Operation Management ( ICWA Inter)


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Operation Management ( ICWA Inter)

  1. 1. Operations Management – ICWA – Inter - Notes Presentation by: Ulhas D Wadivkar - BE (Electrical), MBA ( Finance) Retired Vice President, Graphite India Limited Satpur, Nashik, Maharashtra. Chief Executive Adviser – Nirman Group - Nashik Guest Faculty in MBA Institutions in Nashik
  2. 2. Operations Management • Management: • "To manage is to forecast and to plan, to organise, to command, to co-ordinate and to control." – Henry Fayol • "Management is a multi-purpose organ that manages business and manages managers and manages workers and work." – Peter Drucker • "Management is the art of getting things done through people." - Mary Parker Follet, • Operation Management is the management of that part of an organization that is responsible for producing goods and / or services. • An Operating System is defined as a configuration of resources combined for the provision of goods or services.
  3. 3. Operating System • Any operating system converts inputs, using physical resources, to create outputs, to satisfy customer`s wants. • The creation of goods or services involves transforming or converting inputs into outputs. Various inputs such as capital, labour, and information are used to create goods or services using one or more transformation processes (e.g., storing, transporting, and cutting). • To ensure that the desired output are obtained, an organization takes measurements at various points in the transformation process (feedback) and then compares with them with previously established standards to determine whether corrective action is needed (control).
  4. 4. Resources in an operating system • The physical resources generally utilized by operating systems can be categorized for convenience in the in the following manner:- • Materials: Physical items that are consumed or converted by the system. e.g. - raw materials, fuel, indirect materials, etc. • Machines/ (Facilities): Those physical items that are utilized by the system, so that the consumption / conversion of materials can be done in an optimum manner. e.g. - plant, tools vehicles, buildings etc. • Labour: The people who provide or contribute to the operation of the system and ensure that the machines and materials are effectively used.
  5. 5. Principal functions of an Operating System - 1 • The functions of an operating system are a reflection of the purpose it serves for its customers. The following four principal functions identified below also relate to the basic four operations done in any organization: • 1) Manufacture: Manufacturing function is the one which involves some physical transformation or a change in the form utility of the resources. Something is physically created and the output consists of goods which differ physical (e.g., in terms of form, content etc.) from those materials input to the system. • 2) Transport: This function of operating system provides a change in the place utility of something or someone in order to satisfy customer. The customer or something belonging to the customer is moved from place to place and thus results in the change in location. There is no major change in the form of resources. …….contd.
  6. 6. Principal functions of an Operating System - 2 3) Supply: This function provides a change in the possession utility of a resource, i.e., the ownership or possession of goods is changed. Unlike manufacture, outputs of the system are physically same as the inputs. 4) Service: This function primarily results in a change in the state utility of a resource. The principal common characteristic is the treatment or accommodation of something or someone. The state or condition of the physical outputs will differ from the inputs as they have undergone same kind of treatment. • Most large and complex organizations have to perform all the principal four functions of operating systems, discussed above. Thus we may redefine operating system as a configuration of resources combined for the function of manufacture, transport, supply or service.
  7. 7. Structures for operating systems: • S = Stock, O = Operation, D = Direct, Q = Customer Queue, C = Customer direct Input • (a) SOS - ‘Make from stock, to stock, to customer’, i.e. all input resources are stocked and the customer is served from a stock of finished goods. • (b) DOS - ‘Make from source, to stock, to customer’, i.e. no input resource stocks are held, but goods are produced to stock. • (c) SOD - ‘Make from stock, direct to customer’, i.e. all input resources are stocked but goods are made only against and on receipt of customers’ orders. • (d) DOD - ‘Make from source, direct to customer’, i.e. no input resource stocks are held and all goods are made only against and on receipt of customers’ orders. • (e) SCO - ‘Function from stock, and from customer’, i.e. input resources are stocked, except in the case of customer inputs where no queuing exists. • (f) DOQ - ‘Function from source, and from customer queue’, i.e. no input resources are stocked although customer inputs accumulate in a queue (or stock). • (g) SQO - ‘Function from stock and from customer queue’, in which all inputs are stocked and/or allowed to accumulate in stocks.
  8. 8. • The customers exert some ‘push’ on the system. • In manufacture and supply the customers act directly on output: they ‘pull’ the system, in that they pull goods out of the system whether direct from the function (structures (c) and (d)) or from output stock (structures (a) and (b)). • In transport and service the customers push the system: they act directly on input. In such systems, therefore, some part of the resource input is not directly under the control of operations management. In these ‘push’ systems the customers control an input channel, and we must therefore distinguish this channel when developing models of systems.
  9. 9. Operation Management is defined as the management which is concerned with the design and the operation of systems for manufacture, transport, supply or service. • Manufacture: Goods at given Specification, acceptable cost, delivered at desired time. • Transport: Movements from destination to destination at given cost, delivered at given time. • Supply: Procurement of Goods at given Specification at reasonable price at required time. • Service: Providing a service (Treatment) at given desired specification of Customer in given time at given cost in required time. Operation Management has also a responsibility of being effective. The effectiveness is the difference between Input Cost plus cost of value adding costs and also non value adding costs i.e. the cost of output goods and Price available in Market.
  10. 10. The scope of operations management: • Design & Planning: Involvement in design / specification of the goods / services, design / specification of process / system, location of facilities 1) Layout of facilities / resources and materials handling . 2 ) Determination of capacity / capability 3) Design of work or jobs 4) Involvement in determination of remuneration system and work standards Operation and control: Planning and-scheduling of activities Control and planning of inventories Control of quality Scheduling and-control of maintenance Replacement of facilities Involvement in performance measurement Capacity Management and Demand Matching operating system: : Activity Scheduling : Planning : Timing the conversion activities : Inventory Management : Planning and controlling physical stocks
  11. 11. Responsibilities for Operation Management • Inventories, Quality, • Maintenance and replacement of facilities, • Scheduling of activities, Location, • layout, Capacity determination and staffing. • Goods / Services Design and Specification, • Process / System Design and Specification, • Location of Facilities, • Layout of Facilities Resources and Materials Handling, • The Design of Work and of Jobs, • Remuneration System Design, • Operations Control, • Quality Control and Reliability, • Maintenance and Replacement, Performance Measurement
  12. 12. The operations management decision-making process • Operations management decision-making process is ‘the formulation of overall strategies for operations, typically involving interrelated areas of responsibility within operations management, and the making of decisions in these areas in pursuit of these strategies within the broader business context. • Quality-based strategy that focuses on quality in all phases of an organization: Quality-based Strategies: • : Attracting and retaining Customers • : Catch up with competition • : Maintain existing image • : Cost reduction • : Increased Productivity • : Reduced delivery Time
  13. 13. • Time-based strategy that focuses on reduction of time needed to accomplish tasks: • : Planning time: The time needed to react to a competitive threat, to develop strategies and select tactics. • : Product / service design time: The time needed to develop and market new or redesigned products or services. • : Processing time: The time needed to produce goods or provide services. This can involve scheduling repairing equipment, methods used, inventories, quality, and training • : Changeover time: The time needed to change from producing one type of product or service to another. This may involve new equipment settings and attachments, different methods, equipment, schedules, or materials. • : Delivery time: The time needed to fill orders. • : Response time for complaints: These might be customer complaints about quality, timing of deliveries, and incorrect shipments. These might also be complaints from employees about working conditions (e.g., safety, lighting, heat or cold), equipment problems, or quality problems.
  14. 14. Strategic operations management decisions: 1. Product and service design: Costs, quality, liability and environmental issues 2. Capacity: Cost structure, flexibility 3. Process selection and layout: Costs, flexibility, skill level needed, capacity 4. Work design: Quality of work life, employee safety, productivity 5. Location: Costs, visibility 6. Quality: Ability to meet or exceed customer expectations 7. Inventory: Costs, shortages 8. Maintenance: Costs, equipment reliability, productivity 9. Scheduling: Flexibility, efficiency 10. Supply chains Costs, quality, agility, shortages, vendor relations: 11. Projects: Costs, new products, services, or operating systems
  15. 15. The Role of Operations in Designing of a new Product Preliminary Stages: Information and Intelligence from Markets, Suppliers, Competitors, Regulators etc. Stage 1: Ideas Generation: • Operations has a contribution to make in stages 2, 3, 4, 5, 6 and 7 for there is little benefit in conceiving a product which cannot efficiently, fully or economically be provided. Hence operations must enter into the design dialogue as follows: • Market-or technology-oriented ideas • New concepts or incremental developments • Internally or externally generated Stage 2: Screening and selection: • Can the product / service be provided by the operating system? • Do we have the processes, technology and skill? • Do we have the capacity? • Market analysis test, Technological feasibility, Competitive advantage, Risk assessment
  16. 16. Stage 3: Initial design: • What is the most appropriate design required for providing, at the required quality and probable cost? • Specification of major aspects/features, Initial model/’mock-up’ Stage 4: Economic analysis: • How much would it cost to make the appropriate volumes, and at the required quality? • Estimate of development cost, Estimate of provision cost, Estimate of final cost • Estimate of price Stage 5: Prototype testing: • Check providability through operating system • Performance / function testing, Consumer tests, Test of Providability’ Stage 6: Redesigning / modification: • Introduce modifications to providability, Improvements, corrections and modifications, Retesting if necessary, Approval for final design Stage 7: Final specification: • Future appropriate quality specifications. Begin process specification in marketing the above contribution, operations must have regard to the following: Full detailed specification of content, structure, function and performance
  17. 17. (a) Computer Aided Design: Computers are increasingly used for product design. CAD uses computer graphics for product design. • The design can be maneuvered on the screen, it can be rotated to provide the designer different views of the product, it can be split apart to have a view of the inside and a position of the product can be enlarged for closer view. The printed version of the completed design can be taken and also the design can be stored electronically. • Also a database can be created for manufacturing which can supply required information on product geometry and dimensions, tolerances, material specifications etc. • Also, some CAD systems facilitate engineering and cost analyses on proposed designs, for example, calculation of volume and weight and also stress analysis can be done using CAD systems. • It is possible to generate a number of alternative designs using computer aided design systems and identify the best alternative which meets the designer’s criteria.
