Operations management

Prepared By: - Ms.Shivangi Kulshrestha - Assistant Professor,SRCEM, Palwal
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STUDY NOTES
Operations Management
MBA/114 (MBA 2nd Sem.)
Department of Management
SHRI RAM COLLEGE OF ENGINEERING AND MANAGEMENT
SRCEM, Palwal

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UNIT - I
What is operation management (OM)?
Operation Management is a way or means through which the listed objectives of an operating
system is achieved. There is always a confusion between the word OM & PM (Production
Management). It is accepted norm that OM includes techniques which are enabling the
achievement of operational objectives in an operation system.
The operation system includes both manufacturing sector as well as service sector, but when you
use the word PM, you should be careful to note that it refers to the manufacturing sector but not
the service sector.
Suppose, you are designing a layout for the hospital you should say that you are applying
Operations Management Technique not the Production Management Technique. When you
design a layout for a manufacturing sector you can say that you are applying Production
Technique or Operation Technique or vice versa. From, the above discussion we can come to a
conclusion that production management is a subset of Operations Management.
Operation Management /Production is the process by which raw materials and other
inputs are converted in to finished products
Production management refers to the application of management principles to th
e production function in a factory. In other words, production management invol
vesapplication of planning, organizing directing and controlling to the production process.
Operations management is the process in which resorurces/inputs are converted into more useful
products
Production management and operations management are differentiated bas
ed ontangibilities of finished goods/services
Operation Management
Production is the process by which raw materials and other inputs are converted
intofinished products
Production management refers to the application of management principles to th
e production function in a factory. In other words, production management invol
vesapplication of planning, organising, directing and controlling to the production process.
Operations management is the process in which resorurces/inputs are converted into moreuseful
products
Production management and operations management are differentiated bas
ed ontangibilities of finished goods/services
Operation managers are required to make a series of decisions in the production function.
The decisions made by operation managers about the activities of production
systemstend to fall into three general categories, viz.,
1.Strategic decisions
2.Operating decisions
3 . C o n t r o l d e c i s i o n

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The Transformation Role of Operations Management
We say that operations management performs a transformation role in the process of converting
inputs such as raw materials into finished goods and services. These inputs include human
resources, such as workers, staff, and managers; facilities and processes, such as buildings and
equipment; they also include materials, technology, and information. In the traditional
transformation model outputs are the goods and services a company produces. This is shown in
Figure 1-2.
At a manufacturing plant the transformation is the physical change of raw materials into
products, such as transforming steel into automobiles, cloth into jackets, or plastic into toys. This
is equally true of service organizations. At a university OM is involved in organizing resources,
such as faculty, curriculum, and facilities, to transform high school students into college
graduates. At an airline it involves transporting passengers and their luggage from one location
to another
Based on the aspects mentioned above, the scope of operations management is defined to be
ten important decisions in operations management are as follows:
1. The design of products and services
2. manage the quality
3. the strategy process
4. strategic location
5. Layout strategy
6. Human resources
7. Supply chain management
8. inventory management
9. scheduling
10. Maintenance

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Objectives of Production/Operations Management:
Some of the important objectives of production/operations management are :
(i) Maximum customer satisfaction through quality, reliability, cost and delivery time.
(ii) Minimum scrap/rework resulting in better product quality.
(iii) Minimum possible inventory levels (i.e.,optimum inventory levels).
(iv) Maximum utilisation of all kinds of resources needed.
(v) Minimum cash outflow.
(vi) Maximum employee satisfaction.
(vii) Maximum possible production (i.e., outputs).
(viii) Higher operating efficiency.
(ix) Minimum production cycle time.
(x) Maximum possible profit or return on investment.
(xi) Concern for protection of environment.
(xii) Maximum possible productive
NATURE OF PRODUCTION/OPERATIONS:
The nature of production or operations can be better understood by viewing the manufacturing
function as :
(i) Production/operations as a system,
(ii) Production/operations as an organisational function,
(iii) Production/operations as a conversion or transformation process and
(iv) Production/operations as a means of creating utility.
These four distinct views are discussed in the following section.
Production/Operations as a System
This view is also known as "systems concept of production". A system is defined as the
collection of interrelated entities. The systems approach views any organisation or entity as an
arrangement of interrelated parts that interact in ways that can be specified and to some extent
predicted. Production is viewed as a system which converts a set of inputs into a set of desired
outputs.
A production system has the following elements or parts :
(i) Inputs,
(ii) Conversion process or transformation process,
(iii) Outputs
(iv) Transportation subsystem,
(v) Communication subsystem and
(vi) Control or decision making subsystem.

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Production/Operations as a Conversion/Transformation Process
The conversion or transformation sub-system is the core of a production system because it
consists of processes or activities wherein workers, materials, machines and equipment are used
to convert inputs into outputs. The conversion process may include manufacturing processes
such as cutting, drilling, machining, welding, painting, etc., and other processes such as packing,
selling, etc.
Any conversion process consists of several small activities referred to as "operations" which are
some steps in the overall process of producing a product or service that leads to the final output.
Production/Operations as a Means of Creating Utility:
Production is defined as the process of adding to the value of outputs or the process of creating
utility in outputs. "Utility" is the power of satisfying human needs. During the process of
converting the raw materials into finished goods, various types of utilities are created while
adding value to the outputs. These
Types of utilities are :
(i) Form utility: which is created by changing the size, shape, form, weight, colour, smell of
inputs in order to make the outputs more useful to the customers. For example, iron ore is
changed to steel, wood is changed to furniture, etc.
(ii) Place utility: which is created by changing the places of inputs or transporting the inputs from
the source of their availability to the place of their use to be converted into outputs. For example
the iron ore and coal are transported from the mines to the steel plant to be used in the
conversion process.
(iii) Time utility: which is created by storage or preservation of raw materials or finished goods
which are in abundance sometime, so that the same can be used at a later time when they become
scarce due to higher demand exceeding the quantity available.
(iv) Possession utility: which is created by transferring the possession or ownership of an item
from one person to another person. For example, when a firm purchases materials from a
supplier, the possession utility of the materials will increase when they are delivered to the
buying firm.
(v) Service utility: which is the utility created by rendering some service to the customer. For
example, a doctor or a lawyer or an engineer creates service utility to a client/customer by
rendering service directly to the client/customer.
(vi) Knowledge utility: which is created by imparting knowledge to a person. For example, a
sales presentation or an advertisement about some product communicates some information
about the product to the customer, thereby imparting knowledge.
Challenges in Operations Management
Challenges in Operations management arise as a result of need of efficient and effective systems.
Efficient systems are required for making cost effective and sustainable processes. Effective
systems are required to support customer requirements. Rising customer expectations,
technological developments, and growing awareness about environmental issues have given new
challenges to the field of operations management. Some of the possible future challenges that
operations management may have to face are as follows :
(a) Challenges Due to Marketplace Development
Marketplace is now demanding customized products in place of mass marketed products.
This has created a challenge for operations management to develop systems which are
capable to produce wide varity of products at low cost. Secondly, specially in service
industry, customer is becoming partner - often unwillingly. For example in a self serving

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restaurant customer has to pick his order on a beep. This trend is coming to manufacturing
also giving pressure to operations management.
(b) Challenges Due to Economic Reforms
This is particularly applicable in Indian Scenario after 1991's economic reforms. Before
the economic reforms, Indian Industry enjoyed undue advantage due to high import
tariffs. In some cases tariff rates were as high as 350 percent. Among the manychanges
effected, tariff reductions demanded a basic shift in the approach of business. "Cost plus
some margin is the price" was approach before economic reforms. After reforms prices
are guided by market forces. Subtract some margin from this price to get that cost under
which a business has to deliver the products. To match the offerings of overseas players,
Indian companies were also expected to improve their performance with respect to cost,
delivery, quality and service.
(c) Challenges Due to Factors of Production
(d) Factors of production such as managing an increasingly diverse workforce, shortage of
skilled workers, availability of raw materials from sustainable sources are challenges to
modern systems of operations management.
(d) Challenges Due to Technological
Environment Information technology is one of the most important enabler for developing
and easy implementation of tools such as ERP, computer aided manufacturing, Flexible
manufacturing system etc. Now the challenge is investing in right technology and mastering
it. It is difficult for any small and medium company to implement regularly changing
technology.
(e) Challenges Due to Regulatory
Environment Global pressure of intellectual property rights protection has created a pressure
on developing nation to keep their systems in alignment of requirement of these legal
provisions. Similarly new financial reporting systems, environmental protection laws are
giving challenge to operation managers which are new to this field.
(f) Challenges Due to Innovative Business Models With the advent of new technology,
particularly IT and related e-commerce, new business models are emerging. These new
business models such as e - choupal of ITC, flipkart have posed new challenges to operation
managers with respect to supply chain management.
*SCOPE OF PRODUCTION AND OPERATION MANAGEMENT
Production and operations management concern with the conversion of inputs into outputs, using
physical resources, so as to provide the desired utilities to the customer while meeting the other
organizational objectives of effectiveness, efficiency and adaptability. It distinguishes itself from
other functions such as personnel, marketing, finance, etc., by its primary concern for
‘conversion by using physical resources.’ Following are the activities which are listed under
production and operations management functions:
1. Location of facilities
2. Plant layouts and material handling
3. Product design
4. Process design
5. Production and planning control
6. Quality control
7. Materials management
8. Maintenance management.

