OPERATIONS MANAGEMENT- Full Slides.pptx

OPERATIONS
MANAGEMENT
FOURTH SEMESTER
SUBJECT CODE BM 1443

PRODUCTION MANAGEMENT
• Production/operations management is the process, which combines and
transforms various resources used in the production/operations subsystem of the
organization into value added product/services in a controlled manner as per the
policies of the organization.

MEANING
• A set of inter related management activities which are involved in the
manufacturing certain products is called Production management.
• It is extended to services management, then the corresponding set of
management activities is called Operations management

5 PS OF OPERATIONS MANAGEMENT
• Product
• Processes
• Plant
• Programmes
• Personnel

IMPORTANCE OF OPERATIONS MANAGEMENT
1. Operations management is the process that generally plan, controls and supervise the
manufacturing and production process and service delivery
2. It effectively manage, control ,supervises goods, services and people ,equipment
,information and technology
3. OM supplies all other activities of the organization
4. Operations affects the company’s ability to compete
5. It offers a major opportunity for an organization to improve its productivity and
profitability
6. Operations is a costly part of organization

CONTINUES…
7. Operations function is responsible for a major portion of assets of
most organization
8. The concepts, tools and techniques of operations management are
widely used in managing other functions
9. .Effective operations management helps with employees engagement
and defines the roles and responsibilities within an organization
10..Operations management ensures that the business operations run
successfully, smoothly effectively using minimum resources and
meeting customer satisfaction

OBJECTIVES OF OPERATION MANAGEMENT
Improve productivity by better utilization of resources like men,
material, method etc.,
Have less/ no defects.
Utilize plants and machinery effectively and effectively .
Improve material handling equipments.
Have proper control on raw materials, semi-finished goods and
finished goods.
Achieve proper cash management.
Enhance production staff with respect to their salary, wages etc

SCOPE OF OPERATIONS MANAGEMENT
• Product selection and design
• Process selection and planning
• Location facilities
• Layout and material handling facilities
• Capacity planning

NEED FOR PRODUCTION AND OPERATION
MANAGEMENT
• Produce right quality of product
• Right quantity
• Right time
• Right manufacturing cost

JOBS AND RESPONSIBILITIES OF OPERATION
MANAGER
1. Managing human resources
2. Cost Management
3.Decision making
4. Improving operational management systems ,process and best practices
5.Formulate strategic and operational objectives
6. Recruit train and supervise staff
7. Find ways to increase the quality of customer service

FACTORS OF PRODUCTION
• 1. Labor
• 2. Capital
• 3. Energy
• 4. Materials
• 5. Information
• 6. Methods
• 7. Money
• 8. Machines and organization
• 9. Manufacturing services

BRIEF HISTORY OF OPERATIONS MANAGEMENT
• 1ndustrial revolution late 1700s
• Scientific management Early 1900 s
• 1930 to 1960s – Human relations movement
• Management science – Mid 1900s
• Computer age 1970s
• 1980s – Development of just in time
• 1990s Manufacturing flexibility
• 2000
• 2010
• 2015-2020

PRODUCTION SYSTEM
• A “Production System” is a system whose function is to transform an input into a desired
output by means of a process (the production process) and of resources. The definition of
a production system is thus based on four main elements: the input, the resources, the
production process and the output
• Production system refers to manufacturing subsystem that includes all functions required
to design, produce, distribute and service a manufactured product. So this system
produces goods and/or services on a continuous and/or batch basis with or without profit
as a primary objective.
• The production system of a company mainly uses facilities, equipments and operating
methods(called the production system) to produce goods that satisfy customers’ demand.
• The above requirements of a production system depend on the type of product that the
company offers and the strategy that it employs to serve its customers.

THE PRODUCTION SYSTEM HAS THE FOLLOWING
CHARACTERISTICS
i. Production is an organized activity, so every production system has an objective.
ii. The system transforms the various inputs to useful outputs.
iii. It does not operate in isolation from the other organization system.
iv. There exists feedback about the activities, which is essential to control and
improve system performance.

JOB SHOP PRODUCTION
• Job shop production are characterised 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 OF JOB SHOP PRODUCTION
High variety of products and low volume.
Use of general purpose machines and facilities.
Highly skilled operators who can take up each job as a challenge because of
uniqueness.
Large inventory of materials, tools, parts.
Detailed planning is essential for sequencing the requirements of each product,
capacities for each work centre and order priorities.

FLOW SHOP
• This is a conversion process in which successive unit of output undergo the same
sequence of operations using specialized equipments usually positioned along a
production line
• Eg: Auto Assembly, Assembly of Electric motors etc

INTERMITTENT PRODUCTION
• According to Buffa, ―Intermittent productions are those where the facilities must
be flexible enough to handle a variety of products and sizes or where the basic
nature of the activity imposes change of important characteristics of the input
(e.g. change. in the product design).

CHARACTERISTICS OF INTERMITTENT PRODUCTION
The volume of production is generally small.
A wide variety of products are produced.
General purpose, machines and equipment’s are used so as to be adaptable to a
wide variety of operations.
No single sequence of operations is used and periodical adjustments are made
to suit different jobs or batches.
Process layout is most suited

TYPES OF INTERMITTENT PRODUCTION
• 1. Project production flows
• Here the project production flows, company accepts a single complex order or contract.
• The order must be computed within a given period of time and at an estimated cost
• Eg. Construction of air ports dams, loads etc
• Characteristics
• 1. A requirement of resources varies with products phases
• 2. Many agencies are involved and their jobs are interrelated
• 3. Generally delay takes place of project
• 4. As routing scheduling changes, inspection is required.

JOBBING PRODUCTION FLOW
• Company accepts a contract to produce either one or few units of a product
strictly as per specifications given by the customer.
• The product is produced within a given period and at fixed cost.
• The cost is fixed at the time of signing the contract.
• Eg. Services given by repair shops, manufactures of special machine tools etc.

CHARACTERISTICS OF JOBBING PRODUCTION FLOW
1. Production of items takes place in small lots
2. Items are manufactured as per customers specification
3. Highly skilled labor is needed for specialized jobs

BATCH MANUFACTURING
• In batch production flows, the production schedule is decided according to
specific orders or based on demand forecasts. Here the production of items takes
place in lots or batches.
• A product is divided into different jobs.
• All jobs of one batch of production must be completed before starting the next
batch of production.
• Eg. Manufacture of drugs and pharmaceuticals, medium and heavy machineries.

CHARACTERISTICS OF BATCH MANUFACTURING
1. Some intermediate varieties of products with intermediate volumes are made in
batch manufacturing
2. It needs detailed production planning and control.
3. Production equipments in batch manufacturing must be capable of
performing a variety of tasks

CONTINUOUS PRODUCTION SYSTEMS
• In the continuous production system, goods are produced constantly as per the
demand forecast.
• Goods are produced on a large scale for stocking and selling.
• They are not produced on customer order.
• In this process, flow of production is continuous and products are
standardized, Products are produced as per quality standard
• Eg. Production and processing system of a fuel industry

FEATURES OF CONTINUOUS PRODUCTION SYSTEM
1. Flow of production is continuous and not intermittent
2. Products are standardized
3. Products are produced as per quality standard
4. Products are produced in anticipation of demand
5. Standardized routine sheets and scheduled are prepared

TYPES OF CONTINUOUS PRODUCTS SYSTEM
1. Mass production flow - Here the company produces different types products
on a large scale and stock them in warehouses until they are demanded in the
market. The goods are produced either with the help of single operation or
uses a series of operation.
2. Process production flow - Here a single product is produced and stocked in
warehouses until it is demanded in the market. The flexibility of these plants is
almost zero because only one product can be manufactured

SYSTEM VIEW OF OPERATIONS MANAGEMENT
SYSTEM
• Operations Management is the management of transformation systems which
converts inputs to goods /and or service
• The inputs to the system are materials, labour, equipment and capital

OPERATIONS STRATEGY
• An operations strategy is typically driven by the overall business strategy of the
organization, and is designed to maximize the effectiveness of production and
support elements while minimizing costs.

OPERATIONS STRATEGY AND COMPETITIVENESS
• Operations Strategy is the art and science of formulating implementing and evaluating
cross functional decisions that enable an organization to achieve its objective.
• Operations Strategy defines the long term objectives of the organization and its basic
philosophy
• Operations strategy must emerge from the business strategy of organization
• Functional strategies in operation management guide decisions on all aspects of
operations manager both in short term and long term.
• Short term strategies focus on organizations basic OM system to achieve optimum
balance between inputs and outputs, empty location, facilities and process planning, long
term strategies of Operation Management systems.

OPERATIONS CONTROL SYSTEM
• Operation managers need to control methods appropriate to the level of
strategy implementation.
• Primary concern at the operation level is the allocation and use of company resources.
• Operational control systems guide monitor and evaluate progress in meeting the annual
objectives.
• The steps taken for operational control
1. Set standards of performance
2. Measure actual performance
3. Identify deviation from standards.
4. Initiate corrective action or adjustment

OPERATION STRATEGY
• Operational Strategy is the set of decision that are warranted in the
operational process to support the competitive of business.
• To develop organizational strategies at 3 levels of operation
1. Corporate level
2. Business level
3. Functional level

ELEMENTS OF OPERATIONAL STRATEGY
1. Designing Production systems - This element includes choosing the type of processing
system, production design, and finished goods inventory plan, etc. for each main line
of product in the business plan.
The two main types of Product design are
i. Custom Product Design- The custom design is the one when there is a low volume
and special features are already present or inbuilt. These types of products are
designed as per the requirements of individual customers.
ii. Standard product Design- This is related to a universal design that is used to provide a
wide acceptance of the product among its customers. Both quantity and demand are
high in such a design.

.
2.Facilities for production and service
• To plan for different production facilities to achieve some sort of specialization in each of
them.
• This allows the production facility to gain a command over achieving specific objectives
because the equipment, procedures, and supporting systems can focus on certain limited
tasks for a particular set of customers.

