Production And Operation Materials


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Production And Operation Materials

  1. 1. Production and Operation <ul><li>Production is the process by which goods and services are created. </li></ul><ul><li>It consists of a sequence of operations that transform materials from a given form to a desired form (products), quality, quantity, required time and at the cheapest. </li></ul>
  2. 2. Production and Operation <ul><li>Conversion of inputs into outputs using physical resources so as to provide the desired utility / Utilities in a form, place, possession or state or a combination to the customer while meeting the other organizational objectives of effectiveness, efficiency and adaptability. </li></ul><ul><li>Resource inputs into the process results into outputs from the conversion and information feed back in the operation system. </li></ul>
  3. 4. Production and Operation Management <ul><li>Operations managers responsibility is getting the job done by providing the leadership to produce the product or service demanded by the customer. </li></ul><ul><li>Objectives are –Customer satisfaction, effectiveness, effeciency. </li></ul><ul><li>Involves 1)planning and control, 2)Materials management including inventory, quality control 3) Plant maintainace and manufacturing process and 4) Methods of performance rating and R & D </li></ul>
  4. 5. Relation with other functions
  5. 8. History <ul><li>Scottish economist Adam Smith during 1776 gave attention to production economics who observed the advantages of division of labour. </li></ul><ul><li>Englishman Charles Babbage who was a mathameticain during 1832 studied on different operations involved in pin manufacturing. </li></ul><ul><li>Frederick W. Taylor was the father of operations who studied output to time relationship during 1990 for manual labour such as brick laying. This is related to the present “time-study”. </li></ul>
  6. 9. History <ul><li>Frank Gilberth and his wife examined the motion of limbs in performing jobs which lead to the present day “motion study”. </li></ul><ul><li>So far concentration was on the work out of the labor or the machine operator. The collective efficiency came into light with the Gannt (1910). He has developed scheduling of the operations. </li></ul><ul><li>Harris, F W (1930) presented inventory model. </li></ul><ul><li>Walter Shewart (1931) came up with control charts for quality or what is known as “processing control”. </li></ul>
  7. 10. Developments <ul><li>Effectiveness as a function of internal climate and workers efficiency increased with the facilities extended by management. </li></ul><ul><li>Advent of operations research during world war II period sow a big boost in the application of scientific techniques in the management. Various techniques such as linear programming, mathematical programming, game theory, queuing theory have become indispensable tools for management decision. </li></ul><ul><li>The computer era made possible the complex and repeated computations involved in various operation research and other techniques. </li></ul><ul><li>Service and relationship era Japan took lead in providing various services along with products for the customer satisfaction. Many production management principles have been finding their way into services in the order to improve the efficiencies and effectiveness </li></ul>
  8. 11. Production planning and control: <ul><li>The production planning and control coordinates all manufacturing activities, it is an effort to optimize the process of conversion of raw materials into finished products required in the market. </li></ul><ul><li>The production plan is the translation of the market demands into production orders. The market demands have to be matched with the production capacities </li></ul>
  9. 12. - <ul><li>The procurement of raw materials, quality control and inspection of raw materials, the inventory levels of in process and finished goods, the production costs, the labour available, the machinery and equipment that is available, the warehousing capacity available. </li></ul>
