Ops world 3.0

psworldA pan IIM Operations Magazine
Volume III: 2012-13
Indian Institute of Management
-Raipur
IN THIS EDITION
>Supply Chain Management in Healthcare
>Supply Chain Challenges in IOL & Gas Industry - Indian Context
>Towards better Maintenance The experiment with Defects
>Site Identification for new AIIMS-like Institutions based on Network
Analysis of similar existing facilities
>Bargain AirFares
>ERP in operations management
> Cost Effectiveness: JIT vs EOQ
>Microgrid optimization as an OR problem
>Operational Excellence at Erection Site: Simhadri Stage 1, NTPC Limited
>Recent perspectives on electric power quality

Director’s Message
Director’s
Message
It is my great pleasure to present the
third edition of the pan-IIM
Operations magazine, OpsWorld. This
issue puts forward fresh perspectives
regarding the challenges and opportu-
nities felt by industry and academia
about an increasingly operations driv-
en future. I wish Omega, the
Operations Interest Group of IIM
Kozhikode, great success in their
endeavour to create awareness about
relevance of the operations vertical for
future growth.
Prof. DebashisChatterjee
Director, IIM Kozhikode

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4
Editorial
Editorial
W
ith competition rising fiercely,
organisations are finding it diffi-
cult to increase their share of the
pie. Focus is shifting to cost reduction from
revenue increase. In today’s world where
time is money, Operations Managers are
constantly ideating to improve their efficien-
cy. Companies are investing in technologies,
implementing new systems and employing
various integration strategies believing that
operations will provide the competitive
edge.
The third edition of OpsWorld, the pan IIM
Operations Magazine, throws light on how
companies are operating to achieve excel-
lence, an inside into NTPC’s Project
Management System, Operations Research
methodologies in Microgrid, Supply Chain
Management in Healthcare industry and
many more....
On behalf of the editorial team, I would like
to express my gratitude to Prof. P.N. Ram
Kumar who accepted our request to judge
the entries from students and for his valu-
able insights. I would also like to thank all
students, professors and industry experts
who had sent their articles for publication.
We are grateful to the Operations Interest
Groups of all the IIMs for their constant
support to make OpsWorld a bigger success.
Happy reading!
Editor-in-Chief

Contents
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5
Contents
The team
Editors
Karthik V (IIM-K), Niranjan Sunderasan (IIM-K), Pranay Meshram (IIM-K),
Soumyarup Dasgupta (IIM-K), Vinay Ashwin (IIM-K)
Supply Chain Management
in Healthcare 04
Supply Chain Challenges in
IOL & Gas Industry - Indian Context 11
Towards better Maintenance
The experiment with Defects 15
Site Identification for new AIIMS-like
Institutions based on Network Analysis
of similar existing facilities 18
Bargain AirFares 26
ERP in operations management 28
Cost Effectiveness: JIT vs EOQ 30
Microgrid optimization as an OR problem 34
Operational Excellence at Erection Site:
Simhadri Stage 1, NTPC Limited 36
Recent perspectives on electric power quality 39

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Executive Summary
The primary focus of the healthcare industry has been to
provide patients with the best quality of care while reducing the
costs. Recently, the increasing cost of supplies and severe com-
petition among healthcare providers has significantly increased
the pressure on material managers to operate more cost-effi-
ciently without compromising high patient care standards.
While other sectors have experienced success through the
deployment of supply chain management practices, the health-
care sector has not seen major improvements in this area. This
paper provides an assessment of supply chain management in
the healthcare sector. The integration of three different stake-
holders of the healthcare supply chain namely producers, pur-
chasers and providers facilitates the delivery of products in a
timely manner in order to serve the customers.A significant por-
tion of the costs associated with supply chains in the health
care sector can be reduced by implementing effective supply
chains. To be fully effective, it must be an integrated link in the
chain of clinical and non-clinical operations. A fully integrated
supply chain in healthcare is characterized by the integration
and co-ordination of operational processes, information flows,
planning processes, intra- and inter-organizational processes
and market development. These processes refer not only to
physical products like pharmaceuticals, medical devices &
health aids but also to the processes associated with the flow
of patients. Information technology has gained a lot of impor-
in Healthcare
AUTHOR
Anurag Gupta
IIM Lucknow
Anurag Singh
IIM Lucknow
E
Supply Chain Management in Healthcare

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7
tance in healthcare industry esp. in the areas of
procurement, inventory control and materials
planning. Elements like organizational culture, the
absence of strong leadership and mandating
authority, as well as power and interest relation-
ships between stakeholders might severely hinder
the integration and co-ordination of processes
along the health care supply chain. Due to the
ongoing transformation within the health care
sector towards greater integration and more
process-oriented health care chains, the supply
chain orientation within the health care sector
can be regarded as a complex social change
process. Apart from highlighting the areas of
improvements and identifying the barriers for
implementing the practices, the paper also ana-
lyzes the best practices of supply chain manage-
ment in healthcare. Improvements have been
made primarily in the area of education but areas
such as inventory control, procurement processes,
and information sharing require more attention
from supply chain managers. The supply chain
management best practices can greatly help
material managers with their continuous
improvement efforts, while maintaining quality of
care. Finally, the adoption of new emerging tech-
nologies, such as radio frequency identification
(RFID) and its benefits to the healthcare industry
are also explored to identify innovative alterna-
tives to material management in the healthcare
sector.
in Healthcare
Introduction
The global healthcare industry is one of the
world's largest and fastest growing industries,
comprising various sectors: medical equipment
and supplies, pharmaceutical, healthcare services,
biotechnology, and alternative medicine sectors.
With extreme pricing pressures on today’s health-
care providers, delivering high-quality medical
care while reducing costs is a top strategic priori-
ty. To achieve this objective, healthcare service
providers’ efforts have been focused primarily on
eliminating waste in clinical operations. While
these are valid and important ways to reduce
healthcare costs, one area that consumes nearly
one-third of all hospital operating budgets often
remains overlooked - the healthcare supply chain.
When it comes to expenses, supplies are second
only to labor, with millions of products moving
along the supply chain every day through manu-
facturers, distributors, Group Purchase
Organizations (GPOs) and healthcare providers to
patients.
While the adoption of SCM practices has been
successful in many sectors, the healthcare indus-
try has not seen major improvements from these
practices (McKone-Sweet et al., 2005). Today,
healthcare managers and industry experts under-
Figure 1: Breakup of annual operating expense used to support healthcare supply chain costs
Sample size = 204; Source: 2009, Nachtman and Pohl

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8
stand that the efficient management of materials
can not only reduce operating cost, but increase
the quality of care (Schneller et al., 2006)
Healthcare Supply Chain
The healthcare supply chain involves the flow
of many different product types and the participa-
tion of various stakeholders. The main purpose of
the healthcare supply chain is to deliver products
in a timely manner in order to fulfill the needs of
providers. Based on their functions, stakeholders
in the healthcare supply chain can be divided into
three major groups: producers, purchasers, and
providers.
The role of producers is to manufacture med-
ical products such as surgical supplies, medical
devices and pharmaceuticals. Purchasers include
distributors, wholesalers and Group Purchase
Organizations (GPOs). Distributors and whole-
salers hold inventory for producers to facilitate
delivery of products. GPOs sign purchasing con-
tracts with producers in order to achieve
economies of scale by aggregating the volume of
member providers. Healthcare providers represent
those at the end of the supply chain with the
function to serve patients and include, among
others, hospitals, integrated delivery networks
(IDNs), physicians, clinics, nursing homes and
pharmacies (Burns, 2002). In the past, a hospital
that managed its purchasing costs well could
operate efficiently. Today, the cost of materials
management can exceed 45% of a hospital’s
operating budget, with nearly 30-35% attributa-
ble to supply costs alone. Recent studies show
that a significant portion of the costs associated
with supply chains in the health care sector can
be reduced by implementing effective supply
chains. The application of supply chain manage-
ment practices in the health care sector not only
relates to physical goods like drugs, pharmaceuti-
cals, medical devices and health aids but also to
the flow of patients (Beier, 1995).
Integrated Supply Chain in
Healthcare
In hospitals, integrated supply chain strategy
should be consistent to maximize patient care.
The hospital supply chain enables this strategy by
ensuring product availability, minimizing storage
space, maximizing patient care space, reducing
material handling time and costs for all medical
Producers Purchasers Providers
Insurance
Companies
Government
Regulatory
Agencies
CMedical and Surgical
Supplies
CMedical Devices
CPharmaceutical
CHospitals
CIDNs
CPhysicians
CClinics
CPharmacies
CNursing Homes
CWholesalers
CDistributors
CGPOs
Figure 2: A healthcare supply chain configuration.
Source: Burns, 2002

staff and minimizing inventory. Hospital supply
chain has to ensure proper linkages to clinical sys-
tems, revenue cycle, IT and clinical operations. The
supply chain often is viewed as a “back dock” sup-
port service that provides the products and servic-
es required by clinical departments. To be fully
effective, it must be an integrated link in the chain
of clinical and non-clinical operations (Achryulu et
al., 2012). Health supply chains can be character-
ized by different modes of integration:
1. Integration and co-ordination of processes
2. Integration and co-ordination of information
flows
3. Integration and co-ordination of planning
processes.
4. Integration of intra- and inter-organisational
processes.
5. Integration of market-approach.
6. Integration of market-development.
Considering health service providers, supply
chain management often refers to the informa-
tion, supplies and finances involved with the
movement and acquisition of goods and services
from the supplier side to the end user with major
emphasis on two aspects, firstly, to enhance clini-
cal outcomes and secondly to optimize costs. In
doing so supply chain management puts a strong
emphasis on the integration of processes.
Considering the healthcare sector, these process-
es refer to physical products like pharmaceuticals,
medical devices & health aids and processes asso-
ciated with the flow of patients. In both these
cases, an intensive co-ordination and integration
between operational processes might lead to a
better health supply chain performance.
Information technology and the deployment of e-
business are closely linked to the co-ordination
and integration of operational processes.
Different studies have advocated the importance
of information technology in healthcare sector
(Breen and Crawford, 2005; Harland and
Caldwell, 2007) and it is not a matter of surprise
that many studies on health care supply chains
focus on the role of e-business technologies
across hospital supply chains (Siau et al., 2002).
Similar to the co-ordination and integration of
operational processes, information technology in
the healthcare sector is related to both physical
products as well as to the flow of patients within
and between health service organizations (Lowell
and Celler, 1998). The use of information technol-
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9
Cfragmented alloca-
tion of authorities
and responsibilities
Clocal optimisation
Cemphasis on indi-
vidual processes
Cintegrated authori-
ties and responsi-
bilities
Ccentral focus on
designing and con-
trolling material
flows on an organ-
isational level
Cemphasis on coor-
dination and inter-
face questions
Capplication of com-
pany-wide infor-
mation systems
Cestablishing part-
nership relation-
ships and alliances
Cdesigning and
implementing
inter-organisational
information sys-
tems
Cintegration of
processes between
different compa-
nies (interface
questions between
companies)
Cintegration of mar-
ket-development
and collaboration
between compa-
nies on a supply
chain level
High
Supply
chain
integration
Low
Phase 1 Phase 2 Phase 3
Supply Chain must be
an integrated link in clinical
& non- clinical operations