.
3.Product and service design and development
Different stages or phases that are involved in designing and developing a product or
service include
Idea generation
Making the feasibility reports
Prototype designing and testing
Preparation of a production model
Evaluation of production-related economies of scale
Market-based testing of the product
Taking feedback
Developing final design and initiating the production

.
4. Technology selection, development and process development
• To determine the way of producing products is considered one of the essential aspects of
operations strategy.
• This includes making decisions and plans on every detail of processes and facilities in
production.
• To achieve the optimum level of production, the analysis of the selected product for
production is conducted for the process and appropriate technology.

.
5 Allocation of resources
• Organization resources are limited for production purposes and so, the continuous
problems are faced by production units in the allocation of limited resources such as cash,
capital, workforce, machines, materials, capacity, equipment, services, etc.
• The allocation of these resources must be in a way that helps in achieving the goals of
operations up to a maximum extent

.
6 Facility, capacity and lay out planning
• The key decision areas of an operations manager are to create layout, facilities, and
location for the production as these are considered critical areas to achieve competitive
advantage.
• The expansion of the manufacturing unit in the future also depends on this decision.

OPERATIONS STRATEGY DEVELOPMENT
• The operations strategy is designed on the basis of competitive priorities within
the overall frame work of business strategy and this leads to the design of
operations structure and infrastructure
• The various systems are
1. Production system (Make to stock/ order, assemble to order)
Operations strategy is design by the types of products or services offered by the
organization.

MADE TO ORDER PRODUCTS
They are manufactured or produced only when firm order for the
project exists.
Eg. BHEL is engaged for producing turbines for power plants, but they make the
turbines for specific projects to unique specification when they get a firm order.
Competitive priority is time and main issue is customer satisfaction.

MADE TO STOCK PRODUCTS
• These are manufactured in bulk and in inventory of finished products is
maintained.
• Eg. Readymade garments, tooth paste etc
• As such products are kept in stock, it is important that demand is
forecast with accuracy so that unnecessary inventory holding costs
are avoided.

III. ASSEMBLED TO ORDER PRODUCTS
• They are produced in standard modules components are made to
stock and whenever a customer place an order, the product is
assembled according to his requirements.
• Eg. Computer system, training and development

.
2. Product plan
3. Outsourcing
4. Process decision
5. Quality decisions
6. Capacity decision (Faculty planning location, location layout)
7. Operating decision
8. Technology planning
9. Resource planning

COMPETITIVENESS
• Competitive advantage implies the creation of a system that has an
unique advantage over competitors.
• The idea is to create customer value in an efficient and sustainable way
• Operational competitiveness is the process where the resources are transformed into
outputs of goods and services is a very important component of its overall
competitiveness
• Competitiveness denotes the firm’s ability to achieve market superiority over its
competitors.
• In other words, how effectively an organization meets the needs of customers relative
to other organizations of the same specialization represents its competitive advantage

FIVE DIMENSIONS OF COMPETITOR’S PRIORITY
• 1 .Cost leadership
• 2. Product Quality
• 3 .Delivery reliability
• 4 .process flexibility
• 5 Innovation
• Operations strategy focuses on specific capabilities of operation that
give the organization a competitive edge. These capabilities are called
competitive priorities.

MODULE 2
• PRODUCT DESIGN & PROCESS SELECTION
• Product design:
• Product design deals with the form and function ability of the product.
• Product design affects the quality of the product and consequently its ability to satisfy the
customer needs
• An effective design should match the attributes of the product or service with the customer
requirements in a simple and cost effective manner.
• The design process itself should not take too much time.
• The design must be workable and require the least amount of revisions

.
• Various aspects of product design are:
1. Design for function
2. Design for making
3. Design for setting

STEPS INVOLVED IN PRODUCT DEVELOPMENT
Probl
em
Asse
ssme
nt
Desi
gn
Speci
ficati
ons
Idea
gene
ratio
n
Scree
ning
and
Evalu
ation
of
ideas
Busi
ness
Anal
ysis
Conc
ept
Desig
n
Detai
led
desi
gn
Prod
uctio
n of
prot
otyp
e
and
Testi
ng
Man
ufact
uring
Com
merc
ialisa
tion

PROCESS PLANNING AND DESIGN
• Selection of Process
• Process selection determines the type of productive process to be used and
appropriate span of that process.
• The process managers must also decide whether to organize the process flow as a
high volume line flow or low volume batch production process.
• Furthermore they must decide whether to integrate forward towards the market and
or backward towards their supplier.
• All these decisions help in defining the type of processes which will be used to make
the product

PROCESS SELECTION DECISIONS
• Processes can be classified and selected according to the product flow
and type of customer order
• Customer order are of two types
1. Make to Stock
2. Make to Orders

FACTORS AFFECTING PROCESS SELECTION
• 1 .Market conditions
• 2. Capital requirements
• 3 .Labor
• 4 .Management skills
• 5. Raw materials
• 6 .Technology
• 7 Economic Analysis

PROCESS DESIGN
• Process planning design is a complete determination of the specific
technological process, steps and their consequence to be followed to
produce products at the desired quality and cost

STEPS IN PROCESS DESIGN
1. Determine the method of manufacturing a product
2. Establishing the sequence and type of operations involved
3. Select the tools and equipments required
4 .Analyze how the manufacturing of the product will fit into facilities
The basic input for process planning can be classified into production information and Production
system information.
1. Production information include product design, production volume, market environments
and major technologies selection
2. Production system information include Resource availability and Technological capabilities

• The process of conceiving a new product and bringing it to customers involve the
following main tasks
1. Product development
2. Process design

COMPUTER AIDED MANUFACTURING SYSTEMS
• Computer Aided Manufacture refers to the control of manufacturing process by
computers
• CAD
• CAM

ASSEMBLY LINE BALANCING
• Assembly line balancing is defined as assigning proper number
of workers or machines for each operations of an assembly line
so as to meet the required production rate with the minimum or zero ideal time

STEPS INVOLVED IN LINE BALANCING
• Line balancing is procedure in which tasks along assigning each task, the
assembly line are assigned to work station. So each work station has
approximately same amount of work
• 1. Identify the location of the bottle neck
• 2. Decide the number of work station
• 3. Decrease the production cost
• 4. Assigning the task to each work station in such a way that there is little idle
time

STEPS IN BALANCING ASSEMBLY LINE
1. List the sequential relationships among the task and draw a precedence diagram
2. Calculate the required work station cycle time
3. Calculate the theoretical number of work stations
4. Choose a primary rule that will determine how tasks are to be assigned to the work
station
5. Begin with the first work station assigning each task one at a time until the sum of the
tasks time is equal to the work station cycle time or until no other tasks can be assigned
due to sequence or time restrictions
6. Repeat steps 5 for the remaining work station until all the tasks have been assigned to
work station
7. Evaluate the efficiency of line balance

ADVANTAGES OF BALANCED ASSEMBLY LINE
1. Promote one piece flow
2. Avoid excessive work load in some stages
3. Minimize waste
4. Reduces variation
5. Increased efficiency
6. Minimize Ideal time

PLANT LAYOUT
Plant Layout is the physical arrangement of equipment and facilities within a Plant.
Optimizing (make effective use of) the Layout of a Plant can improve productivity,
safety and quality of Products.
Un-necessary efforts of materials handling can be avoided when the Plant Layout is
optimized.

PLANT LOCATION
Industrial location decisions have a unique place in the areas of industrial
management.
The success of any industry depends on the appropriateness of location
A plant location decision is either a choice to expand existing productive facilities,
add new locations, or substitute a new facility for an existing one.
Plant location involves two major activities
1. Select a proper geographic region
2. Selecting a specific site within the region

FACTORS AFFECTING PLANT LOCATION
• Nearness to raw material
• Transport facilities
• Nearness to market
• Availability of labour
• Availability of power
• Availability of water
• Climatic conditions
• Financial and other aids
• Land topography
• Scope of expansion

LOCATION ECONOMICS
• An ideal plant location is one which results in lowest production cost and least
distribution cost per unit. These costs are influenced by a number of factors.
1. Land building and rent
2. Incoming materials
3. Equipment and machinery
4. Outgoing product
5. Labour
6. Raw material
7. Water, power and fuel
8. Taxes

PLANT LAYOUT
It refers to the arrangement of machinery, equipment ,and other industrial
facilities such as room for raw materials,tool rooms ,maintenance rooms
and employees amenities for the purpose of achieving the quickest and
smooth production at the least cost and time.

OBJECTIVE OF PLANT LAYOUT
The basic objective is to ensure a smooth flow of
work, material, people and information.