  10. 14. Market fluctuations <ul><li>Market demands are known or forecasted and the production capacities are also known. But how to match these and find cost effective production plan. </li></ul><ul><li>The controllable variables in the production plan are number of units to be produced in each period. Uncontrollable variables are consumer demand, wage rates, inventory carry costs etc. </li></ul><ul><li>Suppose demand is fluctuating, what should be production strategy. This would be worked out on the basis of costs involved in labour cost, inventory etc. </li></ul>
  11. 15. - <ul><li>Plan-1 level of production has no extra labour cost, overtime premium or subcontracting cost. But cost of carrying seasonal inventory to meet high peak of sales is very high. </li></ul><ul><li>Plan-2-involves some fluctuations in production level but not much with overtime work. But smaller inventory cost than plan-1 and the total cost is less than plan-1. </li></ul><ul><li>Plan-3-tends to follow the sales requirement curve and this involves considerable hiring and laying off of labour. Subcontracting was also given in addition to overtime capacity. </li></ul>
  12. 16. Planning
  13. 17. Scheduling <ul><li>Detailed day-to-day planning of operations is called scheduling. It deals with lower managerial level activities. </li></ul><ul><li>Continuous production system such as the process plants or mass production systems such as assembly lines may not have much need for day-to-day planning. </li></ul>
  14. 18. Scheduling involves <ul><li>Assigning different jobs to different facilities. </li></ul><ul><li>Sequencing the jobs and the operations at a facility or on a machine, so as to achieve the production department’s objectives </li></ul><ul><li>Monitoring the achievement and accordingly revising the schedule or changing the priorities of jobs/operation so as to rectify the deviation (control). </li></ul>
  15. 19. Objectives of sequencing <ul><li>Completing by due date, or with as little delay as possible, as many work orders as possible. </li></ul><ul><li>Utilizing the machinery and such other capital investment to the maximum extent possible. </li></ul><ul><li>Utilizing the manpower capacity to the maximum extent possible, </li></ul><ul><li>Minimizing the working capital investment in inventories of semi processed materials. </li></ul>
  16. 20. Visual aids <ul><li>One of the simplest approaches to scheduling is through the use of various visual aids, facilitating the planning of jobs through work centers and depicting the progress of jobs against what is planned. Charts by Henry L. Gantt </li></ul>
  17. 21. charts <ul><li>To prepare a part required for a machine, it requires following given time for different activities and delivery should be on 19th January. Work back </li></ul><ul><li>1 day cast in foundry, </li></ul><ul><li>1 day cleaning, </li></ul><ul><li>1 day turning on heavy Lathe, </li></ul><ul><li>2 days boring </li></ul><ul><li>1 day welding </li></ul><ul><li>2 days assembly shop </li></ul><ul><li>½ day inspection </li></ul>
  18. 23. Sequencing <ul><li>To optimize cost, time and /or efficiency. There are different types of sequencing/scheduling situations </li></ul><ul><li>Two machines and two jobs have 2 sequences such as chair and table and table and chair. The best sequence is the one which has minimum idle time. If there are 3 jobs, then the combinations are 6. </li></ul>
  19. 24. Two machines and two jobs 5 hours 5 hours 1 hour 3 hours M2 4 hours 2 hours M1 Table Chair
  20. 26. Two machines and n jobs <ul><li>4 jobs 24 combinations </li></ul><ul><li>5 jobs 120 combinations </li></ul><ul><li>6 jobs 720 combinations </li></ul><ul><li>7 jobs 5040 combinations </li></ul><ul><li>Johnson's sequential rule is used when there are more number of jobs through two machines/work centers. </li></ul>
  21. 27. Johnson's rule <ul><li>Least value at work centre/station M1 should be placed as early as possible at her left most square and if the least value occurs at the work centre M2, then place that job as the late as possible at the right most square. Now, the job column of it to be deleted and look for the left over jobs. </li></ul><ul><li>Suppose there is a tie, take any one. </li></ul>
  22. 28. Two machines and n jobs 10 4 2 9 3 M2 6 7 8 4 5 M1 E D C B A Time required (hours) for jobs Machines
  23. 29. M1- 2 hours of idle time. 2   3   4   10   9 -------- M2- 4hours of idle time. --------   8   5   7   6   4