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10
ogy-oriented applications can be found in the
areas of procurement, inventory control and
materials planning. One of the well-known exam-
ples of an IT application being used in Health sec-
tor is Electronic Patient Record Systems which has
significantly contributed in improving the integra-
tion and smoothening of processes within and
between health service delivery organizations.
The application of supply chain management
practices in healthcare setting is almost by defini-
tion related to organizational aspects like building
relationships, allocating authorities and responsi-
bilities, and organizing interface processes.
Different studies have highlighted the importance
of organizational processes when applying supply
chain management practices. Moreover, recent
studies reveal that elements like organisational
culture, the absence of strong leadership and
mandating authority, as well as power and inter-
est relationships between stakeholders might
severely hinder the integration and co-ordination
of processes along the health care supply chain
(McCutcheon and Stuart, 2000). Healthcare sup-
ply chain integration is not only related to the
integration and co-ordination of planning
processes but this can also be linked to joint
“market development” and offering new “care-
products”. Product co-development is a recog-
nized phenomenon in the field of supply chain
management and within industrial supply chains
many joint efforts are made to develop new prod-
ucts across suppliers, customers and organisation-
al units. Additionally, healthcare service providers
have taken the initiative in different countries to
develop new care-products in close collaboration
with each other. Clearly, the above mentioned
modes of integration cannot be considered in iso-
lation. Studies in the field of industrial companies
indicate that organizations often go through sev-
eral stages of integration, starting with a trans-
parency stage via a commitment/ coordination
stage to a full integrated stage encompassing all
the different modes of integration addressed
above (Ballou et al., 2000; van der Vaart and van
Donk, 2008). The ongoing transformation within
the health care sector towards greater integration
and more process-oriented health care chains
requires a shift in strategy, structure and control
mechanisms.As such, the supply chain orientation
within the health care sector can be regarded as
a complex social change process.
Best practices of
Healthcare Supply Chain
The best practices of Healthcare Supply Chain
are summarized in the following table:
Table 1: Best practices of Healthcare Supply
Chain
Conclusion
This article provides insight about supply
chain management practices in the healthcare
sector. Although many health care organisations
have recognized the importance of adopting sup-
ply chain management practices, the application
of techniques, methods and best practices origi-
nally developed in an industrial setting clearly is
often problematic. Improvements have been
made in the healthcare supply chain, primarily in
the area of education but areas such as inventory
control, procurement processes, and information
sharing require more attention from supply chain
Supply chain integration
within healthcare is a complex
social process change

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11
managers. Improvements in all these areas can
become possible with the aid of information tech-
nology, along with collaboration and cooperation
of stakeholders. Areas Recommended Best
Practices Education ? Increase training on SCM
principles such as executive support, communica-
tion within internal departments, information sys-
tems and measurement systems Transportation &
Logistics ? Use of cold storage infrastructure for
storage and transportation in pharmaceutical
industry, a major player in healthcare Inventory
Management ? Use computer software applica-
tions for calculating reorder points and quantities
based on demand forecast and safety stock levels
Areas Recommended Best Practices
Education
C Increase training on SCM principles such as executive support,
communication within internal departments, information sys-
tems and measurement systems
Transportation & Logistics
C Use of cold storage infrastructure for storage and transportation
in pharmaceutical industry, a major player in healthcare
Inventory Management
C Use computer software applications for calculating reorder
points and quantities based on demand forecast and safety
stock levels
C Increase inventory turns to hold less capital at a given time
Procurement and Contracting
C Increase automated ordering process by using electronic means
(EDI, Internet)
C Comply with GPO contracts to achieve cost savings
C Standardize products to reduce number of contracts and trans-
actions
Quality Management
C Apply total quality management in hospitals and integrate a
smooth running strategy for their supply chain management.
Hospital integration with internal and external customers is
realized as important factors in implementing and empowering
the overall integration process in quality management system in
hospitals
Using RFID technology
C Use of Radio Frequency Identification (RFID) technology, which
will continue to make inroads thru track-and-trace solutions,
first, as asset and inventory management tools, then gravitating
towards personnel, patient and clinical monitoring devices
Recalling drugs
C Use of RFID technology can also help in keeping the track of
such products along the entire chin
Revenue-Cycle Management
System and Decision Support
System
C Use technology solutions and healthcare consulting services to
cover the full spectrum of a healthcare service provider's rev-
enue cycle needs from improving patient access processes to
reducing claims denials.
C Use decision support system to integrate financial, clinical and
administrative information and distribute that data enterprise-
wide for timely analysis and decision-making that might posi-
tively impact future performance
Information Sharing &
Collaboration/Cooperation
C Share inventory related information with vendors for better
planning. Information should include: sales data, backorders,
and on-hand inventory; it should also be accurate and accessi-
ble in a timely manner
C Involve physicians and other providers in the product selection
process through collaboration and cooperation
Table 1: Best practices of Healthcare Supply Chain

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? Increase inventory turns to hold less capital at a
given time Procurement and Contracting ?
Increase automated ordering process by using
electronic means (EDI, Internet) ? Comply with
GPO contracts to achieve cost savings ?
Standardize products to reduce number of con-
tracts and transactions Quality Management ?
Apply total quality management in hospitals and
integrate a smooth running strategy for their sup-
ply chain management. Hospital integration with
internal and external customers is realized as
important factors in implementing and empower-
ing the overall integration process in quality man-
agement system in hospitals Using RFID technol-
ogy ? Use of Radio Frequency Identification (RFID)
technology, which will continue to make inroads
thru track-and-trace solutions, first, as asset and
inventory management tools, then gravitating
towards personnel, patient and clinical monitor-
ing devices Recalling drugs ? Use of RFID technol-
ogy can also help in keeping the track of such
products along the entire chin Revenue-Cycle
Management System and Decision Support
System ? Use technology solutions and healthcare
consulting services to cover the full spectrum of a
healthcare service provider's revenue cycle needs
from improving patient access processes to reduc-
ing claims denials. ? Use decision support system
to integrate financial, clinical and administrative
information and distribute that data enterprise-
wide for timely analysis and decision-making that
might positively impact future performance
Information Sharing & Collaboration/Cooperation
? Share inventory related information with ven-
dors for better planning. Information should
include: sales data, backorders, and on-hand
inventory; it should also be accurate and accessi-
ble in a timely manner ? Involve physicians and
other providers in the product selection process
through collaboration and cooperation
The supply chain management best practices
can greatly help material managers with their
continuous improvement efforts, while maintain-
ing quality of care. Finally, the adoption of new
emerging technologies, such as radio frequency
identification (RFID) and its benefits to the health-
care industry are also explored to identify innova-
tive alternatives to material management in the
healthcare sector.
References
1. Nachtman, H. and Pohl, E.A. (2009), “The State of
Healthcare Logistics: Cost and Quality improve-
ment Opportunities,” Center for innovation in
Healthcare Logistics, University of Arkansas.
2. McKone-Sweet, Kathleen E., Hamilton, P. and Willis,
S.B. (Winter 2005), “The Ailing Healthcare Supply
Chain: Prescription for Change,” The Journal of
Supply Chain Management: A Global Review of
Purchasing and Supply, pp. 4-17.
3. Schneller, E.S., Schmeltzer, L.R. and Burns, L.R.
(2006), Strategic Management of the Health Care
Supply Chain, Jossey-Bass, San Francisco, CA.
4. Burns, L.R. (2002), The Healthcare Value Chain:
Producers, Purchasers, and Providers, Jossey Bass,
San Francisco, CA.
5. Jan de Vries, Huijsman, R. (2011) "Supply chain
management in health services: an overview",
Supply Chain Management: An International
Journal, Vol. 16 Iss: 3, pp.159 – 165
6. Beier, F.J. (1995), “The management of the supply
chain for hospital pharmacies: a focus on inventory
management practices”, Journal of Business
Logistics, Vol. 16 No. 2, pp. 153-173.
7. Acharyulu, G.V.R.K. and Shekhar, B.R. (2012), “Role
of Value Chain Strategy in Healthcare Supply Chain
Management: An Empirical Study in India”,
International Journal of Management Vol. 29 No. 1
Part 1, pp. 93-94
8. Breen, L. and Crawford, H . (2005), “Improving the
pharmaceutical supply chain: assessing the reality
of e -quality through e-commerce application in
hospital pharmacy”, International Journal of
Quality & Reliability Management, Vol. 22 No. 6,
pp. 572-590.
9. Harland, C.M. and Caldwell, N.D. (2007), “Barriers
to supply chain information integration : SMEs
adrift of e-Lands”, Journal of Operations
Management , Vol. 26 No. 6, pp. 1234-54.
10. Siau, K., Southard, P.B. and Hong, S. (2002), “E-
healthcare strategies and implementation,”
International Journal of Healthcare Technology and
Management, Vol. 4 Nos 1/2, pp. 118-131.
11. Lowell, N. H. and Celler, B. G. (1998 ), “Information
technology in primary health care”, International
Journal of Medical Informatics ,Vol.55 No.1,pp.9-22.
12. McCutcheon, D. and Stuart, F.I. (2000), “Issues in
the choice of supplier alliance partners”, Journal of
Operations Management, Vol. 18 No. 3, pp. 279-
303.
13. Ballou, R.H., Gilbert, S.M. and Mukherjee,A. (2000),
“New managerial challenges from supply chain
opportunities”, Industrial Marketing Management,
Vol. 29 No. 1, pp. 7-18.
14. Van der Vaart, T. and van Donk, D.P. (2008), “A crit-
ical review of survey-based research in supply
chain integration”, International Journal of
Production Economics, Vol. 111 No. 1, pp. 42-55.
15. Callender, C. and Grasman, S.E. (2010), “Barriers
and Best Practices for Material Management in
Healthcare Sector”, Engineering Management
Journal, Vol. 22 No. 4, pp. 11-17

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13
Supply Chain Challenges in IOL & Gas Industry
INTRODUCTION
The term “Supply- chain management (SCM)” can be
best defined as the configuration, coordination and continu-
ous improvement of a sequentially organized set of opera-
tions.The primary aim of a supply chain management system
in any organization is to provide maximum customer service
at the lowest cost possible.
The Oil & Gas industry currently faces numerous com-
plexities and challenges that should be addressed in order to
sustain and survive in today’s era of heightened global com-
petition. The Oil & Gas industry needs to work continuously
under the most difficult situations and challenging circum-
stances, which include matching the dynamic demand with
supply, working in harshest terrains & tougher access to new
upstream resources. In addition to this, there is a marked
increase in the exploration and production costs in the
industry and oil prices are also near an all time high.Against
this backdrop, there seems to be a necessity to focus on
achieving the highest standards in supply chain manage-
ment of the Oil & Gas industry so as to streamline all the
operations and generate value for all the stakeholders.
Anubhav Sood
IIM Raipur
AUTHOR
I
Supply Chain Challenges in
IOL & Gas Industry - Indian Context

