart is a graphical representation of a series of activities drawn
to a. time scale. Horizontal axis (X-axis) represents time and vertical
axis (Y-axis) shows the activities to be performed. The Gantt chart
shows activities to specific jobs at individual / work centers by
horizontal bars. Also known as a ‘bar chart’ because of its graphic
presentation of the information, the position and the length of the
horizontal bar indicates the start and completion date of the activity
• These are more sophisticated than the traditional bar chart. In these
techniques, the activities, events, and their inter-relationships are represented
by a network diagram, also called an arrow diagram.
• Network-Based Scheduling Techniques: These techniques are the Program
Evaluation and Review Technique (PERT) and the Critical Path Method (CPM).
Both are based on the use of a network or graphical model to depict the work
tasks being scheduled. Both were designed to schedule long-duration projects
that were to be performed only once or in low volume. These are more
sophisticated than the traditional bar chart. In these techniques, the
activities, events, and their inter-relationships are represented by a network
diagram, also called an arrow diagram.
• Network-Based Scheduling Techniques: These techniques are the Program
Evaluation and Review Technique (PERT) and the Critical Path Method (CPM).
Both are based on the use of a network or graphical model to depict the work
tasks being scheduled. Both were designed to schedule long-duration projects
that were to be performed only once or in low volume.
• Computer programs are available for both PERT and CPM, which are helpful in
developing timely information about large projects, particularly those that are to
be updated and revised several times before completion. Following techniques
can be used to solve a problem through a network:
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