  24. 30. Suppose there are 3 machines and n jobs <ul><li>Extrapolation of Johnson's method. </li></ul><ul><li>The least of the job timings in M1_>The greatest of the job timings in M2 </li></ul><ul><li>or </li></ul><ul><li>The least of the job timings in M3_>The greatest of the job timings in M2 </li></ul>
  25. 31. - <ul><li>If one of the above satisfies, the given problem is converted into a 2 machines and n jobs by adding the respective job times of M1 and M2. This forms the first set. </li></ul><ul><li>Add M2 and M3 for another set. </li></ul>
  26. 32. n jobs and m machines <ul><li>The least of the job timings in M1_>The greatest of the job timings in M2,m3…M(m-1) </li></ul><ul><li>or </li></ul><ul><li>The least of the job timings in Mm_>The greatest of the job timings in M2,M3…M(m-1) </li></ul>
  27. 33. Other methods of sequencing <ul><li>Akers’ Method </li></ul><ul><li>Assignment Model </li></ul>
  28. 34. Critical Ratio (CR) <ul><li>It is used to determine the priority in dispatch based on the time remaining and work remaining . </li></ul><ul><li>To control the work delays and to take necessary steps to hasten work. </li></ul><ul><li>CR=Time remaining (TR) / Work Remaining (WR) </li></ul><ul><li>CR= DD-CD/RWD </li></ul><ul><li>DD=Due date, CD=Current date, </li></ul><ul><li>RWD= remaining work in days </li></ul>
  29. 35. E.g.; Today is 20 and assign the priority 12 28 D 2 22 C 2 24 B 8 26 A RWDs Due date Job
  30. 36. Critical Ratio 8/12=0.67 12 28-20=8 D 2/2=1 2 22-20=2 C 4/2=2 2 24-20=4 B 6/8=0.75 8 26-20=6 A CR=DD-CD/RWD RWDs Time remaining DD-CD Job
  31. 37. Line Balancing <ul><li>The purpose of line balancing is to group tasks into work stations so that the desired production rate is achieved with maximum efficiency. </li></ul><ul><li>An efficient balancing is the one which will minimize the idle time. </li></ul>
  32. 38. Line balancing involves <ul><li>Determining the number of stations and time available to each station. </li></ul><ul><li>Grouping the individual tasks into amounts of work at each station and </li></ul><ul><li>Evaluating the efficiency of grouping. </li></ul>
  33. 39. Cycle Time (C) or Pace <ul><li>To ensure that work flows smoothly through the process, each workstation needs to be given the same amount of time to complete its tasks on a particular unit. This is called the required Cycle Time (C) or Pace. </li></ul><ul><li>Cycle Time -C=Available Time Duration/Output units required in that duration. </li></ul>
  34. 40. Number of work stations (n) and Balance efficiency <ul><li>Minimum number of work stations (n)=T/C </li></ul><ul><li>T= Sum of all task times </li></ul><ul><li>C= Cycle time. </li></ul><ul><li>Balance efficiency (Eb)= Theorotical minimum no. of work centres/ Actual no. of work centers. </li></ul><ul><li>Balance delay=D=(NC-T)/NC X100 </li></ul>
  35. 41. Example <ul><li>An assembly line consists of 7 activities with respective time requirements in each activity as shown below </li></ul><ul><li>(A0.62)>(B0.39)>(C0.27)>(D0.14)>(E0.56)>(F0.35)>(G0.28) </li></ul><ul><li>The line operates 7 hours a day. The desired units to be produced are 600. Calculate the following- </li></ul><ul><li>Cycle time, theoretical minimum no. of work stations, balance efficiency and balance delay. </li></ul>
  36. 42. Cycle time-C <ul><li>C= Available time duration/Output units required in that duration </li></ul><ul><li>=7X60 minutes/600 units </li></ul><ul><li>=420/600=0.7 minutes </li></ul>
  37. 43. Theoretical minimum no. of work centers required (n) <ul><li>n=T/C </li></ul><ul><li>T=sum of all task times </li></ul><ul><li>=0.62+0.39+0.27+0.14+0.56+0.35+0.28=2.61 minutes </li></ul><ul><li>n=T/C=2.61/0.7=3.73 work stations </li></ul><ul><li>N=Actual no. of centers required is 4 (rounded off) </li></ul>
  38. 44. Balance efficiency (Eb) <ul><li>Eb=Sum of all task times/Cycle time X actual no. of work centers </li></ul><ul><li>=T/CXN= 2.61/0.7X4 </li></ul><ul><li>Percent Eb=2.61X100/0.7X4=93.21% </li></ul>
  39. 45. Line Balancing procedure <ul><li>Define tasks to be performed and obtain accurate time estimates for each task. Identify the precedence relationship among the tasks. </li></ul><ul><li>Specify the required daily output level and calculate the cycle time. </li></ul><ul><li>Calculate the minimum no. of work centres needed for the desired output rate. </li></ul><ul><li>Develop layout. </li></ul>