OBJECTIVE OF PLANT LAYOUT DESIGN
1. Facilitate attainment of product or service quality
2. Use workers and space efficiently
3. Avoid bottlenecks
4. Minimize unnecessary material handling costs
5. Eliminate unnecessary movement of workers or
materials
6. Minimize production time or customer service time
7. Design for safety
8. Suitable spaces are allocated for production centers
and service centers

ADVANTAGES OF A GOOD LAYOUT
The overall process time and cost will be minimized by reducing
unnecessary handling and movement.
Supervision and control will be simplified by the elimination of
‘hidden corners’
Total output from a given facility will be as high as possible by
making the maximum effective use of available space and
resources.
A feeling of unity among employees will be encouraged by
avoiding unnecessary segregation.
Quality of the products or service will be sustained by safer and
more effective methods of operation

PRINCIPLES OF PLANT LAYOUT
• Principles of integration .
• 2. Minimum movement of workers and materials handling The number of
movement of workers and materials should be minimized. It is better to transport
materials in optimum bulk rather than in small amounts
• 3 .Principle of cubic space utilization

IMPORTANCE OF PLANT LAYOUT DECISIONS
Requires substantial investments of money and effort
Involves long-term commitments
Has significant impact on cost and efficiency of short-term
operations

FACTORS INFLUENCING LAYOUT
1. Materials
2. Product
3. Worker
4. Machinery
5. Type of industry
a) Extractive =metal from ore
b) Analytical= converts raw materials in to various elements
c) Synthetics = assembling the product from various sub components
d) Conditioning = changing the physical form of metals
6. Location
7. Policies ,Vision

FACTORS AFFECTING PLANT LAYOUT
• Flexibility
• Flow of work, materials and personal
• Use of space
• Accessibility
• Working environment

6-76
Product layouts
Process layouts
Fixed-Position layout
Cellular layout or Group Technology
Combination layouts
Hybrid layout
BASIC LAYOUT TYPES

6-77
Product layouts are used to achieve large volumes of products.
A job is divided into a series of standardized tasks, permitting
specialization of both labour and equipment.
PRODUCT (ASSEMBLY LINE) LAYOUT

Operations are arranged in the sequence required to make the
product. For instance, if a portion of a manufacturing operation
required the sequence of cutting, polishing, and painting, the
appropriate pieces of equipment would be arranged in that
sequence.
Product layouts achieve a high degree of labour and equipment
utilization.
PRODUCT (ASSEMBLY LINE) LAYOUT

6-79
Raw
materials
or customer
Finished
item
Station
2
Station
3
Station
4
Material
and/or
labor
Station
1
Material
and/or
labor
Material
and/or
labor
Material
and/or
labor
Used for Repetitive or Continuous Processing
PRODUCT LAYOUT

PRODUCT LAYOUT
Arrangement machineries in one line.
m1
m1
m1
m1 m2
m2
m2
m2 m3
m3 m4
m4
m4
m3
m3
m4
Assembly
Warehouse
Stores
Part a
Part b
Part c
Part d

• High rate of output
• Low unit cost
• Labor specialization
• Low material handling cost
• High utilization of labor and equipment
ADVANTAGES OF PRODUCT LAYOUT

• Creates dull, repetitive jobs
• Poorly skilled workers may not maintain equipment or quality of
output
• Fairly inflexible to changes in volume
• Highly susceptible to shutdowns
• Needs preventive maintenance
• Individual incentive plans are impractical
DISADVANTAGES OF PRODUCT
LAYOUT

6-83
1 2 3 4
5
6
7
8
9
10
In
Out
Workers
A U-SHAPED PRODUCTION LINE

Special-purpose equipment are used
Changeover is expensive and lengthy
Material flow is continuous
Material handling equipment is fixed
Little direct supervision is required
Production time for a unit is relatively short
In-process inventory is relatively low
CHARACTERISTICS OF PRODUCT LAYOUTS

Dept. A
Dept. B Dept. D
Dept. C
Dept. F
Dept. E
Used for Intermittent processing
Job Shop or Batch Processes
Process Layout
(functional)
PROCESS LAYOUT

PROCESS LAYOUT
It involves grouping together of like machines in
one department.

Used when the operations system must handle a wide variety of
products in relatively small volumes (i.e., flexibility is necessary)
The layouts include departments or other functional groupings in
which similar kinds of activities are performed
A manufacturing example of a process layout is the machine
shop, which has separate departments for milling, grinding,
drilling, and so on.
PROCESS LAYOUTS

• Can handle a variety of processing requirements
• Not particularly vulnerable to equipment failures
• Equipment used is less costly
• Possible to use individual incentive plans
ADVANTAGES OF PROCESS LAYOUTS

• In-process inventory costs can be high
• Equipment utilization rates are low
• Material handling slow and inefficient
• Complexities often reduce span of supervision
• Special attention for each product
DISADVANTAGES OF PROCESS
LAYOUTS

General-purpose equipment is used
Material handling equipment is flexible
Operators are highly skilled
Technical supervision is required
Production time is relatively long
In-process inventory is relatively high
CHARACTERISTICS OF PROCESS
LAYOUTS

FIXED POSITION LAYOUTS
• Fixed Position Layout: Layout in which the product or project remains stationary,
and workers, materials, and equipment are moved as needed.
• Nature of the product dictates this type of layout
• Weight
• Size
• Bulk
• Large construction projects

FIXED POSITION LAYOUT
CONSTRUCTION
OR
ASSEMBLY
Raw Material/Parts
Machine & Equipment
Labour Finished Product
Site

FIXED POSITION LAYOUTS
Fixed-position layout is used when product is very bulky, heavy
Fixed-position layouts are used in large construction projects (buildings, power
plants, and dams), shipbuilding, and production of large aircraft and space mission
rockets.
Fixed-position layouts are widely used for farming, firefighting, road building, home
building, remodelling and repair

• Cellular Production
• Layout in which machines are grouped into a cell that can process
items that have similar processing requirements
• Group Technology
• The grouping into part families of items with similar design or
manufacturing characteristics
CELLULAR LAYOUTS

Cellular manufacturing is a type of layout in which machines are
grouped into what is referred to as a cell.
Groupings are determined by the operations needed to perform
work for a set of similar items, or part families that require similar
processing.
Cellular layout provides faster processing time, less material
handling, less work-in-process inventory, and reduced setup time.
Used when the operations system must handle a moderate variety
of products in moderate volumes
CELLULAR MANUFACTURING (CM) LAYOUT

Machines are grouped into cells and the cells function
somewhat like product layout within a process layout .
CELLULAR LAYOUT

Dimension Functional Cellular
Number of moves
between departments
many few
Travel distances longer shorter
Travel paths variable fixed
Job waiting times greater shorter
Throughput time higher lower
Amount of work in
process
higher lower
Supervision difficulty higher lower
Scheduling complexity higher lower
Equipment utilization lower higher
FUNCTIONAL VS. CELLULAR
LAYOUTS

COMBINED LAYOUT
Plants are never laid out in pure form of one layout
Clubbing of
Product ,Process ,Cellular or Fixed Position Layouts

6-99
HYBRID (MIXED) LAYOUTS
Actually, most manufacturing facilities use a combination of layout types.

6-100
HYBRID (MIXED) LAYOUTS
Hospitals (process + fixed position) use the basic process arrangement, although
frequently patient care involves more of a fixed-position approach, in which nurses,
doctors, medicines, and special equipment are brought to the patient.

6-101
Warehouse and storage layouts
Retail layouts
Office layouts
Service layouts must be aesthetically pleasing as well as functional
SERVICE LAYOUTS

SERVICE FACILTY LAYOUT
No standard format
Depends on service and customer convince

MANUFACTURING SYSTEM
• Lean manufacturing Systems
• Lean Manufacturing is a systematic approach to identify and eliminate wastes of
all non value added activities through continuous improvements that is being
adapted by world class and it was first introduced in Toyota Lean Manufacturing is
also called Toyota Production Systems(TPS)
• Foundation of Lean Manufacturing is continuous improvement and respect for
people Lean Manufacturing is a methodology to reduce waste in manufacturing
system without satisfying productivity

AGILE MANUFACTURING
• Agile Manufacturing is defined as the term applied to an organization that has
created the process, tools and training to enable it to respond quickly to the
customer needs and market change s while still controlling costs and quality
• Agile manufacturing is a manufacturing methodology that led to cost reduction,
quicker response time and improved customer service in manufacturing
operations

KEY ELEMENTS OF AGILE MANUFACTURING
• 1. Modular product design
• 2. Information Technology
• 3. Corporate partners
• 4. Knowledge culture

PRINCIPLES OF AGILE MANUFACTURING
• 1 .Highest priority is customer satisfaction
• 2. Welcome changing requirement
• 3. Business people and developers cooperating daily
• 4 .Build projects around motivated people
• 5. Face to face conversation
• 6. Sustainable development
• 7. Continuous attention to technical excellence
• 8. Simplicity
• 9. Self organizing Teams

MODULE 3
• PRODUCTION PLANNING AND CONTROL (PPC)
• Production planning & control is the management of the process of executing order.
• This process includes planning, scheduling, dispatching ,loading, progressing and controlling
• PPC can be viewed as the nervous system of production operations, as it ensures smooth and
timely production by effectively managing resources like manpower, materials, machines, and
manufacturing processes.
• Production Planning and Control (PPC) is a critical function in manufacturing industries that
involves managing and coordinating various processes to ensure efficient production execution
• It is the basis and prerequisite of production control

OBJECTIVES OF PRODUCTION CONTROL
• Submit Good Delivery Dates to Customers
PPC aims to provide accurate delivery dates to customers based on realistic production schedules and
resource availability.
• Achieve On-Time Deliveries
Timely execution of orders is a crucial goal of PPC to ensure customer satisfaction and build a reputation
for reliability.
• Optimum Use of Manpower and Machinery
PPC seeks to optimize the utilization of available resources like manpower and machinery to improve
efficiency and reduce idle time.
• Minimal Work in Progress (WIP) Levels
Keeping WIP inventory at minimal levels reduces holding costs and streamlines the production process.

• Eliminate Production Delays and Changes in Plans-PPC strives to minimize
production delays by effectively managing resources and reacting promptly to
changes in the production plan.
• Build a Database for Proper Planning-Maintaining a comprehensive database
helps in making informed decisions and accurate production plans.
• Assist Costing Department in Cost Estimation
• PPC provides data and insights to the costing department for accurate cost
estimation, ensuring profitability.

FUNCTIONS OF PRODUCTION CONTROL
• Basic Planning
Involves developing policies related to stock holding, delivery periods for customers, and other
strategic decisions.
• Pre-Production Planning
Includes capacity planning and receiving orders to ensure that the production process can meet
demand requirements.
• Ordering of Materials
PPC is responsible for efficient ordering of both make and buy items, including direct ordering,
requirement planning, and stock control.
• Manufacturing Control
This function includes several crucial aspects such as shop load analysis, shortage control,
avoidance of potential delays, production scheduling, tool control, process planning, and routing.