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OTHER SCOPE OF OPERATIONS MANAGEMENT
The scope of operations management ranges across the organization. Operations management
people are involved in product and service design, process selection, selection and management
of technology, design of work systems, location planning, facilities planning, and quality
improvement of the organization’s products or services. The operations function includes many
interrelated activities, such as forecasting, capacity planning, scheduling, managing inventories,
assuring quality, motivating employees, deciding where to locate facilities, and more. We can
use an airline company to illustrate a service organization’s operations system. The system
consists of the airplanes, airport facilities, and maintenance facilities, sometimes spread out over
a wide territory. The activities include:
Forecasting such things as weather and landing conditions, seat demand for flights, and the
growth in air travel.
Capacity planning, essential for the airline to maintain cash flow and make a reasonable profit.
(Too few or too many planes, or even the right number of planes but in the wrong places, will
hurt profits.)
Facilities and layout, important in achieving effective use of workers and equipment.
Scheduling of planes for flights and for routine maintenance;
scheduling of pilots and flight attendants; and scheduling of ground crews, counter staff, and
baggage handlers. Managing inventories of such items as foods and beverages, first-aid
equipment, inflight magazines, pillows and blankets, and life preservers.
Assuring quality, essential in flying and maintenance operations, where the emphasis is on
safety, and important in dealing with customers at ticket counters, check-in, telephone and
electronic reservations, and curb service, where the emphasis is on efficiency and courtesy.
Motivating and training employees in all phases of operations.
Locating facilities according to managers’ decisions on which cities to provide service for,
where to locate maintenance facilities, and where to locate major and minor hubs.
A number of other areas are part of, or support, the operations function.
They include
1) purchasing,
2) industrial engineering,
3) distribution, and
4)maintenance.
Purchasing has responsibility for procurement of materials, supplies, and equipment. Close
contact with operations is necessary to ensure correct quantities and timing of purchases. The
purchasing department is often called on to evaluate vendors for quality, reliability, service,
price, and ability to adjust to changing demand. Purchasing is also involved in receiving and
inspecting the purchased goods.

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Industrial engineering is often concerned with scheduling, performance standards, work
methods, quality control, and material handling.
Distribution involves the shipping of goods to warehouses, retail outlets, or final customers.
Maintenance is responsible for general upkeep and repair of equipment, buildings and grounds,
heating and air-conditioning; removing toxic wastes; parking; and perhaps security.
WHY LEARN ABOUT OPERATIONS MANAGEMENT?
There are many career-related reasons for wanting to learn about operations management,
whether you plan to work in the field of operations or not. This is because every aspect of
business affects or is affected by operations. Operations and sales are the two line functions in a
business organization. All other functions—accounting, finance, marketing, IT, and so on—
support the two line functions.
Among the service jobs that are closely related to opera tions are financial services (e.g., stock
market analyst, broker, investment banker, and loan officer), marketing services (e.g., market
analyst, marketing researcher, advertising manager, and product manager), accounting services
(e.g., corporate accountant, public accountant, and budget analyst), and information services
(e.g., corporate intelligence, library services, management information systems design services).
Apart from the career-related reasons is a not so obvious one:
Through learning about operations and supply chains, you will have a much better understanding
of the world you live in, the global dependencies of companies and nations, some of the reasons
that companies succeed or fail, and the importance of working with others. Working together
successfully means that all members of the organization understand not only their own role, but
they also understand the roles of others.
This is precisely why all business students, regardless of their particular major, are required to
take a common core of courses that will enable them to learn about all aspects of business.
Because operations management is central to the functioning of every business organization, it
is included in the core of courses business students are required to take. And even though
individual courses have a narrow focus (e.g., accounting, marketing), in practice, there is
significant interfacing and collaboration among the various functional areas, involving exchange
of information and cooperative decision making. For example, although the three primary
functions in business organizations perform different activities, many of their decisions impact
the other areas of the organization. Consequently, these functions have numerous interactions, as
depicted by the overlapping circles
Benefits of Operation Management
Operations management focuses on the tools and techniques a manufacturing firm uses to ensure
a smooth, effective production process. If the company provides services, operations
administration indicates to top leadership the factors that can prop up customer loyalty and sales.

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The discipline offers various benefits, including better profitability tracking, manufacturing
expertise and regulatory compliance.
1)Profitability Management
Sound operations management causes corporate leadership to challenge conventional wisdom or
employees’ sense of what's operationally correct. Simply put, senior executives rely on this
activity to question existing processes and ask personnel to come up with new ideas to do
business and increase sales. In fact, companies with experienced, competent operations managers
are generally adept at monitoring their revenues and expenses. They do so by delving into
corporate statements of income, profitability trends and budget reports, to name a few.
2)Competitive Advantage
Businesses adequately manage their operations to get a handle on key internal and external
factors. Internal factors include operating policies, intellectual capital and the average attrition
rate. This reflects the number of employees leaving as a result of resignations, retirements and
deaths. Forced workforce reductions, such as terminations, do not count as attrition-rate
components. Intellectual capital represents various abilities, expertise and knowledge that a firm
has gathered over time. External factors that operations managers heed include the state of the
economy and rivals’ strategies. By helping a firm understand its internal and external conditions,
operations management improves the company’s competitive standing. This is because the
business gets a better understanding of its operating environment and can adapt its tactics more
effectively to changing conditions. Marketing specialists use the SWOT concept -- strengths,
weaknesses, opportunities, threats -- to describe this analytical process.
3)Manufacturing Edge
Operations management allows a manufacturing firm to change or improve the way it produces
goods, as well as how it stores items such as raw materials, work-in process merchandise and
completely finished products. This important benefit helps the manufacturer prevent a
deterioration in debt affordability, which may happen if the firm incurs losses and cannot repay
its existing liabilities. Manufacturing tools used in operations management include computer-
aided production software, defect-tracking programs, warehouse management software and
process re-engineering applications.
4)Regulatory Compliance
By studiously analyzing operating activities, corporate management waves goodbye to the days
of hefty government fines and adverse regulatory decisions. Department heads and segment
chiefs set adequate internal controls to make sure rank-and-file personnel perform tasks in
accordance with the law. For example, adequate operations management helps improve
workplace safety, a key criterion that the U.S. Occupational Safety and Health Administration
watches closely.

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* System perspectives of operation management
A System is a group of interrelated items in which no item studied in isolation will act in the
same way as it would in the system. A system is divided into a series of parts or subsystems, and
any system is a part of a larger system. The system’s boundary defines what is inside the system
and what is outside. A system’s environment is everything outside the system boundary that may
have an impact on the behaviour of the system. A system’s inputs are the physical objects of
information that enter it from the environment and its outputs are the same which leave it for the
environment.
Systems view of operations management states that activities in an operations system can be
classified as inputs, transformation process and output. Inputs are classified into three general
categories-external, market and primary resources.
Transformation resources are the elements that act on, or carry out, the transformation process on
other elements. These include such elements as labour, equipment/plant and energy. The nature
and mix of these resources will differ between operations. The transformed resources are the
elements which give the operations system its purpose and goal. The operations system is
concerned with converting the transformed resources from inputs into outputs in the form of
goods and services. There are three main types of transformed resource of materials which can
be transformed either physically(e.g. manufacturing),by location (e.g. transportation),by
ownership(e.g. retail) or by storage(e.g. Warehousing)
For our study of systems view of an organization we chose, Vedanta Resources Pvt.Ltd.We
concentrated on its Goa unit, which is called Vedanta Aluminium ManufacturingUnit.The unit
produces aluminium from aluminium oxide through electrolytic reduction. We consider the
factory as a systems compromising of various subsystems. As we defined earlier, a system
consists of these major components:
A)Input– Input into an operation systems can be classified into these categories.:
External- Legal inputs (the Companies Act etc), Economic, Social, Technological (Electrolytic
cells, power generation machinery etc )
Market — Competition (HINDALCO, NALCO,BALCO etc), Customer Desires, Product info
Primary resources— Material (Alumina, raw aluminium ore ), personnel, capital, utilities Here
the input is Al2 O3 or Alumina. This is the aluminium ore which is extracted from earth

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 Conversion Subsystems
– The ore is transformed into pure aluminium. The transformation process is carried out mainly
through electrolytic reduction.
B)Output – The output consists of pure aluminium.
Direct
Products : Pure Aluminium
 Services : Aluminium Manufacturing
Indirect
 Waste
 Pollution
 Technological Advances
 Carbon Section —This section basically deals with the preparation and maintenance of
Carbon anode. The electrolytic process used for reducing Alumina (Al 2 O3) to pure
aluminium. For carrying out this process the anode used is made up of carbon mainly
graphite. This section deals with the construction and maintenance of Carbon anodes.
 Pot Room Cell— This is the section where the process of electrolysis actually takes
place. Here the raw aluminium ore is reduced to aluminium by electrolysis with the help of
carbon anodes. This section deals with the complete process. The electrolytic cells are
called Pot and thus the department is called Pot Room Cell
 Cast House— This section deals with processing of pure aluminium. Once the
aluminium has been extracted from the ore, it needs to be converted into more suitable
forms which can be further sold in the markets. The extracted aluminium is casted into
ingots and plates which are more suitable for selling in the market.
 Captive Power Plant — This section of the plant deals with generation of electricity for
running the whole plant. The electricity generated here is used by all the other departments.
Each section can be treated as a system in its own and can be divide into following general parts
 Human Resource
 Finance
 Production and Operation
 Logistics
 Information Technology
These sub systems are present in all the 4 major sections. They are centrally controlled by the
Plant Management Office(PMO).