  40. 46. Example <ul><li>A design team has identified 9 distinct tasks to be performed. After analyzing the tasks in detail, the team has also estimated the time required for each task and also the precedence relationships, as given. Suppose desired output rate is 240 units a day in an 8 hour shift. </li></ul><ul><li>Calculate1. Required cycle time for the desired output rate2. Minimum work centers and 3.Balance delay. </li></ul>
  41. 47. Timings and precedence 5.7 minutes Total H 0.7 I F,G 0.8 H D,E 1.5 G D 0.1 F B,C 0.3 E A 0.5 D - 0.3 C - 0.6 B - 0.9 A Immediate predecessor Required time in minutes Tasks
  42. 48. Diagram/Layout -- (A-0.9) ---- (D-0.5)-----(F-0.1) ---(B-0.6)----(E-0.3)-----(G-1.5)-----(H-0.8)-----(I-0.7)--- ---(C-0.3)
  43. 49. - <ul><li>Required cycle time= available time duration / required output rate </li></ul><ul><li>=8 hours X 60 minutes / 240 units=2 Mts </li></ul><ul><li>Minimum work Stations/centers: </li></ul><ul><li>=Sum of all task times/ required cycle time </li></ul><ul><li>=.9+.6+.3+.5+.3+.1+1.5+.8+.7=5.7 Mts./2 </li></ul><ul><li>=5.7/2=2.85=3 (rounded off) </li></ul>
  44. 50. - <ul><li>Balance Delay=D=(NC-T)X100/NC </li></ul><ul><li>= (3X2-5.7)X100/3X2 </li></ul><ul><li>= 6-5.7X100/6 </li></ul><ul><li>=0.3X100/6 </li></ul><ul><li>=30/6=5% </li></ul>
  45. 51. Work study <ul><li>Work study concerns with the better ways of doings things and control over the output by setting standards with respect to time. </li></ul><ul><li>The productivity is the ratio of out put produced to the input resources. </li></ul><ul><li>Productivity = Value of out put/ Cost of inputs (man, machine, material, money etc.) </li></ul>
  46. 52. - <ul><li>The ways and means of improving productivity is called work study. Work study is a management tool to achieve higher productivity in any organization, whether manufacturing tangible products or offering services to its customers. It makes use of techniques of method study and work measurement to ensure the best possible use of human and material resources in carrying out a specific activity. </li></ul>
  47. 53. - <ul><li>Work study </li></ul><ul><li>Method study (to develop the best method of doing work) </li></ul><ul><li>Work measurement (to establish the work content of the job) </li></ul><ul><li>Higher productivity </li></ul>
  48. 54. Objectives of work study <ul><li>To analyze the present method of doing a job, systematically in order to develop a new and better method. </li></ul><ul><li>To measure the work content of a job by measuring the time required to do the job for a qualified worker and hence to establish standard time. </li></ul><ul><li>To increase the productivity by ensuring the best possible use of human, machine and material resources and to achieve best quality products/service at minimum possible cost. </li></ul><ul><li>To improve operational efficiency. </li></ul>
  49. 55. Purpose: <ul><li>To determine the best or most effective method of accomplishing a necessary operation or function. The criteria for the best method could be an increase in job satisfaction and individual morale, reduction in physiological fatigue, decrease in number of accidents and personnel injuries, minimization of material usage, tool breakage or usage of consumable supplies and increase in productivity by reduction of performance time. Every operation is or activity in an organization contains to a certain degree of mechanical, physiological, psychological and sociological factors. The purpose of work measurement is to quantify these factors. </li></ul>
  50. 56. Time study and Motion study: <ul><li>Both time study and motion study which resulted from the integration of concepts and practices developed by F W Taylor and M. Gilberth are concerned with the systematic analysis and improvement of manually controlled work situations. However, time study is a quantitative analysis leading to establishment of a time standard whereas motion study is a qualitative analysis of a work station leading to the design or improvement of an operation/activity. </li></ul>
  51. 57. Method study or analysis <ul><li>It is scientific technique of observing, recording and critically examining the present method of performing a task or job or operation with the aim of improving the present method and developing a new and cheaper method. It encompases the study of work process, working conditions and equipments and tools used to carry out the job. </li></ul>