  18. 18. Value Engineering / Value Analysis in Product Design: • Value engineering or value analysis is concerned with the improvement of design and specifications at various stages such as research, design and product development. Benefits of value engineering are: • Cost reduction. • Less complex products. • Use of standard parts/components. • Improvement in functions of the product. • Better job design and job safety. • Better maintainability and serviceability. • Robust design. • Value engineering aims at cost reduction at equivalent performance. It can reduce costs to the extent of 15% to 70% without reducing quality. • While value engineering focuses on preproduction design improvement, value analysis, a related technique seeks improvements during the production process. • Once launched, even good products have limited lives and, to remain viable, the organization seeks a flow of new product possibilities. Let’s examine the product’s birth-to-mortality pattern.
  19. 19. Product Life Cycle • Products, like men, are mortal. They flourish for a time, then decline and die. • A product that has not built up its potential during its formative years is likely to be relatively unsuccessful on its maturity. • The product, thus, has “life cycles” just as human beings have. From its birth, a product passes through various stages, until it is finally abandoned, i.e. discontinued from the market. • These stages taken together are referred, to as “The product life cycle”. • This life cycle of the product comprises four stages: Introduction, Growth, Maturity and Decline.
  20. 20. • The introduction stage is preceded by ‘production planning and development’. This period requires greater investment. This investment should be gradually recouped as the sales pick up. The concept of life cycle would give the management an idea as to the time within which the original investment could be recouped. • In the growth stage, both sales and profits will begin to increase. It is here that similar other new products begin to appear in the market as substitutes and offer competition. At the end of this stage, the distribution arrangement is likely to get completed and the prices, if necessary, are reduced a little. • The third stage is the maturity stage. During this stage the manufacturers introduce new or modified models or adopt methods to retain their position in the market. The number of buyers will continue to grow, but more slowly. In economic terms this is the stage where supply exceeds demand. Some of the promotional efforts may lengthen the span of this stage but they will not offer a permanent solution. • At the final stage of decline, profit margins touch a low level, competition becomes severe and customers start using newer and better products. It is here that the story of a product ends-a natural but hard end.
  21. 21. Process Planning and Process Design: • At the time of designing and developing a product, due consideration is given for the manufacturability or producibility of the product using the current process technology and the capability of the firm to manufacture the product. • If the firm already has the required technology, the facilities (machines and equipments) and the manufacturing processes, and the firm has sufficient capacity or can acquire the needed capacity to manufacture the product, then decision is taken to go ahead with the product design. • After the final design of the product has been approved and released for production, the production planning and control department takes the responsibility of process planning and process design for converting the product design into a tangible product. As the process plans are firmly established, the processing time required for carrying out the production operations on the equipments and machines selected are estimated. These processing times are compared with the available machine and labour capacities and also against the cost of acquiring new machines and equipments required before a final decision is made to manufacture the product completely in house or any parts or sub-assemblies must be outsourced.
  22. 22. What is a Process? • A process is a sequence of activities that is intended to achieve some result, typically to create added value for the customers. • A process converts inputs into outputs in a production system. It involves the use of organisation’s resources to provide something of value. No product can be made and no service can be provided without a process and no process can exist without a product or service. • Processes underlie all work activities and are found in all organisations and in all functions of an organisation. Deciding what processes to use is an essential issue in the design of a production system. • Process decisions involve many different choices in selecting human resources, equipment and machinery, and materials. Process decisions are strategic and can affect an organisation’s ability to compete in the long run.
  23. 23. • Types of Processes: Basically, processes can be categorised as: • (i) Conversion processes, i.e., converting the raw materials into finished products (for example, converting iron ore into iron and then to steel). The conversion processes could be metallurgical or chemical or manufacturing or construction processes. a) Forming processes include foundry processes (to produce castings) and other processes such as forging, stamping, embossing and spinning. These processes change the shape of the raw material (a metal) into the shape of the work piece without removing or adding material. b) Machining processes comprise metal removal operations such as turning, milling, drilling, grinding, shaping, planing, boring etc. c) Assembly processes involve joining of parts or components to produce assemblies having specific functions. Examples of assembly processes are welding, brazing, soldering, riveting, fastening with bolts and nuts and joining using adhesives. • (ii) Manufacturing processes can be categorised into (a) Forming processes, (b) Machining processes and (c) Assembly processes. • (iii) Testing processes which involve inspection and testing of products (sometimes considered as part of the manufacturing processes).
  24. 24. Process Planning: • Process planning is concerned with planning the conversion processes needed to convert the raw material into finished products. It consists of two parts: • Process design and • Operations design. • Process Design is concerned with the overall sequences of operations required to achieve the product specifications. It specifies the type of work stations to be used, the machines and equipments necessary to carry out the operations. • The sequence of operations are determined by (a) The nature of the product, (b) The materials used, (c) The quantities to be produced and (d) The existing physical layout of the plant.
  25. 25. Operations Design Operations Design is concerned with the design of the individual manufacturing operation. It examines the man-machine relationship in the manufacturing process. Operations design must specify how much labour and machine time is required to produce each unit of the product. Framework for Process Design • The process design is concerned with the following: • Characteristics of the product or service offered to the customers. • Expected volume of output. • Kinds of equipments and machines available in the firm. • Whether equipments and machines should be of special purpose or general purpose. • Cost of equipments and machines needed. • Kind of labour skills available, amount of labour available and their wage rates. • Expenditure to be incurred for manufacturing processes. • Whether the process should be capital-intensive or labour- intensive. • Make or buy decision. • Method of handling materials economically.
  26. 26. Process Selection • Process selection refers to the way production of goods or services is organised. It is the basis for decisions regarding capacity planning, facilities (or plant) layout, equipments and design of work systems. Process selection is necessary when a firm takes up production of new products or services to be offered to the customers. • Three primary questions to be addressed before deciding on process selection are: (i) How much variety of products or services will the system need to handle? (ii) What degree of equipment flexibility will be needed? (iii) What is the expected volume of output?
  27. 27. Process Strategy • A process strategy is an organisation’s approach to process selection for the purpose of transforming resource inputs into goods and services (outputs). The objective of a process strategy is to find a way to produce goods and services that meet customer requirement and product specification (i.e., design specifications) within the constraints of cost and other managerial limitations. • The process selected will have a long-term effect on efficiency and production as well as flexibility, cost, and quality of the goods produced. Hence it is necessary that a firm has a sound process strategy at the time of selecting the process. Key aspects in process strategy include: (i) Make or buy decisions : Make or buy decisions refer to the extent to which a firm will produce goods or provide services in-house or go for outsourcing (buying or subcontracting). (ii) Capital intensity : Capital intensity refers to the mix of equipment and labour which will be used by the firm. (iii) Process flexibility : Process Flexibility refers to the degree to which the system can be adjusted to changes in processing requirements due to such factors as changes in product or service design, changes in volume of products produced and changes in technology.
  28. 28. • Three process strategies: • Virtually every good or service is made by using some variation of one of three process strategies. They are: (i) Process focus (ii) Repetitive focus and (iii) Product focus. • (i) Process Focus: Majority (about 75 per cent) of global production is devoted to low volume, high variety products in manufacturing facilities called job shops. Such facilities are organised around performing processes. For example, the processes might be welding, grinding or painting carried out in departments devoted to these processes. Such facilities are process focussed in terms of equipment, machines, layout and supervision. They provide a high degree of product flexibility as products move intermittently between processes. Each process is designed to perform a wide variety of activities and handle frequent changes. Such processes are called intermittent processes. These facilities have high variable costs and low utilisation of facilities.
  29. 29. (ii) Repetitive Focus: A repetitive process is a product oriented production process that uses modules. It falls between product focus and process focus. It uses modules which are parts or components prepared often in a continuous or mass production process. A good example of repetitive process is the assembly line which is used for assembling automobiles and household appliances and is less flexible than process-focused facility. Personal computer is an example of a repetitive process using modules in which the modules are assembled to get a custom product with the desired configuration. (iii) Product Focus: It is a facility organised around products, a product oriented, high-volume low variety process. It is also referred to as continuous process because it has very long continuous production run. Examples of product focussed processes are steel, glass, paper, electric bulbs, chemicals and pharmaceutical products, bolts and nuts etc. Product-focussed facilities need standardisation and effective quality control. The specialised nature of the facility requires high fixed cost, but low variable costs reward high facility utilisation.