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These sub systems are present in all the 4 major sections. They are centrally controlled by the
Plant Management Office(PMO).The PMO controls the central decision making and is
responsible for running all the departments in sync. The PMO ensures that the decisions made by
the departments do not contradict and a healthy harmony is maintained so that all of them work
together as a part of a system.
*Operations as a competitive strategy
Introduction :
A long-range plan for the operations function that specifies the design and use of resources to
support the business strategy.
The role of operations strategy is to provide a plan for the operations function so that it can make
the best use of its resources. Operations strategy specifies the policies and plans for using the
organization’s resources to support its long-term competitive strategy
Figure 2-1 shows this relationship. Remember that the operations function is responsible for
managing the resources needed to produce the company’s products or services.
Operations strategy is the plan that specifies the design and use of these resources to support the
business strategy.
This includes the location, size, and type of facilities available; worker skills and talents
required; use of technology, special processes needed, special equipment; and quality control
methods. It is the role of operations strategy to provide an overall plan for the use of all these
resources. The operations strategy must be aligned with

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Operations Management is present in many occupations as well as those of manufacturing and
service industries. I believe it to be present in daily duties of any person although they may never
notice. With this in mind I see operations management as a skill anyone has with an aim of
achieving an outcome of something they are working towards in a logical process with thought
of awareness of a system structure.
Operations management has been around for some time yet it was Christopher Polhelm
(Sweden) first recognised a skill and recorded that 'Nothing increases demand so much as low
prices. Therefore there is a great need of machines and appliances which will diminish the
amount or intensity of heavy work' (Extract from text book Operations Management - supplied
by DMU for open learning please see bibliography) this was around 1700. There are cases in
many history books and stories passed down that operations management was present before this
yet not identified as operations management. From 1700 business development has grew
significantly and seems to have been a notable point of operations management to present day.
Operation management is depending upon five performance objectives i.e.Â Quality,
Flexibility, Cost, Speed and dependability.
Quality: Quality means doing things right. An operation needs to be spotless and in order, have
appropriate and attractive furnishings and make sure that the staffs are friendly and helpful.
Quality reduces costs and increases dependability.
Flexibility: The Flexibility facilitate to any changes. Different products and services need to be
available, for example the opening times need to be varied as the main customers (students) have
varying timetables. Â
Cost: The membership prices need to be a suitable price to facilitate students and people with
different financial situations. The cost of hiring employment needs to be considered as well as
the cost of the equipment. The lower the cost of producing their services, the lower the cost to
the customer will be. This is a very attractive attribute, especially to students.
Speed: The speed of the internal processes can reduce inventories and reduce risks.
Dependability: The staffs want to be able to do things in time for the customers to receive their
services. Being reliable causes the customers to become more loyal over time. Dependability can
save time, save money and give support throughout the operation, internally and externally.
In this assignment I try to focus on above all objectives and how manufacturing process is going?
How much time taking each Department for their work? Why occur delay for delivery to
Customer? What's role of Human Resources in maintain Quality, Cost and Time? Why storage
is create scarcity of space? Why quality is going down?
Product value and Customer satisfaction Etc. Operation management find out best solution
before arise problem. Operation Management is helpful for Decision making, Developing a
process strategy, managing effective project, process analysing, Demand Forecasting, managing
Quality, planning Capacity, managing Inventories etc. In this assignment I researched on Rama
Newsprint & Papers Ltd, India, which is largest private paper Production Company. It is running
by more than 2000 workforce. This is manufacturing Cream Wove, Super printing, base paper
for coating, map litho; SS map litho, Copier paper and newsprint etc. It has $ 50 million equity
or spread over in 400 acres land. RNPL has also own 23 mw Power plants. This company is huge

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in paper industry sector and I am sure it will be increase my knowledge in Operation
management and its systems.
Core Operational Strategies
Operational strategies refers to the methods companies use to reach their objectives. By
developing operational strategies, a company can examine and implement effective and efficient
systems for using resources, personnel and the work process. Service-oriented companies also
use basic operational strategies to link long- and short-term corporate decisions and create an
effective management team.
Corporate Strategy
Corporate strategies involve seeing a company as a system of interconnected parts. Just as the
muscles of the heart depend on brain functions in a human body, each department in a company
depends on the others to stay healthy and achieve desired outcomes. The additional core
strategies that a company uses should support the corporate strategy and use cross-functional
interactions.
Customer-driven Strategies
Operational strategies should include customer-driven approaches to meet the needs and desires
of a target market. To do so, a company must develop strategies that evaluate and adapt to
changing environments, continuously enhance core competencies and develop new strengths on
an ongoing basis. When evaluating environments, a company should monitor market trends to
take advantage of new opportunities and avoid possible threats.
Developing Core Competencies
Core competencies are the strengths and resources within a company. While core competencies
can vary by industry and business, they can include having well-trained staff, optimal business
locations and marketing and financial expertise. By identifying core competencies, a company
can develop processes such as customer satisfaction, product development and building
professional relationships with stakeholders.
Competitive Priorities
The development of competitive priorities comes from the creation of a corporate strategy,
market analysis, defining core processes and conducting a needs analysis. To create competitive
priorities, an organization evaluates operational costs, the quality of a product or service, the
time it takes to develop and deliver a good or service and the flexibility of a good or service with
regard to variety, volume and customization. Competitive priorities should include being able to
provide a quality product or service at a fair cost that consistently meets the needs of a customer.
Product and Service Development
Strategies behind the development of products and services should consider design, innovation
and added values. When developing new customer products, a company can decide to be a leader
in introducing a new product or service, wait for the introduction of innovations on the market to
improve upon them or wait to see if a company's innovation is successful before moving
forward. When developing a service, companies should consider packaging it with immediately
observable and psychological benefits and support services. When developing a good or service,
a company should consider the wants of its customers, how its stands against the competition and
how its technical measures relate to its customers' needs.

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*Facility Location - Factors Influencing the Location
INTRODUCATION
Facility Location is the right location for the manufacturing facility, it will have sufficient access
to the customers, workers, transportation, etc. For commercial success, and competitive
advantage following are the critical factors:
Overall objective of an organization is to satisfy and delight customers with its product and
services. Therefore, for an organization it becomes important to have strategy formulated around
its manufacturing unit. A manufacturing unit is the place where all inputs such as raw material,
equipment, skilled labors, etc. come together and manufacture products for customers. One of
the most critical factors determining the success of the manufacturing unit is the location.
Facility location determination is a business critical strategic decision. There are several
factors, which determine the location of facility among them competition, cost and
corresponding associated effects
. Facility location is a scientific process utilizing various techniques.
Location Selection Factors
For a company which operates in a global environment; cost, available infrastructure, labor skill,
government policies and environment are very important factors. A right location provides
adequate access to customers, skilled labors, transportation, etc. A right location ensures success
of the organization in current global competitive environment.
Industrialization
A geographic area becomes a focal point for various facility locations based on many factors,
parameters and issues. These factors are can be divided into primary factors and secondary
factors. A primary factor which leads to industrialization of a particular area for particular
manufacturing of products is material, labor and presence of similar manufacturing facilities.
Secondary factors are available of credit finance, communication infrastructure and insurance.