  52. 58. Objectives of method study: <ul><li>To study the existing / proposed method of doing any job, operation or activity. </li></ul><ul><li>To develop an improved method to improve productivity and to reduce operating costs. </li></ul><ul><li>To reduce excessive materials handling or movement and thereby reduce fatigue of workmen. </li></ul><ul><li>To improve utilization of resources. </li></ul><ul><li>To eliminate wateful and inefficient motions. </li></ul><ul><li>To standardize work methods or processes, working conditions, machinery, equipments and tools. </li></ul>
  53. 59. Where can be applied: <ul><li>Defects of layout and planning can be eliminated this minimizing excessive movement of materials, and work men. </li></ul><ul><li>Poor management of men-material-machine results in high scrap and waste, high operating and reprocessing cost. </li></ul><ul><li>Lack of consistency in quality. </li></ul><ul><li>Employees complaints about poor working conditions, unveven distribution of workloads, increasing no.of accidents. </li></ul><ul><li>Excessive overtime. </li></ul>
  54. 60. Work design <ul><li>Work design- is the systematic investigation of contemplated and present work systems in order to formulate, through the idle system concept, the easiest and most effective systems and methods for achieving the necessary functions/goals/purposes. </li></ul>
  55. 61. Others <ul><li>Job enlargement is the horizontal loading of a worker’s job. This means same level of existing work skills and mental level works added to his job. </li></ul><ul><li>Job rotation is the changing job. </li></ul><ul><li>Job enrichment is the higher level of responsibilities in addition to routine work. </li></ul>
  56. 62. Procedure for method study <ul><li>1.Select the work or job to be studied and define the objectives to be achieved. </li></ul><ul><li>2.Record all relevant facts using recording techniques such as process charts and diagrams. </li></ul><ul><li>Some of the process charts are flow process charts, multiple activity charts, man machine charts, flow diagram and string diagrams. To facilitate the charting process, some symbols are used. </li></ul>
  57. 63. Flow process charts (process flow charts) <ul><li>They are used giving the sequence of events occurring in the process from the beginning to the end. Some symbols are universally accepted and used. </li></ul><ul><li>Process charts are generally drawn for the material which goes from raw material stage to the finished goods stage. Some times may be referred to the activities performed by the worker in getting a certain process done, in such case the transport refers the movement of the man, the delay refers to his waiting involved etc. Process charts do not refer to the material and man or machine simultaneously. </li></ul><ul><li>Combined activities can be shown by superimposing their respective symbols so that the outer symbol represents the major activity. </li></ul>
  58. 64. Multiple activity techniques <ul><li>In this chart, the activities of more than one subject are recorded on a common time scale to show their inter relationship. </li></ul><ul><li>Micro-motion study is the concept of dividing human activity (body movements) into groups of movements, called “therblings” i.e anagram of Gilberth. </li></ul>
  59. 65. - <ul><li>3. Examine the recorded facts critically, challenging everything being done and seeking alternatives, questioning the purpose (what is achieved), the means (how is it to be achieved), sequence (when is it achieved), place (where is it achieved) and the person (who achieves it). </li></ul>
  60. 66. - <ul><li>4. Develop the improved method by generating several alternatives and selecting the best method are: </li></ul><ul><li>-cost of implementation, </li></ul><ul><li>Expected savings in time and cost </li></ul><ul><li>Feasibility and producibility </li></ul><ul><li>Reaction of employees </li></ul><ul><li>Short term and long term implications of the alternatives </li></ul>
  61. 67. - <ul><li>5.Install the improved method in three phases such as planning, arranging and implementing phases. </li></ul><ul><li>6. Maintain the new method by ensuring that the installed method is functioning well. </li></ul>