FACTORS AFFECTING PRODUCTION PLANNING
• Market Forecast: Accurate market forecasts are essential for PPC to plan
production based on anticipated demand.
• Sales Orders: Incoming sales orders provide real-time data to PPC, guiding the
production process.
• Standard Process Sheets: Standardized process sheets help in defining the
optimal sequence of operations and resource requirements.
• Project Planning: Projects may have unique production requirements, and PPC
must accommodate these in the overall planning process.

PRODUCTION PLANNING AND CONTROL
PROCEDURE
• The activities of PPC divided into 4 steps or stages
• Routing
Laying down the sequence of operations and the resources required for each operation. A route sheet is
used for guidance.
• Scheduling
Prioritizing work and releasing it to the plant at the appropriate time and sequence to ensure smooth
production flow.
• Dispatching
Issuing production orders to the factory or department, authorizing and instructing them to make the
products as per the plan.
• Expediting and Follow-up
Ensuring that operations are carried out as planned and taking prompt actions to rectify any
discrepancies.

AGGREGATE PRODUCTION PLANNING
• Aggregate planning works to make the optimum use of organizational resources
to meet the demand forecasts. It focuses on the collective levels of capacity and
demand of an organization
• Aggregate production plan attempts to minimize costs to fulfill the forecast
demand by an optimal mix of production rate, work force level and inventories.

FEATURES OF AGGREGATE PLANNING
• Matching Market Demand to Resource Availability
Analyzing market demand and aligning it with available resources to avoid overstocking
or stockouts.
• Plan for Immediate Time Horizon
Making short-term plans to address current demand and resource constraints.
• Evaluate Optimum Resource Allocation
Determining the best allocation of resources to meet production needs efficiently.
• Develop Optimum Resource Allocation
Implementing the chosen resource allocation strategy and refining it as needed

OBJECTIVES OF AGGREGATE PLANNING
• Minimize Cost / Maximize Profit: Reduce production costs to increase profitability.
• Maximize Customer Service: Meet customer demand on time to enhance
satisfaction and loyalty.
• Minimize Inventory Investment: Avoid excessive inventory holding costs.
• Minimize Change in Production Rate: Maintain stable production levels to avoid
disruptions.
• Minimize Change in Workforce Level: Avoid frequent hiring or layoffs to ensure
stability.
• Maximize Utilization of Plant and Equipment: Optimize resource usage to increase
productivity

STEPS IN AGGREGATE PLANNING
Determining Demand Requirement
• Analyze historical and forecasted demand to understand production needs.
Identifying Alternatives, Constraints, and Costs
• Evaluate different options considering capacity limitations and associated costs.
Preparing an Acceptable Plan
• Develop a feasible aggregate plan that meets production objectives.
Implementation and Updating the Plan
• Put the plan into action and monitor its performance, updating it as necessary

STRATEGIES OF AGGREGATE PLANNING
• Chase Strategy: Adjusting workforce or output rate to match demand fluctuations,
no inventory investment.
• Level Strategy: Maintaining a constant workforce or output level, using undertime,
overtime, or subcontractors.

STRATEGIES OF AGGREGATE PLANNING
• Chase Strategy
• Reactive alternative to aggregate
planning.
• Matches demand using the planning
horizon by varying the workforce
level or output rate.
• Advantage: No inventory investment.
• Level Strategy
• Proactive approach to aggregate
planning.
• Maintains a constant workforce or
output level.
• Utilizes undertime, overtime, or
subcontractors to address demand
variations.

MASTER PRODUCTION SCHEDULE (MPS)
• Definition of MPS: Master Production Schedule (MPS) is a critical component of
production planning that outlines the production volume and timing of specific
products to meet customer demand.
• Importance of MPS in production planning: MPS ensures efficient resource
utilization, timely customer order fulfillment, and synchronization between
production and demand

MPS AND AGGREGATE PLANNING
• Role of MPS in aggregate planning: MPS translates aggregate production plans
into actionable production schedules, providing the foundation for Material
Requirements Planning (MRP).
• Consistency between MPS and aggregate planning: MPS must align with
aggregate production goals to avoid overproduction or underproduction.

MPS AND PRODUCTION PLANNING LINK
• Connecting marketing plan, production plan, and MPS: MPS acts as a strategic
link between marketing forecasts, production capacities, and customer orders,
facilitating effective resource allocation.
• MPS as a bridge between incoming orders and production scheduling: It ensures
that production lines are prepared to meet incoming orders while optimizing
production efficiency

TYPES OF PRODUCTION SCHEDULES
• Different scheduling levels facilitate efficient production management and
resource allocation.
• Master Schedule, Production Schedule, Shop Schedule: Each schedule serves a
distinct purpose in translating high-level plans into detailed production activities.

MASTER SCHEDULE
• The Master Schedule provides a macroscopic view of weekly or monthly
production requirements, allocating plant capacity accordingly.
• Plant capacity allocation for specific periods: Master Schedule ensures that
production capacity is reserved, allowing new orders only after existing bookings.

PRODUCTION SCHEDULE
• Breakdown of production requirements: The Production Schedule further
disaggregates the Master Schedule, specifying production requirements for
individual products.
• Aligning with production lines or job lot production: Production Scheduling
ensures optimal utilization of production lines and resources for different
products.

SHOP SCHEDULING
• Utilization for continuous or repeated manufacturing: Shop Scheduling focuses
on detailed work order sequencing and resource allocation for repetitive
manufacturing processes.
• Detailed order of work at each machine: It outlines the step-by-step
manufacturing process for each machine or workstation

OBJECTIVES OF JOB SCHEDULING
• Sequence of task determination: Job Scheduling defines the order in which tasks
are performed to achieve efficient production flow.
• Start time and finish time of each task: It allocates specific timeframes for task
execution, enabling accurate production timelines.

MATERIAL REQUIREMENT PLANNING
• Material Requirement Planning (MRP) is a systematic approach that integrates
inventory control and production planning for effective materials management.
• Key objective: Efficiently plan and schedule materials needed for production
under dependent demand conditions.

COMPONENTS OF MRP
• Master Production Schedule (MPS): Drives the MRP process, based on demand
forecasts and firm customer orders.
• Bill of Materials (BOM): Lists the materials required for each product, detailing the
components and quantities needed.
• Inventory Status Report (ISR): Provides real-time information on current inventory
levels.

MRP PROCESS
• MRP as a planning tool: Enables effective inventory management and production
scheduling, leveraging information technology.
• Optimization through integration: Utilizes inputs from MPS, BOM, and ISR to
create efficient production plans.

BENEFITS OF MRP
• Effective inventory management: Optimum inventory holding, minimizing excess stock and
stockouts.
• Improved supply chain and distribution: Enhanced coordination of materials, reducing lead
times and costs.
• Enhanced customer services: On-time delivery due to better production planning and material
availability.
• Increased productivity: Efficient resource allocation and reduced downtime.
• Effective job scheduling: Streamlined production processes for optimal resource utilization.
• Production cost minimization: Avoidance of overproduction and associated costs.
• Lead time reduction: Shortened time between order and delivery.
• Quality improvement: Consistent availability of required materials for quality production.

MRP SYSTEM STRUCTURE
• Master Production Schedule (MPS): Derived from aggregate production plan,
based on demand forecast and customer orders.
• Bill of Materials (BOM): Details materials and components required for each
product.
• Inventory Status Report (ISR): Provides real-time information on inventory levels.

MRP PROCESS STEPS
• Develop Master Production Schedule (MPS) based on customer orders and
forecasts.
• Create Bill of Materials (BOM) outlining required materials for each product.
• Generate Inventory Status Report (ISR) to assess current stock levels.
• MRP Calculation: Compare MPS, BOM, and ISR to calculate materials
requirements.
• Purchase or produce materials as needed.

IMPORTANCE OF EFFECTIVE MRP
• Proactive approach: Manages inventory levels to reduce cash outflow and
increase profitability.
• Timely production: Ensures availability of materials when needed, minimizing
delays.

BILL OF MATERIALS (BOM)
• A structured diagram detailing all parts and components necessary for creating a
product.
• Core purpose: Essential reference for product assembly, encompassing sub-
assemblies and materials.

BOM STRUCTURE AND COMPONENTS
• BOM breakdown: Lists all components and materials required for
the final product.
• BOM hierarchy: Demonstrates relationships between main product,
sub-assemblies, and individual parts.

BOM MANAGEMENT
• Computer-based data storage: BOM data maintained through
various files, including a master file.
• Master file contents: Classification of parts, manufacturing or
procurement status, lead times, and more.

BOM AND ENGINEERING DESIGN CHANGES
• Dynamic nature of BOM: Changes occur with engineering design modifications in
the product.
• Need for accurate updates: Ensuring BOM reflects the latest product
configuration.

IMPORTANCE OF BOM
• Core of manufacturing: Provides comprehensive information for assembling parts.
• Material requirements: Outlines raw materials and manufactured components
needed for each part.
• Equipment and tools: Includes details of required tools and machinery.

CALCULATION OF BOM
• Manufacturing order calculation: BOM is multiplied by order quantity to
determine total material requirements.
• Incorporation of consumables: BOM can also include other consumables that
contribute to the manufacturing process.

ADVANTAGES OF BOM
• Visual representation: Clearly illustrates the product structure and component
relationships.
• Accurate planning: Enables precise material sourcing and resource allocation.

DISADVANTAGES OF BOM
• Detailed information requirement: Demands extensive and reliable data.
• Data manipulation: Involves significant data handling and manipulation.
• Complexity: Systems can become intricate and challenging to manage.
• Reduced flexibility: May limit adaptability to changes in production processes.
• Assumption of lead times: Often assumes constant lead times regardless of order
quantities

MANUFACTURING RESOURCE PLANNING (MRP II)
• Definition : An effective method for planning and synchronizing all resources
within a manufacturing company.
• Coordinated business planning: Integration of marketing, materials,
manufacturing, finance, and personnel functions.
• MRP II Synchronization
• Comprehensive coordination: Aligning all functional areas of business.
• Closed-loop MRP: Integration of business and production plans.