  30. 30. • Process Management: • Process management is concerned with the selection of inputs, operations, work flows and methods that transform inputs into outputs. The starting point of input selection is the make-or-buy decision (i.e., deciding which parts and components are to be produced in-house and which are to be purchased from outside suppliers). Process decisions are concerned with the proper mix of human skills and equipments needed to produce the parts in-house and which part of the processes are to be performed by each equipment and worker. • Process decisions: It must be made when: (i) A new or modified product or service is being offered. (ii) Quality must be improved. (iii) Competitive priorities have changed. (iv) Demand for a product or service is changing. (v) Cost or availability of materials has changed (vi) Competitors are doing better by using a new technology or a new process.
  31. 31. Major Process Decisions: • Process Choice: The production manager has to choose from five basic process types — (i) job shop, (ii) batch, (iii) repetitive or assembly line, (iv) continuous and (v) project. • (i) Job shop process: It is used in job shops when a low volume of high-variety goods are needed. Processing is intermittent, each job requires somewhat different processing requirements. A job shop is characterised by high customisation (made to order), high flexibility of equipment and skilled labour and low volume. A tool and die shop is an example of job shop, where job process is carried out to produce one-of-a kind of tools. Firms having job shops often carry out job works for other firms. A job shop uses a flexible flow strategy, with resources organised around the process. • (ii) Batch process: Batch processing is used when a moderate volume of goods or services is required and also a moderate variety in products or services. A batch process differs from the job process with respect to volume and variety. In batch processing, volumes are higher because same or similar products or services are repeatedly provided, examples of products produced in batches include paint, ice cream, soft drinks, books and magazines.
  32. 32. (iii) Repetitive process: This is used when higher volumes of more standardised goods or services are needed. This type of process is characterised by slight flexibility of equipment (as products are standardised) and generally low labour skills. Products produced include automobiles, home appliances, television sets, computers, toys etc. Repetitive process is also referred to as line processes as it include production lines and assembly lines in mass production. Resources are organised around a product or service and materials move in a line flow from one operation to the next according to a fixed sequence with little work-in-progress inventory. This kind of process is suitable to “manufacture-to-stock” strategy with standard products held in finished goods inventory. However, “assemble-to-order” strategy and “mass customisation” are also possible in repetitive process. (iv) Continuous process: This is used when a very highly standardised product is desired in high volumes. These systems have almost no variety in output and hence there is no need for equipment flexibility. A continuous process is the extreme end of high volume, standardized production with rigid line flows. The process often is capital intensive and operate round the clock to maximise equipment utilisation and to avoid expensive shut downs and shut ups. Examples of products made in continuous process systems include petroleum products, steel, sugar, flour, paper, cement, fertilisers etc.
  33. 33. • (v) Project process: It is characterised by high degree of job customisation, the large scope for each project and need for substantial resources to complete the project. Examples of projects are building a shopping centre, a dam, a bridge, construction of a factory, hospital, developing a new product, publishing a new book etc. Projects tend to be complex, take a long time and consist of a large number of complex activities. Equipment flexibility and labour skills can range from low to high depending on the type of projects.
  34. 34. • Vertical Integration: Vertical integration is the amount of the production and distribution chain, from suppliers of components to the delivery of products/services to customers, which is brought under the ownership of a firm. The management decides the level or degree of integration by considering all the activities performed from the acquisition of raw materials to the delivery of finished products to customers. The degree to which a firm decides to be vertically integrated determines how many production processes need to be planned and designed to be carried out in-house and how many by outsourcing. When managers decide to have more vertical integration, there is less outsourcing. • The vertical integration is based on “make-or-buy” decisions, with make decisions meaning more integration and a buy decision meaning less integration and more outsourcing. Two directions of vertical integration are (a) Backward integration which represents moving upstream toward the sources of raw materials and parts, for example a steel mill going for backward integration by owning iron ore and coal mines and a large fleet of transport vehicles to move these raw materials to the steel plant, (b) Forward integration in which the firm acquires the channel of distribution (such as having its own warehouses, and retail outlets).
  35. 35. • Advantages of vertical integration are: • Can sometimes increase market share and allow the firm enter foreign markets more easily. • Can achieve savings in production cost and produce higher quality goods. • Can achieve more timely delivery. • Better utilisation of all types of resources. • Disadvantages of vertical integration are: • Not attractive for low volumes. • High capital investment and operating costs. • Less ability to react more quickly to changes in customer demands, competitive actions and new techniques.
  36. 36. 3. Resource flexibility: • The choices that management makes concerning competitive priorities determine the degree of flexibility required of a firm’s resources — its employees, facilities and equipment. Production managers must decide whether to have flexible workforce which will provide reliable customer service and avoid capacity bottlenecks. Flexible workforce is useful with flexible flow strategy to even out fluctuating workloads. • Also when volume flexibility is required, instead of laying-off and hiring workforce to match varying demands, it is better to have certain amount of permanent workforce having multiple skills. This will facilitate movement of surplus workforce from low-load work centres to higher-load work centres. • When a firm’s product has a short life cycle and a high degree of customisation, low production volumes mean that the firm should select flexible general purpose machines and equipments.
  37. 37. • 4. Customer-involvement is the extent to which customers interact with the process. A firm which competes on customisation allows customers to come up with their own product specification or even become involved in the designing process for the product (quality function deployment approach to design for incorporating the voice of the customer). • 5. Capital intensity means the predominant resource used in manufacturing, i.e., capital equipments and machines rather than labour. Decision regarding the amount of capital investment needed for equipments and machines is important for the design of a new process or the redesign of an existing one. As the capabilities of technology increase (for example automation), costs also will increase and managers have to decide about the extent of automation needed. While one advantage of adding capital intensity is significant increase in product quality and productivity, one big disadvantage can be high investment cost for low-volume operations.
  38. 38. • The list of manufacturing environments is never-ending and an indication of the range and length is given in the following list, adapted from Government statistical publications under the classification ‘Production • Industries’ / ‘Manufacturing Industry’: • Mining and quarrying • Food processing and manufacture • Food consumption • Drink and tobacco • Coal and petroleum products • Chemical and allied industries. • Metal manufacture • Mechanical engineering • Instrumental and electrical engineering • Shipbuilding, vehicles and other metal goods • Textiles, leather, leather goods and fur. • Clothing and footwear. • Bricks, pottery, glass, cement, etc. • Paper, printing and publishing • Construction. • Gas, electricity and water.
  39. 39. • Among these few are regulated & thus covered under cost audit report rules by government rest are unregulated • Under the provisions of Cost and Works Accounts Act, 1959 (23 of 1959) : The regulated industries are – • i) Pharmaceutical Industry • ii) Fertilizers Industry • iii) Sugar & Alcohol Industry • iv) Electricity Industry • v) Petroleum Industry • vi) Telecommunication Industry • Amongst these regulated industries, most are manufacturing, except the telecommunication.
  40. 40. Measuring Process Performance -1 • Efficiency is a ratio of the actual output of a process relative to some standard. For example, consider a machine designed to package cereal at a rate of 30 boxes per minute. If during a shift the operators actually produce at a rate of 36 boxes per minute, then the efficiency of the machine is 120 percent (36/30). • Run time is the time required to produce a batch of parts. This is calculated by multiplying the time required to produce each unit by the batch size. Example: Package cereal at a rate of 30 boxes per minute. Therefore Run Time will be 60 Seconds / 30 = 2 Seconds • The Setup time is the time required to prepare a machine to make a particular item. Machines that have significant setup time will typically run parts in batches. • The Operation time is the sum of the setup time and run time for a batch of parts that are run on a machine. • Consider the cereal-boxing machine that is designed to produce at a rate of 30 boxes per minute. • The run time for each box is 2 seconds.
  41. 41. • To switch the machine from 16-ounce boxes to 12-ounce boxes requires a setup time of 30 minutes. • The operation time to make a batch of 10,000, 12-ounce boxes is 21,800 seconds (30 minutes’ setup = 30 x 60 = 1800 seconds) + (2 seconds / box x 10,000 boxes) = 21800 Seconds or 363.33 minutes. • The cycle time is the elapsed time between starting and completing a job. Example: For a Batch of 10,000 Boxes the Cycle time is 20,000 Seconds or 333.33 Minutes • Throughput time includes the time that the unit spends actually being worked on together with the time spent waiting in a queue. • The Throughput rate is the output rate that the process is expected to produce over a period of time. • Process velocity (also known as throughput ratio) is the ratio of the total throughput time to the value added time. • Value-added time is the time in which useful work is actually being done on the unit.
  42. 42. Measuring Process Performance -2 • Little’s Law states a mathematical relationship between throughput rate, throughput time, and the amount of work-in-process inventory. Little’s Law estimates the time that spend in work-in-process inventory, which can be useful for calculating the total throughput time for a process. Using the terminology defined in this section, Little’s Law is defined as follows- • Throughput time = Work-in-Progress divided by Throughput rate • This formula holds for any process that is operating at a Steady Rate. • By Steady Rate we mean that work is entering and exiting the system at the same rate over the time period being analyzed. Our assembly line has 120 units entering and 120 units exiting the process each hour. If, for example, 150 units were entering the system each hour but only 120 units were exiting, then the system would not be operating at a steady rate since 30 additional units would be accumulating in the system each hour. These 30 units add to work-in-process, which would cause the throughput time to increase each hour. The actual increase in throughput time would be 15 minutes per hour (30 units/120 units per hour = 0.25 hour)
  43. 43. Study Note – 2: PRODUCTION PLANNING: • All the activities in the manufacturing or production cycle must be planned, coordinated, organised, and controlled to achieve the objective “Delivery of products to “customers” or to “inventory” stocks according to some predetermined schedule.” • Long-term Production Planning (usually from seven to ten years or more) deals with plant construction and location and with product-line, design and development. • Short range Production Planning (from several months to a year) focuses on such areas as inventory goals and wage budgets • Production consists of a sequence of operations that transform materials from a given form to a desired form (products). The highest efficiency in production is obtained by manufacturing the required quantity of products, of the required quality, at the required time, by the best and cheapest method.