  62. 68. Work measurement <ul><li>Method study and work measurement are two techniques of work study. Both of them are important elements in achieving higher labor productivity. Work measurement -is the application of techniques, designed to establish the time for a qualified worker, to carry out a specified job, at a defined level of performance. </li></ul>
  63. 69. Work measurement <ul><li>Work measurement is to investigate and then eliminate ineffective time in the already improved method. Work measurement is a collection of observational and statistical procedures that are used to measure worker job performance. </li></ul>
  64. 70. Objectives of work measurement <ul><li>To determine the standard time required by a qualified worker to do a job </li></ul><ul><li>To determine reliable indices for labour performance and manpower requirement of plant. </li></ul><ul><li>To develop labor budgeting and control systems and incentives </li></ul><ul><li>To improve planning and control requirements. </li></ul><ul><li>To determine plant capacity at a given level of work force and equipment. </li></ul>
  65. 72. Materials Management <ul><li>Historically 5 Ms of an industrial organizations viz., Men, Machine, Money, Materials and Methods have shifted their positions from time to time in their relative importance. </li></ul><ul><li>Earlier Men, Shifted to Machines, again shifted to Methods and scientific management </li></ul><ul><li>1970s oil crisis shifted to Money </li></ul><ul><li>Earlier materials were taken for granted. Materials as an input in production systems started receiving attention of the industrialists from 1900 onwards. </li></ul><ul><li>The present trend is that the materials are occupying importance among Ms. </li></ul>
  66. 73. Reducing the cost <ul><li>>75% Fabrication and construction. </li></ul><ul><li>65-75% Wool, sugar, cotton, commercial vehicles etc. </li></ul><ul><li>55-65% Cotton textiles, bread, cables etc. </li></ul><ul><li>45-55% Cement, pharmaceuticals, electronics, explosives etc. </li></ul><ul><li>35-45% Steel, cigarettes, news papers, aircraft manufacturing etc. </li></ul>
  67. 74. Return on investment (ROI) <ul><li>ROI=Profit / sales X sales / fixed assets + Current assets. </li></ul><ul><li>Materials constitute the bulk of current assets and therefore control of materials assumes great significance. </li></ul>
  68. 75. Add value to a product <ul><li>The margin between the value of raw materials and the finished product is known as “the value added by manufacture” </li></ul>
  69. 76. Contribute to the quality <ul><li>Quality is the sum of attributes or properties that describe the product. </li></ul><ul><li>The attributes are generally expressed in terms of specific product characteristics such as length, width, colour and specific gravity </li></ul>
  70. 77. Material management includes <ul><li>Planning, procuring, preserving, handling, usage and other related aspects. </li></ul><ul><li>Bailey and Farmer define materials management as the management of the flow of materials into an organization to the point, where, those materials are converted into the firms end products. </li></ul>
  71. 78. Concepts of material management Raw materials Subassemblies Manufactured parts Packing materials 1.Material specifications 2.Value analysis 3. Supply market research 4. Negotiation 5. Buying 6.Quality assurance 7.Transportation Finished goods inventory Transportation Field inventory Transportation Customer Storage materials handling Production scheduling and control. Goods in process inventory Inventory decisions Procurement activities Physical distribution Materials Management
  72. 79. Concepts <ul><li>As shown above, materials management refers to the movement of production materials, from their acquisition to the stage of their consumption. Physical distribution refers to the distribution of finished goods to the customers or users. Physical distribution starts where, materials management ends. </li></ul><ul><li>Logistics management is a combination of both materials management and physical distribution management. </li></ul>