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14
SUPPLY CHAIN LINKAGE IN OIL AND
GAS INDUSTRY
The supply chain linkage in the Oil and Gas
industry can be represented as below:
Exploration is the search for crude oil or gas
reserves by petroleum geologists and geophysi-
cists beneath the Earth’s surface. It could either be
on the sea bed or on the mainland. The aim of
exploration is to find the reserves of crude petro-
leum which could be harnessed and converted
into usable petroleum products.
Exploitation is the term used for extracting
the crude oil from the oil wells. For example
Indian Oil Corporation Limited (IOCL) has share in
oil pits at Digboi in Assam and Bombay high from
where oil is extracted and sent to refineries. The
entire requirement for crude oil is not met by self-
exploitation. Some part is procured from other
crude oil producing nations which predominantly
consist of Gulf countries and Singapore market.
This crude oil is shipped through Very Large
Crude Carriers or Ultra Large Crude Carriers hav-
ing capacities of 50,000 KL to 2,00,000 KL. These
tankers are docked at the ports and the oil is
unloaded using pumping and piping equipment
into the storage tankers. These locations are
called ‘terminals’. Generally, terminals have stor-
age capacities ranging from 1,00,000 KL to
3,00,000 KL.
From these terminals, the oil is sent to refiner-
ies through pipelines where it undergoes the
process of refining and various products like Flare
gas, Lighter gases, LPG, Naptha, ATF, Superior
Kerosene Oil, Light Diesel Oil (LDO), Heavy diesel
Oil (HDO), Base oil and Sludge are produced.
These products are stored in cylindrical tanks near
refineries; these areas are also called as terminals.
The capacities of these tanks range from 25000
KL to 40000 KL. From here the finished products
are transported to various other terminals all over
the country through pipelines, rail wagons or tank
trucks.
ISSUES FACED IN SUPPLY
CHAIN MANAGEMENT
PIPELINE NETWORK:
Amongst road, rail and pipeline transporta-
tion, road transportation is the costliest method
and transportation through pipelines is the cheap-
est. However a drawback with the pipeline is that
it has very low penetration. In the light of this
backdrop many oil marketing companies are
working on extending their pipeline network.
Constructing pipelines is an extreme capital
intensive venture. Therefore, it is much more fea-
sible if different companies come together and
share the financial burden for constructing them
and then reap benefits of using them. One such
initiative is taken by GSPL,HPCL, IOCL and BPCL.
These companies have signed joint venture agree-
ments for constructing three such cross country
projects: Mallavaram-Bhilwara (1585 kms),
Mehsana-Bhatinda (1670) and Bhatinda-Jammu-
Srinagar (740 kms). More such projects will help
in bringing down the transportation costs in the
long run. Further pipelines also bring about reduc-
tion in losses due to transportation. For example,
the 573 km long Visakha-Vijayawada-
Secunderabad pipeline saved (HPCL) an amount
of about Rs 95 crore in 2003-04. (Cited from
http://www.business-standard.com/india/-
news/hpcl-saves-rs-95cr-due-to-pipeline-opera-
tions/147489/ accessed on 23.02.2013).
THEFT & PILFERAGE:
There is a particularly high rate of theft and pil-
ferage while transporting oil by road through tankers.
A method to bring it down under control is to install
the Vehicle Monitoring System (VMS), which tracks
the movement of vehicles by installing a device with
SIM card using GPS technology. But there are issues
related to implementation of the same. There have
been instances where drivers damage these devices
and use the SIM cards to make personal phone calls
or the service is not proper due to bandwidth prob-
Constructing pipelines, being an extreme
capital intensive venture is much more
feasible if different companies
come together and share the
financial burden.
EXPLORATION EXPLOITATION REFINING MARKETING CONSUMER

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15
lem of the service provider. Also, in some cases, the
locking system that is used for the tank-trucks (pad-
locks) has been found to be tampered with.
Moreover the outlet valve assemblies have also been
found to be damaged in some cases.
These incidents of theft, pilferage and damage
can be improved by training the drivers and
increasing their awareness about these technolo-
gy driven initiatives. Another method of reducing
the pilferage is the usage of electromagnetic lock-
ing systems in the valves of the tankers. However,
after installation of the same it has been reported
that the operators and drivers complain of not
knowing how to use these locking systems.
Training and selection of educated drivers can
help to overcome these problems.
PIPELINE SECURITY:
Cases of pilferage through pipelines have also
been reported where the miscreants have dam-
aged the pipeline to steal away the products.
Moreover a damaged pipeline poses a threat
towards safety of environment and causes loss of
finished products. Pressure Monitoring Systems
are installed in the pipelines to detect any such
damage. But the challenge lies in correcting the
fault as soon as possible and recommissioning the
line. Security guards are also deployed for
patrolling these pipelines; one guard covers 8
kilometres of pipeline length. These guards are
tagged with satellite surveillance which causes
huge costs to OMCs. For further safety, rather than
laying pipelines overground they are usually laid
underground where they are not visible, this how-
ever, raises several maintenance issues of the
pipelines.
HIGH IN-TRANSIT INVENTORY:
The inequitable distribution of petroleum
resources across the globe makes the scope of
logistics global. These products have to be trans-
ported between different locations, which in most
of the cases span across different continents. The
long distance between the supplier and buyer
results in higher costs of transportation and high
in-transit inventory. One method to overcome this
is by structuring of new deals like that of Essar
Energy with Barclays bank for its Stanlow refinery.
The In-transit inventory is transferred to the
bank’s assets when it starts on the ship and just
before the destination port it is again transferred
to Essar Energy This approach helps Essar to miti-
gate the risks associated with in transit inventory
ownership, saves working capital costs and the
bank gets benefit because it can show the crude
oil as an asset over long transit periods and lever-
age the same for oil derivatives business.
INFORMATION TECHNOLOGY:
We can also examine the role of information
technology and management information sys-
tems in the supply chain management in Oil &
Gas sector. As compared to the earlier paper
based system for giving indents by the dealers,
the indents are now taken through SMS based
Indent Management System. This indent is noted
by the planning officer and after confirming the
payment terms the material is dispatched to the
dealer. In this field HPCL has started a new initia-
tive called Optimised Logistics Assistant (OLA).
OLA helps in bringing rationalization in assign-
ments to logistic partners and provides them with
an equal opportunity. As this is an automatic
assignment, it reduces the favouritism towards a
particular transporter due to any influence exert-
ed by him. Implementation of such IT driven sys-
tems across the industry will help in bringing
about more transparent systems.
SAFETY:
Due to the hazardous characteristics of Oil &
Gas raw materials and final products, there is a
need to exercise extra caution which involves lot
of money, time, effort etc. Also, the risk involved
with the supply chain is higher. The products in
Oil & Gas industry are highly inflammable; as a

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16
result, risks involved in delivering, transporting
and storing are greater as compared to any other
industry (Sinha et al. (2011) as cited in supply-
chain-management-issues-in-oil (2012)).
LONG LEAD TIMES:
The lack of flexibility of the overall logistic
network in this industry is another major issue.
This can perhaps be owed to the challenges in
production, long transportation lead times and
the constraints of transportation modes used. As
a result of these problems, each and every node of
the supply chain network poses huge challenges.
UNECONOMIC ORDERS:
Another delivery related issue is the irregular
or small quantities ordered by some dealers. For
e.g. one dealer may have daily requirement of
15000 to 20000 KL where as another will have
only 3000-4000 KL. It is easier to supply to the
former dealer, but in the latter case, the issue of
part load comes into the picture and reduces the
economies of transportation. To prevent this, the
companies can ensure that the dealers have large
size reservoirs which have ullage of one tank
truck atleast. Alternatively, companies can also
take a decision to supply the material only when
the dealer gives order of equivalent to atleast
what can be transported in one tanker.
DISPOSAL OF FLARE GAS:
The flare gases which come out of the refining
process are not useful and were earlier disposed-
off by burning. But now the environmental regu-
lations have become more stringent due to which
there are restrictions over burning these gases.
Now the refining companies have two options
either to install flare gas recovery systems which
entail heavy investments or to store the flare gas
and send it to a third party to dispose it off. The
latter option can also be expensive and will
require good logistics for flare gas transportation.
SLUDGE TRANSPORTATION:
The other prominent issue is regarding the
transportation of sludge. As the sludge is very
heavy and tends to solidify if allowed to cool, it
presents a unique challenge in transportation. It
requires special heated tanks, which are heated
electrically or by using steam. But in case of the
failure of heating mechanism the sludge can get
deposited inside the tanker which will then be
extremely difficult to remove. In some cases solid-
ification has rendered the whole truck to go out of
service.
Thus, we can conclude that supply chain is the
most crucial and essential function in oil and gas
industry. This is because of the fact that the oil
and gas industry has its own unique features
which can sometimes pose various challenges for
all those involved in its supply chain. Today, the
supply chains in this industry are looking at vari-
ous ways of improving their efficiencies and over-
coming the above mentioned impediments. These
improvements made over a period of time also
help in creating a competitive advantage for the
firms. Therefore, the need of the hour is a supply
chain optimization at an operational as well as at
a strategic level. Various supply chain firms in Oil
& Gas industry can adopt methods like customiz-
ing the logistic network, strategic sourcing, appli-
cation of channel wide information technology
strategy, adopting operational innovation in terms
of order filling, customer service etc.This will lead
to success and also contribute towards optimisa-
tion in the long run. Tomorrow’s successful play-
ers would perhaps be those who adopt such
methods of optimization, implement a strategic
view of the role of their supply chain and imple-
ment advanced contracting strategies in order to
manage their costs and secure supplies.
REFRENCES
1. Chima,M.C.(2007)“Supply-Chain Management
Issues In The Oil And Gas Industry” Journal of
Business & Economic Research Vol. 5, No. 6
2. Siddiqui, F. & Sharma, C. (2011) “The Impact
of various Dimensions of SCM Practices in
Indian Oil and Gas Sector” Global Journal of
Enterprise Information System Vol. 3, No.4
3. http://articles.economictimes.india times.com
/2012-05-01/news/31528157_1_bhatinda-
jammu-srinagar-gspl-pipeline-projects
accessed on 23.02.13
4. http://ivyarticles.blogspot.in/2012/12/supply-
chain-management-issues-in-oil.html
?detail=yes accessed on 24.02.13
The oil and gas industry has its own unique
features which can sometimes pose various
challenges for all those involved
in its supply chain.