  44. 44. Three stages in PPC • (i) Planning: The choice from several alternatives of the best means of utilising the resource available to achieve the desired objectives in the most efficient and economic manner. • (ii) Operations: Performance in accordance with the details set out in the production plan. • (iii) Control: The monitoring of performance through a feed-back by comparing the result achieved with the planned targets so that performance can be improved through proper corrective action by subsequent adjusting, modifying and redefining plans and targets in order to ensure the attainment of goals.
  45. 45. • The functions of PPC can be classified under the following: • Materials: Raw materials, spare parts and components which must be available in the correct quantities and specifications at the right time. Planning for procurement of raw materials, components and spare parts in the right quantities and specifications at ·the right time from the right source at the right price. Purchasing, storage, inventory control, standardisation, variety reduction, value analysis and inspection are the other activities associated with materials. • Methods: It involves deciding the best sequence of operations for manufacturing the parts, building up subassemblies and major assemblies which in turn will make up the finished product, within the limitations of existing layout and workflow. Includes choosing the best method of processing from several alternatives. It also includes determining the best sequence of operations (process plans) and planning for tooling, jigs and fixtures etc.
  46. 46. The functions of PPC -1 • Machines and Equipments: PPC is concerned with selection of machines and equipments and also with maintenance policy, procedure and schedules, replacement policy and tooling. (Design and manufacture of tools). Manufacturing methods are related to production facilities available in the production system. It involves facilities planning, capacity planning, allocation and utilization of plant and equipments, machines etc. It also involves equipments replacement policy, maintenance policy and maintenance schedules, tools manufacture and maintenance of tools etc. • Manpower: Planning for man power (labour, supervisory and managerial levels) having appropriate skills and expertise. • Routing: Routing prescribes the flow of work in the plant and is related to consideration of layout, of temporary storage locations for raw materials, components and semi processed parts, and of material handling systems. Routing is a basic PPC function. Determining the flow of work, material handling in the plant, and sequence of operations or processing steps. This is related to considerations of appropriate shop layout and plant layout, temporary storage locations for raw materials, components and semi-finished goods, and of materials handling systems
  47. 47. The functions of PPC - 2 • Estimating: The processing times (both set up time and operation time per piece) required for the parts to be manufactured in-house are estimated and the standard time (both machine time and labour time) are established as performance standards. Establishing operation times leading to fixation of performance standards both for workers and machines. • Loading and Scheduling: Machines have to be loaded according to their capacity and capability. Machine loading is carried out in conjunction with routing (as indicated in process layouts or operations analysis and routing sheets) to ensure smooth workflow and the prescribed feeds. Speeds of machines are adhered to as well as the estimated time (standard time which is the allowed time to do a job). Machine loading is allocation of jobs to machines in conjunction with routing and with due consideration for capacity of machines and priority for jobs in order to utilize the machines to the maximum possible extent.
  48. 48. The functions of PPC - 3 • Scheduling: Determines the utilisation of equipment and manpower and hence the efficiency of the plant. Scheduling determines the starting time and completion time for each and every operation for each and every part to be manufactured and sub-unit to be assembled so that the finish product is ready to be shipped to the customer as per the predetermined delivery schedules. • Dispatching: This is concerned with the execution of planning functions. Production orders and instructions are released according to the schedule, sequences indicated in route sheets, and machine loading schedules are adhered to and authorisation is given for release of materials and tools to the operators to carry out the work. This is concerned with the execution of the planning functions. It gives necessary authority to start a particular work which has already been planned under routing and scheduling functions. Dispatching is release of orders and instructions for the starting of production in accordance with the route sheets and schedule charts. • Expediting or Progressing: This means follow-up or keeping track of the progress made in completing the production as per schedules. This follows dispatching function logically. Means chasing, follow up or progressing which is done after dispatching function. It keeps a close liaison with scheduling in order to provide an efficient feedback and prompt review of targets and schedules.
  49. 49. The functions of PPC - 4 • Inspection: This function relates to checking the quality of production and of evaluating the efficiency of the processes, methods and workers so that improvements can be made to achieve the desired level of quality. This function is related to maintenance of quality in production and of evaluating the efficiency of the processes, methods and labour so that improvements can be made to achieve the quality standards set by product design • Evaluating or Controlling: The objective of evaluation or controlling is to improve performance. Methods and facilities are evaluated to improve their performance. To sum up, we can state that PPC is a management tool, employed for the direction of the manufacturing operations and their co-ordination with other activities of the firm. The objective of evaluation is to improve performance. Performance of machines, processes and labour is evaluated to improve the same. • Cost Control: Manufacturing cost is controlled by wastage reduction, value analysis, inventory control and efficient utilization of all resources.
  50. 50. Objectives of Production Planning and Control: 1. To deliver quality goods in required quantities to the customer in the required delivery schedule to achieve maximum customer satisfaction and minimum possible cost. 2. To ensure maximum utilization of all resources. 3. To ensure production of quality products. 4. To minimise the product through-put time or production/manufacturing cycle time. 5. To maintain optimum inventory levels. 6. To maintain flexibility in manufacturing operations. 7. To co-ordinate, between labour and machines and various supporting departments. 8. To plan for plant capacities for future requirements. 9. To remove bottle-necks at all stages of production and to solve problems related to production. 10. To ensure effective cost reduction and cost control. 11. To prepare production schedules and ensure that promised delivery dates are met. 12. To produce effective results for least total cost
  51. 51. Basic types of Production Control: • Block control: This type of control is most prominent in textiles and book and magazine printing. In these industries it is necessary to keep things separated and this is the fundamental reason why industries resort to block control. • Flow control: This type of control is commonly applied in industries like chemicals, petroleum, glass, and some areas of food manufacturing and processing. Once the production system is thoroughly designed, the production planning and control department controls the rate of flow of work into the system and checks it as it comes out of the system. But, under this method, routing and scheduling are done when the plant is laid out. That is to say, the production line which is established is well balanced and sequenced before production operations begin; this type of control is more prevalent in continuous production systems. • Load control: Load control is typically found wherever a particular bottleneck machine exists in the process of manufacturing. • Order control: The most, common type of production control is called order control. This type of control is commonly employed in companies with intermittent production systems, the so-called job-lot shops. Under this method, orders come into the shop for different quantities for different products. Therefore, production planning and control must be based on the individual orders. • Special project control: Special production control is necessary in certain projects like the construction of bridges, office buildings, schools, colleges, universities, hospitals and any other construction industries. Under this
  52. 52. Requirements of Production Planning and Control System 1. Sound organizational structure with mechanism for proper delegation of authority and fixation of responsibility at all levels. 2. Information feedback system should provide reliable and up-to-date information to all persons carrying out PPC functions. 3. Standardisation of materials, tools, equipments, labour, quality, workmanship etc. 4. Trained personnel for using the special tools, equipments and manufacturing processes. 5. Flexibility to accommodate changes and bottle-necks such as shortage of materials, power failures, machine break downs and absenteeism of employees. 6. Appropriate management policies regarding production and inventory levels, product -mix and inventory turnover. 7. Accurate assessment of manufacturing lead times and procurement lead times. 8. Plant capacity should be adequate to meet the demand. The plant should be flexible in order to respond to the introduction of new products, changes in product-mix and production rate.
  53. 53. Limitations of PPC (a) Production planning and control function is based on certain assumptions or forecasts of customers demand, plant capacity, availability of materials, power etc. If these assumptions go wrong, PPC becomes ineffective. (b) Employees may resist changes is production levels set as per production plans if such plans are rigid. (c) The production planning process is time consuming when it is necessary to carry out routing and scheduling functions for large and complex products consisting of a large no. of parts going into the product. (d) Production planning and control function becomes extremely difficult when the environmental factors change very rapidly such as technology, customers’ taste regarding fashion or style of products needed, Government policy and controls stoppages of power supply by electricity boards due to power cuts, break in supply chain due to natural calamities such as floods, earthquakes, war etc.
  54. 54. 2.3 Work Study • The British Standards Institution defines work study as ‘a generic term for those techniques, particularly method study and work measurement, which are used in the examination of human work in all its contexts, and which lead systematically to the investigation of all the factors which affect the efficiency and economy of the situations being reviewed, in order to effect improvements’. • Time Study & Method Study can be defined to be a searching scientific analysis the methods and equipments used in doing a piece of work, developing a method in practical detail and of the best manner of doing it and determination of time required. • The aims of work study are, by analysis of work methods and the materials and equipment used, to: (a) Establish the most economical way of doing the work; (b) Standardise this method, and the materials and equipment involved; (c) Establish the time required by a qualified and adequately trained worker to do the job while working at a defined level of performance; (d) Install this work method as standard practice.