  73. 80. Efficient materials management provides <ul><li>Lower prices for materials and equipment </li></ul><ul><li>Faster inventory </li></ul><ul><li>Continuity of supply </li></ul><ul><li>Reduced lead time </li></ul><ul><li>Reduced transport costs </li></ul><ul><li>Less duplication of efforts </li></ul><ul><li>Elimination of buck passing </li></ul><ul><li>Reduced materials obsolescence </li></ul><ul><li>Improved supplier relationship and better records and information </li></ul><ul><li>Better inter departmental cooperation </li></ul><ul><li>Personnel development. </li></ul>
  74. 81. Purchasing <ul><li>In simple form purchasing means buying an item at a price. A broader meaning is a managerial activity which includes the planning and policy activities covering a wide range of related and complementary activities. Includes the research and development strategies required for the proper selection of materials and sources from which those materials may be bought, the follow up to ensure proper delivery, the development of proper procedures, methods and forms to enable the purchasing department to carry out the established policies. </li></ul>
  75. 82. Importance of purchasing <ul><li>Purchasing is a fundamental function in an industrial establishment for converting raw materials into finished products. </li></ul><ul><li>As it was discussed more than 50% of total cost is for materials. Efficient buying is saving in the cost of materials </li></ul>
  76. 83. Functions of purchasing Dept <ul><li>I. Responsibilities often fully delegated to the purchasing function: </li></ul><ul><li>1. Obtaining prices </li></ul><ul><ul><ul><li>2. Selecting vendor </li></ul></ul></ul><ul><li>3. Awarding purchase orders. </li></ul><ul><li>4.Following up on delivery promises. </li></ul><ul><li>5. Adjusting and settling complaints. </li></ul><ul><li>7. Selecting and training of purchasing personnel. </li></ul><ul><li>8. Vendor relations. </li></ul>
  77. 84. - <ul><li>II. Responsibilities often shared with functions other than purchasing function </li></ul><ul><li>Obtaining technical information and advice. </li></ul><ul><li>Receiving sales presentations. </li></ul><ul><li>Establishing technical specifications. </li></ul><ul><li>Scheduling orders and deliveries. </li></ul><ul><li>Inspecting. </li></ul><ul><li>Specifying delivery method and routing. </li></ul><ul><li>Expediting. </li></ul><ul><li>Accounting </li></ul>
  78. 85. - <ul><li>Purchasing and market research. </li></ul><ul><li>Inventory and warehousing policy and /or control. </li></ul><ul><li>Forward buying and hedging policies and procedures. </li></ul><ul><li>Sale of scrap and surplus. </li></ul><ul><li>Purchasing for employees. </li></ul><ul><li>Contracting for machines and equipment. </li></ul><ul><li>Development of specifications. </li></ul><ul><li>Transport and traffic. </li></ul><ul><li>Determination of weather to buy or make. </li></ul><ul><li>Customs and other functions. </li></ul>
  79. 86. - <ul><li>III. Responsibilities often divorced from purchasing but of particular interest to purchasing. </li></ul><ul><li>Receiving and warehousing </li></ul><ul><li>Payment of invoices </li></ul>
  80. 87. Procedures <ul><li>1. Reccognition of need </li></ul><ul><li>2. Description of requirements </li></ul><ul><li>3. Selection of source </li></ul><ul><li>4. Determination of price and availability </li></ul><ul><li>5. Purchase order </li></ul><ul><li>6.Acknowledgement of order </li></ul><ul><li>7.Follow up and expediting </li></ul><ul><li>8. Checking invoice and approval </li></ul>
  81. 88. Vendor Development <ul><li>Relation with vendor as important as with the customer </li></ul><ul><li>For timely deliveries of quality items at a reasonable rates </li></ul><ul><li>Vendor development is creating or making new vendors. </li></ul><ul><li>Multi source and single source of supply </li></ul>
  82. 89. Material storing <ul><li>Stores or storage is the function of receiving, storing and issuing materials </li></ul><ul><li>It involves, supervision of incoming supplies, to ensure that they are maintained in good condition, safely and in readiness for use when required, while they are in storage and issuing them against authorized requisitions. This is not only for the purchased materials but also for partly finished goods, finished goods, spares and consumables in stores </li></ul>