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Errors in Location Selection
Facility location is critical for business continuity and success of the organization. So it is
important to avoid mistakes while making selection for a location. Errors in selection can be
divided into two broad categories behavioral and non-behavioral. Behavioral errors are decision
made by executives of the company where personal factors are considered before success of
location, for example, movement of personal establishment from hometown to new location
facility. Non-behavioral errors include lack of proper investigative practice and analysis,
ignoring critical factors and characteristics of the industry.
Location Strategy
The goal of an organization is customer delight for that it needs access to the customers at
minimum possible cost. This is achieved by developing location strategy. Location strategy helps
the company in determining product offering, market, demand forecast in different markets, best
location to access customers and best manufacturing and service location.
Factors Influencing Facility Location
If the organization can configure the right location for the manufacturing facility, it will have
sufficient access to the customers, workers, transportation, etc. For commercial success, and
competitive advantage following are the critical factors:
1)Customer Proximity: Facility locations are selected closer to the customer as to reduce
transportation cost and decrease time in reaching the customer.
2)Business Area: Presence of other similar manufacturing units around makes business area
conducive for facility establishment.
3)Availability of Skill Labor: Education, experience and skill of available labor are another
important, which determines facility location.
4)Free Trade Zone/Agreement: Free-trade zones promote the establishment of manufacturing
facility by providing incentives in custom duties and levies. On another hand free trade
agreement is among countries providing an incentive to establish business, in particular, country.
5)Suppliers: Continuous and quality supply of the raw materials is another critical factor in
determining the location of manufacturing facility.
6)Environmental Policy: In current globalized world pollution, control is very important,
therefore understanding of environmental policy for the facility location is another critical factor.
Seven Key Factors to a Facility Location
Layout
The physical layout of the facility location will determine whether future expansion can include
adding more facility buildings and enlarging manufacturing space within the site. Whether
buildings and manufacturing lines must be created by scratch or they are already exist on-site
with minimal renovations is also a consideration.
Cost
The cost of relocating facilities to the site is a major factor in determining the acceptability of a
location. Cost can involve tailoring existing buildings to fit your operations or building an
operation from scratch. Land may be cheap, but to make it workable might be expensive.

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Logistics
The site must have adequate transportation routes to get goods to and from the site. The facility
itself must come equipped with adequate electrical and plumbing to run an effective operation; if
they don't yet exist they must be cheap enough to install at the site.
Labor
A facility requires labor to run. Management staff might relocate from other areas, but on the
ground workers are sourced locally. A facility close enough to a municipality with a healthy
supply of labor to operate it is a must.
Political Stability
Companies that locate facilities in international locations might benefit from a cost perspective;
however, an unstable local government that puts smooth operations at risk are a deterrent to
choosing to locate there. Some international locales, however, benefit from a free trade zone with
the U.S., saving companies duties on the goods they import back to the U.S.
Regulations
Stringent local environmental regulations that limit the nature of business operations can deter a
company from choosing a particular location. In addition, government regulations and taxes of
various kinds can prove costly down the line. On the flip side, government tax incentives that
encourage corporate development can prove a benefit to certain locales.
Community
Facility locations are not temporary; the choice you make will stick with your company for the
long haul. It's therefore key that your company fits with the community it's associated with.
Although the municipality might appreciate your company's facility because it creates jobs, some
might resent your presence because of aesthetics or environmental factors. Maintaining a hassle-
free relationship with the locals helps ensure your licenses and permits are easier to obtain and
maintain over the life of the
*TYPES OF MANUFACTURING SERVICE SYSTEMS
We use a wide variety of products from sugar, salt, petrol, diesel, power to jewelry, pizza, mobile
phones, bikes and cars. With this large variety of products, it is unreasonable that the production
systems that manufacture these products could have common characteristics – the materials vary
widely; the sizes, shapes, and weights are diverse; and the applications and uses are equally
variegated. But if there were no common characteristics among systems for diverse products- if

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each system were entirely unique- we could learn nothing transferable by studying productions
management, and such is not the case.
By examining the nature of the product demand in its growth from introduction to maturity and
by relating it to the competitive criteria of cost, quality, on-time delivery, and flexibility we can
develop logical types of manufacturing systems that match marketplace needs. This discusses
different types of production systems for manufacturing organizations as well as different types
of service organizations.
Classification of Manufacturing (Production) System
. Continuous Production- In this system the item are produced for the stocks and not for
specific orders. In this system the inputs are standardized and a standard set of process and
sequence of process can be adopted.
Features of Continuous Production
 Continuity in demand
 Standardize production
 Appropriate plant and equipment
 Specific material
 Balanced process

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MASS PRODUCTION
Manufacture of discrete parts or assemblies using a continuous process are called mass
production. This production system is justified by very large volume of production. The
machines are arranged in a line or product layout. Product and process standardization exists and
all outputs follow the same path.
Characteristics of Mass Production
1. Standardization of product and process.
3. Larger volume of products.
4. Shorter production cycle time.
5. Low process inventory.
6. Production lines are perfectly balanced.
7. Flow of materials, components and parts is continuous
8. Easy production planning and control
Advantages of Mass Production
1. Higher rate of production
2. Reduced production cycle time.
2. line balancing lead to higher capacity utilization
3. Requirement of less skill operator
4. Lower process inventory.
5. Low manufacturing cost per unit
Limitations of Mass Production
1. Breakdown of one machine will stop an entire production line.
2. Line layout needs major change with the changes in the product design.
3. High investment in production facilities.
4. The cycle time is determined by the slowest operation.
PROCESS PRODUCTION
A production process, that runs for very long periods without the start-and-stop behavior
associated with intermittent production such as those used by chemical plants or refineries. High
capital investments are required for highly automated facilities that use special-purpose
equipment designed for high volumes of production and little or no variation in the type of
outputs.
Characteristics of Process Production
1. Extended form of mass production system
2. More automatic machines
3. One basic raw material is transferred into several products at several stages.
4. Less highly skilled workers required
5. More human problems foreseen
6. Highly standardized system

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Intermittent Production System - Production is performed on a start-and-stop basis, such as for
the manufacture of made-to-order products. The goods are manufacture especially to full fill
order by customer rather than for keeping stock.
Characteristics of Intermittent Production System
 Production in smaller quantities
 Machine and equipment are aligned as requirement of process
 High skill labor required
 Larger in-process inventory
 Flexible
JOB SHOP PRODUCTION
Job shop production are characterized by manufacturing of one or few quantity of products
designed and produced as per the specification of customers within prefixed time and cost. The
distinguishing feature of this is low volume and high variety of products. A job shop comprises
of general purpose machines arranged into different departments. Each job demands unique
technological requirements, demands processing on machines in a certain sequence.
Characteristics
1. High variety of products and low volume.
2. Highly skilled operators required.
3. Large inventory of materials, tools, parts.
4. High capital investment
5. High per unit cost of production
5. Detailed planning is for required of each product, capacities for each work center and order
priorities.
Advantages
1. Because of general purpose machines and facilities variety of products can be produced.
2. Operators will become more skilled and competent, as each job gives them learning
opportunities.
3. Full potential of operators can be utilized.
4. Opportunity exists for creative methods and innovative ideas.
Limitations
1. Higher cost because of regular changes
2. Higher inventory cost due to higher level of inventory at all levels
3. Production planning is difficult
4. Larger space requirements.
BATCH PRODUCTION
It is a form of manufacturing in which the job passes through the functional departments in lots
or batches and each batch may have a different routing. It is characterized by the manufacture of
limited number of products produced at regular intervals and stocked awaiting sales.

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Characteristics
•Highly specialized Human resource is required
•Highly specialized multitasking machines
•Machines are shared.
•Production in batches
•Production lots are based on customer demand or order.
•No single sequence of operation
•Finished goods are heterogeneous
Advantages
1. Plant and machinery are better utilized
2. Functional specialization.
3. Lower cost per unit of production as compare to job production
4. Lower investment required
5. Flexibility in process
Limitations
1. Material handling is complex due to irregular an larger flow of material
2. Production planning and control is difficult
Here is the Comparative study of different production systems
*Line Balancing
The scope of this study is to explore the understanding of Production-line Manufacturing
and Balancing, Types of Line Balancing, Equipment Balancing and its Failure and
Analysis. A production line is said to be in balance when every worker’s task takes the
same amount of time. Line balancing is a manufacturing-engineering function in which
whole collection of production-line tasks are divided into equal portions. Well-balanced
lines avoid labour idealness and improve productivity.
Production Line Balancing
Line-balancing strategy is to make production lines flexible enough to absorb external and
internal irregularities. There are two types of line balancing, which we have explained as –

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 Static Balance – Refers to long-term differences in capacity over a period of several
hours or longer. Static imbalance results in underutilization of workstations, machines
and people.
 Dynamic Balance – Refers to short-term differences in capacity, like, over a period of
minutes, hours at most. Dynamic imbalance arises from product mix changes and
variations in work time unrelated to product mix.
Labour Balancing and Assignments
Strategy of production line stability is the tendency for labour assignments to be fixed. Labour
feasibility is an important feature in the strategy of production line flexibility linked to individual
skills and capabilities –
 When one worker is having problem in performing his assigned task and experiencing
delay due to technical problem(s), other worker(s) should move into help.
 The management practice of deliberately pulling worker’s of the line when the line is
running smoothly.
 The movement of whole crews from one dedicated line to another as the model mix
changes.
 Group Technology – In which one worker can handle variety of tasks (automation) in a
single work centre.
Equipment Balancing
While balancing equipment, attempt to ensure that each piece of equipment in the work cell has
the same amount of work. Now days every manufacturer is attempting to maximize the
utilization of all available equipments. Such high utilization is often counterproductive and may
be the wrong goal because; high utilization is usually accompanied by high inventory.
Equipment Failure
An equipment failure is a major serious matter, with the potential to shut down a production line.
To avoid such failures one should not overload the equipments, and workers should be trained to
perform a daily machine checking (preventive maintenance) and following standard operating
procedures. The advantage for Maintenance and Engineering Department does not lye in running
late shifts, hence calculate the preventive maintenance time and schedule the activity.
Analysis
Analysis is generally performed by Competent Technical Staff. Begin the analysis with division
of production-line work into small tasks, determination of task time standards, specification of
required task sequencing and notation of constraints. If bottle neck task is in the way of good
balance, the Competent Technical Staff should analyze the task to reduce the time it takes to
perform.