  55. 55. Operation Analysis • The operation analysis is the study of the entire process for elimination of wasteful activity and deciding sequence to avoid unnecessary transportation. It concentrates on • Idle time of Machines • Tools Used • Equipments used • Working conditions (Light, Temperature, Ventilation, Safety etc.) • Whether manual work is an important part of the job, e.g. (1) the wage rate for the job, (2) the ratio of machine time to manual time in the work cycle; • Utilization of equipment, machines, tools, etc., the cost of such equipment, and whether the utilization is dependent on the work method; • Method study is normally conducted before work measurement. Apart from the possible-need to compare the times for old work methods with the times for new methods, work measurement conducted before method study is poor practice.
  56. 56. Job Analysis / Job Standardisation: • Best way of performing the job. • Perfect / Exact Recording of Method. • Time taken for each element. • Determination of Standard Time. • Determination of special & essential factors specific to work and qualifications necessary of worker to perform the job. • This analysis is used for wages, incentive and up-gradation of worker.
  57. 57. WORK STUDY • Method study Work Measurement • Record Method Direct Work measurement Indirect Work measurement • Examine the Method Motion Study Synthetic Times Time Study PMTS Developing a Method in Activity Sampling Analytical Estimating Practical details in best manner. Develop and define the Work Method Job Analysis and Job Standardisation Provide Time Allowances Calculate Standard Time for the Job • Install & Maintain the Work method
  58. 58. Job Evaluation: • Preparation of preliminary description of each existing job. • Analysing each job to document final job description. • Finding worth or value of the Job. • Qualification required of a worker. • Job critical activities. • Job Responsibilities. • Allowance for working conditions. • Use of ranking, grading method, Factor comparison Method, Point Rating Method. ( Straight Point Method, Weighted Point Method) • Valuation of job in terms of money.
  59. 59. Basic Work Study Procedure: 1. There are eight basic steps involved in a work study procedure. Some of them are common to both 2. Method study and work measurement. These steps are: a) Select the job or the process or the operation to be studied. b) Record all relevant facts about the job or process or operation using suitable charting techniques c) Such as operation process chart, flow process chart, flow diagram, SIMO chart (simultaneous motion chart) and man-machine chart. d) Examine critically all the recorded facts, questioning the purpose, place, sequence, person and the means of doing the job/process/operation. e) Develop the new method for the job/process/operation. f) Measure the work content and establish the standard time using an appropriate work measurement technique, viz; time study using stop watch, synthesis method, analytical estimating method, predetermined motion time system and work sampling. g) Define the new method for the job/process/operation. h) Install the new method as standard practice. i) Maintain the new method for the job/process/operation.
  60. 60. Method Study Procedure 1. The various steps involved in method study are: 2. Select the work or job to be studied and define the objectives to be achieved by method study. The job selected to have maximum economic advantage, shall offer vast scope for work improvement through reduction of excessive material handling and fatigue to workmen, offer scope for improving the working conditions and improving the utilization of resources. 3. Record all the relevant facts or information pertaining to the existing method using the recording techniques such as - a) Process charts b) Outline process chart c) Operation process chart d) Flow process chart-material type, man type and machine type/equipment type. e) Man-machine chart f) Two handed process chart 4. Diagrams such as a) Multiple activity chart b) Simultaneous motion chart (SIMO chart) c) Motion chart 5. Diagram such as a) Flow diagram b) String diagram c) Cycle graph d) Chronocycligraph
  61. 61. Computation of Standard Time • OT + PRF + PA + RA + CA + SA = ST • ST + POA = AT • Standard Time + Policy Allowance = Allowed Time • Where: OT = Observed Time PRF = Performance Rating Factor PA = Process Allowance RA = Relaxation Allowance CA = Contingency Allowance SA = Special Allowance ST = Standard Time POA = Policy Allowance AT = Allowed Time
  62. 62. Work Sampling Procedure • In work sampling study, the works study engineer takes a great number of observations of a worker or machine random times throughout the working shift or day. He records precisely what the worker or the machine is doing (i.e., working or idle) at the time of observation. No stop-watch is used. The objective is to find the frequency of occurrence of every work element. • The technique is based upon the laws of probability. It is based on the statistical premise that the occurrences in an adequate random sample observations of an activity will follow the same distribution pattern that might be found in a lengthy, continuous study of the same activity. Algebraically put, • P= x / N = (Number of observation of the activity) / (Total number of observations) • Thus, the work sampling method, as stated above consists of taking a number of intermittent, randomly spaced instantaneous observations of the activity being studied and from this determining the percent of time devoted to each aspect of the operation. • In order to set a standard by the work sampling procedure, it is necessary to level or rate the performance of the worker being studied (as with stop watch time study) and to count the actual number of units produced during the period under study.
  63. 63. Steps in Work Sampling • The work sampling study consists of essentially the following steps: 1. Determine the objective of the study, including definitions of the states of activity to be observed. 2. Plan the sampling procedure including: (a) An estimate of the percentage of time being devoted to each phase of the activity. (b) The setting of accuracy limits. (c) An estimation of the number of observations required. (d) The selection of the length of the study period and the programming of the number of readings over this period. (e) The establishment of the mechanics of making the observations, the route to follow and the recording of data. 3. Collect the data as planned. 4. Process the data and present the results.
  64. 64. Advantages of Work Sampling over Conventional Work Measurement Methods 1. Economical to use and usually costs considerably less than a continuous time study. 2. Can be used to measure many activities that are impractical to measure by time study. 3. Not necessary to use a trained work measurement analyst to make the observations. 4. Work sampling measurements may be made with a pre- assigned degree of reliability. 5. Measures the utilization of people and equipment directly. 6. Eliminates the necessity of using stop watch for measurements. 7. Provides observation over a sufficiently long period of time to decrease the chance of day to day variation affecting the results.
  65. 65. 2.4 FORECASTING • Planning is fundamental to management. Forecasting, which involves a study of the present and past, with a view to estimate the future activities, which forms the basis of planning. • Forecasting is important to production and operations management in a number of decisions; to make an annual plan of production / operations, to make a weekly or daily schedule of production or service operations, to procure or manufacture the raw materials or components and to plan the manpower, requirement amongst various other things. • Advantages of forecasting are stated as under: • Past data provides guidance for future and is a tool to train. Forecasts based on past data helps in correct planning. • Forecasting of customer’s demand help in strategy planning, capacity planning, location planning and layout planning. • Past data provides trends, which are used to forecast the future trends and helps to decide on products or services pursued or to be stopped or abandoned. • Forecast of manufacturing is essential to ensure the availability of materials for sub-assemblies and final assemblies. • Forecasting by specifying future demands reduce the costs of readjustment of operations in response to the unexpected deviation. • Accurate estimation of future demands of goods and services through forecasting increases the operating efficiency. • Forecasting is an important component of strategic and operational planning. • Utilization of the plant is improved with correct forecasts.
  66. 66. Forecast Error• Normally there is a gap between forecasted demand and actual demand. If the forecasted demand is less than the actual demand, • Forecast error is the numeric difference between the forecasted and actual demand. • There are two measures of error as stated below. • Mean Absolute Deviation (MAD): MAD is the ratio of sum of absolute deviations for all periods to the total number of periods studied. Deviation means Difference between Forecasted Demand and actual demand for that period. • It is represented as below: MAD = (sum of absolute values of deviations for all periods) --------------------------------------------------------------------------------------------------------------------- (Total number of periods studied = n) • Bias: Bias is worked out by using algebraic difference between forecasted and actual demands for all the periods. The algebraic differences are summed up and divided by the total number of periods studied. • Bias is represented as: Sum of algebraic errors for all the periods ---------------------------------------------------------------------------------------------------------------- Total number of periods studied • Bias indicates the directional tendency of the forecast errors.
  67. 67. Tracking Signals (TS) • The TS indicates the direction of the forecasting error. • If TS is positive – increase the forecasts, but • if TS is negative – decrease the forecasts. • It is the ratio of the cumulative algebraic sum of the deviations between the forecasts and the actual values to the mean absolute deviation. • If the TS is around zero, the forecasting model is performing well. A forecast is considered out of control, if the value of Tracking Signal exceeds plus or minus 4. • Mathematically, Tracking Signal is presented as below: Algebraic sum of deviations Tracking Signals (TS) = ------------------------------------------------------ Mean Absolute Deviations (MAD)
  68. 68. Forecasting Approaches • Qualitative Approaches: Qualitative approaches include five forecasting techniques: • Grass-root Forecasting: People at the grass-root level in the organization, who are in direct contact with the phenomenon under study, are asked to give inputs in forecasting. For example, sales representatives could be asked to give information on current market conditions. These inputs are satisfactory for short term planning. • Focused Forecasting: This method integrates common sense, grass-root inputs and computer simulation processes to assess the forecasts. For example, an Income-tax Inspector would forecast the earning of a store from the number of customers entering the store. He would multiply the number of customers with an expected average value of purchases made by each customer. This gives him a rough estimate of the earnings of the store. • Historical Analogy: Information of past events is used to give insights into prediction on related future developments. It is assumed that the future events would follow similar pattern as of the past events. This approach gives inaccurate forecasts as the past events might not have had similar conditions as that which the future events could encounter. For example, demand for laptop computers based on the past sales of desktop computers does not give a correct forecast • Panel Consensus: A group of knowledgeable persons are invited for an open discussion on a topic selected for forecasting. It is believed that a single person might not be able to consider all the aspects on the topic. Collective effort of the group invited to interact and come to a consensus on a subject, is considered as the acceptable approach for forecasting. The group could have persons from marketing, engineering, sales, materials management, etc. The basic objective of this approach is to use the creatively of the members of the group. This process is not sophisticated, and works well as the group members have a true sense of participation and bring out workable solutions.