  83. 90. Inventory Management <ul><li>Because of high costs involved in the inventories, it is often treated synonymous with material management </li></ul><ul><li>Important for adequate supply of inventory to avoid interruptions in the operations and to keep down carrying and ordering costs low. </li></ul><ul><li>Merchandise is not an inventory as it is for the resale for trading. </li></ul>
  84. 91. Definition <ul><li>The popular definition of inventory is “inventory includes materials-raw, in process, finished packaging, spares and other stocked in order to meet on unexpected demand or distribution in the future”. </li></ul>
  85. 92. Inventory includes <ul><li>a)Production inventories-raw materials, parts and components which enter the firm’s product in the production process. </li></ul><ul><li>b)MRO inventories – such as maintenance, repair and operating supplies like lubricating oils which are consumed in the process. </li></ul><ul><li>c)In-process inventories-semi-finished products found at various stages in the production. </li></ul><ul><li>d)Finished goods inventories-finished products ready for shipment. </li></ul>
  86. 93. Inventory Costs: <ul><li>1.Ordering costs-preparing purchase order, processing payments, receiving and inspecting the materials. </li></ul><ul><li>2.Carrying costs-obsolescence, deterioration, pilferage, taxes, insurance, storage, interest on the capital barrowed for inventory. Other cost like rent on building, taxes and insurances on building, depreciation on warehouse, cost of maintenance, utility charges, salaries etc. </li></ul><ul><li>3.Out of stock costs- </li></ul><ul><li>4. Capacity costs- </li></ul><ul><li>Carrying and ordering costs are conflicting. </li></ul>
  87. 94. Process of Inventory Management <ul><li>Determination of inventory that an organization should hold is a difficult and also very significant aspect of production and operations. Too much locks capital but less than requirement may lead to stock out. Hence, it depends on trend of sales, production cycle etc. </li></ul><ul><li>There are two general approaches to inventory systems </li></ul>
  88. 95. Fixed order quantity system or ‘Q’ System
  89. 96. Fixed –order period system or ‘P’ system
  90. 97. Inventory control techniques <ul><li>1.Always better control (ABC) classification. </li></ul><ul><li>2. High, medium and low (HML) classification. </li></ul><ul><li>3.Vital, essential and desirable (VED) classification. </li></ul><ul><li>4. Scarce, difficult and easy to obtain (SDE). </li></ul><ul><li>5.Fast moving, slow moving and non-moving (FSN). </li></ul><ul><li>6.Economic Order Quantity. </li></ul><ul><li>7. Maximum-Minimum system. </li></ul><ul><li>8.Two bin system. </li></ul><ul><li>9.Material requirement planning (MRP) </li></ul><ul><li>10.Just in time (JIT). </li></ul>
  91. 98. ABC Analysis
  92. 99. HML Classification
  93. 100. VED Classification
  94. 101. SDE Classification
  95. 102. Economic Order Quantity (EOQ) <ul><li>What should be the size of order to place an order at the re-order point under fixed order quantity system? Bulk quantities purchase has carry costs and small quantities reduce holding cost but add order cost. Economic order quantity or optimal order quantity is the technique is the order size at which total cost, comprising ordering cost plus carrying cost is the least. </li></ul>
  96. 103. EOQ can be calculated with the following assumptions <ul><li>1.Demand is constant during the period. </li></ul><ul><li>2.Lead time is constant i.e. time from ordering to receipt. </li></ul><ul><li>3.Price per unit is also constant. </li></ul><ul><li>4.Inventory holding cost is based on average inventory. </li></ul><ul><li>5.Ordering costs are constant and </li></ul>
  97. 104. Total const (TC) <ul><li>Total const (TC)=Annual demand X Purchase const/unit + Annual demand / Quantity to be ordered X Cost of placing an order + Quantity to be ordered / 2 X Holding cost per unit of average inventory per annum. </li></ul><ul><li>Or </li></ul><ul><li>TC = DC + D/Q X S + Q/2 X H </li></ul><ul><li>DS/Q = Annual ordering cost. </li></ul><ul><li>(Q/2)H = Annual holding cost. </li></ul><ul><li>The cost of ordering is equal to the cost of carrying </li></ul><ul><li>or </li></ul><ul><li>DS/Q = Q/2 X H </li></ul><ul><li>Which in turn is solved as follows </li></ul><ul><li>2 2 2 </li></ul><ul><li>DS= Q H/ 2 or 2DS = Q H or Q = 2DS / H </li></ul><ul><li> / -------- </li></ul><ul><li>Q or EOQ = /2DS/H </li></ul>