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Line Balancing Leadership
Workmen should lead the production line balancing effort, so that they can react quickly when
line imbalances (static and dynamic) crop up as a result of changeover to make a different item
or changes in the output rate.
Conclusion
Production-line balancing study tends to employ thought and ingenuity to change conditions.
Production-line design and operation is more art than science. Labour flexibility is the key to
effective resource management. The idea of worker’s checking and doing minor repair work on
their own equipment possibly decreases the risk of equipment failure. Selecting an appropriate
set of balancing mechanism is a part of work cell design and it must be linked with many other
decisions for the system to function well.
*Industrial Plant Layout: Meaning, Definition, Need and Importance!
Meaning:
Plant layout is the most effective physical arrangement, either existing or in plans of industrial
facilities i.e. arrangement of machines, processing equipment and service departments to achieve
greatest co-ordination and efficiency of 4 M’s (Men, Materials, Machines and Methods) in a
plant.
Layout problems are fundamental to every type of organization/enterprise and are experienced in
all kinds of concerns/undertakings. The adequacy of layout affects the efficiency of subsequent
operations.
ADVERTISEMENTS:
It is an important pre-requisite for efficient operations and also has a great deal in common with
many problems. Once the site of the plant has been decided, the next important problem before
the management of the enterprise is to plan suitable layout for the plant.
Definitions:
According to James Lundy, “Layout identically involves the allocation of space and the
arrangement of equipment in such a manner that overall operating costs are minimized”. In the
words of Mallick and Gandreau, “Plant layout is a floor plan for determining and arranging the
designed machinery and equipment of a plant, whether established or contemplated, in the best
place, to permit the quickest flow of material, at the lowest cost and with the minimum handling
in processing the product, from the receipt of raw material to the shipment of finished product”.
According to Apple, “Plant layout is planning the path each component/ part of the product is to
follow through the plant, coordinating the various parts so that the manufacturing processes may

24
be carried out in the most economical manner, then preparing drawing or other representation of
the arrangement and finally seeing that the plan is properly put into effect.” (Plant Layout and
Material by Apple).
In the words of Sansonneti and Malilick (Factory management Vol. 103) “It is planning the right
equipment, coupled with right place, to permit the processing of a product unit in the most
effective manner, through the shortest possible distance and in the shortest possible time.” The
last definition seems to be most appropriate.
Objectives of Plant layout:
A properly planned plant layout aims at achieving the following objectives:
1. To achieve economies in handling of raw materials, work in- progress and finished goods.
2. To reduce the quantum of work-in-progress.
3. To have most effective and optimum utilisation of available floor space.
4. To minimise bottlenecks and obstacles in various production processes thereby avoiding the
accumulation of work at important points.
5. To introduce system of production control.
6. To ensure means of safety and provision of amenities to the workers.
7. To provide better quality products at lesser costs to the consumers.
8. To ensure loyalty of workers and improving their morale.
9. To minimise the possibility of accidents.
10. To provide for adequate storage and packing facilities.
11. To workout possibilities of future expansion of the plant.
12. To provide such a layout which permits meeting of competitive costs
Factors Considered for Plant Layout:
Layout for a factory must be decided by considering the following factors:
i. Organisation.
ii. Location of departments.

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ii. Type of product, method of production, production process.
iv. Production capacity.
v. Type of industry, like synthetic, analytic, conditioning or extractive.
vi. Grouping of machines.
vii. Material flow pattern.
viii. Space requirement for machines, work area, material handling, storage, and other facilities.
ix. Safety factors.
x. Health and other factors, like ventilation, natural light, removal of smoke, and fumes etc.
xi. Provision for future expansion.
xii. Flexibility for future modifications due to diversification, technology, or product design
changes.
xiii. Storage system i.e., centralised or decentralised or a combination of both.
Need of Plant layout:
Many situations give rise to the problem of plant layout. Two plants having similar operations
may not have identical layout. This may be due to size of the plant, nature of the process and
management’s caliber. The necessity of plant layout may be feel and the problem may arise
when.
(i) There are design changes in the product.
(ii) There is an expansion of the enterprise.
(iii) There is proposed variation in the size of the departments.
(iv) Some new product is to be added to the existing line.
(v) Some new department is to be added to enterprise and there is reallocation of the existing
department.
(vi) A new plant is to be set up.

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Importance of Plant Layout:
The layout of a plant is quite important in view of the above definition but the importance of a
layout may greatly vary from industry to industry.
The possibility of attaining the best possible layout is directly proportional to following
factors:
The Weight, Volume or Mobility of the Product:
If the final product is quite heavy or difficult to handle involving costly material handling
equipment or a large amount of labour, important consideration will be to amount the product
minimum possible e.g. boiler, turbines, locomotive industries and hip building companies etc.
1)Complexity of the Final Product:
If the product is made up of a very large number of components and parts i.e. large number of
people may be employed for handling the movement of these parts from shop to shop or from
machine to machine or one assembly point to another e.g. automobile industry.
2)The Length of the Process in relation to Handling Time:
If the material handling time represents an appreciable proportion of the total time of
manufacturing, any reduction in handling time of the product may result in great productivity
improvement of the industrial unit e.g. Steam Turbine Industry.
3)The Extent to which the Process Tends towards Mass Production:
With the use of automatic machines in industries for adopting mass production system of
manufacturing the volume of production will increase. In view of high production output, larger
percentage of manual labour will be engaged in transporting the output unless the layout is good.
The various tools and techniques used for the preparation of plant layout are described in
short below:
(a) Flow process chart,
(b) Process flow diagram,
(c) Machine data card,
(d) Templates, and
(e) Scale models.
(a) Flow Process Chart:
This is a graphic representation of sequence of operation, transportation, inspection, delays and
storage occurring during manufacture. This gives the information regarding distance moved and
time required for various activities such as transportation, delay, inspection etc. This chart helps
in determining hidden efficiencies in the processes and may suggest rearrangement of layout.

27
This also points out elimination of unnecessary movement and processes.
(b) Process Flow Diagram:
It is the diagram of building plan representing graphically the movement of materials on the
drawing. With its help proper material handling arrangements can be made and it indicates long
material hauls and back tracking of present layout, which thereby helps in improving the layout.
(c) Machine Data Cards:
These cards give complete specification of each machine to be installed such as output capacity,
foundations, space needed, method of operation, maintenance and handling devices of machines
etc.
(d) Templates:
After studying the flow process chart, process flow diagram and machine data cards, a floor plan
is prepared by fixing the area occupied by each item to be erected in the shops. This floor plan is
prepared at certain scale say 1 cm2
= 1 m2
.
Now from thick sheets of paper or card board pieces are cut (known as templates) to represent
various items which are to be housed in the plants, and are placed on the floor plans at suitable
places. These templates are so arranged as to give best layout. The changes if any, required are
made before making the actual layout drawing.
(e) Scale Models:
It is an improvement over the template method. In this tool, instead of templates, use of three
dimensional scale models is made. These models may be of wood or metal and when used on a
layout, series of additional information about the height and of the projected parts of the
machines are obtained. This is similar to a child’s doll house.
This technique is useful for complex layout, requiring initially huge investment.
In conclusion, plant layout is an important consideration. Hence various experts such as
production engineer, materials handling engineer, safety engineer and work study engineer etc.
should all sit together to arrive for final best shape of layout.
4. Advantages of Scientific Layout:
A scientific layout has got the following important advantages:
1. It reduces internal transport to a minimum.
2. It minimises accidents and makes supervision easy and quick.
3. It makes repairs and maintenance easy.
4. It yields higher profits. Therefore, higher wages can be paid to workers.

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5. It reduces labour turn-over.
6. It reduces production delays to a large extent.
7. It keeps the shops neat and clean.
8. It minimises changes in the layout to a large extent every time.
9. It keeps control over production.
10. It eliminates waste effort and thus speeds of production increases.
11. Back tracking is reduced.
12. Less capital is spent on machinery.
13. It reduces set up and total operation time.
14. It reduces wastage and spoiled work.
15. Time and motion study can be easily and accurately performed.
16. Better utilisation of manpower.
17. Improvement in methods of production can be made.
5. Layout of Services:
The tool rooms, store rooms, water, power, transportations, cafeteria, wash rooms, lavatories etc.
include the service centres of a plant. The shorter the distance from the operations to these
centres, the less time will be consumed by workers in using these services.
Generally the service centres are located where the space is available after planning for
manufacturing. The exact location is determined by its nature, number of persons to avail such
services and how much this service is made use of.
The factors affecting the layout of most important service centres such as store room,
transportation, water, and power fire protection are as under:
1. Store Room:
Store room layout, as far as possible, should satisfy the following essential requirements:
(i) It should provide an easy receipt, storage, issue and inspection of materials etc.
(ii) It should have enough storage capacities and facilities.