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17
Towards better Maintenance The experiment with Defects
INTRODUCTION:
In an organization like SAIL, quality production at optimum
cost plays a vital role, to achieve profitability. In order to achieve
this, all the major operations like planning, production and mar-
keting are to be done with quality parameters in mind. Where
planning and marketing are dependent on various factors
beyond the control of the individual plants, production at opti-
mum level at minimum cost is instrumental and well within the
control of the production team. Production demands the three
sections i.e., Operation, Maintenance(both Mechanical &
Electrical) and services (ETL, HMC, PCE, EMD, GEM, INST etc.) to
work together having a single common goal of ,"maximising
quality product and minimizing production cost".
The manufacturing industries in the world are now strictly
monitoring to improve the following parameters to attain com-
petitiveness and a sustained positive growth.
1) Maximisation of production
2) Ensuring quality standard
3) Minimising cost of production
To achieve all these parameters it requires a healthy main-
tenance system. Though maintenance is not a branch of
Engineering taught in Technical Institutions, it requires the
wholesome knowledge of technology and progressive develop-
ments in the world, updated at regular interval of time. In the
following paragraphs let us discuss "maintenance as a tool for
profitability of any manufacturing industry".
MAINTENANCE:
Out of many definitions that describe maintenance, the fol-
lowing definition fits best for all industries or manufacturing
organizations around the world. "Maintenance is the process of
ensuring the availability of equipment/ machines in perfect
order for maximizing the quality product at lower cost".
To be precise, every organization should have a system
which will increase the availability of equipment for a longer
period at lower cost. Many private organization, reduce the cost
of maintenance by out sourcing or giving AMCs to smaller com-
panies and increase the performance of machines and equip-
ment by adopting new technology as and when required. But it
Towards better Maintenance
The experiment with Defects
Debrup Mohanty
Manager
(Durgapur Steel Plant, SAIL)
Gujja Eswar Rao
Senior Manager
(Durgapur Steel Plant, SAIL)
AUTHORS
I

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18
is not always possible for company as vast as
SAIL, where the Capital Investment required for
switching over to new technology is huge and
time required to carry out projects is also more (
as the size of project in such cases are big andpro-
ject clearance formalities are complicated due to
Government obligations).
To cater to the need of such organizations,
where equipment involved are complicated in
nature and working environment is challenging in
comparison to normal working condition and
where the breakdown of equipment pose a threat
to the balance sheet of the company, many main-
tenance techniques or theories have been evolved
by expert teams in recent past. These theories are
based on different schools of thought and
designed to suit various maintenance environ-
ments. Some of the popular theories are:
a) Breakdown maintenance
b) Inspection & preventive maintenance
c) Predictive maintenance
d) Maintenance by redesign
e) Time based maintenance
Out of the above methods, most commonly
used system is Inspection & Preventive mainte-
nance. In some cases, this system of maintenance
combined with Maintenance by redesign paves a
way for continual improvement.The following para-
graphs will depict how best this can be achieved.
FACTORS FOR SELECTING
MAINTENANCE MODULE:
Although different organizations adopt differ-
ent forms of maintenance practices or processes,
yet they follow almost the same sequences /
methods based on a simple logic of SMPs. The
methods or the processes being adopted and put
in use by organizations are decided by DOCTOR
analysis of factors that shapes the maintenance
module for a particular environment. These are:
1) Design (unidirectional/ reversible/ roughing/
finishing etc.)
2) Operation (intermittent/continuous etc.)
3) Criticality of Equipment (spares availability in
market/ cost of spares/repair time etc.)
4) Technology (old/new/manual/automated etc.)
5) Option in hand (stand by machine/alternate
route of production etc.)
6) Resource availability (man/spare inventory/
time availability etc.)
The design parameters and standard operat-
ing practices as prescribed by the designer are
subjected to be changed at later stages due to
many factors or changes brought to the system in
order to increase profitability. Like Blooming Mill
was initially designed for Ingots of 5 to be rolled
through it, but later on it has been changed to 8 T
Ingots without significant change in its equip-
ment. The effect of change of load is not visible
immediately, but in the long run many problems
I R F
D P E M
A
O
REV MOD
A
Maintenance Module Based on Inspection & preventive Maintenance along with redesign
Dia. : A

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19
of perennial nature surfaced and some of them
were eliminated by a suitable method of modifi-
cation arrived by blending the two systems of
maintenance described above.
MAINTENANCE MODULE:
The maintenance module should have the fol-
lowing activities:
1) Inspection [I]
2) Record IR]
3) Generation of Defect list [D]
4) Planning [P]
5) Observation [O]
6) Execution(repair) [E]
7) Feedback [F]
8) Monitoring [M]
9) Analysis [A]
10) Modification (change) [MOD]
11) Record modification & review [REV]
The module is designed as shown in the flow
diagram below
ANALYSIS:
The total job of maintenance based on inspec-
tion.The list of equipment to be inspected, frequen-
cy of inspection, time of inspection should be so
judiciously designed so that it should not hamper
production nor it should violate any safety norm.
Once the list is prepared, the inspection to be done
as per designated schedule and all other activities
should be followed till the cycle is complete.
GENERAL CASE (I-R-D-P-E-F-R):
• Inspect equipment
• Record the data from Inspection report
• Generate defect list from record
•Plan the job to liquidate the defects found
• Execute the job or eliminate defects as per plan
• Give feedback to record
CONDITIONAL CASE (I-R-D-O-P-E-F-R)
There may be cases where defect liquidation
cannot be planned immediately due to production
pressure but defect can be allowed to continue
keeping the equipment in question on observa-
tion, till the liquidation is planned and defect is
eliminated. For such cases this method is adopted
with addition of observation after defect list is
generated.
UNUSUAL DEFECT WITHOUT
RECURRANCE (I-R-D-P-E-M-A):
In some cases an unusual defect surfaces like
a bearing is broken, a shaft is sheared, a gear is
slipped over a shaft etc. As the defect is to be
eliminated at the earliest opportunity or in many
cases immediately, the execution of job for elimi-
nation of defect is planned, executedand a feed-
back is given in the form of report. Since the cause
of the defect is not ascertained immediately, it
should be monitored for a period. As the defect is
of unusual nature, a thorough analysis or root
cause analysis is to be done for finding out the
cause(s).After finding out the cause(s) all possible
causes should be eliminated.
UNUSUAL DEFECT WITH RECURRANCE
(I-R-D-P-E-M-A-M0D-12EV):
If the same defect is repeated, a thorough
analysis or root cause analysis is to be done.After
finding out the cause(s) all possible causes should
be eliminated.
In many cases the probable or certain causes
which triggered the break down, become respon-
sible for similar breakdowns after a certain period
of time. This is the point where the maintenance
engineer should find out ways to eliminate the
source of cause which impend defects by modifi-
cation or change in design parameters or by sim-
ple alterations where ever possible. While doing
modification all factors should be considered like
recurring cost, impact on other equipment, per-
formance of modified system in comparison to
existing system etc. Once the modification is done
and tested it should be documented for future ref-
erence and any change required in drawing
should also be incorporated. Then the inspection
schedule should be accordingly reviewed to incor-
porate the new modification.
Conclusion:
Though there are many processes in achieving
good machinery health, the best way of mainte-
nance can only be decided by people who moni-
tor them regularly. Machine behavior is a reflec-
tion of human behavior. As the great author Mr.
Stephen Covey said, 10% of the events around us
happen automatically upon which we have no
control, but 90% of the of the events occur as a
result of our reactions towards these 10%happen-
ings.
The total job of maintenance should be
based on inspection wherein the design of
activities should not hamper production or
violate any safety norm.

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20
Site Identification for new AIIMS-like Institutions based on Network Analysis
1. Introduction
Pradhan Mantri Swasthya Suraksha Yojana
The Pradhan Mantri Swasthya Suraksha Yojana (PMSSY)
was floated by the Central Government in 2006 as a measure
to address the imbalance in the availability of the best health-
care facilities across the nation and to augment the country’s
medical education facilities. The Yojana is to be implemented in
multiple stages.The first phase would consist of development of
six AIIMS-like Institutions (ALIs), besides up-gradation of sever-
al other existing medical colleges.The next phase would consist
of construction of two super-specialty facilities, one each in
West Bengal and Uttar Pradesh. The third stage, which was
recently approved by the Union Cabinet, involves the construc-
tion of four more facilities. This stage is the one that this paper
is concerned with.The Union government is yet to decide on the
states in which these facilities would be located. Considering
that any such endeavor involves a huge expenditure (the latest
Central government estimates have put the figure at Rs.847
crore on average for each of the institutes), we believe it is
imperative that these facilities be located so as to not only ful-
fill the criteria laid down by the committee that has proposed
the latest phase, but also to ensure the optimum utilization of
the facilities. It is with this aim that we have designed a model
that suggests the best locations for the four proposed institu-
tions.
Criteria
As per the Hon. Union Health & Family Welfare Minister1,
the location of the initial six institutions were decided based on
several socio-economic indicators such as the human develop-
ment index, the regional per capita income, the number of peo-
ple living below poverty line and health indicators such as
infant mortality rate, the population-to-bed ratio, etc.
The steering committee on health for the 12th five year plan
has listed a broader set of criteria for deciding the sites for the
four new hospitals2. The committee recommends that the deci-
sion be taken based on:
1. Geographical Location
Site Identification for new AIIMS-like
Institutions based on Network
Analysis of similar existing facilities
AUTHORS
Neeraj Gupta
IIM Lucknow
Mukul Kaura
IIM Lucknow
I

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21
2. Physical Infrastructure
3. Ease of connectivity with medical facilities
4. Health indicators
5. Local disease burden
2. Methodology
Accessibility
Considering that these facilities are few in
number and dispersed across the nation, we have
laid down a criterion for defining the accessibility
(or catchment area) for each facility. We believe
the distance that can be covered in an overnight
train journey is a good indicator for the area that
can be serviced through one facility. Considering
that an express train travels at a little over
50kmph (when accounting for stoppages), we get
a radial distance of 400km (50kmph X 8 hours) as
our catchment area indicator.
Geographical Distribution
We then proceeded to plot the area serviced
by each of the facilities already finalized using the
above indicator. Figure 1 shows the region expect-
ed to be covered by the eight approved ALIs as
well as the AIIMS at New Delhi. In order to ensure
that maximum area gets the coverage, as well as
considering the hilly terrain in J&K as well as in
the North-East, we decided to allocate one ALI to
each of these two regions. Considering that
Jammu city and Guwahati are by far the most
accessible and developed cities in these two
regions respectively, we propose that the facilities
be located there.
For the western and southern regions, it can be
seen by visual inspection of Figure 1, that maximum
coverage can be provided only if one of the ALIs is
distributed to one of the Western states (Gujarat,
Maharashtra & Goa) and other to the southern
states and Union territories (Andhra Pradesh,
Karnataka, Kerala,Tamil Nadu and Puducherry).We
have therefore formed two clusters with candidate
cities from these two regions and applied an
Analytical Hierarchy Process (AHP) model to come
up with the best candidates from these two regions.
Figure 1: Area catered to by the approved facilities and the AIIMS at New Delhi