  69. 69. • Delphi Method: A number of experts associated with the subject are asked to give their response to pre-selected questions, which would help in forecasting. The experts could be persons from within the organization or from outside the organization. • The coordinator for forecasting obtains the responses from the experts, complies and analyses the responses and gives feedback to the experts involved in the process. • The coordinator again formulates new questions to obtain the response from the experts again. The process of obtaining responses is repeated in few rounds until the coordinator is satisfied that a good conclusion is reached on the subject. • As the experts come from diverse backgrounds, they look at the issue independently from their own perspectives. On getting the feedback, they are able to appreciate the views of the experts from other expertise fields also. This gives them better understanding of the issue. The result of Delphi is arrived by pooling up the knowledge of various experts and brings very good results. Merits of Delphi: Delphi is preferred for the following reasons: • It involves knowledgeable persons on the subject. • Members in Delphi exercise come from different backgrounds and therefore the method is able to consider and pool up various aspects of the issue. • Since the members do not meet each other, their views are not influenced by the views of others. • No conflict of personality is seen in the process. • No dominance by any influential expert on the other experts. • It gives quick results as compared to quantitative techniques and helps in timely decisions.
  70. 70. Quantitative Forecasting • Quantitative forecasting techniques use the past numerical data for forecasting the future events. The quantitative techniques use time series, which includes the following: • Simple Average. • Simple Moving Average: In this method, the number of past periods is selected. The average of the selected number of periods is calculated instead of average of all the periods taken together. In this case, the average is changing as we move forward and reflects the demand of the recent period more closely. As the one period elapses, the demand for the oldest period is not counted and the demand for the most recent period is added for the next calculation. • Weighted Moving Average: In case the planner wants to give different weights to different periods, he could use weighted moving average method by incorporating some weight for old demand instead of equal weightage for all past periods under consideration. Weighted Moving Average (WMA) = Sum of the product of weight factor and demand for the month • Exponential Smoothing: This method is more popular. The pattern of weight is exponential in form. In this method, the demand for the most recent period is weighted most heavily and the weights of just preceding periods are lowered exponentially. As we go back in time, the weight is decreased exponentially. This method cannot be used for an item, which has trend or seasonal pattern. This is best suited for independent demand with no trend and seasonality. • A new forecast is presented as under: N F = OF+ α (AD-OF) Where NF = New Forecast, OF = Old Forecast, α = Weight Factor, normally called smoothing coefficient and A D = Actual Demand.
  71. 71. Trend Projection • To forecast a time series that has a long-term linear trend. The type of time series for which the trend projection method is applicable shows a consistent increase or decrease over time; because it is not stable; following Techniques are used: • Equation for Linear Trend Tt = b0 + b1t • Calculating the Seasonal Indexes • De-seasonalizing the Time Series • Seasonal Adjustments • Cyclical Component • Regression Analysis • Curve Fitting: Curve fitting is the process of finding a linear or non-linear, relationship between the dependent variable (which is usually the demand in forecasting) and an independent variable. It is helpful in causal methods where the demand is said to depend upon some factor(s), as also in the decomposition methods of time series analysis where a trend-line is to be obtained prior to forecasting/estimating the demand in a future time period. • CAUSAL METHODS • Regression and Correlation - Regression is an estimation of the dependent variable, say Y, from the independent variables X1, X2, X3, . . . XN. A regression equation is an equation representing this relationship. • Equation of a Line is Y = a + bx : In case of a straight line: If there are N points (X1, Y1), (X2, Y2), . . . (XN, YN), then the constants, a and b are determined by solving the simultaneous equations. 1. ∑ Y = a.N + b ∑ X and 2. ∑ XY = a ∑ X + b ∑ X² Y X X² XY . . . . . . . . . . . . ∑ Y ∑ X ∑ X² ∑ XY
  72. 72. 2.5 Capacity planning • Capacity of a facility is referred to as its capability to produce. • Definition of Capacity: Capacity is the rate of output from an operating system per unit time. Capacity is based on the output that the system can produce, store, and transport. • For example, a cement plant could be capable to produce 3000 tons per day (tpd) of cement. Output is also measured in terms of number of products that could be produced from the process. • Capacity is classified in many ways such as budgeted, dedicated, productive, protective, rated, safety, standing, and demonstrated. Mainly, the classification of capacity is talked in terms of: • Designed or rated capacity • Planned capacity • Demonstrated capacity • Designed or Rated Capacity: Designed capacity is also the maximum capacity, which a facility can achieve. It defines the highest normal output that a process could achieve. Designed capacity is usually higher than the normal output rate. • The designed capacity of a process is calculated by taking into account the following: • • Number of machines available. • • Capacity of each machine. • • Number of shifts operated. • • Duration of each shift. • • Number of workdays in the period under consideration.
  73. 73. • Planned Capacity: Planned capacity is the capacity, which is maintained or achieved in normal operations. Production plans and schedules are worked out based on planned capacity. Planned capacity is usually less than the designed capacity due to the following reasons: • Unexpected demand comes from some customers. Important customers often ask for shorter delivery to meet their urgent requirements, which need quick response and disturbs the planned programme. • Preventive and predictive maintenance need time and influence the available time for production. Any variation in the time taken in completing the preventive and predictive maintenance would adversely affect the planned capacity. Preventive and predictive maintenance are important for uninterrupted work as the possibilities of breakdowns are reduced. • Corrective repairs need time to take care of the unexpected breakdowns, which adversely affect the capacity of the process. • Running at maximum capacity could be sustained for short time as both men and machines are strained, if they have to operate at the maximum capacity. If it is not taken care, the effect is harmful to both men and the machines. Therefore a reasonable efficiency is taken into consideration while determining the planned capacity. Normally it is 85 to 90 percent
  74. 74. • Demonstrated Capacity • The actual level of output for a process over a period of time is known as the demonstrated capacity. Demonstrated capacity deals with the actual production over a time rather than the calculated designed capacity or planned capacity. Demonstrated capacity is determined by averaging the recorded figures of actual output over a period of time. • Demonstrated Capacity might differ from both the designed and the planned capacities for various reasons, such as: • Product mix • Operator skill and experience • Health of equipment or machines • Type of jobs • Quality of materials • Inaccurate standards for process performance • Idling time • Blockages • Rejection due to poor quality • Training time of the operators • Other factor
  75. 75. • Efficiency = Standard time / Actual time • Utilization = Actual hours/Scheduled available hours • Planned capacity = Designed capacity × Efficiency × Utilization factor • Productivity = Efficiency x Utilization • Illustration : A worker is employed for 12 hours. During this period he takes 8 hours to complete a job with the standard time of 7 hours. Calculate the productivity of the workers as a percentage. • Efficiency = Actual hours used / Standard time allowed = (7 /8) x100 = 87.5% • Utilization = Actual time worked / Hours available = (8 / 12) x100 = 66.67% • Productivity = Efficiency x Utilization = 87.5% x 66.67% = 58.83% • Productivity = Standard hours of output / Clock time scheduled = (7 / 12) x 100 = 58.33%
  76. 76. • Capacity Requirement Plans: Forecast for demand of the product is the base for estimating the short-term workload on the facility. Companies make plans for a period of about one year and workout the expected output of different products or services based on the forecast. Capacity Requirement Plans (CRP) looks into the individual operations by using the routine information. Each operation is valued in standard hours, which results in total hours required per work center per time period. • Rough Cut Capacity Plans: Rough Cut Capacity Plans (RCCP) serves the Master Production Schedule (MPS) for one or two years. RCCP is used to check the balance of scheduled items, normally finished goods, and time period. RCCP looks at the workload for each critical area by time period. • Resource Requirement Planning: Resource Requirement Planning (RRP) serves the production plan and covers a number of years. Longer-term capacity requirements are difficult to determine due to the uncertainties in the future market demand and technologies. RRP is interactive. What-if module is used. • Input /Output control and operation sequencing: Input /Output control and operation sequencing are related to the daily plan and provides the means to control the volume of work and determines the priority sequence in which it is required to be produced. • Input /Output Control: It is a control technique where the planned and actual inputs are monitored. Actual input is compared to planned inputs to identify where work center output might vary from the plan because work is not available at the work center. Actual output is also compared to the planned output to identify problems within the work center. Planned and actual inputs as well as outputs have an impact on the Work-in-Process (WIP) inventory.