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(iii) It should have proper protection against wastage, damage deterioration and thefts.
(iv) It should permit easy and clear identification and location of materials.
(v) It should be simple and serviceable.
(vi) It should have bins of proper width for handling the materials.
2. Transportation:
Transportation required in the factory premises is for different purposes, such as transportation of
materials and equipment, transportation of labourers and other employees and transportation of
products; proper consideration is essential so that the layout is economical and convenient.
3. Water:
The layout of the water service is very necessary consideration. For this purpose, certain
provisions are given in the “FACTORY ACT”, those must be strictly followed. According to
Factory Act, in every factory in which more than 250 workers are employed, water coolers
should be installed at suitable places.
The water centres should be marked by the word “DRINKING WATER”. Water centres should
be located at least 6 m from latrines, urinals and washrooms. There should be one water centre
for first 150 workers to 500 workers and one centre for every additional 500 workers.
4. Power:
The electrical energy required for running the plants may be purchased from an outside source or
generated itself.
The electric energy is transformed into mechanical power and is supplied to the machines
and equipment’s in the following two ways:
(a) Group Drive.
(b) Individual Drive.
Today individual drive is generally adopted. So in the layout, it is to be seen that from where
electrical cables will pass and where protecting devices, switches, starters and control panels are
to be fixed.
5. Fire Protection:
For this, suitable places must be allotted in the shop for locating water buckets, sand buckets and
fire extinguishers. Inflammable materials must be kept in separate store at a safe distance,
minimum 15 m from the general storage.
Provision to escape in case of fire must be kept. A factory employing more than 20 persons and
storing, inflammable materials and explosives must arrange for training of persons in the routine
to be adopted in case of fire.

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Objectives of Plant Layout and Material Handling:
Objectives of plant layout and corresponding objectives of material handling are indicated
in the following table:
Inter-Relationship between Plant Layout and Material Handling:
Foregoing discussions emphasize the extreme importance of relationship between them and also
with other by both these departments. The success of a factory largely depends on the
relationship of these departments.
Some of such fields are mentioned hereunder:
1. Production:
For production function, utmost cooperation is required between plant layout engineers, material
handling engineers, and production engineers.
2. Plant Engineering:
For maintenance etc., cooperation between these two departments is necessary.
3. Quality Control:
In order to avoid damages in the path during handling, cooperation between them is essential.
4. Safety:

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Since large number of accidents occur during handling, both these departments must work
closely with the safety engineer to design the layout and handling methods, equipment etc.
5. Sales and Distribution:
For packaging, loading system cooperation of these two departments with marketing and sales
department is essential.
7. Types of Plant Layout Problems:
It is not necessary that layout engineer deals with only new layout i.e., layout problems of new
facilities. Such problems are faced only once; however he is mostly involved in problems related
to the re-layout of an existing process or an alteration in the existing arrangement.
Some of the examples of re-layout problems are:
1. Change in the design of part. This calls for the change in the process and may require some
alterations in the existing layout.
2. Layout change due to the change in method of production.
3. Expansion in production capacity.
4. Reduction in production capacity.
5. Diversification i.e., addition of a new product.
6. Planning a new facility or a new department.
7. Shifting a department.
8. Replacing equipment with advanced technology.
Symptoms of Bad Layout:
1. Some machines heavily loaded and some remain idle for long periods.
2. Excessive handling by skilled workers.
3. Long production cycles.
4. Stock control difficulties.
5. Bottlenecks in production.
6. Poor utilisation of available space.

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7. Delays in delivery.
8. Excessive fatigue on workers.
9. Backtracking.
10. Excessive temporary storage.
11. Poor house-keeping.
12. Difficulty in supervision and control.
13. Idle workers and equipment.
14. Obstacles in material flow.
*Material Handling
Manual material handling ranges from movement of raw material, work in progress, finished
goods, rejected, scraps, packing material, etc. These materials are of different shape and sizes as
well as weight. Material handling is a systematic and scientific method of moving, packing and
storing of material in appropriate and suitable location. The main objectives of material handling
are as follows:
 It should be able determine appropriate distance to be covered.
 Facilitate the reduction in material damage as to improve quality.
 Reducing overall manufacturing time by designing efficient material movement
 Improve material flow control
 Creation and encouragement of safe and hazard-free work condition
 Improve productivity and efficiency
 Better utilization of time and equipment
OTHER OBJECTIVES OF MATERIAL HANDLING
The primary objective of a material handling system is to reduce the unit cost of production. The
other subordinate objectives are:
1. Reduce manufacturing cycle time
2. Reduce delays, and damage
3. Promote safety and improve working conditions
4. Maintain or improve product quality
5. Promote productivity
i. Material should flow in a straight line
ii. Material should move as short a distance as possible
iii. Use gravity
iv. Move more material at one time

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v. Automate material handling
6. Promote increased use of facilities
i. Promote the use of building cube
ii. Purchase versatile equipment
iii. Develop a preventive maintenance program
iv. Maximize the equipment utilization etc.
7. Reduce tare weight
8. Control inventory
It is critical for manufacturing organization to identify importance of material handling principle
as the critical step in promoting the job improvement process. Manual material handling
significantly increases health hazard for the workers in from lower back injuries.
In the current competitive and globalized environment, it is important to control cost and reduce
time in material handling. An efficient material handling process promotes:
 Design of proper facility layout
 Promotes development of method which improves and simplifies the work process
 It improves overall production activity.
 Efficient material handling reduces total cost of production.
Principles of Material Handling
Material handling principles are as follows:
 Orientation Principle: It encourages study of all available system relationships before
moving towards preliminary planning. The study includes looking at existing methods,
problems, etc.
 Planning Principle: It establishes a plan which includes basic requirements, desirable
alternates and planning for contingency.
 Systems Principle: It integrates handling and storage activities, which is cost effective
into integrated system design.
 Unit Load Principle: Handle product in a unit load as large as possible
 Space Utilization Principle: Encourage effective utilization of all the space available
 Standardization Principle: It encourages standardization of handling methods and
equipment.
 Ergonomic Principle: It recognizes human capabilities and limitation by design
effective handling equipment.
 Energy Principle: It considers consumption of energy during material handling.
 Ecology Principle: It encourages minimum impact upon the environment during material
handling.
 Mechanization Principle: It encourages mechanization of handling process wherever
possible as to encourage efficiency.
 Flexibility Principle: Encourages of methods and equipment which are possible to
utilize in all types of condition.

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 Simplification Principle: Encourage simplification of methods and process by removing
unnecessary movements
 Gravity Principle: Encourages usage of gravity principle in movement of goods.
 Safety Principle: Encourages provision for safe handling equipment according to safety
rules and regulation
 Computerization Principle: Encourages of computerization of material handling and
storage systems
 System Flow Principle: Encourages integration of data flow with physical material flow
 Layout Principle: Encourages preparation of operational sequence of all systems
available
 Cost Principle: Encourages cost benefit analysis of all solutions available
 Maintenance Principle: Encourages preparation of plan for preventive maintenance and
scheduled repairs
 Obsolescence Principle: Encourage preparation of equipment policy as to enjoy
appropriate economic advantage.
Reduced Manufacturing Cycle Time
The total time required to make a product from the receipt of its raw material to the finished state
can be reduced using an efficient and effective material handling system. The movement of the
material can be faster and handling distance could be reduced with the adoption of an appropriate
material handling system.
4 Main Categories of Material Handling Equipment
There are 4 main categories of material handling equipment:
 Bulk material handling
 Engineered systems
 Industrial trucks
 Storage and handling equipment
ulk Handling Material Equipment
The term ‘bulk handling equipment’ refers to the storage, control and transportation of materials
by bulk, and in loose form. There are plenty of examples of this application – the handling of
food, beverages, liquids, metal items (such as screws and nails) and minerals are just a few.
In general terms, these pieces of equipment primarily handle these items when they are loose.
One example is a conveyor belt that is used to move items from one part of the production
process to another. Drums and hoppers may be used as well, to ‘funnel’ these loose items into a
stage where they can be more easily manipulated, or packaged.
Conveyor belts are used for horizontal transportation. For vertical transportation, elevators are
most commonly used.
Types of bulk handling material equipment
 Bucket and grain elevators
 Conveyor belts
 Hoppers and silos