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Candidate Locations
The candidates were taken to be the top 21
Tier-I,Tier-II and Tier-III cities from the two clusters
taken together.
AHP Model
One of the five factors that would determine
the ALI locations has already been incorporated in
the analysis manually. The other four factors have
been incorporated in the decision making process
through the use of a four factor AHP model.
Ease of connectivity
with medical facilities
We have taken the density of rail network as a
measure of connectivity and the number of Health
Sub-Centers as the indicator of level of medical
facilities in a particular state. Each of the two data3
sets have been normalized to represent a fraction
of the highest density (or sub-centers) and the
product of the two taken to arrive at a final score.
The data suffers from a limitation in sense
that the two data sets are for different instances
in time. However, their use can be rationalized by
assuming the growth of sub-centers to be propor-
tional for each of the states.
Health Indicators
The life expectancy4 in each of states/UTs for
the candidate cities has been taken as a surrogate
for health indicator. Once again, the life expectan-
cies have been normalized using the highest data
point to arrive at a health indicator score.
Local Disease Burden
The local disease burden has been measured
using the number of people hospitalized on a per
thousand basis. The inverse of the data5 has then
been normalized (using the same process as before)
to get an indicator for the local disease burden.
As on
31.3.2001
As on 1.4.1996
Route
Kms. Per
'000 Sq.
Kms.
Route Kms. Per
‘000 Sq. Kms.
(Normalized)
Sub-Centers
Sub-Centers
(Normalized)
Connectivity
Score
Andhra Pradesh 67.89 1.00 7894 0.81 0.81
Goa 27.02 0.40 175 0.02 0.01
Gujarat 22.56 0.33 7284 0.75 0.25
Karnataka 17.32 0.26 7793 0.80 0.20
Kerala 15.52 0.23 5094 0.52 0.12
Maharashtra 8.73 0.13 9725 1.00 0.13
Puducherry 0.07 0.00 79 0.01 0.00
Tamil Nadu* 31.22 0.46 8681 0.89 0.41
Figure 2: Ease of connectivity with medical facilities
Life Expectancy at
Birth
Proportion Life
Expectancy
Life Expectancy
Score
States/UTs Male Female Male Female
Andhra Pradesh 61.7 64.3 0.50 0.50 63.0 0.86
Goa 64.7 67.2 0.51 0.49 65.9 0.90
Gujarat 62.1 64 0.52 0.48 63.0 0.86
Karnataka 62.5 65.8 0.51 0.49 64.1 0.87
Kerala 70.7 76.1 0.48 0.52 73.5 1.00
Maharashtra 64.7 67.2 0.52 0.48 65.9 0.90
Puducherry# 63.9 65.9 0.49 0.51 64.9 0.88
Tamil Nadu 63.9 65.9 0.50 0.50 64.9 0.88
* For Goa, Maharashtra figures have been used
# For Puducherry, Tamil Nadu figures have been used
Figure 3: Life expectancies

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State-wise Persons Hospitalized During Last 365 Days (Per OOP's)
States/UTs Rural Persons
Urban
Persons
Rural
Proportion
Urban
Proportion
Total Inverse
Urban
Proportion
Andhra Pradesh 14 17 0.67 0.33 15.00 0.07 1.00
Goa 26 25 0.38 0.62 25.38 0.04 0.59
Gujarat 14 21 0.57 0.43 16.98 0.06 0.88
Karnataka 14 18 0.61 0.39 15.54 0.06 0.97
Kerala 70 65 0.52 0.48 67.61 0.01 0.22
Maharashtra 19 26 0.55 0-45 22.17 0.05 0.68
Tamil Nadu 18 23 0.52 0.48 20.42 0.05 0.73
Pondicherry 44 22 0.32 0.68 28.97 0.03 0.52
Figure 4: Persons hospitalized during last 365 days
City
Expenses
Scaled for
2011-12
Physical
Infrastructur
e Score
Source
Solapur 283.34 283.34 0.013
http://www.urbanindia.nic.in/Droeramme/uwss/CSP/Draft
CSP/Solapur CSP.pdf
Pune 3196.12 4489.94 0.213
http://www.punecorporation.ore/pmcwebn/about us.aspx
Mumbai 21096.56 21096.56 1.000
http://www.mceni.eov.in/iri/portal/anonvmous/qlbudeet-
speechtf
Nashik 1500.00 1500.00 0.071
http://www.hindustantimes.com/India-news/Mumbai/MNS-
NCP- fight-to-control-Nashik-as-Bhujbal-tries-to-rustle-up-
numbcrs/Articlel-815596.aspx
Surat 3194.00 3194.00 0.151
http://articles.timesofindia.indiatimes.com/2012-02-
03/surat/31021057_1_smc-budget-surat-municipal-corpo-
ration-gopi-talav
Rajkot 500.00 500.00 0.024
http://ibnlive.in.com/generalnewsfeed/news/rajkot-corpo-
rations-draft-budget-presented/958525.html
Jamnagar 356.88 501.35 0.024 Source: Jamanagar Municipality
Panaji 23.93 33.62 0.002
http://www.navhindtimes.in/content/ccp-presents-evenly-
balanced-annual-budget
Anantapur 27.03 27.03 0.001
http://www.cdma.gov.in/cdma/Downloads/Anantapur_Dist
rict/Anantapur%20Corp._Working%20Sheet.xls
Vijaywada 293.23 293.23 0.014 http://www.ourvmc.org/general/Budget_2011-12.pdf
Hyderabad 2237.76 3193.52 0.151
http://www.ghmc.gov.in/tender%20pdfs/Disclosure_to_Pu
blic_New.pdf
Mysore 253.46 356.06 0.017
http://mysorecity.gov.in/sites/mysorecity.gov.in/files/Budget
-final_2.pdf
Bangalore 9196.09 9196.09 0.436
http://218.248.45.169/download/budget/Budget%20Speec
h.pdf
Shimoga 47.86 47.86 0.002
Chennai 1850.66 1850.66 0.088
http://chennaicorporation.gov.in/budget/budgetImages/20
11-12.pdf
Vellore 3.03 4.32 0.000 http://vellorecorp.tn.gov.in/

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24
City
Expenses
Scaled for
2011-12
Physical
Infrastructur
e Score
Source
Coimbatore 415.56 415.56 0.020
http://www.thehindu.com/news/cities/Coimbatore/arti-
cle1485944.ece
Madurai 255.12 358.40 0.017 http://203.101.40.168/newmducorp/budget.htm
Puducherry* 20.24 28.89 0.001
Population of Puducherry 6.6 Times of Vellore, Hence
Vellore budget has been multiplied by 6.69
Travindrum 106.68 152.25 0.007
http://www.corporationoftrivandrum.in/sites/default/files/8
BudgetedIncome&Exp.pdf
Kozhikode 53.27 74.84 0.004
http://www.kozhikodecorporation.org/images/news/iek310
311.pdf
Cochin 80.37 114.70 0.005 http://corporationofcochin.net/finance/incExp201003.pdf
Figure 5 Local Bodies' budgets for respective candidate cities
City
Physical
Infrastructure
Physical
Infrastructure
Ease of
Connectivity to
Medical
Institutions
Health
Indicators
Local Disease
Burden
Final Score
0.153846 0.307692 0.076923 0.461538
Cluster 1
Panaji 0.001593 0.000245 0.002204 0.068992 0.461538 0.532979
Surat 0.151399 0.023292 0.076583 0.065936 0.27288 0.438691
Jamnagar 0.023765 0.003656 0.076583 0.065936 0.27288 0.419055
Rajkot 0.023701 0.003646 0.076583 0.065936 0.27288 0.419045
Mumbai 1 0.153846 0.039566 0.068963 0.102423 0.364798
Pune 0.212828 0.032743 0.039566 0.068963 0.102423 0.243695
Nashik 0.071102 0.010939 0.039566 0.068963 0.102423 0.221891
Solapur 0.013431 0.002066 0.039566 0.068963 0.102423 0.213018
Cluster 2
Hyderabad 0.151376 0.023289 0.249761 0.065921 0.461538 0.800508
Vijaywada 0.0139 0.002138 0.249761 0.065921 0.461538 0.779358
Anantapur 0.001281 0.000197 0.249761 0.065921 0.461538 0.777417
Bangalore 0.435905 0.067062 0.062903 0.067102 0.407828 0.604895
Travindrum 0.007217 0.00111 0.036844 0.076923 0.445559 0.560437
Cochin 0.005437 0.000836 0.036844 0.076923 0.445559 0.560163
Kozhikode 0.003547 0.000546 0.036844 0.076923 0.445559 0.559872
Chennai 0.087723 0.013496 0.126323 0.067912 0.3391 0.546831
Mysore 0.016878 0.002597 0.062903 0.067102 0.407828 0.54043
Shimoga 0.002269 0.000349 0.062903 0.067102 0.407828 0.538182
Coimbatore 0.019698 0.00303 0.126323 0.067912 0.3391 0.536365
Madurai 0.016988 0.002614 0.126323 0.067912 0.3391 0.535949
Vellore 0.000205 3.15E-05 0.126323 0.067912 0.3391 0.533366
Puducherry 0.001369 0.000211 2.58E-06 0.067934 0 0.068147
Figure 8: Weighted aggregate score for candidate cities

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25
Physical Infrastructure
The budget for municipal corporations/munic-
ipalities of respective candidate cities/UTs was
taken as a proxy for the physical infrastructure.
Relative Factor Ratings for AHP Model
We believe that the four factors are not all
equally important. The local disease burden
should be given the highest rating since it is the
most relevant factor in determining which areas
needs the most medical help. Ease of connectivity
should be considered most important amongst
the rest since this would ensure that the facility
could be used in time. The level of physical infra-
structure in a city/town should be deemed more
vital than health indicator since this can help
induce the best talent in the medical fraternity to
come and work at these centers.
Based on the above reasoning, we have
assigned the following initial rating to the factors:
3. Results
The following table shows the aggregate
weighted factor score for each candidate city:
(Figure 8)
4. Conclusions
We recommend that the new ALI’sbe located
in new facilities be located at Jammu (Jammu &
Kashmir), Guwahati (Assam), Panaji (Goa)
&Hyderabad (Andhra Pradesh).
Factor Weights
Local Disease Burden 6
Ease of Connectivity to Medical
Institutions
4
Physical Infrastructure 2
Health Indicators 1
Figure 6: Initial Factor Ratings
Physical Infrastructure
Ease of Connectivity to Medical
Institutions
Health Indicators Local Disease Burden
0.153846 0.307692 0.076923 0.461538
Figure 7: Factor Weights
Figure 9: Sites for ALI’s