  77. 77. • Calculation of Capacity: Following steps are taken in the calculation of capacity: 1. Prepare a flow chart for the process. Stream line the operation or plan parallel operations as needed. 2. Assign time for every activity in the process over the same time period for which the capacity of the process is to be measured; say year, month, week or a day. 3. Use a common unit of measurement for the entire process. 4. Determine the designed capacity of the process. Designed capacity of individual activity as well as the overall capacity of the process should be worked out. This would require consideration of operation whether in sequence or in parallel. 5. Work out planned capacity for the overall process based on utilization factor and efficiency. 6. Determine the demonstrated capacity based on the observed results over time. 7. Compare demonstrated, planned and designed capacities and decide on 1. Reducing the input rate. 2. Adding resources to increase the upper limit on process capacity. 3. Evaluating the current uses of capacity. • The management of capacity is the key planning responsibility of operations managers. All other operations planning takes place within the framework set by capacity decisions. Capacity management is concerned with the matching of the capacity of the operating system and the demand placed on that system. A Systematic Approach to Capacity Decisions • Although each situation is somewhat different, a four-step procedure generally can help managers make sound capacity decisions. In describing this procedure, we assume that management has already performed the preliminary step of determining existing capacity. 1. Estimate future capacity requirements. 2. Identify gaps by comparing requirements with available capacity. 3. Develop alternative plans for filing the gaps. 4. Evaluate each alternative, both qualitative and quantitative, and make a final choice.
  78. 78. • The demand forecast has to be converted to a number that can be compared directly with the capacity measure being used. Suppose that capacity is expressed as the number of available machines at an operation. When just one product (service) is being processed, the number of machines required, M, is • Number of machines required = • Processing hours required for year's demand • Hours available from one machine per year after deducting desired cushion • DP • M = ----------------- • N (1 – (C/100)) • Where D = number of units (customers) forecasts per year • P = processing time (in hours per unit or customers) • N = total number of hours per year during which the process operates • C = desired capacity cushion • If multiple products or services are involved, extra time is needed to change over from one product or service to the next. Setup time is the time required to change a machine from making one product or service to making another. Number of machines required= Processing and setup hours required for year's demand, summed over all products • M = ---------------------------------------------------------------------------------------- Hours available from one machine per year after deducting desired cushion (Dp1 + (D/Q)s) + (Dp2 + (D/Q)s) + ……..(Dpn + (D/Q)s) • M = ---------------------------------------------------------------------- N (1 – (C/100)) • Where Q = number of units in each lot & s = setup time (in hours) per lot • Always round up the fractional part unless it is cost efficient to use short-term conditions such as overtime or stock outs to cover any shortfalls.
  79. 79. 2.6 Process Planning: • Process Planning is defined as the systematic determination of methods by which a product is to be manufactured economically and competitively. It consists of selecting the proper machines, determining the sequence of operations, specifying the inspection stages, and tools, jigs and fixtures such that the product can be manufactured as per the required specification. The detailed process planning is done at each component level. : The activities that are associated with process planning are: • List of operations to be performed and their sequence. • Specifications of the machines and equipment required. • Necessary tooling, jigs and fixtures. • Gives the manufacturing details with respect to feed, speed, and depth of cut for each operation to be performed. • It gives the estimated or processing time of operations. • Steps in Process Planning 1. Detailed study of the component drawings to identify the salient features that influence process selection, machine selection, inspection stages and tooling required. 2. List the surfaces to be machined. 3. The surfaces to be machined are combined into basic operations. This step helps in selection of machines for operation. 4. Determine the work centre, tools, cutting tools, jigs and fixtures and inspection stages and equipment. 5. Determine the speed, feed and depth of cut for each operation. 6. Estimate the operation time. 7. Find the total time to complete the job taking into account the loading and unloading times, handling times, and other allowances. 8. Represent the details on the process sheet.
  80. 80. • A number of tools help production manager to understand the complexities of process design and redesign. Flow Diagrams: It is a drawing used to analyse the movement of people or material or product to understand, analyse and communicate the process to others. • Assembly Charts: Assembly charts are used to provide an overall macro view of how materials and sub-assemblies are assembled to form finished products. These charts list all major materials, components, sub-assembly operations, inspections and assembly operations. • Process Charts: A process chart is understood as a graphic representation of events and information relating to them during a series of actions or operations • Application of BCA (Break-even Cost Analysis) in the choice of machines or process, this analysis is the most convenient method for selecting the optimum method of manufacture or machine amongst the competing ones. The cost estimates of the competing methods (both fixed and variable costs) are prepared and a particular quantity N is determined at which the alternatives give the same cost. • If the quantity to be manufactured is less than N the process with lower fixed cost is selected and if the quantity to be produced is more than N the process with lower variable cost is selected. • Let FA = the Annual Fixed Cost of Machine A & FB = the Annual Fixed Cost of Machine B • VA = Variable Cost per unit for Machine A & VB = Variable Cost per unit for Machine B • N = Quantity at which costs on both machines will be equal. Flow Diagrams: It is a drawing used to analyse the movement of people or material or product to understand, analyse and communicate the process to others. Total cost on machine A = Total cost on Machine B for Quantity N F A + VA.N = FB+VB.N & N (VA-VB) = (FB- FA), therefore, N = (FB – FA) / (VA – VB)
  81. 81. Principles of Layout • Plant Layout: Meaning, Definition and Scope: A plant layout refers to the arrangement of machinery, equipment and other industrial facilities – such as receiving and shipping departments, tools rooms, maintenance rooms, employee amenities, etc., for the purpose of achieving the quickest and smoothest production at the least cost. (i) The Principle of Minimum Travel: Men and materials should travel the shortest distance between operations so as to avoid waste of labour and time and minimize the cost of materials handling. (ii) Principle of Sequence: Machinery and operations should be arranged in a sequential order. This principle is best achieved in product layout, and efforts should be made to have it adopted in the process layout. (iii) Principle of Usage: Every foot of available space should be effectively utilized. This principle should receive top consideration in towns and cities where land is costly. (iv) Principle of Compactness: There should be a harmonious fusion of all the relevant factors so that the final layout looks well integrated and compact. (v) Principle of Safety and Satisfaction: The layout should contain built in revisions for safety for the workmen. It should also be planned on the basis of the comfort and convenience of the workmen so that they feel satisfied. (vi) Principle of Flexibility: The layout should permit revisions with the least difficulty and at minimum cost. (vii) Principle of Minimum Investment: The layout should result in savings in fixed capital investment, not by avoiding installation of the necessary facilities but by an intensive use of available facility
  82. 82. • Process Layout : Also called the functional layout, layout for job lot manufacture on batch production layout, the process layout involves grouping together of like machines in one department. For example, machines performing drilling operations are fixed in the drilling department machines performing casting operations are grouped in the casting department; • Product Layout: Also called the straight-line layout or layout for serialized manufacture (the term straight-line, as applied to production, refers to the movements which do not involve backtracking of crossing of the line of movement of the product), the product layout involves the arrangement of machines in one line
  83. 83. Process Layout Product Layout 1. Reduction in the investment on machines as they are general purpose machines. 1. Mechanisation of materials handling and consequent reduction in materials handling cost. 2. Greater flexibility in production. 2. Avoidance of bottlenecks. 3. Better and more efficient supervision possible through specialization. 3. Economy in manufacturing time. 4. Better scope for expansion. 4. Better production control. 5. Better utilization of men and machines. 5. Less floor area required per unit of production 6. Easier to handle breakdowns of equipment by transferring work to another machine or station. 6. Minimum investment in work-in- progress 7. Full utilization of the plant. 7. Early detection of mistakes or badly produced items. 8. Greater incentive to individual workers to raise the level of their performance. 8. Greater incentive to a group of workers to raise their performance.
  84. 84. Cellular Manufacturing (CM) Layouts • In cellular manufacturing (CM), machines are grouped into cells, and the cells function somewhat like a product layout within a larger shop or process layout. Figure is an illustration of CM. Each cell in the CM layout is formed to produce a single parts family – a few parts all with common characteristics, which usually means that they require the same machines and have similar machine settings.
  85. 85. Fixed Position Layout • As the term itself implies, the fixed position layout involves the movement of men and machines to the product which remains stationary. In this type of layout, the material or major component remains in a fixed location, and tools, machinery and men as well as other pieces of material are brought to this location. The movement of men and machines to the product is advisable because the cost of moving them would be less than the cost of moving the product which is very bulky.
  86. 86. Criteria for Selection and Design of Layouts • The various methods used for selecting the best layout among several alternatives layouts are illustrated below with example: 1. Travel Chart Method • The travel chart which is also known as from-to-chart is helpful in analysing the overall flow of material. It shows the number of moves made between departments and identifies the most active departments. 2. Load-Distance Analysis Method • Load-distance analysis is useful in comparing alternative layouts to identify the one with the least product or material travel time per period. This method helps to minimise transportation costs by evaluating alternate layouts on the basis of the total of the product of actual distance moved and the load (the units moved) for each layout alternative. Alternatively, the material handling costs can be computed directly by multiplying the number of loads by the material-handling cost per load. The layout with the lowest total (load x distance) or total (load x cost) is the best choice.
  87. 87. PROJECT MANAGEMENT – DEFINITION • Project is a activity for development product in time, within specified budget, in conformance with the pre-determined performance specifications. It is a set of finite activities that are usually prepared only once and have well designed objectives, using a combination of human and non-human resources within limits of time. It consists of a series of non- routine, interrelated activities with a goal that must be completed with a set amount of resources and within a set time limit. • Project Management is a scientific way of planning, implementing, monitoring and controlling the various aspects of project, such as time, money, materials and other resources (e.g., manpower) with the intention of achieving the basic objectives or goals (technical, costs, time) while formulating a project.