MRP II PROCESS FLOW
• MRP as the starting point: Input sales forecasts for raw materials demand.
• Master Production Schedule (MPS): Specific plans for each product.
• MRP II development: Detailed production schedule, considering machine and
labor capacity.

MRP II AND COST MANAGEMENT
• Cost-related data: Machine time, labor time, materials usage, final production
numbers.
• Integration with finance and accounting: Providing production cost information.

FUNCTIONS OF MRP II
1. Top Management Planning:
• Strategic planning and decision-making.
• Long-term business objectives and resource allocation.
1. Operation Planning:
• Detailed production planning based on sales forecasts.
• Raw materials and resource allocation.
1. Execution:
• Implementation of plans on the shop floor.
• Coordination of production, materials, and resources.

BENEFITS OF MRP II
1. Improved Customer Service:
• Timely product delivery due to coordinated planning.
• Meeting customer demands effectively.
2.Reduction in Material Cost:
• Optimal utilization of materials through accurate planning.
• Minimization of waste and excess inventory.
3.Increased Productivity:
• Efficient resource allocation and utilization.
• Streamlined production processes.
4. Increased Inventory Turnover:
• Better inventory management and turnover rates.
• Reducing carrying costs.

BUSINESS PROCESS REENGINEERING (BPR)
• A transformative approach introduced by Michael Hammer in 1990, involving
radical redesign of business processes for substantial performance improvements.
• Focus: Achieving significant enhancements in cost, quality, and speed of
products/services.
• BPR's Mission and Definition
• Fundamental Rethinking: Redesigning processes at their core to achieve
breakthrough results.
• Radical Design: Drastic overhaul of processes for transformative outcomes.

BPR PRINCIPLES
• Organize around Outcomes: Align processes with end goals, not just individual
tasks.
• Process Prioritization: Identify and prioritize processes for redesign based on
urgency and impact.
• Integration of Information: Integrate data processing with core work processes.
• Dispersed Resources: Treat resources from different areas as centralized units.

KEY STEPS OF BPR
• Define Business Purposes: Align processes with organizational objectives.
• Analyze Processes: Identify current state processes and bottlenecks.
• Identify Improvement Opportunities: Pinpoint areas for radical redesign.
• Design Future State: Develop efficient, customer-focused processes.
• Develop Future State Changes: Plan and implement changes to realize the new
processes.
• Implement Changes: Execute the redesigned processes and monitor outcomes.

STRUCTURE OF BPR
Visual representation of the BPR process flow and its key components.

BENEFITS OF BPR
• Elimination of Inefficiencies: Streamline or remove wasteful or outdated
processes.
• Significant Cost and Time Reduction: Achieve remarkable savings and faster
operations.
• Revolutionary Improvements: Enhance quality and customer service across
multiple processes.
• Enhanced Competency: Elevate skills and performance across all levels of the
organization.

KEY CHARACTERISTICS OF BPR
• Radical Improvement: Focusing on substantial, transformative changes.
• Integrated Change: Coordinating modifications across processes and functions.
• People-Centered: Empowering employees and involving them in the
reengineering process.
• Process-Based: Centered around holistic process redesign, rather than piecemeal
adjustments.
• Customer Focus: Prioritizing end-customer needs and satisfaction.

ENTERPRISE RESOURCE PLANNING (ERP)
• Definition : A computer-based information system spanning across all
organizational functions.
• Enterprise-Wide Integrated Database: Centralized data repository for efficient
information sharing.

ERP'S FUNCTIONAL APPROACH
• Business Process Focus: Addresses business processes rather than individual
functions.
• Real-Time Integration: Reflects changes immediately across departments, e.g.,
sales transaction affecting accounts payable, inventory, manufacturing, and
procurement.

ERP AND ORGANIZATIONAL SCOPE
• Extending Beyond Boundaries: Incorporates suppliers and customers through
Supply Chain Management (SCM) and Customer Relationship Management (CRM).

EXAMPLES OF ERP MODULES
• Illustrating various ERP modules:
• Product Life Cycle Management
• Supply Chain Manufacturing
• Warehouse Management
• Customer Relationship Management (CRM)
• Financials
• Human Resources
• Decision Support System

EVOLUTION OF ERP
• Gartner Group's Early Concept: From Materials Requirement Planning (MRP) to
Manufacturing Resource Planning and Computer Integrated Manufacturing.
• ERP's Integral Role: Integral application for resource planning and control.

CHARACTERISTICS OF ERP
• Address Business Processes
• Modules Structure: Financial, Sales & Distribution, Manufacturing, Logistics,
Human Resources.
• Integrated and Holistic: Addresses all business areas and extends to partners.
• Inclusion of External Parties: Involves suppliers, customers, and partners.

METHODOLOGY OF ERP IMPLEMENTATION
• Stages in ERP Implementation:
• Needs Analysis
• Current State Evaluation
• System Design
• ERP Package Evaluation
• Hardware and Network Setup
• Implementation
• Testing and Evaluation

STEPS IN ERP IMPLEMENTATION
• Detailed Breakdown of ERP System Implementation Steps:
• Project Planning
• Requirement Determination
• Vendor Selection
• Implementation Plan
• ERP Solution Implementation
• Testing
• Evaluation

BENEFITS OF ERP
• Accurate Sales Forecasting: Optimized inventory management.
• Reliable Order Tracking: Order acceptance to fulfillment.
• Reduced Cycle Time: Faster information flow.
• Enhanced Financial Management: Streamlined processes.
• Improved Customer Satisfaction: Better quality, lead times.
• Increased Productivity and Profitability: Efficient operations.

TOTAL PRODUCTIVE MAINTENANCE (TPM)
• Definition : A comprehensive management system for optimizing manufacturing
equipment productivity through systematic maintenance.
• Developed in 1970: Origin and evolution of TPM.

TPM'S FOCUS AND OBJECTIVES
• Equipment-Centric Approach: Optimizing productivity through effective
equipment maintenance.
• Objectives of TPM:
• Attainment of maximum efficiency through collective culture.
• Zero accidents and zero breakdowns.
• Involvement of entire workforce.
• Integration of teams with production system.

EIGHT PILLARS OF TPM
• 5S Concept: Organized workplace for efficiency.
• Jishu Hezen (Autonomous Maintenance): Operator involvement in minor maintenance.
• Kaizen: Continuous improvement involving all employees.
• Planned Maintenance: Flawless operation through preventive, breakdown, and corrective
maintenance.
• Quality Maintenance: Ensuring equipment affects product quality.
• Training: Developing multi-skilled employees.
• TPM in Office: Improving productivity and efficiency in administrative functions.
• Safety, Health, and Environment: Achieving zero accidents and defects.

STEPS TO INTRODUCE TPM
• Sequential introduction of TPM:
• Preparatory Stage
• Setting Up Committees
• Developing Work Systems and Targets
• Developing Master Plan
• Implementation
• Testing and Evaluation

OVERALL EQUIPMENT EFFECTIVENESS (OEE)
• Key Measure of TPM's Benefits: OEE Calculation.
• Formula: OEE = Availability x Performance x Quality Rate.

BENEFITS OF TPM
• Increased Equipment Productivity
• Reduced Equipment Downtime
• Increased Plant Capacity
• Lower Maintenance and Production Costs
• Reduced Accidents
• Improved Equipment Understanding
• Approaching Zero Equipment Defects
• Enhanced Teamwork and Workforce Involvement

CAPACITY REQUIREMENT PLANNING (CRP)
• Capacity Requirement Planning (CRP) is a crucial aspect of production and
operations management.
• It involves the meticulous process of aligning an organization's production
capacity with the dynamic changes in customer demand.
• CRP ensures that an organization can efficiently utilize its resources, both in terms
of machinery and labor, to meet the varying requirements of its products and
services.

INPUTS TO CRP
• Planned Order Release for MRP (Material Requirements Planning): This includes
the orders that are generated through the MRP system based on demand
forecasts, customer orders, and inventory levels.
• Routing Instructions: These instructions specify the sequence of operations
required to complete an order, along with the specific machines, workers, or work
centers involved in each step of the production process.

CALCULATING CAPACITY
• Capacity is calculated using the following formula:
• Capacity = Number of Machines/Workers × Number of Shifts × Utilization ×
Efficiency
• Load Profile: CRP prepares a load profile for each machine or work center,
indicating the workload it needs to handle over a given period. This profile helps
in allocating tasks efficiently and optimizing production.

UTILIZATION AND EFFICIENCY
• Utilization: It refers to the percentage of available time during which machines or
workers are actually engaged in productive work. A higher utilization rate
indicates effective resource utilization.
• Utilization Index Formula: (Hours Available - Hours Used) / Hours Available
• Efficiency: Efficiency measures the rate of work completion compared to the
standard rate. It helps identify how well resources are utilized.
• Efficiency Index Formula: (Standard Hours Allowed / Hours Used) × 100

GOALS OF CAPACITY PLANNING
• Minimizing Discrepancies with Customer Demand: Effective capacity planning
ensures that an organization is well-equipped to handle fluctuations in demand,
minimizing shortages or overages in production.
• Improving Existing Capacity Utilization: By optimizing resource utilization and
reducing downtime, capacity planning enhances overall equipment effectiveness
and maximizes productivity.

METHODS OF INCREASING CAPACITY PLANNING
• Introducing New Techniques, Equipment, and Materials: Innovations in
technology and materials can lead to increased production efficiency and output.
• Increasing Workforce or Machines: Adding more workers or machines can help
handle higher production volumes.
• Adding Shifts: Operating additional shifts extends production hours and increases
overall capacity.
• Acquiring New Production Facilities: Expanding physical infrastructure by
acquiring new facilities can significantly boost capacity.