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26
Appendix: Analytical Hierarchical Process
Factors
Physical
Infrastructure
Ease of
Connectivity to
Medical Institutions
Health Indicators
Local Disease
Burden
Physical
Infrastructure Ease
of Connectivity to
Medical Institutions
1
2
1
1
1
4
1
0.666667
Health Indicators 0.5 0.25 1 0.166667
Local Disease
Burden
3 1.5 6 1
6.5 3.75 12 2.833333
Physical
Infrastructure
Ease of
Connectivity to
Medical
Institutions
Health
Indicators
Local Disease
Burden
Row Sum Weights
Physical
Infrastructure
0.153846 0.266667 0.083333 0.352941 0.856787 0.214197
Ease of
Connectivity to
Medical
Institutions
Health
Indicators
Local Disease
Burden
0.307692
0.076923
0.461538
0.266667
0.066667
0.4
0.333333
0.083333
0.5
0.235294
0.058824
0.352941
1.142986
0.285747
1.71448
0.285747
0.071437
0.42862 1
1 1 1 1 4 1
Table 1: Factor weight calculation through AHP Framework
OPSWorld
Quiz
1. Identify the operation term related to
the following picture.
2. Daily demand for a product is 120
units with a standard deviation of 30
units. The review period is 14days and
the lead time is 7 days. At the time of
review 130 units are in stock. If only 1
percent risk of stocking out is accept-
able, how many units should be
ordered? (Take z=2.33)
3. Connect the pictures
4. Afamous term used in famous 1984
book titled “The Goal”. Hint:- Picture
5. Three identical components each hav-
ing a MTTF of 1000 hours are func-
tionally connected in series. If the fail-
ure time distribution is exponential,
the MTTF of system is :
a. 333.3 hours
b. 3333 hours
c. 3000 hours
d. 545.5 hours
e. 1833.3 hours
6. Terminology used in figure for animal
tracking
7. Which type of layout is generally used
in JIT manufacturing?
a. L-shape
b. Straight Line
c. Zig-Zag
d. U-shape

OPSWorld
27
OPSWorld
Quiz
OPS World
Quiz
OPS World
Quiz
8. System representing highest level of
automation in manufacturing industry.
a. Flexible manufacturing system
b. Computer aided manufacturing
c. Computer aided design
d. Computer integrated manufacturing
9. To convert ‘n’ jobs and 3-machine
problem into ‘n’ jobs and 2-machine
problem, the following rule must be
satisfied
a. All the processing times of second
machine must be the same
b. The minimum processing time of 2nd
machine must be ? the minimum pro-
cessing times of first and third
machines
c. The maximum processing time of 2nd
cessing times of first and third
machines
d. The maximum processing time of 1st
cessing times of second and third
machines
10.Which of the following would be
included in a list of dependent demand
items?
a. Computer audio subsystems delivered
to a computer superstore for sale as
upgrade items
b. Car mirrors delivered to an automotive
dealership as repair parts
c. Shirts delivered to a retailer for stock-
ing on shelves
d. Computer hard drives delivered to the
computer manufacturer for installation
depending on customer requests
1.Backlog
2.2710
3.PERT
4.Theoryofconstraints
5.(a)
6.RFID
7.(d)
8.(d)
9.(c)
10.(d)
OPSWorld
Quiz
Answers
Across
4 Diverts attention on
Highways, Japanese (6)
5 ___ Armstrong and a
famous audio equipment
manufacturer (4,2,4)
6 Imbalance, Japanese (4)
8 The Father of SCM (3,3)
9 Christened the word Supply
Chain Management
11 Cleanliness is next to
Godliness, Japanese (5)
12 Credit 4$, Debit 6$, func-
tion, (7)
13 Mistake proofing, Japanese
(4,4)
15 Lock, Stock and 2 smoking
____, synonym (4)
16 Counter Strike Condition
Zero version (4,4)
17 Beep on radar, used to
measure variability in oper-
ations (8,6)
Down
1 Time of work, again and again (4,4)
2 Important character in The Goal1, _____ Reloaded (6)
3 Bombay->Pune->Delhi-Patna, Still couldnt sell an Indigo Marina
(10,8)
6 It was never meant to work the right way, because it had to (6)
7 A team of 5, with 4 free riders (6)
10 Child Genus, anagram (10) 14 Deadly Manifestation About
Insignificant Crap, acronym (5)
Credits: Bharat Subramony, IIM Kozhikode, Deepak Kumar, IIM Kozhikode.

OPSWorld
28
Bargain Air Fares
It all started with Expedia introducing it in the year 2004 but
ceased to exist as on date. Now Makemytrip has introduced this
concept in 2011.The Idea is to sell unsold tickets in various
flights at the last moments by offering cheap prices.That should
raise an immediate Question; passengers would be desperately
waiting till last moment instead of taking a risk of prior book-
ing for which cancellation charges are too high. Also, it is not
necessary that this type of provision with fixed seats need to be
opened for every flight or trip in specified time zone. It’s purely
dependent on number of seats empty on flight that moment.
Though it is in conflict with premium prices charged in air
fares as day of flight nears, the tickets booked via Bargain fares
quota has some exceptions because of which prior bookings
continue to happen. Under bargain booking they need not
inform about flight name or timings which you are going to
travel by. Mostly, a booked passenger can only take a wild-
guess on the airline. Sometimes, there can also be a
hopping/connecting flight instead of direct flight. You are only
guaranteed a flight time between 6am and 2pm (for every 8
hours’ time zone), tickets are non-refundable, non-transferable
and cannot be cancelled or changed (like postpone/prepone)
once purchased. Nor can Bargain Fares be purchased with flyer
miles or any discounts. These prices are similar to range of ini-
tial price of flight ticket when booked earlier before 2 months
or so.
Let analysis to understand it better, the Expected Marginal
Seat Revenue Concept of air lines in lines with News-Vendor
Problem analysis says that for Optimal Booking
F(Q) =
Where Cu is Underage Cost (Price of Business class – Price
of economy class) and Co is Overage cost (Price of Economy
Class)
The above formula is used for Economy Class v/s Business
Class
But this should be applied at other aspects also
C Business class Price v/s Penalty paid
Cu
Co + Cu
AUTHOR
Sivakumar Nandipati
IIM Indore
I
Bargain AirFares

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29
Bargain Air Fares
C Economy Class Price v/s Empty seats loss
Underneath Idea comes from root of this to
form bargain fares. Let us have a clear illustration
of all possibilities and advantages caused in intro-
duction of bargain fares.
There are 3 possibilities for flight tickets
capacity(supply) v/s Flight passengers for that
flight(demand).Let’s go case by case.
Scenario 1: Deals with when supply is
greater than demand
To sell unsold tickets in last hours - so that you
can make some money.
With Generic model- when the seats are not
filled full, but as the time proceeds the prices
always keeps on increasing which creates a cumu-
lative effect on decreasing demand further there-
by keeping the emptier seat capacity. Now this
bargain fare just erases that problem and creates
a new mode to sell tickets. Customer cannot iden-
tify –whether airlines are selling tickets being
there are excess or they are keeping buffer for
cancelled forecast. They also unaware of how
many tickets being available as they never knew
when they finish this bargain fares mode & start
booking tickets sooner thereby increasing
demand.
Scenario 2: Deals with when supply is less
than demand
To avoid penalty charges to pre-booked cus-
tomers for moving to other flight – as with this
model, airlines will never go for over booking in
their premium or economy classes. They would
shorten their economical class capacity – increase
their premium class quota. So, It is evident that
prices starts increasing sooner compared to earli-
er scenario.The Price they save earlier can be nul-
lified in end case, incase if flight seats are not
filled. Please find below table:
Old scenario was to get over-booked tickets in
premium segment v/s penalty charges. Forecast
model of cancellations on previous booked tickets
and last minute no-shows as explained earlier is
dealt.The power in transaction stays with airlines.
Suppose airline expected a cancellation and
no shows by their forecast model and went for
over-booking tickets, if it cannot accommodate
respective person on respective flight on planned
time – It needs to pay penalty to boarded passen-
ger which is much more than fare of ticket for
inconvenience it caused.The demanding power of
flight or money stays with customer and there is
never a written rule as such. However, Bargain
fares itself don’t confirm about any uncertain inci-
dents. The decision making ability stays with air-
lines to use the bargain customers as buffer to
avoid inconvenience to any confirmed/ pre-
planned booked customer.
Urgency and economy is addressed together.
Scenario 3: Deals with supply equals
demand,
This takes care of last minute cancellations
and no-shows resulting in accumulation of those
seats. This is extra amount earned, as no shows
and last minute cancellations (most of cost is
retained with airline) are revenues already earned
and Bargain fare is a icing on the cake.
Tie-ups with Other Airline companies
Sometimes, when the Overbooking shoots up
and less than expected no-shows happens , we
will have a 2-way tie-ups with other airlines
which slowly builds up to sustain relationships
and cooperate to dominate technique. It’s a WIN-
WIN strategy for both of them.
So this seems useful in all cases. But nothing
is free. Disadvantages being
C Few of the Premium/Business/urgency class
people who on traditional basis go via premi-
um fares now hold for a while and check out
these fares when both of the modes are open
in last hours.
C Few of prior planned customers are waiting
and aiming at bargain fares, instead of book-
ing earlier.That reduces booking limit of econ-
omy fare and time taken to convert them into
premium segment.
Once these loop holes are managed properly,
with this different pricing mechanism, revenue
management of airlines are honored efficiently
and effectively.

OPSWorld
30
ERP in operations management
Introduction
In a business landscape that is getting increasingly compet-
itive and where time is money, most manufacturers depend on
the efficiency and increased delivery rates to gain and maintain
that enviable portion of market share. In this context, ERP is
looked upon as the current trend and possibly the way forward
for many manufacturing companies, and with good reason.
Coming up Later is also a case of how L’Oreal leveraged ERP to
revamp its operations systems and gain that much needed
“makeover”.
The first commercial ERP software packages took the mar-
ket by storm in the 1990’s, wherein it integrated all data and
process related information into one single information system.
But, the downside was that this was huge and as a result non-
customised and unwieldy, and naturally, was branded as a com-
plex tool to use. Today, the next-generation ERP has evolved to
being operations-management-specific and a highly scalable
end-to-end solution that promises to streamline and automate
business processes across the organisation.
ERP in recent times
ERP today has morphed into a requirement-specific model.
Previously, it failed when the same package was applied to dif-
ferent verticals like chemicals and Beverage industry, because,
I
ERP in operations
management
AUTHOR
Hymavathi Pavitra K.
IIM Raipur

OPSWorld
31
for instance, the terminology specific to an indus-
try used was not supported by the package. The
latest ERP package, however offers industry-spe-
cific functionalities that meets the diverse needs
of the users.
Some of the more important features of the
ERP include streamlining and integrating various
organization units like inventory, production, pur-
chasing, sales and warehouse management. They
also use customisable web services to connect
quickly and easily with suppliers, customers and
logistics-providers, enabling real time data
exchange.
The result is a simple, customisable, ERP tool
that can be used by anyone from shopfloor-
upward.
ERP systems help the service engineers
tremendously. An all-in-one system allows service
engineers real time access to jobs, schedules and
data and also ensures that all changes are relayed
to the management directly.
Previously, companies had to integrate their
standalone workforce management solutions to
their ERP systems and this led to the all-too-famil-
iar issue of integrating disparate systems. Now,
there is a single, fully integrated system covering
all requirements, whether field service, CRM or
the mobile sales-force.
L’Oreal’s effective use of
In 2011, L’Oreal, the cosmetics giant, success-
fully re-engineered their entire manufacturing
process to work efficiently, and at the same time
maintaining the quality and integrity of their
brand. They integrated SAP’s ERP system with
Apriso’s FlexNet. FlexNet ran all the manufactur-
ing processes on the shop floor. This project was
successful in ensuring that highest quality and
production standards are met while manufactur-
ing 4.9 billion units within 23 global brands
across 38 production sites.
The take-away from this, as the CIO Jacques
Playe says is the fact that operations manage-
ment, when used along with ERP, can deliver
greater benefits that separate implementations.
The road ahead
An ERP links the different but vital compo-
nents of an organization. It provides a backbone
on which effective operations can take place.
From monitoring to forecasting to gaining critical
business information, ERP does it all. It provides
exciting future opportunities with regard to the
fact that further improvement or enhancements in
ERP could mean an organisational change that
flows down to each and every component that is
linked.A tweak in the strategy of the organisation
as a whole would flow easily to all the depart-
ments.
Also, as the building block of ERP is IT, and the
fact that IT is a dynamic field undergoing changes,
for the better, cloud computing, for instance, ERP
will benefit greatly and the operations manage-
ment, which is in conjunction with ERP, will in turn
benefit too.
References
1. Kumar, R 2011, 'ERP refines operations manage-
ment and planning', Operations Management
(1755-1501), 37, 5, pp. 34-36, Business Source
Complete, EBSCOhost.
2. 'All-in-one … and one for all' 2012, Works
Management, 65, 6, p. 39, Business Source
Complete, EBSCOhost.
3. Playe, J 2011, 'L'Oréal's manufacturing
MAKEOVER', Baseline, 108, pp. 34-35, Business
Source Complete, EBSCOhost.