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 Reclaimers
 Stackers
Engineered Systems
An engineered system is one that is typically automated. Such systems are also usually created
from a variety of units. When combined, they work to enable both storage and transportation.
An ‘Automated Storage and Retrieval System’ (or a AS/RS for short) is one example of a system
that is engineered. This is a large, automated device that comes complete with racks, shelves and
aisles. These storage solutions are accessed by a ‘shuttle’ – a mechanized device that’s similar to
a cherry picker. This device can be used by the system operator to manually select the items as
needed, or the entire system can be computerized and automated.
An AS/RS can be integrated with a production facility’s existing computer network to keep on
top of stock control, plus other logistical systems. It can also be integrated with other stages of
the production process, so that as much automation can be offered as possible.
Types of engineered systems
 Automated guided vehicles (AGVs)
 Conveyor systems
 Robotic delivery systems
Industrial Trucks
This term is another broad definition that can be applied to many different types of equipment.
Such pieces of equipment do have one thing in common, though – they all provide
transportation.
The scope of this term can include both small, hand-operated devices, and large-scale motorized
vehicles. Some items can be driven, while others – such as pallet trucks – simply add mobility to
the materials that are being handled.
Many of these types of trucks have useful characteristics such as forks or a flat surface that can
be inserted under pallets or other types of storage platforms. Other trucks need a separate item of
equipment to use for lifting.
Trucks have the capability to lift via powered or manual means, and can be ridden upon in a
driver’s cab, or simply power-assisted when pushed. Such tucks can also be steered by human
intervention, or can be completely automated, following a pre-defined track on the production
floor, sunken or raised tracks, or colored strips that are laid out and sensed by optical sensors.
Such automated industrial trucks also have anti-collision technology that senses when an
employee or other obstacle is near.
Stacking trucks are used to stacks items, while a non-stacking truck is just used for
transportation, and not for product loading.
Types of industrial trucks:
 Automated guided vehicles (AGVs)
 Hand, platform and pallet trucks
 Order pickers

36
 Pallet jacks
 Side-loaders
 Walking stackers
Storage and Handling Equipment
Equipment that is used for storage usually only encompasses items that are not automated.
Storage and handling equipment that is automated falls under the term ‘engineered systems’
Storage equipment is equipment that is used to hold products and materials when they are not
being used, or when they are waiting to enter or leave the production process. These periods
could be long-term, or short-term in order to allow a suitable build-up of stock or finished items.
Most items that can be described as storage and handling equipment refers to pallets, racking or
shelves. Materials are stored in a neat and convenient manner to await transportation, or their
entry into the production process if necessary.
Having suitable storage equipment will add to any company’s production efficiency. The
efficiency of any production system is maximized by the ease at which each stage of the entire
system operates. Any inefficient section creates a bottleneck that will have an effect on all other
sections of the system further down the production line.
Space is also at a premium if you run a production environment. The better utilized your
available space is, the more items you’ll be able to store. This means you can keep your
workflow in operation for much longer without worrying about re-stocking. This helps further
increase your efficiency.
Types of storage and handling equipment
 Drive-through or drive-in racks
 Pallet racks
 Push-back racks
 Shelving
 Sliding racks
 Stacking frames
LIMITATIONS OF AUTOMATED MATERIAL HANDLING SYSTEMS:
A good management practice is to weigh benefits against the limitations or disadvantages before
contemplating any change. Material handling systems also have consequences that may be
distinctly negative. These are:
1. Additional investment
2. Lack of flexibility
3. Vulnerability to downtime whenever there is breakdown
4. Additional maintenance staff and cost
5. Cost of auxiliary equipment.
6. Space and other requirements:
The above limitations or drawbacks of adopting mechanized handling equipment have been
identified not to discourage the use of modern handling equipment but to emphasize that a

37
judicious balance of the total benefits and limitations is required before an economically sound
decision is made.
The Twenty Principles of Material Handling
1. Orientation Principle
Study the system relationships thoroughly prior to preliminary planning in order to identify
existing methods and problems, physical and economic constraints, and to establish future
requirements and goals.
2. Planning Principle
Establish a plan to include basic requirements, desirable options, and the consideration of
contingencies for all material handling and storage activities.
3. Systems Principle
Integrate those handling and storage activities which are economically viable into a coordinated
system of operation including receiving, inspection, storage, production, assembly, packaging,
warehousing, shipping and transportation.
4. Unit Load Principle
Handle product in as large a unit load as practical.
5. Space Utilization Principle
Make effective utilization of all cubic space.
6. Standardization Principle
Standardize handling methods and equipment wherever possible.
7. Ergonomic Principle
Recognize human capabilities and limitations by designing material handling equipment and
procedures for effective interaction with the people using the system.
8. Energy Principle
Include energy consumption of the material handling systems and material handling procedures
when making comparisons or preparing economic justifications.
9. Ecology Principle
Minimize adverse effects on the environment when selecting material handling equipment and
procedures.
10. Mechanization Principle
Mechanize the handling process where feasible to increase efficiency and economy in the
handling of materials.
11. Flexibility Principle
Use methods and equipment which can perform a variety of tasks under a variety of operating
conditions.

38
12. Simplification Principle
Simplify handling by eliminating, reducing, or combining unnecessary movements and/or
equipment.
13. Gravity Principle
Utilize gravity to move material wherever possible, while respecting limitations concerning
safety, product damage and loss.
14. Safety Principle
Provide safe material handling equipment and methods which follow existing safety codes and
regulations in addition to accrued experience.
15. Computerization Principle
Consider computerization in material handling and storage systems, when circumstances
warrant, for improved material and information control.
16. System Flow Principle
Integrate data flow with the physical material flow in handling and storage.
17. Layout Principle
Prepare an operational sequence and equipment layout for all viable system solutions, then select
the alternative system which best integrates efficiency and effectiveness.
18. Cost Principle
Compare the economic justification of alternate solutions in equipment and methods on the basis
of economic effectiveness as measured by expense per unit handled.
19. Maintenance Principle
Prepare a plan for preventive maintenance and scheduled repairs on all material handling
equipment.
20. Obsolescence Principle
Prepare a long range and economically sound policy for replacement of obsolete equipment and
methods with special consideration to after-tax life cycle costs.

39
UNIT - II
CAPACITY PLANNING
CAPACITY
Capacity is defines as the ceiling on the maximum load a production unit can handle at a
given point of time.
In other words, capacity is defined as an upper limit on the rate of output.
The capacity question does not arise alone. It comes in conjunction with:
 New facility planning
 Leasing or buying the equipment required to maintain the output.
 Expansion of the existing facilities
 While introducing new product or services
 While finalizing the fund and energy requirements
The above mentioned situations, if come across alone, are easy to tackle. It
becomes complicated when more than one situation is encountered at the same time.
A facility’s Capacity is the rate of productive capability of a facility. Capacity
is usually expressed as maximum productive volume of output per time period.
Operations managers are concerned with capacity for capability, usually several
reasons. First, they want sufficient capacity to meet customer demand in a expressed
as volume of out put per period of timely manner. Second, capacity affects the cost
efficiency of operations, the case or time. Difficult y of scheduling output, and the
costs of maintaining the facility. Finally, capacity requires an investment. Since
managers seek a good return on investment, both the costs and revenues of a capacity
planning decision must be carefully evaluated.
Capacity planning
Capacity planning design is the first level planning for the inputs, conversion activities and
outputs of a production operation. Design decisions are very important because they re
often associated with significant investment of funds. The initial outlay and operating
expenses are established based on design decisions, and these in turn affect productivity of
the concern in future. So they affect fixed cost and variable cost
DESIGN CAPACITY: preliminary estimate of capacity is done based on long-range

40
forecast extending 5 to 10 years into the future.
The design capacity of a system is the rate of output of goods or services under
full scale operating conditions. For example, a cement factory may be designed to
produce 200 tons per day. The projected demand for period anywhere from 5 to 10
years is taken as the estimate for the design capacity, since frequent expansion will
lead to productivity loss.
SYSTEM CAPACITY: In practice, it may not be possible to achieve production to the
extent of design capacity mainly because of mismatch between required resources and
available resources. The maximum output of a specific product or product mix that the
system of workers and equipments is capable of producing as an integrated whole is
called system capacity. This may be less than that of the design capacity.
The actual output may be even less than the system capcity since it is affected by
short-range factors such as actual demand, equipment breakdowns, and personal
absenteeism or productivity.
Capacity planning
Capacity planning is the process of determining the production capacity needed by an
organization to meet changing demands for its products.[1]
In the context of capacity planning,
design capacity is the maximum amount of work that an organization is capable of completing in
a given period. Effective capacity is the maximum amount of work that an organization is
capable of completing in a given period due to constraints such as quality problems, delays,
material handling, etc.
The phrase is also used in business computing and information technology as a synonym
for capacity management. IT capacity planning involves estimating the storage, computer
hardware, software and connection infrastructure resources required over some future period of
time. A common concern of enterprises is whether the required resources are in place to handle
an increase in users or number of interactions.[2]
Capacity management is concerned about
adding central processing units (CPUs), memory and storage to a physical or virtual server. This
has been the traditional and vertical way of scaling up web applications, however IT capacity
planning has been developed with the goal of forecasting the requirements for this vertical
scaling approach.[3]
A discrepancy between the capacity of an organization and the demands of its customers results
in inefficiency, either in under-utilized resources or unfulfilled customers. The goal of capacity
planning is to minimize this discrepancy. Demand for an organization's capacity varies based on