  88. 88. Project Management • Project Management Institute (PMI) identifies six basic functions that project management must address. These are: • Manage the project’s scope to define-the goals and the work to be done in sufficient detail to facilitate understanding and correct performance by participants, • Manage the human resources involved in a project effectively, • Managing communications to see that appropriate parties are informed and have sufficient information to keep the project coordinated, • Manage time by planning and meeting schedules, • Manage quality so that project results are satisfactory, and • Manage costs to see that project is performed at the minimum possible cost and within the budget, if possible.
  89. 89. Project Life Cycle steps: 1. Market Needs 1. Conception phase 2. Definition Proposal 2. Definition phase 3. Feasibility Studies 4. Planning Estimating 3. Planning and organising phase 5. Experimenting 6. Design Development 7. Prototype Testing 4. Implementation phase 8. Commissioning 5. Project clean-up phase
  90. 90. A Framework for Project Management Issues: Element Description • Strategy The high-level requirements of the project and means to achieve them. • Structure The organisational arrangement to carry out the project • Systems The methods for work to be designed monitored and controlled. • Staff Selection, recruitment, management and leadership of staff working on the project staff working on the project. • Skills The management and technical tools available to the project manager and the staff. • Style/culture The underlying way of working and interrelating within he work team or organisation. • Stakeholders Individuals and groups who have an interest in the project process and outcome.
  91. 91. Project Selection Technique : • Cost benefit analysis • Risk and sensitivity analysis • Project Execution Planning Techniques • Work breakdown structure (WBS), • Project execution plan (PEP), • Project responsibility matrix, and Project management manual. • Project Scheduling and Coordinating Techniques • Bar chart, • Project life cycle , • Line of balance (LOB), Networking techniques (PERT/CPM). • Project Monitoring and Progressing • Progress measurement technique, • Performance monitoring technique, • Updating, reviewing and reporting technique. • Project Cost and Productivity Control • Productivity budgeting technique, • Value engineering, and Cost calculation using WBS. • Project Communications and Clean-up Techniques Control Room, and Computerised information systems.
  92. 92. • Bar Chart: This is a pictorial device in which the activities are represented by horizontal bars on the time axis. The left-hand end of the bar shows the beginning time, the right-hand end the ending time. The duration of the activity is indicated by the length of the bar. The manpower required for the activity is shown by a number on the bar. • Gantt chart is one of the oldest techniques used for planning, scheduling and controlling of projects. Gantt chart was developed by H.L. Gantt in 1917 and is in use till today. Gantt charts were used even before computer came on the scene. Even today, Gantt chart applies to manufacturing as well as service organizations. • Gantt chart is a graphical representation of a series of activities drawn to a. time scale. Horizontal axis (X-axis) represents time and vertical axis (Y-axis) shows the activities to be performed. The Gantt chart shows activities to specific jobs at individual / work centers by horizontal bars. Also known as a ‘bar chart’ because of its graphic presentation of the information, the position and the length of the horizontal bar indicates the start and completion date of the activity
  93. 93. Network Techniques: • These are more sophisticated than the traditional bar chart. In these techniques, the activities, events, and their inter-relationships are represented by a network diagram, also called an arrow diagram. • Network-Based Scheduling Techniques: These techniques are the Program Evaluation and Review Technique (PERT) and the Critical Path Method (CPM). Both are based on the use of a network or graphical model to depict the work tasks being scheduled. Both were designed to schedule long-duration projects that were to be performed only once or in low volume. These are more sophisticated than the traditional bar chart. In these techniques, the activities, events, and their inter-relationships are represented by a network diagram, also called an arrow diagram. • Network-Based Scheduling Techniques: These techniques are the Program Evaluation and Review Technique (PERT) and the Critical Path Method (CPM). Both are based on the use of a network or graphical model to depict the work tasks being scheduled. Both were designed to schedule long-duration projects that were to be performed only once or in low volume. • Computer programs are available for both PERT and CPM, which are helpful in developing timely information about large projects, particularly those that are to be updated and revised several times before completion. Following techniques can be used to solve a problem through a network:
  94. 94. Symbols Used in Network • 1. Activity by → (arrow): Arrow can have any size or slope. It starts from tail and ends at the head of arrow, e.g., assembly of parts, mixing of concrete, preparing budget, etc. • 2. Dummy activity ---------> (broken arrow): These activities consume no time. This is introduced to prevent dangling. This happens when an activity ends without being joined to end event, thus breaking continuity. • 3. Event O (circle or node): Event is represented by node. Event takes no time but it connects two or more activities. Events may be classified into three categories: merge event, burst event, merge and burst event, e.g. design completed, pipe line laid, started issue, tested. • Earliest start time (ES): This is the earliest occurrence time for the event from which the activity arrow originates. • Earliest finish time (EF): This is the earliest occurrence time for the event from which activity arrow originates plus duration for the activity : EF (a) = ES (a) +t • Latest start time (LS): This is the latest occurrence time for the node at which activity arrow terminates minus the duration for the activity: LS = LF-t • Latest finish time (LF): This is the latest occurrence time for the node at which activity arrow terminates. Ability to measure uncertainty in estimating • a = Optimistic Time, b= Pessimistic Time, m = Most Likely Time • Single Time Estimate (Expected Time) “te” = (a + 4m + b) / 6 • Variance: (square of sigma) = Square of ((b-a)/6) • Standard Deviation ( ) = Σ[Square of {(b − a)/6} ] and under root of the sum
  95. 95. • Floats and Slack Times: Float allows some flexibility in scheduling activities. An activity can be intentionally delayed if the delay will result in a more uniform workload or provides some other advantage. Some amount of float should be retained if possible, because float is like insurance. The float is useful under the following conditions: uncertain material deliveries, possible strikes, delayed drawing approvals and so on; it is wise to have a time cushion if it can be afforded. • Total Float: Amount of time by which the completion of an activity could be delayed beyond the earliest completion time without affecting the overall project duration time. • Free Float: Time by which the completion of an event can be delayed beyond the earliest finish time without affecting the earliest start of a subsequent (succeeding) activity is based on the possibility that all events occur at their earliest times, i.e., all activities start as early as possible. • Free float for an activity is the difference between its earliest finish time and the earliest start time for its successor activity. It is that portion of the total float within which an activity can be manipulated without affecting the floats of subsequent activity. • So, for all activities, the free float can take “t” values from ‘Total Float’ to ‘Zero’ but cannot exceed Total Float. Free float is useful for rescheduling the activities with minimum disruption of earlier plans. • FF (I-J) = (Earliest time for event ‘J’-Earliest time for event ‘I’) - Activity time for (I-J) • FS (a) = Minimum of ES times of all immediate successors of activity ‘a’- EF (a) • FF = ES (Succeeding) - EF (Activity) • FF = Total Float - Slack at Head Event
  96. 96. Difference between CPM and PERT • CPM originated from construction project while PERT evolved from R & D projects. Both CPM and PERT share the same approach for constructing the project network and for determining the critical path of the network. • There is some basic differences between PERT and CPM. PERT is associated with uncertainty in the time estimates for activity while in CPM these estimates are treated as fairly deterministic. CPM is also extended to cost-time trade-off decisions. As the project completion time is squeezed, the time for the lowest project cost is the optional decision for project planning PERT is considered event oriented while CPM is mainly activity oriented. PERT CPM 1 Time estimate is probabilistic with uncertainty in time duration Three time estimates Time estimate is deterministic with known time durations. Single time estimate 2 Event oriented Activity oriented 3 Focused on time Focused on time-cost trade off 4 More suitable for new projects More suited for repetitive projects 5 Most costly to maintain Easy to maintain 6 Suitable for complex projects where uncertain timing is like research programmes Suitable where problems of resource allocation exist like construction projects 7 Dummy activity required for proper sequencing Use of dummy activity not necessary
  97. 97. • Economic Batch Quantity (EBQ) or Economic Run Length (ERL): Two types of costs associated with lot manufacture are: (a) Set-up costs i.e., costs/unit which decrease with batch size. (b) Inventory carrying cost which increases with batch size. • Economic Batch Qty. (EBQ) or Economic Run Length (ERL) = 2 x Annual demand x Set-up cost Under root of ------------------------------------------- Unit cost x Inventory carrying cost (%) • If inventory carrying cost is expressed as carrying cost per unit per year for an item instead of as a percentage of the value of its inventory, then, Carrying cost per unit per year Cc = C x l (Rupees) (i.e., unit cost x carrying cost as %age) • 2 x A x S • The EBQ formula can be rewritten as EBQ = UNDER ROOT OF ---------- • Cc • Economic Batch Quantity 2 x Annual Cost x Setup cost = Under Root of -------------------------------------------------------------- Unit cost Inventory carrying cost per unit per year (Rs) • Considering the case where production and consumption of an item takes place simultaneously • Let A = Annual demand for an item & d = demand or consumption rate (unit/time period (say weekly) • p = production rate (units/time period (say weekly)] & S = set up cost per set up • C = cost per unit of item produced & I = Inventory carrying cost per year per unit as a % ge of value of inventory • Economic batch quantity (Non-instantaneous supply) • Economic Batch Quantity 2 x A x S = Under Root of --------------------------------------- C x I x (1 – d / p)