OPSWorld
32
Abstract:
Inventory accounts for about 40-50% of the total cost in a
supply chain. Hence inventory control becomes important and
effective tool to bring down total cost. This article compares
two strategies of inventory control- ‘traditional single delivery
method’ (also known as EOQ model) and ‘Just-In-Time’ (Single
Setup Multiple Delivery) model. For this a matlab code has been
developed and implicated. This code first compares inventory
costs from both single and multiple delivery methods; then
applies whatsoever method is more economic. Though JIT is
considered to be more economic, it has been shown with an
example that for a supply chain least costs can be obtained by
using a combination of both of them.
1). Introduction:
By traditional inventory policy we mean that goods are
transported in a single delivery. Whole stock for a season is
imported at a single go and then uses throughout.The basic dif-
ference between JIT and traditional method is that in JIT stock
for a season is imported in multiple deliveries thus reducing
inventory cost and material wastage; but on the other hand
order cost and transportation costs are increased. So a balance
has to be set between them to get economic inventory policy.
In JIT purchasing cost is minimized by the sharing of differ-
ent spends between seller and buyer. The total cost for an inte-
grated inventory model includes all costs from both buyer and
supplier.The buyer’s total cost consists of ordering cost, holding
cost, transportation and order receiving costs incurred due to
multiple deliveries.The supplier’s cost includes holding cost and
setup and order handling costs. In this model, the buyer is
assumed to pay transportation and order handling costs in
order to facilitate frequent deliveries. In fact, the buyer’s pay-
ment of transportation and order receiving costs can be viewed
A
Cost Effectiveness:
JIT vs EOQ
AUTHORS
Gunjan Soni
Malaviya National Institute
of Technology, Jaipur
Aman Jain
IIM Lucknow
Cost Effectiveness: JIT vs EOQ

OPSWorld
33
as an investment for the sake of streamlining
inventory.When the buyer places an order, in a JIT
environment, the supplier splits the order quanti-
ty into small lot sizes and delivers them over mul-
tiple periods. The supplier then needs to hold the
inventory throughout the production of the order
quantity.An integrated approach allows the buyer
and the supplier to reduce their total costs as
compared to non-integrated approach. Both par-
ties in some equitable fashion can share savings
resulting from cost reduction.The supplier reduces
its cost by imposing shipping and order handling
costs on the buyer, and in turn, the buyer receives
a unit price discount because of large order quan-
tities over the contract period. Thus, both parties
in the process of price negotiation share the sav-
ings in the total costs occurring in their model.
3). Mathematical treatment to JIT*:
Consider the following notations:
D: monthly demand of buyer
P: monthly production rate of seller
A: ordering cost per order
C: hourly setup cost for seller
S: setup time
F: transportation cost for linkage
V: unit variable cost for buyer
Hs: holding cost per unit per month for seller
Hb: holding cost per unit per month for buyer.
N: number of trips
Q: order quantity
q : quantity per trip.
Total cost for buyer composed of ordering
cost, receiving cost and transportation cost. and
seller’s cost consists of setup cost and holding
cost.
Equations 1 and 2 on addition gives the total
cost of both as:
from the total cost calculated above we can
get the optimal number of trips and optimal order
quantity. By taking first derivative of equation 3
with respect to N and Q setting them equal to
zero and thus solving simultaneously for N and Q,
we obtain:
Where N* and Q* are the optimum values of
order quantity and number of trips required.These
values are calculated by Adding both costs we get
total cost function in two variables N and Q,
which can be, prove to be convex. Equation men-
tioned above usually doesn’t give a integer. So we
have to take nearest integer greater and smaller
than N* and check the total cost value.
Whatsoever gives lesser cost is taken as optimal
number of trips.
Total saving of JIT :
Any savings from implementing the SSMD
policy over the single-delivery policy can be
obtained by subtracting total cost function from
total cost when 1 as replaces N.
Note that the N=1 is a special case for classic
EOQ model. Thus we get the total saving which
can be gained by JIT instead of classical EOQ
method. But, JIT is not always beneficial. It is
advised to adopt JIT only when order quantity
(Q) is greater than a certain limit. This limit is
calculated as:
Where N is the number of trips calculated
above. Qmin is a function monotonically increas-
ing in N.
Optimal delivery size:
optimal delivery size q* can be calculated by
dividing the order quantity with number of trips,
i.e. q* = Q* / N*
From above calculated values of Q* and N* is
follows that
Note that N, q and Q should be integer values.
Algorithm for this is mentioned later in the paper.
Sales data for other nodes can be taken in two
ways: first simply user input and secondly, it can

OPSWorld
34
be generated using forecasting techniques. In the
given code double exponential smoothing
technique is used to forecast sales data.
4). Sample Problem:
Consider the 4-tier supply chain mentioned
above. Sales data of retailer for last six months is
– 4200, 4180, 4280, 4190, 4000, 4100. Other
parameters of supply chain are given in tables
below. We have to optimize inventory cost.
Enter the sales data for the retailer
Calculate monthly demand for buyer
using sales data and customer service
Enter the parameters for this step
(production cost, holding costs etc.)
Calculate N*, Q* and Qmiri using
mathematical relations given above.
IF (Q*>Q min)
(Total cost +)=TC(Ncr; Qcr)
q*=Q*/Ncr;
qcr= round (q*)
Qcr=qcr*Ncr;
Ncr=N1Ner=N1
If
TC(N1, Q*)>TC(N2,Q*)
Ner = 1;
Qer = Q;
qcr = Q;
Get smallest and great-
est integers next to
N* say N1 and N2
respectively

OPSWorld
35
6). Analysis:
Here we see that for ‘supplier-to-manufactur-
er’ step traditional method of inventory is more
economic than JIT. Hence we cannot generalize
that JIT is always beneficial; although we can say
in most situations JIT is better technique for
inventory control. For best results we have to
check which of the two methods costs less- at
every step. This is done by comparing the order
quantity with Qmin. (Minimum order quantity for
which JIT is beneficial) which is mentioned above.
This code applies this logic at every step of supply
chain for providing best results for you.
References:
1). ‘Handbook of supply chain management’-
James B. Ayers, St. Lucia press 2001
Introduction to supply chain (3-8) ; Evolution
of supply chain models (25-35).
2). ‘Inventory management in India’ – R.S. chadda
, 1964
3). ‘Statistical forecasting for inventory control’ –
Robert G. Brown, TMH publications Moving
average, single and double exponential sys-
tems (26-70)
4). ‘Physical distribution systems’ – Alan C.
Mckinnon ,1989 customer service level (83-
92)
5). ‘Operation research – seventh edition’ –
Hamdy H.Taha, Pearson education, 2004
Forecasting models (491-503)
6). Research paper on ‘JIT lot splitting model for
supply chain management’ by Seung-Lae kim
and Daesung Ha, 2001
Quantity Retailer Manufacturer
modified
material
Supplier
Raw material/
source
Production rate(per month) ----* 6000 8000 10000
Holding cost(Rs. Per unit per year) 7 6 5 3
Ordering cost(Rs. Per order) 50 40 45 ----
Hourly setup cost ---- 200 100 150
Set up time ---- 2 1.5 3
Variable cost (Rs. Per unit per year) 1 0.5 1.5 -----
Customer service level 96 95 98 -----
Exponential smoothing factor --- 0.9 0.9 0.9
Trend factor --- 0.9 0.9 0.9
Transportation cost 200 150 250
Step JIT cost Traditional cost JIT profit Economic
Retailer-Manufacturer 10989 14822 3833 JIT
Manufacturer- Supplier 7073 7139 42 JIT
Supplier-Raw material 13232 14621 1389 JIT
Total Supply chain 31294 36582 5288 JIT
Results obtained:
Results
Step JIT cost Traditional cost JIT profit Economic
Retailer-Manufacturer 11252 11736 484 JIT
Manufacturer- Supplier 7210 6988 -222 Traditional
Supplier-Raw material 13200 13806 606 JIT
Total Supply chain 31662 32530 868 JIT
Input Data:
Thus we see that a inventory cost in supply chain is reduced by Rs. 5264. Now question rises that
is JIT always profitable????
CASE 2: Here we take the same values as above but we change the production rate at steps.
New production rate: For manufacturer = 12000; For supplier = 14000;
For raw-material resource = 16000
It is evident that for 2nd step Traditional method of inventory control is more beneficial

OPSWorld
36
Microgrid optimization as an OR problem
Around 20% of world’s population is still without access to
electricity(The World Bank, 2012) and studies show proximity to
main electricity grid as the determining factor in people having
access to electricity(Oda & Tsujita, 2011). This essentially iso-
lates the remote places from having access; therefore, self-sus-
taining community managing local generation, storage, and
grid connected electricity model, popularly termed as micro-
grids is a key solution. According to Microgrid Exchange Group
(2011) “A microgrid is a group of interconnected loads and dis-
tributed energy resources within clearly defined electrical
boundaries that acts as a single controllable entity with respect
to the grid.” Microgrids provide significant advantages like
reduced energy costs, increased overall energy efficiency,
improved environmental performance, and reliability(NYSERDA,
2010).Microgrids essentially consist of a combination of differ-
ent power generating sources, primarily renewables. A typical
microgrid would have a combination of power sources as
shown in Figure 1.
This composite nature energy generating model throws up
unique challenges like:
a. Modeling the combination of sources to minimize on the
costs
b. Optimizing the nature of energy distribution, and
c. Distributing power requirements among the various sources
in order toensure that the combined system is reliable and
sustainable.
The costs associated with each of the energy generating
sources, the environmental conditions governing the amount of
power generated by each, and the period for which each of the
generating sources are expected to contribute vary.This calls for
an Operations Research approach to optimize the costs of gen-
eration subject to environment, financial, and demand con-
straints.
A
Microgrid optimization
as an OR problem
AUTHORS
Sreevas Sahasranamam
Doctoral Student, Strategic Management
IIM Kozhikode
Dr. Mahesh P. Bhave
Visiting Professor, Strategic Management
IIM Kozhikode
Dr. P.N. Ram Kumar
Assistant Professor, Quantitative
Methods and Operations Management
IIM Kozhikode