41
changes in production output, such as increasing or decreasing the production quantity of an
existing product, or producing new products. Better utilization of existing capacity can be
accomplished through improvements in overall equipment effectiveness (OEE). Capacity can be
increased through introducing new techniques, equipment and materials, increasing the number
of workers or machines, increasing the number of shifts, or acquiring additional production
facilities.
NEED FOR CAPACITY PLANNING
Capacity planning is necessary when an organization decides to increase its
production or introduce new products into the market. Once capacity is evaluated and
a need for new or expanded facilities is determined, decisions regarding the facility
location and process technology selection are taken.
Capacity planning is the first step when an organization decides to produce
more or a new product. Once capacity is evaluated and a need for new or expanded
facilities is determined, facility location and process technology activities occur. Too
much capacity would require exploring ways to reduce capacity, such as temporarily
closing, selling, or consolidating facilities. Consolidation might involve relocation, a
combining of technologies, or a rearrangement of equipment and process.
Capacity planning
Capacity planning is the process of determining the production capacity needed by an
organization to meet changing demands for its products.[1]
In the context of capacity planning,
design capacity is the maximum amount of work that an organization is capable of completing in
a given period. Effective capacity is the maximum amount of work that an organization is
capable of completing in a given period due to constraints such as quality problems, delays,
material handling, etc.
The phrase is also used in business computing and information technology as a synonym
for capacity management. IT capacity planning involves estimating the storage, computer
hardware, software and connection infrastructure resources required over some future period of
time. A common concern of enterprises is whether the required resources are in place to handle
an increase in users or number of interactions.[2]
Capacity management is concerned about
adding central processing units (CPUs), memory and storage to a physical or virtual server. This
has been the traditional and vertical way of scaling up web applications, however IT capacity

42
planning has been developed with the goal of forecasting the requirements for this vertical
scaling approach.[3]
A discrepancy between the capacity of an organization and the demands of its customers results
in inefficiency, either in under-utilized resources or unfulfilled customers. The goal of capacity
planning is to minimize this discrepancy. Demand for an organization's capacity varies based on
changes in production output, such as increasing or decreasing the production quantity of an
existing product, or producing new products. Better utilization of existing capacity can be
accomplished through improvements in overall equipment effectiveness (OEE). Capacity can be
increased through introducing new techniques, equipment and materials, increasing the number
of workers or machines, increasing the number of shifts, or acquiring additional production
facilities.
IMPORTANCE OF CAPACITY PLANNING
The importance of capacity planning lies in the fact that it is more
fundamental. Every organization looks at the future with its’ own focus and develop
and adjusts ‘its’ strategies to reach the goal. Capacity planning relates to the
organization potential impact on the ability of the organization to meet the future
demands for it’s product / service. This is because of the fact that the possible rate of
output is limited by the capacity.
a. There is also link between the capacity and the operating cost. Every managers
wants to minimize the operating cost of the final product. Also they are
interested in utilizing the established capacity to the fullest possible extent.
This trade – off puts the whole process, into a vicious circle.
b. Minimizing the operating cost is not possible always, as the demand is a
variable factor. The demand variation is due to:
 Increased competition (through the entry of new players; (or) due to the change
in the strategies of the existing players).
 Technological changes (through some inventions (or) entry of MNC’s through joint
ventures)
 User’s perception (which changes from time to time)
 Nature of the product (accordingly the demand will be seasonal or cyclical)
Possible demand patterns are:
 Growth

43
 Decline
 Cyclical
 Stable
c. The Initial Investment involved. This is due to the fact that, the capacity is a
major determinant of the cost of a product, which will decide about the
organization’s position in the market.
d. Long term commitment of resources. Once a capacity is created, it is very
difficult – not impossible – to modify. In future, if modification is needed, it
calls for heavy investment.
CAPACITY PLANNING DECISIONS
Capacity planning involves activities such as:
(a) Assessing existing capacity
(b) Forecasting future capacity needs
(c) Identifying alternative ways to modify capacity
(d) Evaluating financial, economical and technological capacity alternatives
(e) Selecting a capacity alternative most suited to achieve the strategic mission of
the firm. Capacity planning involves capacity decisions that must merge
consumer demands with human, material and financial resources of the
organization.
e. Often decisions about capacity are inseparable from decisions about locations:
Capacity depends upon demand and demand often depends on location.
Commercial banks, for example, simultaneously expand capacity and demand
by building branch banks. Decisions about the size and location of the branch
are made according to projections about neighborhood population densities
and growth, geographic locations of market segments, transportation (traffic)
flows, and the locations of competitors. Adding a new branch offers greater
convenience to some existing customers and, management hopes, attracts new
customers as well. Obviously this decision affects the revenues, operating
costs and capital costs of the organisatoin.
f.
g. In the public sector, the capacity decision involves similar considerations.
Municipalities face ever-increasing demands for public services, strong public
sentiment for tightening budgets, and greater performance accountability.

44
Consequently, officials have increased their efforts to rearrange public
resources so that service capacity is increased but the cost of operating is not.
Municipal emergency services, for example, are periodically expanded by
adding to show population growth and shifts. Next, municipal officials plan
where to locate new stations, taking into consideration both areas of greatest
need and costs of operation and facilities. Although the capacity may not
involve direct revenues, cost savings for citizens can be considered a form of
indirect revenues. These cost savings can result in reduced tax burdens of
lower insurance rates in areas with improved emergency services.
h.
i. Modeling techniques, are playing a central role in these planning processes. One
study, for example, explain how mathematical programming is used for greater
ambulance effectiveness considering time-to-scene, time-to- hospital, an
distance-to-hospital factors, thereby increasing effective service system
capacity. Another study shows how mathematical modeling can determine
optimal fleet sizes and vehicle routes for a commercial common carrier. Yet
another study demonstrates the value of queuing models in a computer-based
information system for the St. Louis County Police Department. The system
gives a way to allocate police patrols, thereby using existing capacity more
efficiently or reducing the size of operations without diminishing existing
service levels. All these examples show how systematic analysis and planning
can lead to effective use and improvement of capacity.
8 CAPACITY PLANNING STRATEGIES
Capacity is a measure of the ability to produce goods or services or, it may be
called as the rate of output. Capacity planning is the task of determining the long – and
short – term capacity needs of an organization and then determining how these needs
will be satisfied.
Long-term capacity strategies: Top management may have the following strategies to
cope up with major changes in products and services that it can provide to customers
in the long run which will have significant impact on the capacity. The major changes
will altogether revise the demand and resource requirements. There are:
 develop new product lines
 expand existing facilities
 construct or phase out production plants
Technological obsolescence may force some industries to use phase-in strategy for
introducing the next model of the same product or service to retain and/or improve its
market segment. The phase – in strategy is nothing but het planning for the next model

45
even when the present model is moving well. Especially, in electronics industry, any
company should do continuous research and development to improve the operational
features of the product through advanced technology so that the company will be in a
position to bring out products into the market with the latest technology without any
time lag.
At the same time, all the products will not have continued demand for ever. Moreover,
continuing the production of some products will be uneconomical over a period of
time. This will force a company to diversify and/or phase out some of the existing
products. Phasing out of a product should be done over a period of time properly by
taking the re-employment features into account.
Short – term capacity strategies: In short-term planning, horizon, capacity decisions
are taken by considering the fluctuations in demand caused by seasonal and economic
factors. The purpose of short-term capacity planning is to respond to variations in
demand during the short-term planning horizon. Strategies like, overtime,
subcontracting, hiring firing, etc. can be used to cope up with the fluctuations in
demand.
2A.9 FACTORS AFFECTING CAPACITY PLANNING
The capacity variables are:
(a) CONTROLLABLE FACTOR’S such as amount of labour employed, facilities
installed, machines, tooting, shifts worked per day, days worked per week,
overtime work, sub-contracting, alternative routing of work, preventive
maintenance and number of production set-ups.
(b) LESS CONTROLLABLE FACTORS are absenteeism, labour-performance,
machine break-down, material shortage, scrap and rework and unexpected
problems such as strike, lockout, fire accidents etc.
2A 10 WAYS OF CHANGING CAPACITY
Once the long-range capacity needs are estimated through long-range
forecasts, there are many ways to provide for the needed capacity. Firms may have a
capacity shortage situation where present capacity is insufficient to meet the forecast
demand for their products and services or have excess capacity i.e., capacity in excess
of the expected future needs. Long-range capacity planning hence may require either
expansion or reduction of present capacity levels.
2A 11 TYPES OF CAPACITY
1. FIXED CAPACITY: The capital asset (buildings and equipments) the
company will have at a particular time is known as the fixed capacity. They

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