STEPS IN CAPACITY PLANNING
• Determine Business Requirements: Understand current and future product
demands, market trends, and growth projections.
• Analyze Current Capacity: Evaluate existing resources, machinery, labor, and their
utilization rates.
• Plan for the Future: Develop strategies to bridge capacity gaps, allocate resources
effectively, and align production with demand.

IMPORTANCE OF CAPACITY PLANNING
• Capacity Limits Output Rate: An organization's capacity determines its ability to
meet future demands for products and services, directly influencing revenue and
customer satisfaction.
• Resource Allocation: Capacity planning helps allocate the right labor and
equipment capacities when needed, preventing underutilization or overloading of
resources.
• Basis of Planning: Capacity is often planned based on labor or machine hours
available, ensuring efficient resource management.

CONSIDERATIONS IN CAPACITY PLANNING
• Level of Demand: Anticipating fluctuations in demand helps align capacity with
varying production needs.
• Cost of Production: Balancing capacity expansion with associated costs ensures
profitability.
• Availability of Funds: Adequate financial resources are essential for capacity
enhancement initiatives.
• Management Policies: Capacity planning should align with organizational
strategies and policies.

MODULE 4
MATERIALS MANAGEMENT
• Material management may be defined as the planning, acquiring, storing, moving
and controlling of materials to optimize the usage of facilities, personal and
capital funds and to provide service to the user in line with the organizational
aims.

FUNCTIONS OF MATERIAL MANAGEMENT
• 1. Materials planning
• 2. Procurement or purchasing of materials
• 3. Receiving and ware having
• 4. Storage and store administration
• 5. Inventory control
• 6. Standardization, simplification value analysis
• 7. External transportation & materials handling
• 8. Disposal of scrap , surplus or obsolete materials

OBJECTIVES OF MATERIAL MANAGEMENT
• Primary objectives
• 1. Low procurement price 2. High inventory turn over 3. Low cost of acquisition
and possession 4. Continuity of supply 5. Consistent quality 6. Low payroll cost 7.
Favorable supplier relations 8. Maintenance of good records
• Secondary objectives
• 1. New materials, process & products 2. Economics make or buy decision 3.
Standardization 4. Product improvement Ma

MATERIAL PLANNING AND BUDGETING
• Material planning has been defined as the scientific way of determining the
requirement of raw materials, components and other items needed for
production
• The main objective of material planning is to balance the demand for materials
with the supply of materials so that an appropriate quantity of materials is
available when they are needed
• Material budgeting refers to the procedure of preparing material or purchase
budget in terms of quantity an money value of materials to be procured in a
specified time period

DIRECT MATERIALS BUDGET
• The supplies needed for manufacturing goods, can also be regarded as raw
materials,stores,stock and productive material
• Material Consumption budget
• This is required after determining the product requirement. The material
consumption budget is based on the volume of production.

FACTORS AFFECTING MATERIAL BUDGETING
• 1. Production budget
• 2. Material cost
• 3. Store position and stock of existing materials
• 4. Management policy and rules
• 5. Past policies of business and that of competitors

FACTORS AFFECTING MATERIAL PLANNING
• 1. Macro Factors:
• Price trends, business cycles, Government imports and export policies etc are
called micro factors
• 2. Micro factors:
• These are essential factors existing within the organization such as Inventory
holding, production plan, lead time of procurement, working capital etc

PURCHASE FUNCTIONS
• Purchasing functions means procurement of raw materials and other resources at the right quantity
and quality at the best price from reliable suppliers
• Objectives of Purchasing
• 1. To avail the materials, suppliers and equipments at the minimum possible cost
• 2. To ensure the continuous flow of production through continuous supply of raw materials,
components and tools
• 3. To increase the asset turn over
• 4. To develop an alternate source of supply
• 5. To establish and maintain good relations with the supplier
• 6. To train and develop the personnel
• 7. Efficient record keeping and management reporting

FUNCTIONS OF PURCHASING
• Processing the requisitions provided by the departments
• Location and Choice of Suppliers

CHOICE OF SUPPLIERS DEPENDS ON
• Reliability of the supply
• Reliance of the supply
• Assurance of the timely delivery
• After sales service
• Attitude with regard to the goods rejected by the purchaser
• Technical Assistance
• 3.Placing purchase orders duly signed by the authorized person
• 4.Follow up or progressing the purchase orders

METHODS OF PURCHASING
• Purchasing according to requirements
• Purchasing for some definite future period
• Market purchasing-Purchasing goods usually in smaller quantities or an
emergency without negotiation
• Speculative Purchasing: Purchasing is done purely from the point of
view of taking advantage of speculated rise in price of the commodity

METHODS OF PURCHASING
• Contract purchasing : Purchase dept enter into agreement with various suppliers
to supply the items at some future period periodically
• Scheduled Purchasing: The purchasing is scheduled according to the
requirements of various departments of the organization

PURCHASING CYCLE (VARIOUS STAGES OF
PURCHASING)
• Recognition of need
Identifying an item that is officially brought to the attention of purchasing
dept
• Description of requirement
For assuring complete and accurate information for ordering
• Selection of source
A right supplier is one who delivers materials of the correct specification or
specific delivery dates

PURCHASING)
• Determining the price and availability
Various methods adopted are
a. Vendors categories and price list are available for standard items
b. Negotiation : Bargaining between buyers and sellers
c. Inviting tenders or quotations
• Placing the order
The legal order is placed with the supplier in affirm is known a purchase order

PURCHASING)
• Order acknowledgment
This is to get commitment from the supplier about the supply of items
• Follow up
Follow up is done to ensure that items are delivered by the supplier on time
• Check the invoice and approval payment

SELECTION OF VENDORS
• Selection of vendors is the process where the organization identifies potential
suppliers for specified supplier services or equipment
• Vendor relations
An important objective in purchasing management is to maintain good relations
vendor.
 A good vendor is an asset to company and good relationship with vendor is
essential.
Continuous program of developing vendors and selecting new vendors should be
in existence in any organization

CRITERIA FOR SELECTING VENDORS
• Production capabilities of the vendor – capacity to manufacture the required
product in desired quantities, possibility of future expansion in capacity
• Financial soundness of company: capital structures, profitability record of
company in the past, expansion plans of the company in futures.

CRITERIA FOR SELECTING VENDORS
• Technical capabilities: whether the available machines are capable of the required
quality of materials? & what are the future plans of vendor, availability of
technically skilled manpower with the vendor ,availability of proper research,
design and development facility with the vendor, consistency in quality produced
by vendor ,whether proper quality control procedures followed in vendor
company
• Other Consideration
1. Working conditions in the vendor company
2. Industrial relations in vendor company

VENDOR RATING OR PERFORMANCE MONITORING
• Vendor rating is a result of formal vendor evaluation system. Vendors or suppliers
are given standing, status or title according to their attainment of some level of
performance such as delivery, lead-time, quality, price or some combination of
variable with weight age ranking from poor to excellent.

OBJECTIVES OF VENDOR RATING.
• To reduce the purchase risk
• Maximize the overall value of purchaser
• Vender rating evaluate the supplier quantity cost competitiveness and
technological capability.

NEGOTIATION
• Negotiation refers to the communication between buyers and sellers. The basic
purpose of negotiation is to discuss the various terms and conditions and state
everything clearly so that there is no scope of any doubt
• Purpose of negotiation includes
 Best price
 Best Quantity
 Time of delivery
 Terms of payment
 Best quality
 Place of delivery

FACTORS AFFECTING NEGOTIATION
• Place
• Time
• Attitude of both parties
• Subjective factors
Types of Negotiation
1. Distributive negotiation
2. Integrative Negotiation

VALUE ENGINEERING
• Value Analysis/ Engineering is a major technique of cost reduction and cost
prevention.
• It is a disciplined approach that ensures the necessary functions at minimum cost
without compromising on quality, reliability, performance and appearance
• Value Analysis is a systematic application of recognized technique which
identifies the function of product or service, establish monetary value for the
function and provide the necessary function reliably at the lowest overall cost

VALUE ENGINEERING
• Value Analysis is the application of set of techniques to an existing product with a
view to improve the value. It is a remedial process.
• Value Analysis is the application of the set of techniques to a new product at
design stage, project concept or preliminary design when no hard ware exists to
ensure that bad features are not added .
• Value Engineering is a preventive process Value= performance/cost (Utility)
• Value can be increased either by increasing the utility for the same cost or by
decreasing the cost for the same utility.

AIMS OF VALUE ENGINEERING
• Simplify the product
• Use (New) cheaper and better materials
• Modify and improve product design
• Use efficient process
• Reduce the product cost
• Increase the utility of the product by economical means

VALUE ENGINEERING PROCEDURE
• Identify the product
• Collect the relevant information
• Define different functions
• Choose different alternatives
• Critically evaluates the alternatives
• Develop the best alternatives
• Implement the alternatives

ADVANTAGES OF VALUE ENGINEERING
• Value Engineering is a much faster cost reduction technique
• It is less expensive technique
• Value Engineering reduces the production costs and add value to the sales
income of the product

SITUATIONS WHEN WE APPLY VALUE ANALYSIS
PROGRAMME
• Companies product shows decline on sales
• Companies prices are higher than those of the competitors
• Raw material cost has gone up suddenly
• New designs are being introduced
• Cost of manufacturing is using disproportionate to the volume of production
• Firm is unable to meet delivery commitments

INVENTORY CONTROL
• Inventory is defined as the quantity of goods, commodities or other economics
resources that are stored or reserved at any given point of time for the purpose of
smooth and efficient running of business affair.
• Inventory includes raw materials stored for producing goods ,semi finished
goods, finished goods awaiting shipment from the factory.