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Microgrid optimization as an OR problem
The objective function of this Operations
Research problem seeks to minimize the total
costof the overall microgrid. Total cost is a func-
tion of per unit energy cost associated with each
generating source, and costs associated with
inverters and battery units.This objective function
is subject to the following constraints:
• Environmental constraint: Solar power is
only available during day time and is subject
to variations based on weather conditions like
rain and cloud cover.Wind power is also sub-
ject to variations depending on wind speed,
location of windmill, and windmill height and
size. The amount of power generated from
micro-hydro sources depends on the amount
of water available, seasonal factors, and
speed of water flow. Biogas source is depend-
ent on the availability of household organic
and cattle waste and organic material avail-
able from nature and farming. Thusdepending
on daily weather variations, theoperational
modelhas todynamically provide an optimized
energy solution.
• Financial constraint: Solar, wind,and
micro-hydro generation units are associated
with high initial investment but they have a
long life and minimal post installation costs.
Diesel generator units have less initial invest-
ment costs but diesel is a scarce, polluting
resource and prices have been rising signifi-
cantly every year.
• Demand constraint: The power generated
from the microgrid must be capable of ade-
quately meeting the energy demand of the
community.
REFERENCES
Department of Energy Microgrid Exchange Group.
(2011). DOE Microgrid Workshop Repor. San
Diego: Office of Electricity Deliver and Energy
Reliability.
NYSERDA. (2010). Microgrids: An Assessment of the
Value, Opportunities and Barriers to Deployment
in New York State. New York: NYSERDA.
Oda, H., & Tsujita, Y. (2011). The determinants of rural
electrification: The case of Bihar, India. Energy
Policy, 3086-3095.
The World Bank. (2012). Energy - The Facts. Retrieved
March 16, 2013, from The World Bank:
http://go.worldbank.org/6ITD8WA1A0
Figure 1. Different energy sources that normally constitute a microgrid

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38
Introduction :
Simhadri Project, Stage 1, is not only a benchmark for NTPC
limited but also for other power majors in terms of project man-
agement and operational excellence . The project was complet-
ed in record 33 months which is a milestone in Indian context.
The Project involved the construction of a coal-fired thermal
electric power plant with an output of 1,000 MW (2X 500 MW)
at a coastal location in Simhadri, in the proximity of the port
and industrial town of Vishakhapatnam, in Andhra Pradesh.The
power generated from the Project is exclusively meant for
meeting the requirements of Andhra Pradesh. The primary fuel,
coal [6 million tones annually] is sourced from Talcher coal
fields in Orissa of the public sector Mahanadi Coalfields Ltd
(MCL), located at 450 Km from the Project. The broad-gauge
line of Southeastern Railway provides the basic rail link to
transport daily two rake loads of washed coal from the pithead
at Talcher to the coal handling plant of the Project with a stock-
ing capacity of three-lakhs tones. The make-up cooling water
[9,100 cubic meters per hour] for the Project is sourced from
Bay Of Bengal Sea and sweet water [600 cubic meters per hour]
from the Yeluru canal. The water is drawn from an intake well
pump house, located at 700 meters offshore of the Bay of
Bengal and anchored at 25 meters below sea level. The intake-
well [size; 9100 cubic meters] is the largest offshore well-con-
structed in India. The two cooling towers of 165 meter height
and chimney of 275 meter height are the Asia's tallest struc-
tures. Power generated from the Project is evacuated through
400 kV double circuit lines from Vizag to Nunna and Khammam
which are owned, engineered and constructed by Andhra
Pradesh Transmission Company.
Project Management Systems:
NTPC has proven and integrated project management sys-
tem [IPMS] for implementation of power projects. The system is
ISO 9002 certified. A project is reviewed not only against phys-
Operational Excellence at
Erection Site:
Simhadri Stage 1, NTPC Limited
AUTHOR
Alok Kumar Singh
IIM Kozhikode
I

OPSWorld
39
ical progress but cost, material requirement and
manpower resource requirement. In order to
achieve the Project Schedule dates, NTPC devel-
ops three separate networks Master Network,
Level -2 networks with the contractors and Level-
3 networks are developed at project site for con-
struction activities even with the sub-contractors.
As a strategy, internal schedules are set upahead
of external schedules committed to GOI. In case
of Simhadri Project, NTPC project focused on tar-
get dates which were generally a few months
ahead of external MNW schedule dates. Then, it
also set up best estimate schedule [BES] in case it
fails to meet the target dates. If target dates were
missed, BES dates were invariably achieved. For
Example, the following three separate goals were
set up for two MNW Schedule dates: [box1]
Close Monitoring :
Project was closely monitored at various lev-
els. At Project site activities are monitored on
daily/ weekly basis with the representative of the
contractor/subcontractor working at the site.
Every month under Project General Manger, a
project review meeting is regularly held at site
which is attended by the representatives of site,
region and corporate center to review the
progress of the project in all areas and disciplines.
At Regional Head Quarter, ED of the concerned
region monitored the project at least once in
Quarter at site. Director Project also reviewed the
progress of the Project at site. Apart from this
ministry of program implementation also moni-
tored power projects through a flash report gen-
erated by NTPC every month.
Critical material follow -up
The project involved dispatch of over 8.5 lakhs
dispatch units [DUs] for Boiler alone. Over dimen-
sional heavy consignments like Boiler Drum,
Turbine stators, generators, nonmetallic expan-
sion joints and transformers needed special trans-
port arrangement. Most of the transportation was
NTPC project focused on target dates.
If it fails to meet the target dates, it set up
best estimate schedule [BES],
which was invariably met.
Goals Boiler Hydro Test [Unit #1] Boiler Light Up #1
Schedule Date May 2001 November 2001
Best Estimate Schedule [BES] April 2001 October 2001
Target March 2001 August 2001
[box1]

OPSWorld
40
by Road. Most of the OD consignments were
through Railways which involved rail clearances
from as many as 8 railway headquarters. NTPC in
case of Simhadri Project set up a special cell at
Regional head Quarter in Hyderabad to monitor,
co-ordinate and follow up on day to day basis all
dispatches from works of the vendor/ supplier.
Such methodology ensured that Project could
focus on actual erection/ construction work at
site. The comparative time taken for transporta-
tion by road and rail for two typical OD consign-
ments are summarized below: [box2]
Monitoring of Commissioning
Schedules :
General Manger of the Simhadri Project intro-
duced new project management practices which
proved to be very effective for timely commission-
ing of various system of the plant. In past, the
emphasis at site was on monitoring of the erec-
tion program based on availability of materials at
site and other exigencies. It was generally recog-
nized that that commissioning activities if
planned sufficiently in advance should lead to
better quality standards and identification of all
missing links in the erection front at an early
stage for necessary corrective action. As a result,
the following four levels of team were constituted
to monitor the commissioning activities six
months in advance:
• Commissioning Steering Committee was
formed on 02/01/2001 with GM Simhadri as
Chairman and concerned HODS at Corporate
Centre and Project Sites as Members to pro-
vide key decisions and guidelines.
• Commissioning Panel formed on 26/12/2000,
consisting of HODs at the Project to co-ordi-
nate the activities of working panel and in
order to remove constraints and provide
resources. 17
• 23 Working Parties formed for various systems
consisting of a representative of all the func-
tional departments. The panel met almost
daily to plan and reviewed with the progress
and program with the contractor.
• Test Teams were formed for commissioning of
key equipment and documentation Control
Centre Established The system proved very
effective for early commissioning of the plant.
Application of IT
IT Department at Simhadri Project started
functioning as early as January 1999 that is with-
in a few months of the start of the Project office.
MCPC, VSAT communication system was estab-
lished in December 1999. PCs were procured at
the early stage and peer to peer connectivity was
established. It also installed super-mini computer
by April 2000 and extended all local network con-
nectivity, internet and e-mail facilities within
administrative building, stores, workshop etc.
Thereafter, the Project was fully geared to exten-
sively use IT in the areas such as Finance and
Accounts, Material Control, Monitoring of pend-
ing material list, Issue of receipt certificates,
Verifying and release of payment to the contrac-
tor as per detailed terms of payment, Engineering
drawings and documentations control at site,
Monitoring and reporting of progress at site using
MS Project Scheduler. Simhadri is the first project
of NTPC where IT is used to maximum extent. In
the absence of ERP solutions adopted in NTPC,
the Project developed number of application soft-
ware in all the above areas of IT application.
NTPC Manpower Deployment
NTPC deployed minimum manpower for this
project as compared to other Projects of NTPC.
Average manpower deployed in other projects of
NTPC is in average 0.9 per MW.Whereas the actu-
al manpower deployed in case of Simhadri Project
was always less than 0.6/MW. Less manpower
deployed ensured effective usage of the manpow-
er. More Important NTPC did not recruit new man-
power for this Project but re-deployed manpower
from other projects of NTPC. NTPC also adopted a
strategy of deploying operational staff well ahead
of commissioning schedule which helped them to
co-ordinate all erection activities from commis-
sioning and operational perspective which in turn
ensured early commissioning
Conclusion:
Simhadri Project is an example of sheer oper-
ational excellence. NTPC proved that with the
existing system , people and skillsets , new land
marks can be achieved .
Consignment Weight Mode From To
No. of days
Unit #1 Unit #2
Boiler Drum . Road Trichy Site 28 24
Generator . Rail Hardware Site 30 40
[box2]

OPSWorld
41
Recent perspectives on electric power quality
The proliferation of ‘sensitive’ equipment such as electronic
appliances, process controllers in manufacture, computing
devices and so on during last couple of decades has brought
power quality issues to the center stage since break down of
such devices, mainly due to transient voltage spikes, sags
and swells, caused large financial losses. Besides this lot of
important issues such as the cost of ‘poor quality’, legal
rights to ‘good quality’ and economics of installation of
equipment for power quality improvement are discussed
worldwide. The aim of this article is to highlight some of the
recent power quality issues, especially relating to Indian con-
text. Since 1960 to till date power system reliability is the
prominent area for research for many research scholars.
Various reliability indices for example Customer Average
Interruption Frequency Index (CAIFI) and System Average
Interruption Frequency Index (SAIFI) were developed to
quantify power supply interruptions. But till date there is no
agreement on whether reliability supplements or comple-
ments power quality.
History of Power Quality
The origin of the term ‘power quality’ is difficult to trace
in the evolution of electrical power system. The rise of trans-
formers has overruled early ‘constant current’ DC distribu-
tion systems by ‘constant voltage’ AC transmission and dis-
tribution. The three basic features or qualities of voltage,
Recent perspectives on
electric power quality
Amol Subhash Dhaigude
FPM
IIM Indore
AUTHOR
T

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