CLASSIFICATION OF INVENTORIES
• Direct inventories: including choose items which play a direct role in the
manufacture and become an integral part of finished goods.
• Eg: Raw materials, work in progress, finished goods inventories.
• Indirect inventories: include those items which are necessary for manufacturing
but do not became a component of finished product such as lubricant, grease, oil,
petrol etc.

OBJECTIVES OF INVENTORY CONTROL
• 1. To minimize the financial investment in inventories
• 2. To ensure the value of materials consumed is minimum
• 3. To maintain timely records of inventories of all items and to
• maintain stock within desired limits
• 4. To ensure timely action for replenishment.
• 5. To protect from pilferage, theft waste, loss, damage etc.
• 6. To meet demand fluctuations.

OBJECTIVES OF INVENTORY CONTROL
• 7. To provide a safe guard for variations in delivery time of raw
• materials by maintaining safety stock.
• 8. To allow flexibility in production scheduling.

CAUSES FOR MAINTAINING INVENTORY
• Cost of purchasing inventory
• Ordering costs
• Carrying or holding cost
• Costs of stock out

HOLDING COST (INVENTORY CARRYING COST)
• The cost associated with carrying or holding goods in stock is known as holding cost
• Holding cost varies directly with the size of inventory as well as the time when the
item is held in stock.
• Holding costs include the following costs
1. Invested capital stock 5. Depreciation costs
2. Administrative costs 6. Taxes & insurance
cost
3. Holding costs 7. Salvage cost
4. Storage cost

SET UP COST (ORDERING COST OR ACQUISITION
COST)
• This includes the fixed costs associated with obtaining goods through placing of
an order or purchasing or manufacturing or setting up of machinery before
starting production on set up cost are independent of the quantity ordered or
produced.
• Eg includes the administrative costs for purchasing cost of requisition materials.
Costs for placing, Transport costs, costs of checking suppliers, cost of
advertisement etc. are also included in this category.

STOCK OUT COSTS
• These are costs associated with the shortage of stock or running out of stock.
Lost contribution through lost sales is caused by stock. This result in loss of
futures sales,
• Eg: Loss of customers good will, cost of production stopping caused by stock outs
of work in process, etc

ECONOMIC ORDER QUANTITY (EOQ)
• Economic order quantity (EOQ) is that ordering quantity which minimizes the
total inventory costs. Its balances ordering cost against holding cost. It is known
as Economic lot size.

ASSUMPTIONS OF EOQ MODELS.
• Annual carrying costs per unit and cost per order can be accurately estimated
• Cost information must be known with certainty
• Annual demand can be estimated and linearly consumed by customer.
• Average Inventory level = order Qty Q/2

CALCULATION OF EOQ
• Let,
• A be the annual usage of item that is numbers used per year
• S be the cost per order
• C be the cost per unit of the item
• I be the carrying cost expressed as percentage of cost of average
• inventory held.
• Let,
• Q be the size of each order in number of units

TERMS IN INVENTORY CONTROL
• Lead time : Time between placement of an order and its actual arrival in the
inventory is known as lead time. If the lead time exists and the demand is known,
then the order is to be placed in advance by a period of time equal to lead time.
• Reorder Level This is the point fixed between maximum and minimum stock level
at which time it is essential to initials purchase requisition (or manufacturing
requisition) for fresh supply of material. ROL = (Average usage of Inventory x
Lead time)+ safety stock Reorder point (ROP) is the minimum unit quantity that a
firm holds in stock, such that when stock fails to amount, the item must be
recorded

TERMS IN INVENTORY CONTROL
• Buffer Stock (Safety Stock)BS
 This is the additional stock needed to allow for delay in delivery or for any higher
than expected demand that may arise during the lead time.
 The buffer stock must be optimum. If the buffer stock is maintained very low,
inventory holding will cost will be low, but shortages may be high.
 If the buffer stock is large than the shortage will rare, but the inventory costs would
be high. So it is necessary to strike a balance between the cost of shortages and cost
of inventory holding to arrive at an optimum buffer stock Buffer stock (BS) =
(Maximum lead time - Normal lead time) X r Where ‘r’ is the consumption rate during
lead time or normal lead time.

• Maximum Inventory = BS + EOQ
• Minimum Inventory= BS
• Average Inventory = [BS + (0.5) EOQ]

SERVICE LEVEL
• In an inventory management, service level is the expected probability of not
hitting a stock out during the next replenishment cycle or the probability of not
losing sales.
• The service level marks a tradeoff between opportunity cost and operation cost
• Reorder Qty = Reorder Qty-stock in hand-stock in order
• Service level high- 95%
• Service level medium-90%
• .Service level low- 85%

INVENTORY CONTROL SYSTEMS
• Inventory control systems references to the variances in the method of control from
item on a selective basis
• The criteria used are
1. Cost of items
2 .Criticality of items
3 .Lead time
4 .Consumption
5. Procurement

TYPES OF INVENTORY SYSTEMS
• Manual Inventory Systems
In this system, items having low level of inventory, the stores keeper goes through
the inventory, counts all the items, write down the results and enter the quantities
in a spread sheet; this information can be used to reorder materials as needed
• Periodic Inventory Systems
Periodic Inventory systems have become bridge between manual systems and
perpetual systems. Inventory can be tracked manually and periodically. However bar
coding systems have improved periodic inventory systems a great deal

• Perpetual Inventory Systems
• Perpetual Inventory Systems is a systematic records maintained by the controlling
dept which reflects the physical movement of stocks and their current balance.
• Perpetual Inventory system is a method of ascertaining balance after every
receipt and issue of materials. Through stock records to facilitate regular checking
and to avoid closing down for stock taking
• The perpetual inventory keeps continual track of inventory balances..Purchases
and returns are immediately recorded in inventory accounts. Eg; Grocery store

• Advantages of Perpetual Inventory Systems
1. It prevents stock outs
2. It allows business owners to centralize inventory management systems for
multiple locations

• JUST IN TIME (JIT)
• Just in time (JIT) is a process for achieving excellence in manufacturing company
based on the continuous elimination of waste. Waste does not add value to the
product. JIT is accomplished by moving material to the required place at the
required time.
• JIT is a quality initiative with the goal of eliminating wasted steps; wasted labor
and wasted cost. EOQ is a tool to achieve JIT.
• JUST in time is an integrated set of activities designed to achieve high volume
production using minimal inventories of raw materials, Work in progress and
finished goods

JUST IN TIME ( JIT)
• JIT works on a pull system called lean production and aims at eliminating wastes
from all aspects of companies’ production services.
• JIT production was first implemented in Japan and Toyota implemented the
system known as Toyota Production system (TPS) to improve quality and
productivity and based on two philosophies of Japanese culture
1. Elimination of waste
2. Respect for human being JIT produced what is needed and when it is needed.
Any extra production is viewed as a waste.

JUST IN TIME ( JIT)
• JIT system eliminates wastes, exposes problems and bottle necks and achieves
stream lined production. It requires employee participation, industrial
engineering basis, total quality control and a system of continuing improvement.
• Waste is defined as anything other than the minimum amount of equipment,
materials, pad which are essential for the production. Waste has been categories
in seven types

WASTE HAS BEEN CATEGORIES IN SEVEN TYPES
• Waste from over production
• Waste of time (waiting)
• Transportation waste
• Inventory waste
• Processing waste
• Waste of motion
• Waste from product defects

ADVANTAGES OF JIT MANUFACTURING
 Improvement in house keeping
 Making it right the first time
 Flexible change over approach
 Uniform plant load
 Balanced flow
 Eliminates bottle necking in Production

KANBAN
• Kanban in Japanese means Instruction card.
• Kanban are only used to signal or authorize movement of parts from an upstream
workstation to a downstream workstation or to act as relative for production
order to an upstream workstation.
• Toyota introduced the Kanban system of production control. In paperless
organization kanbans may be replaced by crates or bins in which parts are
transported from one workstation to another.
• A two card Kanban system uses a transportation Kanban and production Kanban

FEATURES OF KANBAN
1. Kanban is one of the lean tools designed to reduce idle time in a production
process
2. Kanban system delivers what the process needs when it needs. It tells what to
produce, when to products and how much to produce

CORE PRACTICES OF KANBAN FLOW
• Visualize the flow of work
• Limits work in progress
• Manage flow
• Make process policies explicit
• Implement feedback loops
• Improvement

BENEFITS OF KANBAN
1. Flexibility in operation
2. Focus on continuous delivery
3. Reduction of wasted work/ wasted time
4. Increased productivity
5. Increased efficiency
6. Kanban identifies potential bottle necks in process and fix them so
work can flow through it cost effectively
7. It controls the entire value chain from supplies to end customers

PROCESS OF KANBAN
1. Carrier of succeeding process is sent to the stores of preceding process with a
necessary number of work order WKS
2. The causes of the succeeding process withdraws items from the stores against
each work order while doing this, it detaches the production order. kanban
associated with the corresponding physical unit and place it in the kanban receiving
post
3. At the same time. it attaches work order to physical units

PROCESS OF KANBAN
4.When the physical units are taken for processing which is associated with a work
order ,work order must be placed in the work order post
5.In the previous process, the production order kanban which was placed in the
kanban receiving post is placed in the kanban receiving post is shifted in the
production order kanban post as per First come First served principle
The physical units (Semi finished) and production order kanban must be moved as
an integral pair

PROCESS OF KANBAN
6. When the physical units are completed, the units and the respective production
order kanban are shifted to store X which receives the output from the previous
process. The carrier of the succeeding process will with draw these units when
necessary

MODULE V
QUALITY MANANAGEMENT, SQC, TQM, ,ISO ,
SIGMA AND QUALITY CIRCLES
Quality
• Quality is the totality of features and characteristics of products or services which satisfies the need or
implied needs of customer.
 Factors affecting quality
• 1. Incoming raw material are of adequate quality
• 2. Proper selection of process and adequate process control
• 3. Operators should be well trained, experienced and motivated for quality consciousness
• 4. Inspection program such that it gives accurate measure of the efficiency of the whole system
• 5. Feedback from both, Internal inspection and customers are obtained regarding quality for taking
corrective action

9-246
TOTAL QUALITY MANAGEMENT
A philosophy that involves everyone in an organization in a
continual effort to improve quality and achieve customer
satisfaction.
T Q M

10-247
TOTAL QUALITY MANAGEMENT (TQM)
The term total quality management (TQM) refers
to a quest for quality in an organization.
There are three key philosophies in this approach.
One is a never-ending push to improve, which is referred to as
continuous improvement;
The second is the involvement of everyone in the organization; and
 The third is a goal of customer satisfaction, which means meeting
or exceeding customer expectations.
TQM expands the traditional view of quality (looking only at the
quality of the final product or services) to looking at the quality
of every aspect of the process that produces the product or
service

9-248
1.Find out what the customer wants
2.Design a product or service that meets or exceeds
customer wants
3.Design processes that facilitates doing the job
right the first time
4.Keep track of results
5.Extend these concepts to suppliers
THE TQM APPROACH

9-249
Find out what customers want.
This might involve the use of surveys, focus
groups, interviews, or some other technique
that integrates the customer’s voice in the
decision making process. Be sure to include the
internal customer (the next person in the
process) as well as the external customer (the
final customer).
Design a product or service that meets or exceeds
customer wants. Make it easy to use and easy to
produce.
THE TQM APPROACH

9-250
Design processes that facilitates doing the job
right the first time.
 Determine where mistakes are likely to occur and try to prevent them.
Strive to make the process “mistake-proof.” This is sometimes referred to as
a “fail- safing”.
 Fail- safing: Incorporating design elements that prevent incorrect
procedures. The Japanese term for this is pokayoke. Examples include parts
that fit together one way only and appliance plugs that can be inserted into
a wall outlet the correct way only.
THE TQM APPROACH

9-251
Keep track of results, and use them to guide
improvement in the system. Never stop trying to
improve.
Extend these concepts throughout the supply
chain
THE TQM APPROACH

9-252
ELEMENTS OF TQM
Top management must be committed and involved. If
it isn’t, TQM will quickly dies and fades away.
A number of other elements of TQM are important:

9-253
ELEMENTS OF TQM
1. Continual improvement
2. Competitive benchmarking
3. Employee empowerment
4. Team approach
5. Decisions based on facts
6. Knowledge of tools
7. Supplier quality
8. Champion
9. Quality at the source
10. Suppliers

9-254
CONTINUOUS IMPROVEMENT
• Philosophy that seeks to make never-
ending improvements to the process of
converting inputs into outputs.
• Kaizen: Japanese
word for continuous
improvement.

9-255
ELEMENTS OF TQM
Continual improvement
 The philosophy that seeks to improve all factors related to the process of
converting inputs into outputs on an ongoing basis is called continuous
improvement. The Japanese use the term kaizen to refer to continuous
improvement.
Competitive benchmarking
 This involves identifying other organizations that are the best at something
and studying how they do it to learn how to improve your operation. The
company need not be in the same line of business.

9-256
ELEMENTS OF TQM
Employee empowerment
 Giving workers the responsibility for improvements and the authority to make
changes to accomplish them provides strong motivation for employees.
 This puts decision making into the hands of those who are closest to the job
and have considerable insight into problems and solutions.
Team approach
 The use of teams for problem solving and to achieve consensus takes
advantage of group synergy, gets people involved, and promotes a spirit of
cooperation and shared values among employees.

9-257
ELEMENTS OF TQM
Decisions based on facts rather than opinions.
 Management gathers and analyses data as a basis for decision making
Knowledge of tools.
 Employees and managers are trained in the use of quality tools
Supplier quality
 Suppliers must be included in quality assurance and quality improvement
efforts so that their processes are capable of delivering quality parts and
materials in a timely manner
Champion
 A TQM champion’s job is to promote the value and importance of TQM
principles throughout the company

9-258
ELEMENTS OF TQM
Quality at the source
 It refers to the philosophy of making each worker responsible for the quality
of his or her work. The idea is to “Do it right the first time.” Workers are
expected to provide goods or services that meet specifications and to find
and correct mistakes that occur. In effect, each worker becomes a quality
inspector for his or her work
Suppliers
 They are partners in the process, and long-term relationships are encouraged.
This gives suppliers a vital stake in providing quality goods and services.

9-259
DIFFERENCES BETWEEN CULTURES OF A TQM
ORGANIZATION AND A MORE TRADITIONAL
ORGANIZATION

STATISTICAL QUALITY CONTROL (SQC)
• It refers to the use of statistical methods in monitoring and maintaining of the
quality of products and services. It considers the other variables and samples to
control product.
• It uses tools like
• Descriptive statistics
• Statistical process control (SPC)
• Acceptance sampling

BENEFITS OF SQC
• Use of SQC ensures rapid and external inspection at minimum cost
• Reduction of scrap
• Use of acceptance sampling in SQC exerts more effective pressure for quality improvement than is possible by
100% inspection
• Easy detection of faults from control charts
• Adherence to specification
• Efficient utilization of personnel, machines and materials resulting in higher productivity
• Better customer’s relations
• Elimination of bottle necks in manufacturing
• Creating quality awareness among employees

SQC CATEGORIES
• Descriptive Statistics:- Descriptive statistics are used to describe quality
characteristics and relationships.
• The Mean- measure of central tendency
• The Range- difference between largest/smallest observations in a set of data
• Standard Deviation- measures the amount of data dispersion around mean
• Statistical Process Control ( SPC ):- Extend the use of descriptive statistics to
monitor the quality of the product and process. Statistical process control help to
determine the amount of variation . To make sure the process is in a state of
control

ACCEPTANCE SAMPLING
• Acceptance Sampling:- Acceptance sampling is the process of evaluating a
portion of the product / material in a lot for the purpose of accepting or rejecting
the lot as either conforming or not confirming to quality specifications

ACCEPTANCE SAMPLING
Inspection for acceptance purpose is caused out at many stages in manufacturing. They are
generally
• 100% inspection
• Sampling Inspection
• To determine the quality and acceptability of incoming raw material, component parts, product
etc
• To determine the outgoing product
• To decide the acceptability of semi finished products during the course of production
• For improving manufacturing and controlling the quality of products manufactured

Acceptance Sampling
Average outgoing quality Curve (AOQ)
 OC (operating characteristics) Curve

AOQ
The percentage defective in an average lot
of goods inspected through acceptance
sampling

OC Curve
A graph that describes how well an acceptance
sampling plan discriminate between good and bad
lots .
We Accept Good Lots
We Reject Bad Lots
We May Accept Bad Lots
We May Reject Good Lots
Type I Error
The probability of rejecting a good lot.
Type II Error
The probability of accepting a bad lot.

Important terms in OC curve
Acceptable Quality Level(AQL)
The quality level of a lot considered good
The AQL is that percent defective with a 95% percent chance of acceptance
Lot Tolerance Percent Defective (LTPD)
The quality level of a lot considered bad
The LTPD is that percent defective with a 10% chance of acceptance
Producer’s risk
The mistake of having a producers good lot rejected through
sampling
Consumer ‘s risk
The mistake of a customer’s acceptance of a bad lot through
sampling

OC Curve
How well an acceptance plan discriminate between good and
bad lots.

OPERATING CHARACTERISTICS
• The operating characteristics curve for an attribute sampling plan is the graph of fraction
defective in a lot against the probability of acceptance.
• A sampling plan is a decision rule which specifies how a large sample (n) should be taken and
allowable measurement, number of percentage of defectives in the sample.
• Uses of Operating Characteristics curve
1. OC curve displays the probability of acceptance Vs percentage of defective items
2. OC Curve will provide the basis for the selection of alternate sample plans that are effective in
reducing risk
3. OC Curves are used in the design of reliability tests
4. OC Curves keeps the high cost of inspection

.
• AQL means acceptable quality level.
• LTPD: means lot tolerance percent defectives. These represent the quality level of
lot submitted for inspection. If the quality level of lot inspected is at AQL or less
than AQL, then the customers are satisfied with the quality of the lot.
• The corresponding probability of acceptances is called (1 - ∞). If thequality level
is more than or equal to LTPD, the quality of lot is considered to be interior from
consumes view point.
• The corresponding probability of acceptance of the lot is called ß. The quality
level in between AQL & LTPD is called indifferent zone

TYPE 1 &TYPE 2 ERRORS
• Type I error or producers risk (∞)
• If the lot is really good, based on sample information if it is rejected, then the
supplier/producer will be penalized. This is called Producers risk or Type I error
(∞)
• The producers risk is the probability to reject a good lot which otherwise would
have been accepted. So the producer should be protected against rejection of
relatively better products

TYPE II ERROR OR CONSUMERS RISK (ß)
• If the lot is really bad, but it is accepted based on the sample information, then
the customers will be at loss. This is called consumers, risk or type II error (ß).
• Customer risk is the probability of defective lots being accepted which otherwise
would have been rejected.

PROCESS CONTROL
• The quality control techniques can be classified as follows
• 1. Control Charts 2.Acceptance sampling
• Control Charts can be classified as
• 1. Variable Charts- and R chart
• 2. Attribute Charts: P Chart, C chart
• Control Charts are used for process control and to control in process quality Process control monitors the
quality of the product or service which is being produced
• Process control provides information about whether the product or service is being produced in
conformance with design specification or not
• It provides a warning signal s whenever the process is out of control indicating that future production may
not meet the design specification
• It consists of taking small random samples at periodic intervals and drawing inferences from them about
the process

CONTROL CHARTS
• A control chart has control limits set at values such that if the process is in
control, clearly all points will be within upper control limit and lower control limit

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